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Cases, Materials and Commentary

Author Marc Hammerson

Author

Marc Hammerson
Publisher

Sian O'Neill
Editor

Carolyn Boyle
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Alan Mowat
Production

John Meikle, Russell Anderson


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Upstream Oil and Gas: Cases, Materials and Commentary
is p u b l i s h e d

by

Globe Law and Business


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Upstream Oil and Gas: Cases, Materials and Commentary

2011 Globe Business Publishing Ltd (unless otherwise indicated)


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DISCLAIMER
This publication is intended as a general guide only. The information and opinions which it contains
are not intended to be a comprehensive study, nor to provide legal advice, and should not be treated
as a substitute for legal advice concerning particular situations. Legal advice should always be sought
before taking any action based on the information provided. The publishers bear no responsibility for
any errors or omissions contained herein.

T a b l e of c o n t e n t s

Preface

C h a p t e r 5: Access to
offshore pipelines a n d

Table of international 9

other infrastructure

a n d non-UK l a w s

Part A: Commentary

371

Part B: Sources

394

Table of UK statutes and 11


statutory instruments

Chapter 6: Decommissioning

Table of cases 15
Methods and 21

Part A: Commentary

437

Part B: Sources

470

About the author 589

acknowledgements
Glossary 23
Bibliography 27
Chapter 1: Ownership,
l i c e n s i n g a n d sources o f l a w
Part A: Commentary

31

Part B: Sources

69

Chapter 2: Joint operating


agreements
Part A: Commentary

173

Part B: Sources

205

Chapter 3: Unitisation
a n d the l a w of capture
Part A: Commentary

251

Part B: Sources

268

C h a p t e r 4: N a t u r a l gas
sales a g r e e m e n t s
Part A: Commentary

293

Part B: Sources

315

Preface

Despite the consolidating nature of the Petroleum Act 1998, a student of upstream
UK o i l a n d gas law lacks a comprehensive law w h i c h deals w i t h the subject i n its
entirety. The 1998 act brought together various pieces of legislation relating t o the
upstream o i l a n d gas industry. Yet its 53 sections o n l y begin to cover the regulation
of such a vast and varied industry. Subject to the qualifications below, the aim of this
book is t o provide sections of the act a n d edited versions of other source materials,
accompanied by brief essays i n t r o d u c i n g each area.
The longevity of the N o r t h Sea o i l and gas industry defies predictions. H i g h o i l
prices, together w i t h engineering advances, have made this possible. Both factors
have facilitated exploration i n more challenging environments a n d prolonged
recovery f r o m existing o i l fields. The w r i t i n g o f this book coincided w i t h a wellsubscribed UK C o n t i n e n t a l Shelf (UKCS) licensing r o u n d - the 2 6 t h such seaward
r o u n d - w h i c h included n e w frontiers outside the United Kingdom's traditional
N o r t h Sea petroleum heartland. The discoveries of the Catcher a n d Cladham fields
in 2010 (two of the largest exploration successes i n the UKCS for almost a decade)
show that sizeable fields are yet t o be developed. As well as new exploration a n d
p r o d u c t i o n activity, mergers a n d acquisitions have been, a n d w i l l continue to be, a
c o m m o n feature as the typical N o r t h Sea participant transforms f r o m o i l major t o
independent company. Given the changing profile of the U n i t e d K i n g d o m as a
petroleum province, an understanding of oil and gas law continues to interest a new
generation of o i l companies. Despite the advance i n years of the UKCS, this is not a
stale legal subject. M a n y of t h e recent changes discussed have been instigated
because of, rather t h a n despite, the UKCS's maturity.
It is hoped that this book w i l l be a valuable resource for existing and future - and,
as we shall see i n the context of decommissioning liability, historic - licensees, as
well as for transferees o f existing licences. The chapter o n decommissioning is
relevant t o all but a h a n d f u l of offshore fields that have already ceased p r o d u c t i o n
and undergone this process. This phase of the UKCS lifecycle has yet t o begin i n
earnest.
This book reproduces a number of different sources of law, including:

statutory law ( i n some cases i m p l e m e n t i n g

EU directives), w h i c h broadly

applies t o the relationship between licensee a n d government;

judge-made c o m m o n law, w h i c h applies (again, generally) t o commercial


relationships; a n d

public international law, w h i c h represents multilateral obligations agreed

Preface

a m o n g g o v e r n m e n t s a n d r e q u i r i n g i n c o r p o r a t i o n i n t o d o m e s t i c l a w before
t h e o b l i g a t i o n s are passed o n t o licensees.

Notwithstanding the power of Parliament to legislate outside UK borders, UK


s t a t u t o r y l a w i n t h i s area has l i m i t e d a p p l i c a t i o n b e y o n d t h e g e o g r a p h i c b o u n d a r i e s
o f t h e U n i t e d K i n g d o m a n d UKCS. I n c o n t r a s t , t h e p r i n c i p l e s o f c o m m o n l a w w i l l b e
useful t o c o m m e r c i a l parties c h o o s i n g E n g l i s h l a w as t h e g o v e r n i n g
international petroleum

law for their

t r a n s a c t i o n s . L i t i g a t o r s m a y seek t o r e l y o n E n g l i s h l a w i n

c o m m o n l a w j u r i s d i c t i o n s w h e r e t h e a c c u m u l a t e d e x p e r i e n c e o f o v e r 4 0 years o f
UKCS e x p l o r a t i o n a n d p r o d u c t i o n
r e l a t i o n ) has persuasive

(longer i f y o u include UK

o n s h o r e , its p o o r

value. D e p e n d i n g o n a country's r a t i f i c a t i o n process a n d

o t h e r a p p l i c a b i l i t y c r i t e r i a o f p u b l i c i n t e r n a t i o n a l law, i n t e r - g o v e r n m e n t a l

materials

s h o u l d have relevance b e y o n d a n y p a r t i c u l a r n a t i o n a l j u r i s d i c t i o n .
G o v e r n m e n t p r a c t i c e g u i d a n c e a n d i n d u s t r y v o l u n t a r y a r r a n g e m e n t s c a n be as
i m p o r t a n t as b l a c k letter law, a n d w h e r e s u p p l e m e n t a r y a d m i n i s t r a t i v e g u i d e l i n e s
a n d codes o f p r a c t i c e exist, these h a v e also b e e n c i t e d a n d r e p r o d u c e d .
I n t h o s e areas w h e r e t h e U n i t e d K i n g d o m lacks r e l e v a n t d e c i d e d cases, o r i f there
is a d i f f e r e n t a p p r o a c h b y a legal system s i m i l a r t o England's, t h i s b o o k refers t o o t h e r
- mainly

US

a n d C o m m o n w e a l t h - sources. T h e reasons f o r i n c l u d i n g f o r e i g n

m a t e r i a l s are several. T h e o i l a n d gas i n d u s t r y is g e n e r a l l y n o n - l i t i g i o u s . T h i s applies


i n t w o d i s t i n c t senses. First, disputes are o f t e n settled p r i o r t o t r i a l . Second, p r i v a t e
a r b i t r a t i o n ( w h i c h t y p i c a l l y does n o t p r o d u c e p u b l i c l y a v a i l a b l e legal p r e c e d e n t ) is
favoured

o v e r l i t i g a t i o n ( w h i c h does). Lack o f r e l e v a n t case l a w is, as a result, a

feature of s o m e i m p o r t a n t u p s t r e a m issues. F u r t h e r m o r e , i n m o d e r n practice, f e w o i l


a n d gas lawyers restrict t h e i r w o r k t o p r o j e c t d e v e l o p m e n t i n o n e c o u n t r y a n d ( i n
s o m e chapters m o r e t h a n o t h e r s ) i t w o u l d be l i m i t i n g t o c o n f i n e t h e discussion t o
what

qualifies

as t h e l a w o f a p a r t i c u l a r

jurisdiction

- especially where its

j u r i s p r u d e n c e is w e a k o n a t o p i c . O f t e n , t h e p o l i c y r a t i o n a l e u n d e r l y i n g a piece o f law
or a j u d i c i a l d e c i s i o n , e v e n i f n o t d i r e c t l y t h e l a w o r d e c i s i o n itself, is transferable
b e t w e e n j u r i s d i c t i o n s w i t h s i m i l a r legal systems.
For these reasons, a n d t h e ones t h a t f o l l o w , w h i l e t a k i n g E n g l i s h l a w as its
s t a r t i n g p o i n t a n d t h e U n i t e d K i n g d o m as i t s g e o g r a p h i c a l

base, t h i s b o o k is n o t

i n t e n d e d as a n exclusive o r c o m p r e h e n s i v e t e x t o n U K u p s t r e a m o i l a n d gas law.


Other textbooks provide this.
I n a d d i t i o n t o t h e d e c i s i o n t o i n c l u d e n o n - U K m a t e r i a l s , choices w e r e r e q u i r e d
a b o u t subjects t o o m i t . These are described

below. First, n o t w i t h s t a n d i n g t h e

importance of a commercial and contractual understanding

o f t h e t o p i c s covered,

t h e i n t e n t i o n is t o i n c l u d e legal discussion only.


Any

legal analysis o f t h e a c t i v i t i e s o f t h e i n d u s t r y w i l l r e l y o n general p r i n c i p l e s

of c o m m e r c i a l , c o m p e t i t i o n , corporate, e m p l o y m e n t , e n v i r o n m e n t a l ,

health and

safety, f i n a n c i a l services, p r o c u r e m e n t , s h i p p i n g , t a x a n d o t h e r legal d i s c i p l i n e s A n y


b o o k a i m i n g t o cover s u c h v a r i e t y q u i c k l y becomes u n w i e l d y a n d its p u r p o s e d i l u t e d
by t h e scope. F u r t h e r m o r e , m o s t l e a d i n g sources i n these areas o f l a w lack sector
focus. Therefore, w h i l e a c k n o w l e d g i n g t h e a p p l i c a b i l i t y o f these b r a n c h e s o f l a w t o
t h e u p s t r e a m sector, t h e a i m o f t h i s b o o k is t o r e p r o d u c e cases a n d m a t e r i a l s t h a t are

Marc Hammerson

w i t h i n the natural resources sector. However, if there is a lack of oil and gas example
on a p o i n t of relevant law (which is more c o m m o n t h a n m i g h t be anticipated), this
aim is waived.
There are various employment, environmental, health and safety a n d tax laws
that qualify as being exclusively focused o n the upstream industry a n d therefore
w i t h i n the specified scope. However, these topics are better suited to specialist texts
i n their respective areas rather t h a n a book o n oil and gas, a n d relevant sources have
not been included. Given their importance to decommissioning and the topicality of
this subject, exceptions are made i n Chapter 6 for e n v i r o n m e n t a l a n d tax.
Finally, o n scope, as the book title makes clear, the text covers upstream oil and
gas law - i n other words, law relating t o activity at the p o i n t of exploration and
p r o d u c t i o n a n d transmission by t r u n k pipeline (for reasons given, transportation by
oil tankers or gas carriers is better covered by general shipping law). It does n o t
address midstream or downstream oil and gas law - i n other words, law relating to
activity at the points of refining, distribution a n d use. That said, this terminology is
not scientific and distinctions (whether o n a legal or commercial analysis) along the
supply chain may be blurred. Some materials may apply more generally.
I w o u l d like t o acknowledge the authorship of Andrew Wiseman (paragraphs
6.3.8 t o 6.3.11, e n v i r o n m e n t a l law relating t o decommissioning) a n d Maryanna
Sharrock (paragraphs 6.3.12 t o 6.3.20, tax aspects of decommissioning) a n d express
m y gratitude to t h e m for their contributions i n these specialist areas.
The idea for this book was originally developed by Sian O'Neill at Globe Law and
Business a n d me. I am grateful for Sian's assistance t h r o u g h o u t the process. Sam
Edmed has also been involved w i t h this project since the start a n d I w o u l d like t o
thank Sam for her help. W h i l e r e m a i n i n g solely responsible for errors that remain, I
am grateful t o Peter Roberts w h o provided comments o n a previous draft of this
book.
Too m u c h of the commentary was w r i t t e n w h e n there were competing demands
on m y time. Most importantly, I w o u l d like to t h a n k Ruth, Charlie and James for
their support.

Table of i n t e r n a t i o n a l
a n d n o n - U K laws

1867

Canada

1892

Australia (NSW)

Partnership Act 211

1945

United Nations

Charter of the United Nations 163

1945

United States

Proclamation no 2667, 10 Fed Reg 12303

1951

EU

Treaty of Paris 66

1951

EU

Treaty of Rome 66

1958

United Nations

Convention on the Continental Shelf 20, 23, 41-

Constitution Act 36

(Truman Proclamation) 21,41,45,67,147-148,161

43, 45, 67, 68, 119-122, 148-150, 152, 158-162,


262, 439-444
1962

Australia (Tas)

1962

United Nations

Companies Act 245


General Assembly Resolution 1803 (XVII) 20, 35,
37, 50, 69-71

1972 Multilateral

Convention on the Prevention of


Marine Pollution by Dumping of Wastes
and Other Matter (the London Convention) 20,
24, 37, 438, 440, 447-449, 451, 471-480

1973

Australia

1973

The World Conservation Union

Sea and Submerged Lands Act 64


Convention on International
Trade in Endangered Species 463

1973 United Nations

General Assembly Resolution 3129


(Co-operation in the field of the
environment concerning natural
resources shared by two or more states)20, 255,
268-269

1973

United States

Submerged Lands Act 1973


(43 USC 1301 to 1315) 64

1974

United Nations

General Assembly Resolution


3281 (Charter of Economic
Rights and Duties of States) 20, 37, 71-72

1979

EU

Conservation of Wild Birds


Directive (79/409/EEC) J 66

1980 Australia

Coastal Waters (State Title) Act 64

1981

Tasmania

Companies (Tasmania) Code 246

1982

United Nations

Convention on the Law of the Sea 21, 25, 39-42,

Table o f i n t e r n a t i o n a l a n d n o n - U K laws

45, 67, 68, 152-157, 164, 165, 168, 169, 255,


257, 262, 269-270, 439-444, 446, 450, 465, 470471, 476, 481
1985

EU

E n v i r o n m e n t a l I m p a c t Directive 169,171

1990

EU

Utilities Remedies Directive 168

1992

EU

C o n s e r v a t i o n of Natural Habitats a n d of W i l d
F a u n a a n d Flora (92/43/EC) 47, 164-171, 548

1992 OSPAR

C o n v e n t i o n o n the Protection of the M a r i n e


E n v i r o n m e n t of the N o r t h East Atlantic 20, 25,
67, 168-170, 178, 438, 441, 446, 447, 452, 453,
480-503, 529, 530, 531

1994 Multilateral

Energy Charter Treaty 19, 37, 47, 57, 68, 72-73

1994

Hydrocarbons L i c e n s i n g Directive

EU

(94/22/EC) 37, 47, 56, 60, 94, 167


Port State C o n t r o l Directive (95/21/EC) 168

1995 EU
1998

EU

First Gas Directive (98/30/EC) 66, 378, 379, 384,


386

1998 OSPAR

OSPAR D e c i s i o n 98/3 67, 438, 441, 444, 503511, 530, 531, 544, 545, 548, 551-555, 557, 558,
568, 570, 5 7 2

1999 OSPAR

G u i d e l i n e s o n artificial reefs i n relation


to living m a r i n e resources (1999-13) 447

1999 Nigeria

C o n s t i t u t i o n of the Federal Republic 49

2003

Second Gas Directive (2003/55/EC) 378, 380,

EU

384
Regulation ( E C ) No 1775/2005 o n

2005 EU

c o n d i t i o n s of access to t h e n a t u r a l gas
t r a n s m i s s i o n networks 378
Treaty o n the F u n c t i o n i n g of t h e E u r o p e a n

2007 EU

U n i o n 66
2007 United States
2008

EU

U n i f o r m C o m m e r c i a l C o d e 188
L a w Applicable to C o n t r a c t u a l
Obligations (Rome I Regulations)
(EC/593/2008) 52, 6 2

2009 EU

T h i r d Gas Directive (2009/73/EC) 66, 378, 379,


380, 384, 385

2009 EU

Regulation ( E C ) No 715/2009 o n
conditions of access to the natural
gas transmission networks 378

2009 EU

Regulation o n Establishing a n A g e n c y
for the C o o p e r a t i o n of Energy Regulators
(EC/713/2009) 66, 378

2010 EU

Treaty o n the F u n c t i o n i n g of t h e
European U n i o n (2010/C83/01) 66

10

T a b l e o f U K statutes a n d
statutory instruments

1885

Submarine Telegraph Act 151

1890

Partnership Act 183-185, 190

1899

Herring Fishery Act 140

1918

Petroleum (Production) Act 31, 44, 117, 129

1923

Mines (Working Facilities and Support) Act 124, 126, 127, 129, 133, 135

1929

Companies Act

1934

Petroleum (Production) Act 23, 31, 38, 40, 44, 46, 67, 73, 75, 76, 80-82, 114, 116-

1945

Ministry of Fuel and Power Act 118, 119, 150

121, 123, 124, 126, 128-137, 252, 259, 263


1946

Coal Industry Nationalisation Act 39, 119, 150

1948

Companies Act 245

1949

Coast Protection Act ISO, 151, 532

1949

Wireless Telegraphy Act 86

1952

Income Tax Act 146

1955

Finance (No 2) Act 145

1960

Radioactive Substances Act 86

1961

Crown Estates Act 450

1964

Continental Shelf Act 23, 43, 45, 46, 67, 68, 74, 83, 84, 114, 116-123, 150-151,
165, 169, 259

1964

Territorial Waters Order i n Council 120, 121

1966

Mines (Working Facilities and Support) Act 78, 124, 129, 132, 136

1971

Prevention of O i l Pollution Act J70

1972

European Communities Act 79

1974

Health and Safety at Work, etc Act 79, 406

1975

Oil Taxation Act 92, 139, 272, 514

1975

Petroleum and Submarine Pipe-lines Act 53, 371

1976

Fishery Limits Act 265

1981

Finance Act 62, 139, 140

1982

Oil and Gas (Enterprise) Act 40, 50, 82-85

1985

Food and Environment Protection Act 170, 448, 525-529, 532

1986
1987

Gas Act 380, 381


Civil Jurisdiction (Offshore Activities) Order 52, 83, 106, 110, 111

1987

Criminal Jurisdiction (Offshore Activities) Order 52, 82-83

1987

Territorial Sea Act 25, 39

1987

Petroleum Act 437, 469, 535, 569

11

Table o f U K statutes a n d s t a t u t o r y i n s t r u m e n t s

1988
1988

Income and Corporation Taxes Act 108, 110


Petroleum (Production) (Seaward Areas) Regulations 57

1994
1995

Conservation (Natural Habitats etc) Regulations 164, 165


Hydrocarbons Licensing Directive Regulations 56-58, 61, 79-83, 168

1995
1995

Petroleum (Production) (Landward Areas) Regulations 82


Petroleum (Production) (Seaward Areas) (Amendment) Regulations 82

1995
1998
1998

Requirements of Writing (Scotland) Act 76


Human Rights Act 38
Merchant Shipping (Oil Pollution Preparedness, Response and Co-operation

1998

Convention) Regulations 169, 463, 565


Petroleum Act Generally: 1, 5, 23, 31, 35, 40, 43, 44, 46, 54, 67, 73-79, 87, 124, 137,
259, 260, 371, 373, 376, 381, 384, 386, 387, 394-413, 423, 428, 437, 439, 441, 448,
450, 451, 453, 461, 466, 469, 470, 511-525, 529, 532, 533, 537, 538, 549, 558, 575;

Section 1: 25, 46; Section 2: 38, 40, 259; Section 3: 43, 54, 381; Section 4: 54, 56, 61,
86; Section 5: 60, 186; Section 10: 52, 252; Section 11: 52, 53, 252; Section 14: 381,
384, 385; Section 15: 381; Section 16: 371, 382, 434; Section 17: 371, 379, 380, 382,
383, 385, 387, 392, 423, 434, 450; Section 26: 385, 386, 454; Section 29: 439, 450,
453-455, 458, 459, 460, 461, 468, 469, 535-540, 545, 549, 550, 552, 575, 576, 579,
580, 581; Section 30: 439, 456, 457, 538, 539, 540, 542, 581; Section 31: 458, 468,
536, 537, 539, 542, 575; Section 34: 460, 468, 469, 536, 540, 542, 546, 553, 569;
Section 36: 439, 460; Section 38: 453, 460, 467, 540, 541, 581; Section 38A: 453, 541;

Section 38B: 542; Section 39: 453; Section 40: 453, 541; Section 44: 448, 454; Section
45: 543; Schedule 3: 46
1998

Scotland Act 64

1999

Offshore Petroleum Production and Pipelines (Assessment of Environmental Effect)


Regulations 171

2000

Gas (Third Party Access and Accounts) Regulations 379, 386

2001

Offshore Combustion Installations (Prevention and Control of Pollution)

2001

Offshore Petroleum Activities (Conservation of Habitats) Regulations 462,

2002

463, 564
Offshore Chemical Regulations 462, 564

2003

Criminal Justice Act 77

2003

Greenhouse Gases Emission Trading Scheme Regulations 462, 565

2004

Petroleum Licensing (Exploration and Production) (Seaward and Landward Areas)

2005

Offshore Petroleum Activities (Oil Pollution Prevention and Control) Regulations


462, 564

2006
2007

Companies Act 23, 176-180, 182


Transfrontier Shipment of Waste Regulations 463

2008

Energy Act 297, 385, 428, 429, 450, 451, 453, 454, 460, 514, 527, 529, 533, $34
537-543

2008

Petroleum Licensing (Production) (Seaward Areas) Regulations 25, 59, 86-112 270
271, 586-587

2009

Gas Storage and Importation Zone (Designation of Area) Order 450

Regulations 462, 564

Regulations 56, 87, 112

12

Marc Hammerson

2010

Bribery Act

2011

Energy Bill 372, 376

Table of cases

Aberfoyle Plantations Limited v Khaw Bian Cheng [1960] AC 115 330


Adam v Newbigging (1888) 13 App Cas 308 183
Addison v Denholm Ship Management (UK) Limited [1997] ICR 770 170
Alfred McAlpine Capital Projects Ltd v Tilebox Ltd [2005] BLR 271 355

Amoco (UK) Exploration Co v Amerada Hess Ltd [1994] 1 Lloyd's Rep 330 267, 274-276, 28
Amodu Tijani v The Secretary, Southern Nigeria [1921] 2 AC 399 65
Arbitration on the Delimitation of the Continental Shelf Case [1976] 18 I L M 397 442

Arco British Ltd v Sun Oil Britain Ltd {Financial Times, December 20 1998, January 1
20, 256, 267, 289-292
Ass vBenham [1891] 2 Ch 244 200

Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB 223 6

Attorney-General for the Province of British Columbia v Attorney-General for the D


Canada [1914] AC 153 118
Ballantyne v Raphael (1889) 15 VLR 538 211
Barnard Argue Roth Stearns Oil & Gas Ltd v Farquarson [1912] AC 864 116
Barnes v Addy (1874) 9 Ch App 244 212
BeaconsHeld Gold NL v Allstate Prospecting Pty Ltd [2006] VSC 320 20, 240-249
Bell v Lever Brothers Ltd [1932] AC 161 201, 206
Bernstein (Baron) v Skyviews and General Ltd [1978] 1 QB 479 37, i 2 5
Birtchnell v Equity Trustees, Executors & Agency Co Ltd (1929) 42 CLR 384 200, 209,
Bocardo SA v Star Energy Onshore Limited [2008] EWHC 1756 (High Court); [2009] EWCA
Civ 579 (Court of Appeal); [2010] UKSC 35 (Supreme Court) 20, 33, 37, 124-138, 257,
260, 262, 263
Borys v Canadian Pacific Railway Co [1953] 2 WLR 224; [1953] AC 287 38, 262
BP Petroleum Development v Ryder [1987] 2 EGLR 233 J25, 126, 136
Bristol & West Building Society v Mothew [1998] 1 Ch 18 191-193

British Gas Ltd v Amerada Hess Ltd [2006] EWCA Civ 900 19, 294, 297, 314,315, 365-3
British Shipbuilders v VESL Consortium Pic [1997] 1 Lloyd's Rep 105 281, 282
British Sugar Pk v NEI Power Projects Ltd [1998] ITCLR 125; (1998) 14 ConstLJ 365 187
Bulli Coal Mining Co v Osborne [1899] AC 351 127
Campbell v Edwards [1976] 1 WLR 403 280
Canadian Aero Service Ltd v O'Malley [1974] SCR 592 225

Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd (
CLR 321 208, 211
Central Trust Co v Rafuse [1986] 2 SCR 147 229

is

iaDie o r cases

Cheney v Conn [1968] 1 WLR 242 39


Chimside v Fay [2006] NZSC 68 189, 190, 195
Coastal Plains Dev elopment Corp v Micrea, Inc 572 SW 2d 285 183
Cobbetts LLP r Hodge [2009] EWHC 786 J 99
Commission v Belgium [1993] 1 CMLR 367 169
Commissioner for Railways v The Valuer-General [1974] AC 328 125, 130, 132
Corbett v Hill (1870) LR 9 R 671 138
Dean v Prince [1954] Ch 409 281
De Oleaga & Co v West Cumberland Iron and Steel Company (1879) 4 QBD 472 329
Didymi Corporation v Atlantic Lines and Navigation Co Inc [1968] 2 LIRep 108 340
Directors etc of Central Railway Co of Venezuela v Kisch (1867) LR 2 206
Don King Promotions Inc v Warren (No 1) [2000] Ch 291 J 99
Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79 307, 354, 355

Eardley v Granville (1876) 3 C h D 826 133, 134


Earl of Lonsdale v Attorney-General [1982] 1 WLR 887; [1982] 3 A l l ER 579 20, 33, 40, 43, 45,
46, 50, 51, 113-123, 263
Edwards v Simms [1929] 24 SW 2d 619 128
Elsey v JG Collins Insurance Agencies Ltd [1978] 83 DLR 15 354
English v Dedham Vale Properties Ltd [1978] 1 WLR 93 189, 191
Esanda Finance Corporation Ltd v Plessnig [1989] ALJ 238 354
Euro London Appointments v Claessens International [2006] 2 Lloyd's Rep 436 353-355
Export Credit Guarantee Department v Universal Oil Products Co [1983] 1 WLR 399 352
The Fagemes [1927] 311 120
Fawcett v Whitehouse (1829) 1 Russ & M 132 201, 206
First Energy (UK) Ltd v Hungarian International Bank [1993] 2 LILRep 194 337, 341
Frame v Smith [1987] 1 SCR 99 190, 214, 218, 220, 221, 228
Frank H Wright (Constructions) Ltd v Frodoor Ltd [1967] 1 WLR 506 280-282
Gas Natural Aprovisionamientos, SDG, SA v Atlantic LNG Company of Trinidad and Tobago
(US District Court for the Southern District of New York) 311, 312
General Asphalt Co Ltd v Anglo Saxon Petroleum Co Ltd (1931) 39 LILRep 148; (1931) 40
LILRep 1; (1932) 42 LILRep 85 175
Girardet v Crease & Co (1987) 11 BCLR (2d) 361 192, 213, 221
Global Container Liners Ltd v Bonyad Shipping Co [1998] 1 LILRep 528 195
Global Tanker Inc v Amercoat Europa NV [1975] 1 Lloyd's Rep 666 287
Guam

\ R [1984] 2 SCR 335 190, 213, 214

Hellespont Ardent [1997] 2 Lloyd's Rep 547 187


Hext v Gill LR 7 C h App 699 116
Hinter v Dibber (1842) 2 QB 646 187
Hitchens v Congreve (1828) 4 Russ 562 201, 206

Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 193, 207 21
214, 220, 230
Imageview Management Ltd v Jack (The Times, February 13 2009) J99
Inland Revenue Commissioners v Collco Dealings Ltd |1960] Ch 592 20, 45, 68, 144-146
Inland Revenue Commissioners v Lucbor Dealings Ltd [1960] 2 WLR 848 20, 45, 68, 146-147
Inland Revenue Commissioners v Mobil North Sea Ltd [1986] 1 WLR 296 20, 62, 138-140

16

Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1988] 1 All ER 348 61
firna Ltd v Mister Donut of Canada Ltd (1971) 22 DLR (3d) 369; aff'd [1975] 1 SCR 2
218, 228
John Taylors (a firm) v Masons [2001] EWCA Civ 2106 199
Jones v Sherwood Computer Services Pic [1992] 1 WLR 277 280-282
Jones (M) v Jones (RR) [1971] 1 WLR 840 280-282
Keech v Sandford (1726) 25 ER 23 198, 228
Kirkness v John Hudson and Co Ltd [1955] AC 696 118

Lac Minerals Ltd v International Corona Resources Ltd [1989] 2 SCR 574 20, 192, 197
212-231
Liquid Veneer Co v Scott [1912] 29 RPC 639 226
Liverpool City Council v Irwin [1977] AC 239 341
Lord Advocate v Wemyss [1900] AC 48 118
Lord Fitzhardinge v Purcell [1908] 2 Ch 139 118
Lordsvale Finance Pic v Bank of Zambia [1996] QB 752 354
Mason v Clarke [1955] 2 WLR 853; [1955] AC 778 26J
Mayor of Bradford v Pickles [1895] AC 587 262
Meinhard v Salmon (1928) 249 NY 458 1 74, 197, 210
Mines Case (1567) 1 Plowd 310 38
Mitchell v Mosley [1914] 1 Ch 438 20, 33, 37, 38, 112-113, 132, 138, 262
M&J Polymers Ltd v Imerys Minerals Ltd [2008] EWHC 344; [2008] 1 All ER 893 20, 294,
308, 351-356
Mortensen v Peters (1906) 8 F (J) 93; (1906) 14 SLT 227 20, 39, 45, 68, 140-143
Neste Production Ltd v Shell UK Limited [1994] 1 Lloyd's Rep 447 267, 283-289
New South Wales v The Commonwealth (1975) 135 CLR 337 64
New Zealand Netherlands Society Oranje Inc v Kuys [1973] 2 All ER 1222 192

Nile Co for the Export of Agricultural Crops v H & JM Bennett (Commodities) Limite
Lloyd's Rep 555 331
Nocton v Lord Ashburton [1914] AC 932 214
North Sea Continental Shelf Cases [1969] ICJ 3 20, 41, 42, 157-163
North-West Transportation v Beatty (1857) 12 App Cas 589 184, 199
Norwich Union Life Insurance Society v P&O Property Holdings Ltd (unreported) 286

NV de Battaafsche Petroleum Maatschappij v War Damages Commission (1956) 22 ML) 15


Officier van Justitie v Kramer [1976] ECR 1279 166, 167
Opal Group Holdings (Aust) Pty Ltd v Franklins Ltd [2002] NSWCA 718 247
Palser v Grinling [1948] AC 291 344, 350
Pentecost v London District Auditor [1951] 2 KB 759 187
Petri v Coolangatta Investments Pty Ltd [1982] 149 CLR 537 239, 329
Permanent Building Society v Wheeler (1994) 14 ACSR 109 193
Phillips Hong Kong Ltd v Attorney General of Hong Kong 61 BLR 49 354

Phillips Petroleum Co (UK) Ltd v Enron (Europe) Ltd [1997] CLC 329 19, 294, 300, 303,
331-342
Pianka v The Queen [1979] AC 107; [1977] 3 WLR 859; [1977] CrimLR 610; (1977) 121 SJ
711 39, 40, 117
Porter v Magill [2001] UKHL 67; [2002] AC 357 187

17

Post Office v Estuary Radio Ltd [1968] 2 QB 740 120

Poutney v Clayton (1883) 11 QBD 820 138


Publicker Industries Inc v Union Carbide Corporation [1973] 17 UCC Reporter, Serv 989 362

R v Secretary of State for Trade and Industry, ex p Greenpeace [1988] EnvLR 415 164
R v Secretary of State for Trade and Industry ex p Greenpeace Ltd (No 2) [2000] 2 CMLR 94;
[2000] EvLR 1962; [2000] EnvLR 221; [2000] COD 141; The Times, January 19 2000 20,
163-171, 462

Reading v R [1949] 2 KB 232


Re An arbitration between Lord Gerard and London and North Western Railway Company [189
1 QB 459 133
Re Goldcorp Exchange Ltd [1995] 1 AC 74 188
Re Griffin ex p Board of Trade (1890) 60 LJ QB 235 211
Re Longlands Farm, Alford v Superior Developments Ltd [1968] 3 All ER 552 321
ReMarkham Main Colliery Ltd [1925] 134 LT 253 126, 127
Re Sandwell Park Colliery Company: Field v The Company [1929] 1 C h 277 318, 330
RegvKeyn (1876) 2 Ed D 63 118

Reference re Ownership of Offshore Mineral Rights (1967) SCR 792; (1967) 65 DLR (2d) 353 6
Regal (Hastings) Ltd v Gulliver [1942] 1 All ER 375 J98
Robophone Facilities v Blank [1966] 1 WLR 1428 354
Sanrus P/L v Monto Coal 2 P/L [2005] QSC 284 20, 234-240
Saul v Norfolk County Council [1984] QB 559 J39
SEC v Chenery Corp 318 US 80 191

Secretary of State for India in Council v Chelikani Rama Rao (1916) LR 43 Ind App 192 118

Shell UK Limited v Enterprise Oil P/c[1999] All ER (D) 561; [1999] 2 Lloyd's Rep 456 257, 262,
266, 267, 276-283
Smallman v Smallman [1972] Fam 25 329
Smith v Anderson (1880) 15 C h D 247 211
Sovmots Investments Ltd v Secretary of State for the Environment [1977] QB 411 125
Spree Engineering & Testing Limited v O'Rourke Civil & Structural Engineering Limited
EWHC QB 272 J 83
Stoke on Trent Council v W&f Wass [1988] 1 WLR 1406 128
Sudbrook Trading Estate Ltd v Eggleton [1983] AC 441; [19983] 3 All ER 1 231

Superior Overseas Development Corporation and Phillips Petroleum (UK) Ltd v British Ga
Corporation [1982] 1 Lloyd's 262 294, 313, 342-351
Talbot v Talbot [1968] C h 1; [1967] 2 All ER 920 231
Tennants Lancashire Limited v Wilson CS & Co Ltd (1917) AC 495 362
Texas Eastern Corporation (Delaware) v Enterprise Oil Pic (unreported) 202, 231-234
Thames Valley Power Ltd v Total Gas & Power Ltd [2005] EWHC 2208 294, 356-365
Thome v Thome [1893] 3 C h 196 210
Tito v Waddell (No 2) [1977] Ch 106 275, 223
Total Gas Marketing Ltd v Arco British [1998] 2 Lloyd's Rep 209 294, 297, 299, 300, 303
315-331
Trinidad Asphalt Co v Ambard [1899] AC 594 260

United Dominions Corporation Limited v Brian Proprietary Limited (1984-1985) 157 CLR 1
(1985) 59 ALJR 676 20, 173, 189, 199, 200, 205-212, 215, 216, 224, 230

is

Marc H a m m e r s o n

United States v California (1947) 332 US 19 64

Unocal Netherlands v Continental Netherlands Oil Company [2005] (Supreme Court of t


Netherlands) 260
U Po Naing v The Burmah Oil Company Limited (1929) 31 BOMLR 750 37
Venture North Sea Gas Ltd v Nuon Exploration & Production UK Ltd [2010] EWHC 204
176, 300
Weinberger v Kendrick (1892) 34 Fed Rules Serv (2d) 2J2
Weiner v Harris (1910) 1 KB 285 183
Wendt v Fischer 243 NY 439 197
White & Carter (Councils) Ltd v McGregor [1962] AC 413 352
Wickman Machine Tool Sales Ltd v L Schuler AG [1974] AC 235 318, 325, 329, 300
Windschuegl v Pickering 84 LILRep 89 329
Woolley v Attorney-General (Victoria) (1877) LR 2 App Cas 163 38

19

Methods and
acknowledgements

The f o l l o w i n g describes t h e e d i t o r i a l m e t h o d s used i n p r e p a r i n g t h i s b o o k - a n d p a r t i c u l a r l y


for r e p r o d u c i n g the sources and materials c o n t a i n e d i n Part B of each chapter:

I n r e p r o d u c i n g t h e sources and materials, some m i n o r changes have been made t o


t h e t e x t and

t y p o g r a p h y of t h e o r i g i n a l text. This has

been d o n e t o create a

consistent style and w i t h o u t i n t e n d i n g t o alter m e a n i n g or add emphasis.

Footnotes i n o r i g i n a l d o c u m e n t s have generally n o t been i n c l u d e d and those f o u n d


i n t h i s b o o k have been added for present purposes.

W h i l e deleted t e x t has been i n d i c a t e d by ellipsis, w h e r e clauses or paragraphs are


n u m b e r e d (and r e m o v a l of an e n t i r e section is obvious), t h e d e l e t i o n s h o u l d

be

apparent f r o m t h e n u m b e r i n g and ellipsis are n o t used.

Any

reference t o a website ( w h e t h e r i n Part B or otherwise) is t o t h a t website as

accessed d u r i n g the s u m m e r of

2010.

While care has been taken over editing the original sources, if a document is of particular
interest, I h o p e t h a t t h i s b o o k is useful i n b r i n g i n g it t o t h e reader's a t t e n t i o n - b u t w o u l d
encourage reliance o n t h e o r i g i n a l source.
G r a t e f u l a c k n o w l e d g m e n t is made t o t h e

f o l l o w i n g for a l l o w i n g r e p r o d u c t i o n

of

c o p y r i g h t material:

C r o w n : for r e p r o d u c t i o n of UK

legislation, s t a t u t o r y i n s t r u m e n t s a n d cases. C r o w n

c o p y r i g h t m a t e r i a l is r e p r o d u c e d w i t h t h e permission

of t h e C o n t r o l l e r of

Her

Majesty's Stationery Office and t h e Queen's Printer f o r Scotland. This b o o k c o n t a i n s


p u b l i c sector i n f o r m a t i o n licensed u n d e r t h e O p e n G o v e r n m e n t Licence vl.O.

D e p a r t m e n t of Energy and

C l i m a t e C h a n g e (DECC): for r e p r o d u c t i o n of DECC's

G u i d a n c e o n Disputes over T h i r d Party Access t o U p s t r e a m O i l a n d Gas


( A p r i l 2009), G u i d a n c e Notes o n

t h e D e c o m m i s s i o n i n g of Offshore

I n s t a l l a t i o n s and Pipelines u n d e r t h e P e t r o l e u m Act 1998

Infrastructure
O i l and

Gas

(Version 5, January 2010),

Offshore Field D e v e l o p m e n t Guidelines and Offshore I n f r a s t r u c t u r e Code of Practice.

DSP

P u b l i s h i n g L t d : for r e p r o d u c t i o n of British Gas Ltd v Amerada

Hess Ltd [2006] 2

CLC 67 and Phillips Petroleum Co (UK) Ltd v Enron (Europe) Ltd [1997] CLC

F i n a n c i a l Times: f o r r e p r o d u c t i o n of Arco British Ltd v Sun


Times,

329.

Energy Charter Secretariat: for r e p r o d u c t i o n of t h e Energy Charter.


Oil Britain Ltd

(Financial

December 20 1998 a n d January 13 1999).

I n f o r m a t i o n C o m m i s s i o n e r : f o r r e p r o d u c t i o n of cases f r o m Lloyd's Law


I n c o r p o r a t e d C o u n c i l of Law

Reports.

Reporting: f o r r e p r o d u c t i o n of various law reports and

w e e k l y law reports ( i n c l u d i n g Earl of Lonsdale

v Attorney-General

[1982] 1 WLR

887,

21

Methods and acknowledgements

Inland Revenue Commissioners v Colko Dealings, Inland Revenue Commissioners v Lucvor


Dealings Limited [1960] 2 W L R 848, Inland Revenue Commissioners v Mobil North Sea
Limited [1986] 1 W L R 2 9 6 a n d Mitchell v Mosley [1914] 1 C h 438).

I n t e r n a t i o n a l C o u r t o f Justice: f o r r e p r o d u c t i o n o f t h e s u m m a r y o f North Sea


Continental Shelf cases.

International Maritime Organisation (IMO): for reproduction of the C o n v e n t i o n o n


t h e P r e v e n t i o n o f M a r i n e P o l l u t i o n b y D u m p i n g o f Wastes a n d O t h e r M a t t e r s 1 9 7 2
( t h e L o n d o n C o n v e n t i o n ) a n d its 1996 P r o t o c o l (2003 e d i t i o n ) . M a t e r i a l f r o m
p u b l i c a t i o n s is r e p r o d u c e d w i t h t h e p e r m i s s i o n

of the IMO, which

these

holds t h e

c o p y r i g h t . Readers s h o u l d be aware t h a t I M O m a t e r i a l is subject t o r e v i s i o n a n d


a m e n d m e n t f r o m t i m e t o t i m e , a n d t h a t p a r t i a l e x t r a c t s m a y be m i s l e a d i n g . I M O
does n o t accept a n y r e s p o n s i b i l i t y f o r t h e m a t e r i a l as r e p r o d u c e d : i n case o f d o u b t ,
the official I M O text shall prevail.

O i l a n d Gas U K a n d DECC: f o r r e p r o d u c t i o n o f t h e I n f r a s t r u c t u r e C o d e o f Practice.

OSPAR C o m m i s s i o n : f o r r e p r o d u c t i o n

o f t h e OSPAR C o n v e n t i o n

a n d OSPAR

D e c i s i o n 98/3.

Reed Elsevier ( U K ) L i m i t e d ( t r a d i n g as LexisNexis): f o r r e p r o d u c t i o n o f M&J Polymers


Ltd v Imerys Minerals Limited [2008] 1 A l l ER 8 9 3 a n d R v Secretary of State for Trade and
Industry, ex parte Greenpeace (No 2) [1999] A l l ER (D) 1232.

S u p r e m e C o u r t o f Canada: f o r r e p r o d u c t i o n o f Lac Minerals Ltd v International Corona


Ltd [1989] 2 SCR 574.

S u p r e m e C o u r t of E n g l a n d a n d Wales: f o r r e p r o d u c t i o n of Bocardo SA v Star Energy UK


Onshore Ltd [2010] UKSC 35.

S u p r e m e C o u r t o f Q u e e n s l a n d : f o r r e p r o d u c t i o n o f Sanrus P/L v Monto Coal 2 P/L


[2005] QSC 284. T h i s case is r e p r o d u c e d w i t h p e r m i s s i o n o f t h e S u p r e m e C o u r t o f
Queensland.

S u p r e m e C o u r t o f V i c t o r i a : f o r r e p r o d u c t i o n o f Beaconsfield Gold NL v Allstate


Prospecting Pty Ltd [2006] VSC 320.

T h o m s o n Reuters: f o r r e p r o d u c t i o n of Mortensen v Peters ( 1 9 0 6 ) 14 SLT 227.


Thomson

Reuters (Professional) A u s t r a l i a L i m i t e d : f o r r e p r o d u c t i o n

Dominions

Corp v Brian Pty Limited (1984-1985) 157 CLR

permission

of

Thomson

Reuters

(Professional)

o f United

1. R e p r o d u c e d w i t h
Australia

Limited,

www.thomsonreuters.com.au.

U n i t e d N a t i o n s : f o r t h e r e p r o d u c t i o n of:

C o n v e n t i o n o n t h e C o n t i n e n t a l Shelf 1958 1 9 5 8 U n i t e d

U N G e n e r a l A s s e m b l y R e s o l u t i o n 1803 ( X V I I ) 1 9 6 2 U n i t e d

Nations;

U N General Assembly Resolution 3129 ( X X V I I I ) 1973 U n i t e d Nations;

U N General Assembly Resolution 3281 1 9 7 4 U n i t e d Nations; a n d

U N C o n v e n t i o n o n t h e L a w o f t h e Sea 1 9 8 2 1 9 8 2 U n i t e d

Nations;

Nations.

Each d o c u m e n t is p r i n t e d w i t h t h e p e r m i s s i o n o f t h e U n i t e d N a t i o n s .

22

US g o v e r n m e n t : f o r r e p r o d u c t i o n o f t h e T r u m a n

Proclamation.

Glossary

Some o f t h e terms d e f i n e d b e l o w are described m o r e f u l l y i n t h e part o f t h e b o o k w h e r e


t h e y are first, or most c o m m o n l y , used. For ease o f reference, t h e y are also set o u t below:

1934 act
1958

convention

The Petroleum ( P r o d u c t i o n ) Act

1934.

C o n v e n t i o n o n t h e C o n t i n e n t a l Shelf (Geneva, 1958).

1964 act

The C o n t i n e n t a l Shelf Act

1998 act

The Petroleum Act

2006 act

The C o m p a n i e s Act 2006.

BIT

bilateral i n v e s t m e n t treaty.

1964.

1998.

boe (or barrels o f

A u n i t o f energy t h a t allows reserves o f o i l a n d n a t u r a l gas t o

oil equivalent)

be expressed as o n e figure. I t reflects a u n i t c a l c u l a t e d o n the


energy released f r o m b u r n i n g o n e barrel (42 US gallons or 159
litres) o f crude o i l or, d e p e n d i n g o n its calorific value, a b o u t
6,000 cubic feet o f n a t u r a l gas.

C o m m o n field

A p e t r o l e u m f i e l d t h a t straddles t w o or m o r e licence areas or


o t h e r legal boundary.

DCPD

D e c o m m i s s i o n i n g cost p r o v i s i o n s deed, a standard-form


d o c u m e n t ( a l t h o u g h , subject t o any considerations about the
acceptability t o DECC, subject t o a m e n d m e n t s b y parties)
produced b y the Brownfields Workgroup o n decommissioning
p r o v i d i n g for p a y m e n t s o f cost p r o v i s i o n s for d e c o m m i s s i o n i n g
b y licensees a n d ( d e p e n d i n g o n c o m m e r c i a l agreement)
a l l o w i n g reliance o n such p r o v i s i o n s b y e x i s t i n g a n d

former

licensees, o t h e r associated parties a n d DECC.


DECC

D e p a r t m e n t o f Energy a n d C l i m a t e Change, created i n October


2008 b y its a s s u m p t i o n o f energy p o l i c y f r o m t h e D e p a r t m e n t
for Business, Enterprise a n d Regulatory Reform (BERR) ( n o w

the

D e p a r t m e n t for Business I n n o v a t i o n a n d Skills) a n d c l i m a t e


change p o l i c y f r o m t h e D e p a r t m e n t for E n v i r o n m e n t , Food a n d
Rural Affairs.
Decommissioning

G u i d a n c e notes o n t h e d e c o m m i s s i o n i n g of o f f s h o r e o i l

G u i d a n c e Notes

a n d gas i n s t a l l a t i o n s a n d p i p e l i n e s u n d e r t h e Petroleum

Exclusive economic zone

A distance of 2 0 0 miles f r o m t h e coastal state ( i n c l u d i n g

Act

1998 (Version 5, J a n u a r y 2010).

t e r r i t o r i a l waters).

23

Glossary

First d e l i v e r y date (ie, t h e c o n t r a c t u a l date b y w h i c h

FDD

petroleum

is d e l i v e r a b l e b y t h e seller u n d e r a sales a g r e e m e n t ) . T h i s is
o f t e n set as a range o f dates a n d t h e n , t h r o u g h a series o f
notices and counter-notices, n a r r o w e d d o w n t o a particular
date (referred t o as a f u n n e l l i n g m e c h a n i s m ) .
GSA

Gas sales agreement.

Guidance o n Disputes

G u i d a n c e o n D i s p u t e s o v e r T h i r d Party Access t o U p s t r e a m O i l
a n d Gas (DECC, A p r i l 2009).
C o d e o f Practice o n Access t o U p s t r e a m O i l a n d Gas

ICoP

I n f r a s t r u c t u r e o n t h e U K C o n t i n e n t a l Shelf Q a n u a r y 2009),
p u b l i s h e d a n d a d m i n i s t e r e d b y O i l & Gas U K ( p r e v i o u s v e r s i o n s
h a v i n g b e e n a d m i n i s t e r e d b y DECC's predecessors). T h e 2 0 0 9
e d i t i o n r e p l a c e d earlier v e r s i o n s o f s i m i l a r d o c u m e n t s issued i n
1996 a n d 2004.
IMO

guidelines

G u i d e l i n e s a n d standards f o r t h e r e m o v a l o f o f f s h o r e
i n s t a l l a t i o n s a n d s t r u c t u r e s o n t h e c o n t i n e n t a l shelf a n d i n t h e
exclusive e c o n o m i c zone adopted b y the I n t e r n a t i o n a l
M a r i t i m e O r g a n i z a t i o n o n O c t o b e r 19 1989.

IOCs

I n t e r n a t i o n a l o i l c o m p a n i e s (cf N O C s ) .

JOA

J o i n t o p e r a t i n g agreement, a f o r m of u n i n c o r p o r a t e d j o i n t
v e n t u r e c o m m o n l y used i n t h e u p s t r e a m o i l a n d gas i n d u s t r y .

Licensee

The e n t i t y or ( m o r e t y p i c a l l y ) e n t i t i e s t h a t are parties t o t h e


p e t r o l e u m l i c e n c e a n d j o i n t l y a n d severally l i a b l e t o t h e
g o v e r n m e n t f o r l i c e n c e o b l i g a t i o n s . T h i s b o o k uses t h e t e r m
'licensee' t o refer t o t h i s c o l l e c t i v e e n t i t y a n d 'JOA p a r t y ' w h e n
r e f e r r i n g t o each o n a several basis. T h e t e r m s 'operator' a n d
'non-operator' are used t o d i s t i n g u i s h J O A parties i n t h e i r
d i f f e r e n t capacities.

London Convention

C o n v e n t i o n o n the Prevention of M a r i n e Pollution b y

M o d e l clauses

Terms o f a U K l i c e n c e p r o v i d e d b y s t a t u t o r y i n s t r u m e n t .

D u m p i n g o f Wastes a n d O t h e r M a t t e r ( L o n d o n , 1972).

Several d i f f e r e n t v e r s i o n s o f m o d e l clauses exist. Unless


o t h e r w i s e specified, reference t o a m o d e l clause is t o t h e
m o d e l clause c o n t a i n e d i n t h e P e t r o l e u m

Licensing

( P r o d u c t i o n ) (Seaward Areas) R e g u l a t i o n s 2008/225, t h e


latest set o f o f f s h o r e m o d e l clauses.
NOCs

N a t i o n a l o i l c o m p a n i e s , o w n e d or p a r t - o w n e d b y t h e h o s t
g o v e r n m e n t (cf IOCs).

OSPAR C o n v e n t i o n

C o n v e n t i o n for the Protection of the M a r i n e E n v i r o n m e n t of


t h e North-East A t l a n t i c (1992) ( b e i n g a c o n s o l i d a t i o n o f t h e
1972 O s l o c o n v e n t i o n against d u m p i n g a n d t h e 1974

Paris

c o n v e n t i o n o n m a r i n e p o l l u t i o n f r o m land-based sources).
Petroleum

F o l l o w s t h e d e f i n i t i o n i n S e c t i o n 1 o f t h e 1998 act as i n c l u d i n g
a n y m i n e r a l o i l or r e l a t i v e h y d r o c a r b o n a n d n a t u r a l gas e x i s t i n g
i n its n a t u r a l c o n d i t i o n i n strata b u t e x c l u d i n g c o a l , b i t u m i n o u s

24

Marc H a m m e r s o n

shale a n d o t h e r stratified deposits. To a v o i d excessive


r e p e t i t i o n , t h i s b o o k uses t h e terms 'petroleum', 'hydrocarbons'
a n d ' o i l a n d gas' inter-changeably a n d w i t h o u t a n y i n t e n d e d
distinction.
PSC

P r o d u c t i o n s h a r i n g c o n t r a c t entered i n t o b e t w e e n N O C s a n d
IOCs, b e i n g a f o r m of o i l a n d gas agreement (used outside t h e
U n i t e d K i n g d o m ) for t h e e x p l o i t a t i o n a n d s h a r i n g of
production.

TCF

T r i l l i o n cubic feet.

Territorial waters or

Coastal waters e x t e n d i n g u p t o 12 n a u t i c a l miles (or, i f there

t e r r i t o r i a l sea

is a n o v e r l a p p i n g coastal state, t h e m e d i a n p o i n t ) f r o m t h e
baseline o f t h e coastal state. This is considered b y UK a n d
i n t e r n a t i o n a l l a w t o be sovereign t e r r i t o r y o f t h e coastal state.
The e x t e n t o f t h e U n i t e d Kingdom's t e r r i t o r i a l sea was e x t e n d e d
t o 12 miles b y t h e Territorial Sea A c t 1987. Previously, t h e l i m i t
was three miles.

TPA

T h i r d - p a r t y access (nTPA b e i n g n e g o t i a t e d r i g h t s o f t h i r d - p a r t y

UKCS

The U n i t e d K i n g d o m c o n t i n e n t a l shelf.

U N C L O S 1982

U n i t e d N a t i o n s C o n v e n t i o n o n t h e Law o f t h e Sea, 1982.

access a n d rTPA b e i n g regulated rights of t h i r d - p a r t y access).

25

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The f o l l o w i n g books a n d o t h e r p u b l i c a t i o n s are referred t o i n Part A o f t h e text:


BP Statistical Review of World Energy (June 2009)
C a m e r o n P, Property Rights and Sovereign Rights: The Case of the North Sea (Academic
Press, 1983)
European C o m m i s s i o n , Factsheet on Common

Fisheries Policy (2008)

D a i n t i t h T, Discretion in the Administration of Offshore Oil and Gas: A Comparative


Study (AMPLA, 2005)
D a i n t i t h T, W i l l o u g h b y G a n d H i l l A (eds), United Kingdom Oil & Gas Law (Sweet &
M a x w e l l , t h i r d e d i t i o n ) ("UK Oil & Gas Law")
D a v i d M (ed), Upstream Oil and Gas Agreements (Sweet & M a x w e l l , 1996) ("Upstream
Oil and Gas Agreements")
G o r d o n G a n d Patterson J (ed), Oil and Gas Law - Current Practice and Emerging
Trends (Dundee U n i v e r s i t y Press, 2007) ("Current Practice and Emerging Trends")
Picton-Tubervill G (ed), Oi7 and Gas: A Practical Handbook (Globe Law a n d Business,
2009) ("Practical Handbook")
Reid K, The Law of Property in Scotland (LexisNexis, 1996)

Roberts P, Gas Sales and Gas Transportation Agreements: Principles and Practice (Sweet
& M a x w e l l , second e d i t i o n ) ("Gas Sales and Gas Transportation Agreements")
Roberts P, Joint Operating Agreements: A Practical Guide (Globe Law a n d Business,
2010) ("fOAs: A Practical Guide")
S m i t h E, D z i e n k o w s k i J, A n d e r s o n O, Lowe J, Kramer B a n d Weaver J, International
Petroleum Transactions (Rocky M o u n t a i n M i n e r a l Law F o u n d a t i o n 2010, t h i r d
e d i t i o n ) ("International Petroleum Transactions")
Watts a n d Reynolds (eds), Bowstead & Reynolds on Agency (Sweet & M a x w e l l , 1 9 t h
e d i t i o n , 2010)
W i l l i a m s a n d Meyer, Manual of Oil and Gas Terms (LexisNexis, 1 0 t h e d i t i o n )
Yergin D, The Prize: The Epic Quest for Oil, Money and Power ( S i m o n & Schuster, 1991)

The following articles and papers are referred to in Part A of the text:
Aldersey-Williams J, "The d e c o m m i s s i o n i n g cost p r o v i s i o n s deed: f a c i l i t a t i n g asset
transfers o n t h e UKCS" (2008) IELR 168
C a d b u r y a n d G r e e n b u r y Reports, C o m b i n e d Code Principles o f G o o d G o v e r n a n c e
a n d Code o f Best Practice (June 1998)
D a i n t i t h T, " C o n t r a c t u a l d i s c r e t i o n a n d a d m i n i s t r a t i v e d i s c r e t i o n : A u n i f i e d
analysis" (2005) 68(4) M L R 554

27

Bibliography

Department of Energy, "Department of Energy view o n unitisation" (Langham O i l


Conference, May 21 1991)
Department of Trade and Industry, "Oil and gas infrastructure: Access provisions
and voluntary arrangements" (URN 01/540)
Department of Trade and Industry, "Decommissioning offshore energy
installations: a consultation document" (June 2007)
Dike O, "Do area of mutual interest agreements breach the doctrine of freedom of
trade?" (CEPMLP paper, undated)
Elkins J, "Natural gas i n the UK: An industry i n search of a policy" (Oxford
Institute of Energy Studies, February 2010)
Esmaelli H, "The conflict between the establishment and operation of offshore oil
installations, navigation and other uses of the sea: part 1" (2002) IELTR 286; part 2
(2002) IELTR 293
Financial Times, "Pemex approves incentive-based oil contracts" (November 25 2010)
Finn P, "Fiduciary obligations of operators and co-venturers i n natural resource
joint ventures," AMPLA

Yearbook (1984)

Gao Z, "Current issues of international law on offshore abandonment" (CEPMLP


Discussion Paper No DP14) (1997)
Golvala C, "Production payment financing under English law" (2002) 1 IELTR 15
Hammerson M, "Production sharing contracts: An analysis of certain African
jurisdictions" (Petroleum Africa, October 2007)
Hammerson M, "Decommissioning offshore oil and gas facilities: Industry
contracts and security arrangements" (2009) 21 ELM 31
Hancher, "Delimitation of energy law jurisdiction i n the EU and its member states:
From organisation to regulatory conflicts" (1998) 16 JENRL 16
Heindricks, Mace and Coenraads, "Impact of EU and international law on the
implementation of carbon capture and geological storage i n the European Union"
(EC Directorate General Environment) (June 2005)
Hewitt G, "Unitisation agreements" (CEPMLP paper, undated)
House of Commons, Energy and Climate Change Committee, "UK offshore oil and
gas: first report of session 2008-09" (HC-341-I) (June 17 2009)
House of Commons, Energy and Climate Change Committee, "UK offshore oil and
gas: government response to first report of session 2008-09" (HC-1010) (October 14
2009)
House of Commons, Library "Volume of legislation" (SN/SG/2911) (January 23
2008)
Hunt M, "Mineral development and indigenous people - The implications of the
Mabo case" (1993) JENRL 155
Marais and Glindemann, "Native title i n Australia: The latest appeal defines scope
of native title rights" (2000) 7 IELTR 182
Oil & Gas UK, "Commercial Code of Practice" (2002)
PILOT Brownfields Workgroup on decommissioning, "Guidance notes for template
decommissioning cost provisions deed"
Roberts P, "Fault lines i n the joint operating agreement: fiduciary duties" (2008)
IELR 218

28

Marc Hammerson

Roberts P, "Deep i n Surrey, something stirs" (2008) 7 IELR 255


Sandrea R, "An in-depth view of future world oil and gas supply - A quantative
model analysis" (PennEnergy Research, January 2009)
Saunders M, "Abandonment: Headline News" (1995) 8 OGLTR 287
Ulfstein G, "The conflict between petroleum production, navigation and fisheries
in international law" (1988) 19 ODIL 229

29

1. O w n e r s h i p , l i c e n s i n g
a n d sources of law

Part A: C o m m e n t a r y
1.1 Introduction and overview

1.1.1 For an industry worth multiple trillions of dollars and essential to the modern
economy, there is a n o t a b l e lack o f academic a n d j u d i c i a l discussion about t i t l e .
C r u d e p e t r o l e u m occurs n a t u r a l l y a n d w i t h o u t h u m a n effort. It is, perhaps, t h i s lack
of enterprise t h a t a l l o w s u n c e r t a i n t y t o exist. If p e t r o l e u m h a d a h u m a n creator, t h e n
a p a r t y w i t h a m o r a l c l a i m w o u l d assert o w n e r s h i p . However, for n a t u r a l l y p r o d u c e d
substances, n o such m o r a l c l a i m arises. U n s u r p r i s i n g l y , once petroleum's c o m m e r c i a l
value was recognised, i n t h e absence o f a m o r e w o r t h y c l a i m a n t , l e g i s l a t i o n discarded
c o m m o n law's default p o s i t i o n o n t i t l e a n d replaced i t w i t h g o v e r n m e n t ownership.
State e x p r o p r i a t i o n

is n o w

the near-universal n o r m

i n t e r n a t i o n a l legal materials (discussed at paragraph

and

acknowledged

by

1.2). I n an era o f resource

scarcity, g o v e r n m e n t o w n e r s h i p has become an increasingly s i g n i f i c a n t factor a n d


c o n t r i b u t e d t o w a r d s t h e rise i n c o m m e r c i a l p r o m i n e n c e d u r i n g t h e last few decades
of t h e n a t i o n a l o i l c o m p a n y (NOC).

1.1.2 It is unsurprising that initial British legislation' in this area was enacted shortly after
international commercialisation of petroleum and

its discovery i n t h e U n i t e d

K i n g d o m . U n l i k e i n o t h e r o i l - p r o d u c i n g c o u n t r i e s w h i c h experienced radical change


i n p o l i t i c a l regimes d u r i n g t h e 2 0 t h c e n t u r y ( p a r t i c u l a r l y states m o v i n g f r o m c o l o n i a l
to

post-colonial legal systems), t h e basic legal f r a m e w o r k

for exploration

and

p r o d u c t i o n t h a t t h e U n i t e d K i n g d o m operates has n o t substantially c h a n g e d over 75


years7 The

m o d e l chosen,

which

remains

i n place today, is e x p l o i t a t i o n

by

c o m m e r c i a l c o m p a n i e s u n d e r g o v e r n m e n t - g r a n t e d licence.

The government used legal uncertainties surrounding the ownership of petroleum, and the effect that
this may have as a deterrent t o exploration, as a reason for expropriation. (Source: Cameron P, Property

2
3

Rights ami Sovereign Rights: The Case of the North Sea)


The Petroleum (Production) Act 1918 followed by the Petroleum (Production) Act 1934.
Due i n part t o the lack of demand for petroleum at the time, oil concessions i n the M i d d l e East were
granted to IOCs on favourable terms, over large areas and for long periods - and w i t h little or no c o n t r o l
given t o the host government. U n i t e d Nations General Resolution 1803 (at pages 69 t o 71) and the
current preference i n these countries for contracts that provide state c o n t r o l over exploration and

p r o d u c t i o n can be seen as a reaction against previous foreign investment o n these terms.


The Petroleum Act 1998, w h i c h is the centrepiece of UK upstream oil and gas law, consolidated the
surviving provisions of the Petroleum (Production) Act 1934.

31

O w n e r s h i p , l i c e n s i n g a n d sources or l a w

1.1.3

A UK o i l a n d gas licence h a b e n d u m m o d e l clause states t h a t : " t h e M i n i s t e r ... h e r e b y


grants t o t h e Licensee exclusive licence a n d l i b e r t y ... t o search a n d b o r e f o r a n d get,
Petroleum".

T h i s language falls s h o r t o f a n i n s t r u m e n t t r a n s f e r r i n g o w n e r s h i p o f

p e t r o l e u m f o u n d w i t h i n a licence area. A n y such p u r p o r t e d transfer at t h e t i m e o f


g r a n t i n g a licence ( w h e n p e t r o l e u m is s t i l l in situ), w o u l d be subject t o b o t h i n h e r e n t
e x p l o r a t i o n u n c e r t a i n t i e s a n d t h e m i g r a t o r y ' n a t u r e o f p e t r o l e u m . T h e subject m a t t e r
of a n y a t t e m p t e d transfer o f o w n e r s h i p at t h i s p o i n t w o u l d be, t h e r e f o r e , h i g h l y
u n c e r t a i n . For t h i s reason, licences d o n o t expressly p u r p o r t t o transfer t i t l e t o
petroleum.

T h e q u e s t i o n t h e r e f o r e arises: if a licensee does n o t o b t a i n o w n e r s h i p i n

p e t r o l e u m f r o m t h i s i n s t r u m e n t , t h e n o n w h a t c l a i m is t i t l e based?

1.1.4 This chapter examines why the licence is drafted in this limited manner, what
i m p l i c a t i o n s i t has o n a licensee's t i t l e a n d t h e state's legal basis for, a n d m e t h o d s of,
e x p r o p r i a t i n g p e t r o l e u m . A discussion o f u n d e r l y i n g o w n e r s h i p o f p e t r o l e u m in situ
(in

o t h e r words, p e t r o l e u m

produced) may

provide

i n its u n e x p l o i t e d n a t u r a l state before i t has been

further

explanation

f o r t h e restricted

nature

of the

h a b e n d u m clause. We w i l l see t h a t , i n r e l a t i o n t o o f f s h o r e reserves, g o v e r n m e n t has


a jurisdictional right t o c o n t r o l e x p l o r a t i o n a n d p r o d u c t i o n activity, b u t n o t a
p r o p r i e t a r y legal basis t o c l a i m f u l l u n d e r l y i n g o w n e r s h i p . A consequence o f this
p o s i t i o n is a c o n t i n u e d reliance o n t h e l a w o f capture - discussed b r i e f l y i n this
c h a p t e r a n d t h e n m o r e f u l l y analysed i n C h a p t e r 3."

1.1.5 Acquisition of good title is clearly of paramount importance to oil producers. In


a d d i t i o n , i t is r e l e v a n t i n a f i n a n c i n g c o n t e x t " where, i n order t o create a legally
robust security package, lenders w i l l analyse o w n e r s h i p o f assets over w h i c h security
is created. T h e f i n a n c i n g o f e x p l o r a t i o n a n d p r o d u c t i o n i n t h e U n i t e d Kingdom's
c o n t i n e n t a l shelf (UKCS) has been s t r u c t u r e d a r o u n d t h e i n a b i l i t y o f a borrower

See page 88. The t e r m i n o l o g y "search a n d bore for and get" is the equivalent o f modern-day "explore,

develop a n d produce".
Alternative descriptions ( m a k i n g the same p o i n t ) refer t o o i l a n d gas being 'fugacious', 'amorphous' or
'fluid' substances. This feature of petroleum

distinguishes its physical properties f r o m

stationary

hydrocarbons, such as coal, a n d ( i n some respects) makes an analysis o f p e t r o l e u m o w n e r s h i p more


7

comparable t o property rights over water (a substance w i t h similar m i g r a t o r y qualities).


Leading commentators consider that t h e licence does, however, create i m p l i e d p r o p r i e t a r y rights i n

favour of the licensee.


As a text o n t h e upstream o i l a n d gas industry, this book examines o w n e r s h i p issues relating to
petroleum in situ and, once produced, as attributed at the wellhead b y the law o f capture. After that
point, title passes under n o r m a l rules of sale of goods law. Since it is likely that oil a n d gas w i l l eventually
be refined i n t o a retail product, it is w o r t h n o t i n g that the Roman law d o c t r i n e of specification (namely,
the acquisition of ownership of a chattel belonging t o another as a result o f its manufacture I n t o a
different product) does n o t apply t o English law and the r e f i n i n g process w i l l have n o effect o n title As
w e l l as this being a general principle of English law, the p o i n t has been decided i n the c o n t e x t of the
petroleum industry; NV de Battaafsche Petroleum Maatschappij v War Damages Commission (1956) 22 MLJ

155 (Singapore Court of Appeal a p p l y i n g English law).


UK Oil & Gas Law (at para 1-344) considers that t h e question of u n d e r l y i n g o w n e r s h i p also has

10

c o m p e t i t i v e d r i l l i n g by a neighbour.
Volumetric p r o d u c t i o n payment financing, used extensively i n the U n i t e d States, grants a lender security

i m p l i c a t i o n s f o r tax consequences o f a transfer of participating interests, quiet e n j o y m e n t a n d

over petroleum before being produced. Since, i n the U n i t e d Kingdom, o w n e r s h i p of petroleum in situ is

32

not the property of the licensee, security cannot be created a n d therefore this f i n a n c i n g structure does
not work. See Golvala C, "Production payment f i n a n c i n g under English law" (2002) 1 IELTR 15

Marc Hammerson

( u n l i k e its N o r t h A m e r i c a n c o u n t e r p a r t ) t o c l a i m a n u n d e r l y i n g o w n e r s h i p interest."'
Despite b e i n g g r a n t e d a n a p p r o p r i a t e g o v e r n m e n t licence, a b o r r o w e r has n o t i t l e t o
p e t r o l e u m u n t i l i t is p r o d u c e d o r ( t o use t h e legal t e r m s c o m m o n i n t h i s area) 'won'
or

'captured'. As a result, a n e x p l o r e r c a n n o t offer lenders s e c u r i t y over p e t r o l e u m

u n t i l e x p l o r a t i o n is c o m p l e t e a n d p h y s i c a l p r o d u c t s (over w h i c h s e c u r i t y m a y be
g r a n t e d ) h a v e been c a p t u r e d . Paradoxically, e x p l o r a t i o n , b e i n g b o t h a n expensive
and non-income-generating

a c t i v i t y , is w h e n e x t e r n a l f u n d i n g is m o s t r e q u i r e d .

1.1.6 Furthermore, underlying ownership is not a frequently litigated issue. To the limited
e x t e n t t h a t i t has been j u d i c i a l l y considered i n t h e U n i t e d K i n g d o m , i t has been i n a n
o n s h o r e real estate c o n t e x t , o f t e n relating t o l a n d conveyances pre-dating m o d e r n
p e t r o l e u m law." These cases have been reproduced i n Part B o f t h i s chapter. Despite t h e i r
anachronisms, t h e y r e m a i n o f value t o m o d e r n o n s h o r e practice - n o t least because o f
a lack ( o t h e r t h a n o n e recent a n d n o t a b l e e x c e p t i o n ) o f o t h e r precedent i n t h i s area.

1.1.7 That exception refers to one of the first judgments of the recently created UK
Supreme Court.

12

I n Bocardo SA v Star Energy" each o f t h e H i g h C o u r t , C o u r t o f A p p e a l

a n d S u p r e m e C o u r t c o n f i r m e d p r e - m o d e r n case l a w i n t h i s area. T h e t w o issues u n d e r


c o n s i d e r a t i o n were, first, w h e t h e r Star Energy h a d c o m m i t t e d trespass b y d r i l l i n g f o r
o i l u n d e r n e a t h l a n d o w n e d b y Bocardo SA ( w h i c h it h e l d b e n e f i c i a l l y f o r M o h a m m e d
Al Fayed). T h i s issue r e q u i r e d a n analysis o f t h e system o f o w n e r s h i p o f p e t r o l e u m in
situ i n t h e U n i t e d K i n g d o m . If a trespass d i d occur, t h e second q u e s t i o n u n d e r appeal
related t o t h e level o f damages payable. T h i s q u a n t u m issue, o n w h i c h t h e courts
disagreed, is b e y o n d t h e c u r r e n t scope a n d o m i t t e d f r o m Part B. However, u n l i k e t h e
j u d i c i a l d i s a g r e e m e n t o n damages, all o f t h e c o u r t s came t o t h e same c o n c l u s i o n o n
o w n e r s h i p (despite n o t u s i n g - q u i t e l i t e r a l l y - t h e same language).

14

G i v e n t h e lack

of m o d e r n p r e c e d e n t i n t h i s area, t h e j u d g m e n t s o f all t h r e e c o u r t s are r e p r o d u c e d i n


Part B. T h e case p r o v i d e s t h e m o s t recent j u d i c i a l o p i n i o n o n u n d e r l y i n g o w n e r s h i p
of p e t r o l e u m i n t h e U n i t e d K i n g d o m .

1.1.8 Much of the discussion on underlying ownership is of academic, rather than


practical, significance. Petroleum
government-granted

is p r o d u c e d b y c o m m e r c i a l

entities pursuant t o

licences largely free o f these concerns. O t h e r t h a n t h e q u e s t i o n

of s e c u r i t y interests t h a t c a n be v a l i d l y created, l i t t l e a t t e n t i o n is p a i d t o t h i s issue.


W e e x a m i n e t h e t e r m s of, a n d legal issues r e l a t i n g to, licences i n p a r a g r a p h 1.5. Since
a U K o i l a n d gas l i c e n c e does n o t expressly transfer t i t l e i n p e t r o l e u m , t h e n e x t t o p i c

11

See, f o r example, Mitchell v Mosley [1914] 1 C h 438 (pages 112 a n d 113). Lonsdale v Attorney-General
[1982] 1 WLR 887 (pages 113 t o 123) relates t o historic l a n d conveyances litigated i n 1982 (several
decades after the transactions h a d been executed). I n terms o f modernity, Lonsdale v A-G straddles prem o d e r n case law a n d Bocardo SA v Star Energy (see f o o t n o t e 13), w h i c h was f i n a l l y decided i n 2010 (see

12

pages 124 t o 138).


I n October 2009 t h e Supreme C o u r t replaced t h e Appellate C o m m i t t e e o f the House o f Lords as t h e

13

highest appeal court i n the U n i t e d K i n g d o m .


|2008] E W H C 1756 ( H i g h C o u r t ) ; |2009] EWCA C i v 579 ( C o u r t o f Appeal); |2010] UKSC 35 (Supreme
Court). See Roberts P, "Deep i n Surrey, s o m e t h i n g stirs" (2008) 7 IELR 255 f o r a n analysis of the first

14

instance judgment.
T h e H i g h C o u r t a n d Supreme Court, u n l i k e the C o u r t of Appeal, preferred to rely o n a Latin m a x i m .

33

O w n e r s h i p , l i c e n s i n g a n d sources o f law

c o u l d have been t h e law (or rule) o f capture - t h a t is, t h e law d e t e r m i n i n g o w n e r s h i p


of a m i g r a t o r y ( a n d u n - o w n e d ) c h a t t e l o n c e reduced t o someone's possession. T h i s
subject m i g h t

have f o r m e d part o f t h i s C h a p t e r 1. Since t h e licence does n o t

expressly p u r p o r t t o transfer property, t h e law o f capture is a possible s t a r t i n g p o i n t


f r o m w h i c h t o create t h e first l i n k i n a c h a i n o f t i t l e . T h i s p o i n t can be m a d e even
m o r e f o r c e f u l l y i f t h e a u t h o r i t y i s s u i n g t h e licence has n o t p r o p e r l y e x p r o p r i a t e d
p e t r o l e u m for itself. I n t h i s case, t h e licensor has n o o w n e r s h i p o f t h e t h i n g over
w h i c h i t is p u r p o r t i n g t o g r a n t rights. However, i n order t o separate t h e discussion
o n u n d e r l y i n g o w n e r s h i p a n d o w n e r s h i p o f p e t r o l e u m p r o d u c e d at t h e w e l l h e a d , the
law o f capture is dealt w i t h i n C h a p t e r 3.

1.1.9 The final section of this chapter examines the United Kingdom's different sources of
law: domestic, E u r o p e a n U n i o n a n d i n t e r n a t i o n a l .

1.1.10 Following on from the topics outlined above, the next three chapters of this book
m o v e away f r o m

t h e r e l a t i o n s h i p b e t w e e n t h e state a n d licensee a n d t u r n t o

c o m m e r c i a l arrangements. T h e first d o c u m e n t analysed

is t h e j o i n t o p e r a t i n g

a g r e e m e n t (JOA) - t h e i n d u s t r y - s t a n d a r d f o r m o f j o i n t v e n t u r e . There are a n u m b e r


of a t y p i c a l c o m m e r c i a l features o f a J O A over w h i c h t h e n a t u r a l resources i n d u s t r y

11

can c l a i m o r i g i n a l i t y . These, i n t u r n , p r o d u c e some sector-specific legal issues. We


consider

fiduciary

duties a m o n g JOA parties

p a r t i c i p a t i n g interests. C h a p t e r 3 t h e n

a n d pre-emption

examines unitisation

rights

over

agreements. This

a r r a n g e m e n t first creates a single u n i t o u t o f a f i e l d s t r a d d l i n g t w o or m o r e licence


areas a n d t h e n regulates its j o i n t d e v e l o p m e n t .

10

As an o p e r a t i n g agreement covering

a c o m b i n e d u n i t , i t can be v i e w e d as a j o i n t v e n t u r e a g r e e m e n t entered i n t o a m o n g
several j o i n t ventures. I n its f u n c t i o n g o v e r n i n g o p e r a t o r s h i p o f t h e u n i t , some of the
c o m m e n t s m a d e a b o u t JOAs w i l l a p p l y e q u a l l y t o u n i t o p e r a t i o n s . C o n t i n u i n g the
t h e m e o f a r r a n g e m e n t s entered i n t o a m o n g c o m m e r c i a l parties, C h a p t e r 4 covers
cases r e l a t i n g t o n a t u r a l gas sales agreements b e t w e e n a seller a n d buyer.

1.1.11 Chapters 5 and 6 touch, in different ways, on the maturity of the UKCS as a
p e t r o l e u m p r o v i n c e . As t h e average v o l u m e o f n e w UKCS discoveries decreases and
new

e x p l o r a t i o n acreage is licensed i n r e m o t e areas, p r o j e c t e c o n o m i c s worsen. I t

becomes i n c r e a s i n g l y i m p o r t a n t f o r operators t o m a n a g e p r o d u c t i o n costs a n d for


regulators t o create a n i n v e s t m e n t e n v i r o n m e n t w h i c h is as a t t r a c t i v e as possible.
W h e r e feasible, one way o f a c h i e v i n g t h i s is for n e w fields t o use e x i s t i n g t h i r d - p a r t y
o f f s h o r e i n f r a s t r u c t u r e based o n satisfactory terms o f access. I n o r d e r t o e x p l o i t UKCS
reserves t o t h e i r m a x i m u m p o t e n t i a l , t h i s is a p o l i c y t h a t is e n d o r s e d b y b o t h
i n d u s t r y a n d g o v e r n m e n t . I n t h e c o n t e x t o f t h e m a t u r i t y o f t h e UKCS, t h e relevance

15

O n this, and some other issues i n this book, there is c o m m o n practice between the o i l and gas

16

m i n i n g sectors and the term 'natural resources industry' is intended t o cover b o t h


UK practice contains b o t h elements i n one d o c u m e n t and, despite this dual f u n c t i o n , refers t o it as a

and

'unitisation agreement'. In the U n i t e d States it is not unusual t o have the t w o elements contained i n
separate documents, but where they are c o n j o i n e d US practice refers t o the contract as a 'unitisation and
u n i t operating agreement'.

',4

Marc H a m m e r s o n

of t h e chapter t h a t f o l l o w s o n d e c o m m i s s i o n i n g e x i s t i n g installations is self-evident.


Law a n d p o l i c y o n d e c o m m i s s i o n i n g have t h e i r origins i n t h e U n i t e d Kingdom's
i n t e r n a t i o n a l legal o b l i g a t i o n s r e l a t i n g t o t h e sea ( w h i c h are discussed

i n this

chapter). These are n o w i n c o r p o r a t e d i n part I V o f t h e Petroleum Act 1998.

1.1.12 An acknowledgement of a state's permanent sovereignty over its natural resources in


A r t i c l e 1 o f U N Resolution 1803 is c o n t a i n e d i n the same sentence as a n o b l i g a t i o n
t h a t such sovereignty m u s t be exercised i n t h e interests o f n a t i o n a l d e v e l o p m e n t a n d
w e l l b e i n g o f a country's citizens." Each g o v e r n m e n t w i l l doubtless c l a i m t h a t t h e
legal structure o f its p e t r o l e u m

i n d u s t r y is designed

f o r t h e b e n e f i t o f t h e wider

p o p u l a t i o n . I n t e r n a t i o n a l experience, however, shows t h a t i m p l e m e n t a t i o n is n o t


always so benign. Increasingly, i n t e r n a t i o n a l o i l c o m p a n i e s (IOCs) are alive t o
concerns created b y i n v e s t i n g i n a c o u n t r y w h e r e the state operates its p e t r o l e u m
i n d u s t r y i n disregard o f w i d e r societal issues. Particularly i n high-risk countries, IOCs
are n o w conscious o f a n e x p a n d i n g b o d y o f rules r e l a t i n g t o i n v e s t o r p r o t e c t i o n ,
h u m a n rights a n d corporate r e s p o n s i b i l i t y applicable t o t h e i n d u s t r y . Relevant
materials i n c l u d e the Equator Principles a n d t h e Extractive Industries Transparency
Initiative.

1.1.13 The order of chapters loosely follows the different parts of the Petroleum Act 1998.
Part I ( p e t r o l e u m ) a n d Part I I (offshore activities) relate, i n part, t o t h e l i c e n s i n g
regime a n d applicable law. T h e y are i n c l u d e d i n t h i s chapter. Part I I I ( s u b m a r i n e
pipelines) is covered

i n C h a p t e r 5 o n access t o p i p e l i n e s a n d o t h e r o f f s h o r e

infrastructure. Part I V ( a b a n d o n m e n t o f o f f s h o r e installations) is dealt w i t h i n


C h a p t e r 6 o n d e c o m m i s s i o n i n g . Part V o f t h e 1998 act deals w i t h miscellaneous a n d
general matters a n d has n o a p p l i c a b i l i t y t o a n y particular chapter o f t h i s book.

1.2 Principles of underlying ownership

A. Introduction
1.2.1

Having

provided

an overview

o f t o p i c s covered,

t h i s section starts w i t h t h e

f u n d a m e n t a l q u e s t i o n o f t i t l e w h i c h i n t r o d u c e d t h i s chapter: o n w h a t legal basis


does g o v e r n m e n t o w n p e t r o l e u m in situ a n d c o n t r o l e x p l o r a t i o n a n d p r o d u c t i o n ?
The difference between, o n the o n e h a n d , o w n i n g and, o n t h e other, c o n t r o l l i n g (or
h a v i n g rights over) p e t r o l e u m is a n i m p o r t a n t d i s t i n c t i o n w h i c h w i l l be developed.
In

the United

K i n g d o m , we

shall see t h a t a d i c h o t o m y

exists w h e r e b y t h e

g o v e r n m e n t m a y l e g i t i m a t e l y c l a i m t o have e x p r o p r i a t e d o n s h o r e p e t r o l e u m ( w h i c h ,
for t h i s purpose, also i n c l u d e s reserves i n t h e U n i t e d Kingdom's t e r r i t o r i a l sea), b u t
m a y assert o n l y l i m i t e d p r o p e r t y rights i n , b u t exclusive rights over, reserves i n the
c o n t i n e n t a l shelf.

1.2.2 Other than two notable exceptions, each petroleum-producing nation claims
o w n e r s h i p of, o r o t h e r exclusive rights over, o i l a n d gas w i t h i n d i f f e r e n t parts o f its

17

See page 70.

35

O w n e r s h i p , l i c e n s i n g a n d sources o f l a w

d o m a i n . The geographical d e l i m i t a t i o n of territorial

sovereignty f o r petroleum

e x p l o i t a t i o n is a c o m p l e x p u b l i c i n t e r n a t i o n a l legal issue a n d b e y o n d t h e scope o f


8

t h i s book.' O t h e r t h a n l a n d l o c k e d countries, t h e e x t e n t w i l l i n c l u d e o i l a n d gas


b e n e a t h each o f a country's:

land territory;

t e r r i t o r i a l sea a p p u r t e n a n t t o such l a n d ; a n d

areas o f c o n t i n e n t a l shelf over w h i c h i n t e r n a t i o n a l l a w has g r a n t e d exclusive


rights.

The legal basis relied on by a state to assert ownership of, or rights over,
p e t r o l e u m in situ depends o n w h i c h geographic area is b e i n g considered.

1.2.3 Neither the United States nor Canada - although both significant oil-producing
n a t i o n s - asserts state o w n e r s h i p

or control

over

onshore

reserves. I n these

j u r i s d i c t i o n s each real estate o w n e r has t h e r i g h t t o e x p l o i t p e t r o l e u m beneath its


property

(unless, w h i c h

is n o t u n c o m m o n ,

sub-surface

interests have

been

t r a n s f e r r e d t o a n o t h e r r i g h t s holder).'* Real estate o w n e r s c a n o f t e n be g o v e r n m e n t


entities'" a c t i n g i n a p r i v a t e c a p a c i t y - t h e r e b y w e a k e n i n g t h e d i s t i n c t i o n between
private and public ownership
mentioned,

o f p e t r o l e u m . T h e U n i t e d States a n d Canada are

b y w a y o f contrast, because o f t h e i r d i f f e r e n t a p p r o a c h f r o m t h e

i n t e r n a t i o n a l n o r m . I n o t h e r j u r i s d i c t i o n s g o v e r n m e n t w i l l o w n o r c o n t r o l (or b o t h
o w n a n d c o n t r o l ) p e t r o l e u m reserves. T h i s p o w e r is asserted by:

e x p r o p r i a t i n g p e t r o l e u m o w n e r s h i p i n f a v o u r o f t h e state; a n d

asserting e x c l u s i v e ( a l t h o u g h t y p i c a l l y delegatable) r i g h t s over


e x p l o r a t i o n a n d p r o d u c t i o n i n f a v o u r o f t h e state o r its

petroleum

NOC.

1.2.4 On what legal authority may a state expropriate, or assert rights over, petroleum?
T h i s q u e s t i o n is n o w considered, i n t u r n , i n r e l a t i o n t o t h e d i f f e r e n t types of
g e o g r a p h i c areas over w h i c h g o v e r n m e n t exercises j u r i s d i c t i o n . D e p e n d i n g o n t h e
c o u n t r y b e i n g considered, t h e c o m m e r c i a l s i g n i f i c a n c e o f d i f f e r e n t geographic areas
varies.

1.2.5 Onshore production makes up only a very small proportion - currently, about 1.5%
- o f t h e U n i t e d Kingdom's t o t a l .

18
19

21

I n a n y B r i t i s h c o m p a r i s o n o f l a n d , t e r r i t o r i a l sea

For an i n t r o d u c t i o n to this subject, see Chapter 1 of Practical Handbook.


This is based o n a c o m m o n law principle, w h i c h (as we shall see) also forms the starting p o i n t f o r English
c o m m o n law, o f cuius est solum, ejus est usque ad caelum ad infernos (the l a n d o w n e r also owns the
corresponding space u p to the sun a n d d o w n t o the earth's core). I n the U n i t e d States, this c o m m o n lawprinciple is based o n different versions o f the law of capture (as variously applied by i n d i v i d u a l states)
w h i c h recognise that t h e appropriate real estate owner has a corporeal possessory interest i n t h e substrata ( i n c l u d i n g petroleum) underneath land (so-called ownership-in-place or Texas t h e o r y ) or that the
real estate owner has t h e exclusive right t o acquire petroleum by reducing it t o possession (so-called

20

qualified ownership).
For example, Section 109 of the C o n s t i t u t i o n Act 1867 (Canada) grants o w n e r s h i p o f lands, mines and

21

minerals t o p r o v i n c i a l governments.
UK onshore produces about 31 m i l l i o n boe per year. A p p r o x i m a t e l y 25 m i l l i o n boe per year comes f r o m
one field, W y t c h Farm i n Dorset. (Source: www.og.decc.gov.uk/information/papers/ ogled.ppt)

36

Marc Hammerson

a n d c o n t i n e n t a l shelf, a n analysis o f t h e l a w r e l a t i n g t o t h e c o n t i n e n t a l shelf is,


c o m m e r c i a l l y , t h e m o s t significant. W o r l d w i d e o f f s h o r e p e t r o l e u m

activity, i n
22

contrast, c u r r e n t l y accounts f o r o n l y o n e - t h i r d o f aggregate p r o d u c t i o n . However,


g l o b a l o n s h o r e p r o d u c t i o n has n o w reached a plateau and, f o r f u t u r e generations,
t h e world's f u t u r e energy

d e m a n d s w i l l be m e t b y reserves p r o d u c e d offshore

( p a r t i c u l a r l y i n deep water). A n u n d e r s t a n d i n g o f t h e l a w o f t h e c o n t i n e n t a l shelf is


therefore i m p o r t a n t i n a n y discussion, p a r t i c u l a r l y a UK analysis, o f t h i s subject.
U n l i k e t e r r i t o r i a l l a n d a n d t e r r i t o r i a l sea, a state's a b i l i t y t o e x p l o i t n a t u r a l resources
l y i n g u n d e r n e a t h its c o n t i n e n t a l shelf m u s t be analysed i n t h e c o n t e x t o f t h e l a w o f
t h e sea created i n t h e second h a l f o f t h e 2 0 t h c e n t u r y b y i n t e r n a t i o n a l treaties.
However, r e l e v a n t c o n v e n t i o n s are n o t expansive i n t h e scope o f rights g r a n t e d t o a
coastal state.

B. Territorial land
1.2.6

T h e sovereign rights o f n a t i o n s over t h e i r n a t u r a l resources are e x p l i c i t l y recognised


(albeit u s i n g v a r y i n g t e r m i n o l o g y ) i n t h e i n t e r n a t i o n a l materials i n Part B o f t h i s
chapter:

23

General Assembly R e s o l u t i o n 1803 refers t o t h e resolutions b e i n g based o n


" t h e i n a l i e n a b l e r i g h t of all States freely t o dispose o f t h e i r n a t u r a l w e a l t h a n d
resources i n accordance w i t h t h e i r n a t u r a l interests";

21

Article 2 of General Assembly R e s o l u t i o n 3 2 8 1 says t h a t every "State has a n d


shall freely exercise f u l l p e r m a n e n t sovereignty, i n c l u d i n g possession use a n d
25

disposal, over all its w e a l t h , n a t u r a l resources a n d e c o n o m i c a c t i v i t y " ; a n d

t h e Energy Charter Treaty recognises "state sovereignty a n d sovereign rights


over energy resources".

26

1.2.7 Given these materials and the eventual position reached by an application of
s t a t u t o r y l a w i n t h i s area, i t is s u r p r i s i n g t h a t private o w n e r s h i p o f space above, a n d
2

resources below, real estate r e m a i n s E n g l i s h c o m m o n law's s t a r t i n g p o i n t . ' T h e


p r i n c i p l e t h a t t h e l a n d o w n e r o w n s t h e space a b o v e

28

a n d b e l o w its l a n d m a y be
2

h y p e r b o l i c , b u t i t r e m a i n s i l l u s t r a t i v e o f t h e basic English l a w p o s i t i o n . ' I n a


p e t r o l e u m c o n t e x t , t h i s legal p r i n c i p l e c a n be traced back t o Mitchell

v Mosely'"

and

22

Source: Sandrea R, "An in-depth view of future w o r l d oil and gas supply - A quantitative model analysis"

23

(PennEnergy Research, January 2009).


Also see the recitals t o the L o n d o n C o n v e n t i o n (Chapter 6) a n d the European Union's Hydrocarbon

24
25
26
27

Licensing Directive (94/22/EC).


See page 69.
See page 71.
See page 72.
The Privy Council's o p i n i o n i n U Po Naing v The Burmah Oil Company Limited (1929) 31 BOMLR 750
suggesting that onshore natural gas, like underground water, was incapable of being the property of any
person u n t i l reduced to possession (ie, res nullius) can n o longer be considered good law. I n any event,

28

as a Privy Council o p i n i o n , it has o n l y persuasive, rather than precedential, value.


The case law o n space above land is not consistent and there are some judicial dicta suggesting that it is

29

Skyviews and General Ltd [1978] 1 QB 479).


This was the argument used by counsel i n Bocardo SA v Star Energy i n the Court of Appeal - see paragraph

30

55 at page 131.
[1914] 1 C h 438. See pages 112 and 11.3.

restricted t o the height required for the o r d i n a r y use and e n j o y m e n t of property (Bernstein (Baron) v

37

O w n e r s h i p , l i c e n s i n g a n d sources o f l a w

Borys v Canadian Pacific Railway Co and another" w h e r e ( i n g u a r d e d language) t h e


P r i v y C o u n c i l was " f o r t h e purpose of t h e i r d e c i s i o n ... p r e p a r e d t o assume" t h a t "gas
whilst in situ is t h e p r o p e r t y o f t h e a p p e l l a n t e v e n t h o u g h i t has n o t b e e n r e d u c e d
i n t o possession" (emphasis added). Despite recent d i f f e r e n t j u d i c i a l dicta a b o u t t h e
m a n n e r i n w h i c h t h i s p r i n c i p l e s h o u l d be expressed, p r i v a t e o w n e r s h i p of sub-strata
was r e c e n t l y c o n f i r m e d at each of first instance a n d o n t w o appeals. I n t h e Supreme
Court, L o r d H o p e s t a t e d " t h a t :
The better view, as the Court of Appeal recognised ... is to hold that the owner of the
surface is the owner of the strata beneath it, including the minerals that are to be found
there, unless there has been some alienation of them by a conveyance, at common

law

or by statute to someone else. That was the view that the Court of Appeal took in
M i t c h e l l v M o s e l y [1914] 1 Ch 438. Much

has happened since then, as the use of

technology has penetrated deeper and deeper into the earth's surface. But I see no reaso
why its view should not still be regarded as good law ..."

1.2.8 Notwithstanding common law's assumption of private ownership of space above


l a n d a n d sub-strata, t h e p o s i t i o n is n o w
deviations from

h e a v i l y q u a l i f i e d b y statute. M o d e r n

t h i s p r i n c i p l e a l l o w c i v i l a v i a t i o n t o use space above private

property. I n t h e sub-strata there have h i s t o r i c a l l y always b e e n e x c e p t i o n s r e l a t i n g t o


g o l d , silver a n d saltpetre. I f p r o d u c e d i n t h e U n i t e d K i n g d o m , these substances are
d e e m e d t o be C r o w n p r o p e r t y . " O n c e its value was recognised, p e t r o l e u m was soon
a d d e d t o t h i s list o f precious metals a n d m i n e r a l s e x p r o p r i a t e d b y t h e state.

1.2.9 Despite the hyperbolic starting point of English law, the current position is that
g o v e r n m e n t has e i t h e r e x p r o p r i a t e d

ownership of petroleum

s>

in situ, asserted

exclusive r i g h t s over such p e t r o l e u m o r b o t h . T h i s was first set o u t i n t h e Petroleum


( P r o d u c t i o n ) A c t 1934, w h i c h vested p r o p e r t y i n p e t r o l e u m

a n d t h e exclusive right

of e x p l o r a t i o n a n d p r o d u c t i o n i n t h e C r o w n . T h e i n t e r n a t i o n a l materials (cited i n
Paragraph 1.2.6) c o n f i r m - n o t t h a t c o n f i r m a t i o n is r e q u i r e d - t h e sovereignty of
6

P a r l i a m e n t t o e x p r o p r i a t e p r i v a t e p r o p e r t y f o r government's' b e n e f i t . T h e Queen-inP a r l i a m e n t is t h e s u p r e m e legal a u t h o r i t y i n t h e U n i t e d K i n g d o m . T h e legislature's


powers t o e x p r o p r i a t e p r i v a t e p r o p e r t y stem f r o m t h e p r i n c i p l e o f s o v e r e i g n t y of
Parliament

a n d , unless there is some i n c o m p a t i b i l i t y w i t h E u r o p e a n l a w o r t h e

H u m a n Rights A c t 1998 o r i t is a subject m a t t e r t h a t has b e e n d e v o l v e d t o t h e

31
32
33

[195.3] 2 WLR 224.


Bocardo SA v Star Energy |2010| UKCS 35 - see paragraph 27 at page 138.
This c o n f o r m s t o the p o s i t i o n under Scots law - see Reid K, The Law of Property in Scotland (IexisNexis

34

1996).
Mines Case (1567) 1 Plowd 310 at 336. For a similar Australian r u l i n g see Woolley v Attorney-General

35

(Victoria) (1877) LR 2 AppCas 163 a n d subsequent legislation.


The reference i n Section 2(2) of the Petroleum Act 1998 t o petroleum " i n its n a t u r a l c o n d i t i o n i n strata"

36

confines the ambit of Part I of the 1998 act t o upstream matters.


I n the U n i t e d Kingdom, e x p r o p r i a t i o n is expressed t o be i n favour o f Her Majesty. However like most
royal prerogatives, these are n o w exercised by g o v e r n m e n t o n behalf of the Crown. For these purposes,
the three terms - His or Her Majesty, the C r o w n a n d g o v e r n m e n t - are s y n o n y m o u s and, unless there is
a close p r o x i m i t y t o the legislative language, this book prefers 'government', being a term t h a t better
reflects m o d e r n practice.

$8

Marc Hammerson

Scottish P a r l i a m e n t or W e l s h Assembly," British courts w i l l n o t accept a n a r g u m e n t


t h a t t h e purpose of a n act of Parliament is i n v a l i d . T h i s p r i n c i p l e is t r i t e law

and

Ungoed-Thomas J provides a j u d i c i a l e x p l a n a t i o n :

What

the statute itself enacts cannot be unlawful, because what the statute says and

provides is itself the law, and the highest form of law that is known

to this country. It

is the law which prevails over every other form of law, and it is not for the court to say
that a parliamentary enactment, the highest law in this country, is illegal."
1.2.10 Therefore, notwithstanding common law rules on the ownership of things above
and b e l o w land, Parliament had t h e p o w e r t o expropriate p e t r o l e u m i n t h e

United

K i n g d o m . F u r t h e r m o r e , u n l i k e the c o m p e n s a t i o n paid w h e n n a t i o n a l i s i n g the coal


m i n i n g i n d u s t r y a decade later," e x p r o p r i a t i o n was carried o u t w i t h o u t p a y m e n t t o
would-be o i l producers. Parliament felt n o m o r a l o b l i g a t i o n t o compensate those
who,

b u t for legislative i n t e r v e n t i o n , w o u l d have received a w i n d f a l l u n a t t r i b u t a b l e

t o t h e i r skill or endeavour.

C. Territorial sea
1.2.11 The same legal a r g u m e n t s a p p l y t o t h e U n i t e d Kingdom's t e r r i t o r i a l sea. The
and

sub-strata of t h e sea f r o m t h e low-water m a r k and

seabed

e x t e n d i n g f o r 12 m i l e s

w i t h i n t h e Crown's t e r r i t o r i a l sovereignty (subject t o the p r o v i s i o n s of U N C L O S

40

is

1982

and o t h e r rules of i n t e r n a t i o n a l law, w h i c h i n c l u d e t h e r i g h t of i n n o c e n t passage f o r


41

ships of f o r e i g n states). As L o r d W i l b e r f o r c e stated i n Pianka

v The Queen:

The legislative power of the coastal state over its territorial waters is as absolute as its
12

authority over its land territory.

1.2.12 Article 33 of UNCLOS 1982 also grants the coastal state control over a contiguous
zone, b e i n g a zone n o t e x t e n d i n g b e y o n d 24 n a u t i c a l miles f r o m t h e baseline f r o m
w h i c h t h e b r e a d t h of t h e t e r r i t o r i a l sea is measured. This c o n t i g u o u s zone allows t h e
coastal state c o n t r o l over customs, fiscal, i m m i g r a t i o n and sanitary laws.

1.2.13 Other than certain rights relating to coal, the government claims ownership of mines
and

m i n e r a l s u n d e r t h e soil o f t h e t e r r i t o r i a l sea w i t h i n a 12-mile l i m i t . T h e p o i n t

has, a c c o r d i n g t o Slade J (see n e x t paragraph), been clear law for nearly 100 years.
Parliamentary

sovereignty

applies equally t o t h e t e r r i t o r i a l sea a n d t h e

state's

e x p r o p r i a t i n g powers, discussed i n r e l a t i o n t o t e r r i t o r i a l land, a p p l y t o t h e same


e x t e n t i n t h e U n i t e d Kingdom's t e r r i t o r i a l sea. A l t h o u g h a p p r o v a l of i n t e r n a t i o n a l
law

is n o t necessary, a coastal

state's s o v e r e i g n t y

over its t e r r i t o r i a l

sea is

a c k n o w l e d g e d b y c u s t o m a r y i n t e r n a t i o n a l law a n d n o w c o d i f i e d i n Article 2 o f

.37

Even i n these circumstances, Parliament has no ability to b i n d its successors and those acts of Parliament

38

establishing these institutions or fundamental rights may be repealed by future parliaments.


Cheney v Conn [1968] 1 WLR 242 at 247. See also Mortensen v Peters (1906) 8 F (J) 93; (1906) 14 SLT

39
40
41
42

per the Lord Justice General - see page 140.


Coal Industry Nationalisation Act 1946.
The previous three-mile l i m i t was extended by the Territorial Sea Act
See UNCLOS 1982 Articles 17 et seq.
|1979] AC 107 at 123.

227

1987.

39

Ownership, licensing a n d sources of law

UNCLOS

1982.

41

Unlike

UNCLOS's c o r r e s p o n d i n g

article i n relation

to the

44

c o n t i n e n t a l shelf, t h e p r o v i s i o n r e l a t i n g t o t h e t e r r i t o r i a l sea is d r a f t e d i n t e r m s o f
a coastal state's sovereignty ( n o t exclusive rights) a n d is n o t q u a l i f i e d b y purpose. I t
is absolute. A r t i c l e 2(1) states:

The sovereignty of a coastal State extends, beyond its land territory and internal wate
...to an adjacent belt of sea, described as the territorial sea.

45

1.2.14 In Earl of Lonsdale v Attorney-General, the only case examining oil and gas
e x p l o r a t i o n i n t h e U n i t e d Kingdom's t e r r i t o r i a l sea, Slade J n o t e d :
It is not in dispute that Parliament, in enacting the Act of 1934, would have had the

power to legislate in regard to the territorial waters of Great Britain, and all that l
beneath them, including oil and gas; see, for example, Pianka v T h e Q u e e n [1979] AC
107 (page 117).
... by 1918 the English courts had come to recognise the sovereignty of the Crown,

including beneficial ownership, over the three mile territorial belt of Great Britain

what lies beneath it. I also accept that, by that time, there were many judicial dic

referring to this subject matter as part of the territory or realm of Great Britain (pag
118).

/ accept that the United Kingdom does indeed have sovereignty over the territorial sea
and the seabed and subsoil thereof within these limits, (page 121)

1.2.15 Despite the sovereignty of the United Kingdom over its territorial sea being clear law,
t h e q u e s t i o n o f w h e t h e r t h e scope o f a n act o f P a r l i a m e n t e x t e n d s t o t h e t e r r i t o r i a l
sea is a m a t t e r o f s t a t u t o r y c o n s t r u c t i o n . I n c o n t r a s t t o t h e c u r r e n t
position,

which

expressly

refers t o t h e t e r r i t o r i a l

legislative

sea a d j a c e n t t o t h e U n i t e d

Kingdom, " w h e n enacted t h e 1934 act referred t o t h e g o v e r n m e n t ' s e x p r o p r i a t i o n of


p e t r o l e u m in situ i n "Great B r i t a i n " . T h e scope o f t h i s t e r m i n o l o g y

was l i t i g a t e d i n

Lonsdale v Attorney-General* a n d t h e c o u r t was asked w h e t h e r t h e e x p r o p r i a t i n g 1934


act e x t e n d e d t o t h e t e r r i t o r i a l sea o f Great B r i t a i n . T h e u n p a l a t a b l e

conclusion

reached b y Slade J - t h a t i t d i d n o t , a n d t h e r e f o r e coal m i n i n g r i g h t s g r a n t e d b y the


g o v e r n m e n t u n d e r t h e t e r r i t o r i a l seas o f Great B r i t a i n c o u l d also i n c l u d e t h e r i g h t t o
exploit

o i l a n d gas - was p r o m p t l y reversed b y Section 18 o f t h e O i l a n d Gas

(Enterprise) A c t 1982. T h i s was achieved b y e x t e n d i n g t h e t e r r i t o r i a l j u r i s d i c t i o n of


t h e 1934 act t o i n c l u d e p e t r o l e u m i n strata i n Great B r i t a i n "or b e n e a t h t h e t e r r i t o r i a l
waters o f t h e U n i t e d K i n g d o m adjacent t o Great B r i t a i n " . These t e r r i t o r i a l l i m i t s are
r e t a i n e d i n t h e c o n s o l i d a t i n g 1998 act. Therefore, c u r r e n t l e g i s l a t i o n n o w
and legitimately

expropriates

expressly

p e t r o l e u m l y i n g u n d e r n e a t h t h e U n i t e d Kingdom's

t e r r i t o r i a l seas. T h e o w n e r s h i p status o f p e t r o l e u m d i s c o v e r e d i n t h e c o n t i n e n t a l
shelf is, however, is n o t so clear.

43
44
45
46
47

40

See page 152.


Article 77.
[1982] 1 WLR 997; [1982[ 3 All ER 579.
Section 2(2) of the Petroleum Act 1998.
Op tit.

Marc nammerson

D.

C o n t i n e n t a l shelf

1.2.16 Prior t o the realisation t h a t valuable p e t r o l e u m c o u l d be e x p l o i t e d i n deep offshore


waters, t h e c o m m o n l y h e l d v i e w was t h a t the h i g h seas were either legally incapable
o f b e i n g a p p r o p r i a t e d o r capable o f b e i n g a p p r o p r i a t e d b y t h e first occupier. T h e
a n t i c i p a t i o n o f o i l a n d gas discoveries i n deepwater d e v e l o p m e n t s l e d t o a ree v a l u a t i o n of these legal principles.

1.2.17 The first express assertion of a nation's rights over its continental shelf was made in
1945

b y the T r u m a n P r o c l a m a t i o n .

48

I n its recitals t h e p r o c l a m a t i o n refers t o t h e

"need for n e w sources o f p e t r o l e u m a n d o t h e r m i n e r a l s " a n d notes t h a t "resources


u n d e r l i e m a n y parts of the c o n t i n e n t a l shelf". T h e recitals f u r t h e r state that:

the exercise of jurisdiction over the natural resources of the subsoil and sea bed of the
continental shelf by the coastal nation is reasonable and just, since the effectiveness of
measures

to utilize or conserve these resources would

be contingent upon

cooperation

and protection from the shore, since the continental shelf m a y be regarded as an
extension of the land-mass

of the coastal nation and thus naturally appurtenant

to it.

1.2.18 On the basis of this reasoning, the United States declared that, in relation to the
c o n s e r v a t i o n a n d p r u d e n t u t i l i s a t i o n o f n a t u r a l resources, its c o n t i n e n t a l

shelf was

"subject t o its j u r i s d i c t i o n a n d c o n t r o l " . T h i s was a n assertion o f certain rights t o


n a t u r a l resources i n the c o n t i n e n t a l shelf, rather t h a n a c l a i m of f u l l sovereignty over
the c o n t i n e n t a l shelf itself. The US a c t i o n triggered similar a c t i o n b y o t h e r countries.
Some of these, u n l i k e the T r u m a n P r o c l a m a t i o n , p u r p o r t e d t o assert f u l l sovereignty
over t h e c o n t i n e n t a l

shelf. To achieve u n i f o r m i t y

i n t h i s area, 13 years after t h e

T r u m a n P r o c l a m a t i o n , a m u l t i l a t e r a l c o n v e n t i o n was agreed t o c o d i f y i n t e r n a t i o n a l
law a n d practice i n t h i s area.

1.2.19 In 1958 the United Nations conference in Geneva adopted four conventions on the
law

o f t h e sea, i n c l u d i n g

a convention

o n the continental

shelf

(the

1958

c o n v e n t i o n ) . This has n o w been superseded, b u t is i n c l u d e d " b o t h for h i s t o r i c a l


interest a n d because o f its relevance t o countries w h i c h have n o t signed or r a t i f i e d
U N C L O S 1982,
Shelf cases

50

w h i c h replaced t h e 1958 c o n v e n t i o n . I n the North

Sea

Continental

the I n t e r n a t i o n a l C o u r t of Justice h e l d that, u s i n g a legal a r g u m e n t o f

estoppel based o n a country's c o n d u c t , t h e 1958 c o n v e n t i o n m a y be b i n d i n g o n


c o u n t r i e s even i f t h e y have n o t signed or r a t i f i e d i t .

1.2.20 The wording of the Truman Proclamation and the 1958 convention set the tone for
e x t e n s i o n of UK law i n t o t h i s area a n d the i n t e r n a t i o n a l law t h a t f o l l o w e d . President
T r u m a n declared t h a t t h e relevant n a t u r a l resources were subject t o t h e U n i t e d
States' " j u r i s d i c t i o n a n d c o n t r o l " . T h e 1958 c o n v e n t i o n talked o f the coastal state
exercising "sovereign rights for the purpose of e x p l o r i n g

48
49
50

jthe c o n t i n e n t a l shelf] a n d

Proclamation no 2667, 10 Fed Reg 12303 (1956) - see pages 147 and 148.
At pages 148 to 150.
[1969] IC) .3 - see pages 150 to 163.

41

O w n e r s h i p , l i c e n s i n g a n d sources o f l a w

exploiting its natural resources". The convention also goes on to stipulate a stringent
e n t i r e r e m o v a l o b l i g a t i o n f o r disused o f f s h o r e i n s t a l l a t i o n s .

51

This type of o b l i g a t i o n

is a r e s t r i c t i o n w h i c h w o u l d n o t be acceptable t o states w h i c h b e l i e v e d t h a t t h e y h a d
e x i s t i n g s o v e r e i g n t y over a p a r t i c u l a r area, rather t h a n b e i n g n e w l y created s o v e r e i g n
r i g h t s g r a n t e d b y i n t e r n a t i o n a l law. I n c o m p a r i s o n t o t h e c o r r e s p o n d i n g p r o v i s i o n i n
U N C L O S 1982, A r t i c l e 2 r e l a t i n g t o t h e t e r r i t o r i a l sea, t h e r e are t h r e e differences i n
t h i s respect:

A r t i c l e 2 talks o f sovereignty, whereas A r t i c l e 77 ( o n t h e c o n t i n e n t a l shelf)


refers t o sovereign rights;

A r t i c l e 77 is l i m i t e d b y purpose, w h i c h i n c l u d e s e x p l o i t i n g n a t u r a l resources,
whereas A r t i c l e 2 is u n q u a l i f i e d ; a n d

T h e p r o v i s i o n s f o l l o w i n g A r t i c l e 77 g o o n t o q u a l i f y r i g h t s r e l a t i n g t o t h e
c o n t i n e n t a l shelf - f o r e x a m p l e , A r t i c l e 78(2)

(rights over t h e continental

shelf n o t t o i n f r i n g e o r r e s u l t i n a n y u n j u s t i f i a b l e i n t e r f e r e n c e

with

n a v i g a t i o n ) , A r t i c l e 79(1) ( r i g h t t o l a y s u b m a r i n e p i p e l i n e s ) a n d A r t i c l e 81
( r i g h t t o a u t h o r i s e a n d regulate d r i l l i n g ) . T h e i n c l u s i o n o f q u a l i f i c a t i o n s a n d
t h e n e e d t o p r o v i d e f u r t h e r r i g h t s suggests t h a t a l l o w i n g t h e exercise o f
s o v e r e i g n r i g h t s i n r e l a t i o n t o t h e e x p l o i t a t i o n of n a t u r a l resources is n o t the
same as a g r a n t o f absolute sovereignty.

1.2.21 T h e language of t h e 1958 c o n v e n t i o n was closely f o l l o w e d i n U N C L O S 1982,

which

f u r t h e r stated t h a t t h e exercise o f these r i g h t s is exclusive " i n t h e sense t h a t i f the


coastal State does n o t e x p l o r e t h e c o n t i n e n t a l shelf o r e x p l o i t i t s n a t u r a l resources,
no

o n e m a y u n d e r t a k e these a c t i v i t i e s w i t h o u t t h e express c o n s e n t o f t h e coastal

State".

52

T h e c o n t i n e n t a l shelf is described as c o m p r i s i n g o f t h e seabed a n d subsoil

t h r o u g h o u t t h e n a t u r a l p r o l o n g a t i o n o f a coastal state's l a n d t e r r i t o r y t o t h e outer


edge o f t h e c o n t i n e n t a l m a r g i n , o r a distance o f 2 0 0 n a u t i c a l m i l e s f r o m t h e coastal
state's baseline."

1.2.22 UNCLOS 1982 reflects the decision of the International Court of Justice, which held
i n t h e North Sea Continental Shelf cases t h a t each coastal state has a r i g h t t o those
areas o f c o n t i n e n t a l shelf c o n s t i t u t i n g t h e n a t u r a l p r o l o n g a t i o n o f i t s l a n d t e r r i t o r y
u n d e r t h e sea, a n d t h a t a g r e e m e n t b e t w e e n d i s p u t i n g coastal states m u s t be arrived
at i n a c c o r d a n c e w i t h e q u i t a b l e p r i n c i p l e s . However, these e q u i t a b l e p r i n c i p l e s relate
t o t h e process o f r e a c h i n g a n agreement, rather t h a n i n d e t e r m i n i n g t h e d e l i m i t a t i o n
of t h e area. T h e r i g h t s o f t h e coastal n a t i o n o v e r its c o n t i n e n t a l shelf exists ipso facto
and

ab initio b y v i r t u e o f a n a t u r a l p r o l o n g a t i o n

o f its l a n d

t e r r i t o r y a n d its

s o v e r e i g n t y over l a n d . I n r e a c h i n g t h i s decision, t h e c o u r t rejected:

t h e p r i n c i p l e t h a t t h e d e l i m i t a t i o n h a d t o be c a r r i e d o u t i n a c c o r d a n c e w i t h
t h e p r i n c i p l e o f equidistance.

51

52
S3

42

A l t h o u g h t h i s a r g u m e n t was h e l d t o be 111-

f o u n d e d , i t was a c k n o w l e d g e d t o produce t h e m o s t c o n v e n i e n t a n d certain


legal theory; a n d

t h e p r i n c i p l e o f just a n d equitable shares. T h i s a r g u m e n t encroached o n the


f u n d a m e n t a l p r i n c i p l e t h a t t h e rights o f coastal states i n respect of the
c o n t i n e n t a l shelf c o n s t i t u t i n g a n a t u r a l p r o l o n g a t i o n o f its l a n d t e r r i t o r y
arose as a result o f sovereignty over land.

1.2.23 These international legal developments were incorporated into UK domestic law by
t h e C o n t i n e n t a l Shelf Act 1964. Section 1 states: "Any

rights exercisable by

the

U n i t e d K i n g d o m outside t e r r i t o r i a l waters w i t h respect t o t h e sea bed a n d subsoil and


t h e i r n a t u r a l resources ... are hereby vested i n Her Majesty."

54

T h i s section applies t o

activities b o t h w i t h i n a n d outside the p e t r o l e u m industry. Because o f its non-specific


a p p l i c a t i o n , Section 1 o f t h e 1964 act has n o t been c o n s o l i d a t e d i n t o t h e 1998 act.
Its a p p l i c a t i o n t o p e t r o l e u m law is achieved by Section 3 of the 1998 act w h i c h states
t h a t t h e secretary of state may

grant licences i n r e l a t i o n t o p e t r o l e u m w i t h respect t o

w h i c h rights vested i n Her Majesty by Section 1(1) o f t h e 1964 act are exercisable.

1.2.24 Slade J considered the drafting of Section 1 of the 1964 Act to be unusual, but
attributable t o Parliament's desire t o e n t i t l e g o v e r n m e n t t o c l a i m for itself, as a matter
55

of domestic law, the exclusive rights granted by the 1958 c o n v e n t i o n , Article 2.

1.2.25 Rather than declaring full sovereignty over the continental shelf in favour of the
coastal state, t h e c o n v e n t i o n s a n d legislation cited above m e r e l y create exclusive
rights over t h e c o n t i n e n t a l shelf for the e x p l o i t a t i o n o f n a t u r a l resources. This fact is
reflected i n t h e 1998 act, w h i c h refers t o p e t r o l e u m " i n Great B r i t a i n or b e n e a t h the
t e r r i t o r i a l sea adjacent t o t h e U n i t e d K i n g d o m " as p e t r o l e u m i n respect o f w h i c h the
C r o w n has

exclusive rights for w h i c h t h e C r o w n may

g r a n t licences. W i t h o u t

c l a i m i n g any a d d i t i o n a l rights for t h e C r o w n (other t h a n referring back t o the

1964

act), Section 3 o f t h e 1998 act allows t h e C r o w n t o g r a n t licences for p e t r o l e u m w i t h


respect t o w h i c h r i g h t s are vested i n the C r o w n by Section 1(1) o f the 1964 act.

1.2.26 Therefore, for onshore and territorial waters, the United Kingdom exercises selfg r a n t e d sovereignty. For t h e UKCS, t h e exercise o f a u t h o r i t y is a d e r i v a t i v e o f
exclusive rights g r a n t e d b y

i n t e r n a t i o n a l law. The

UK

statutory and

licensing

regime's u n i f o r m a p p r o a c h fails, i n large part, t o d i s t i n g u i s h b e t w e e n these separate


geographic areas - a n d t h e r e f o r e d i f f e r e n t p r o p r i e t a r y claims. These t w o a l t e r n a t i v e
foundations

o f j u r i s d i c t i o n , as we

shall see, cause anomalies w h e n

analysing

underlying ownership.

1.3 Underlying ownership in the United Kingdom

1.3.1 UK law and policy are now based on a free market model that excludes state

54
55

See page 150.


Lonsdale v Attorney-General, at page 122.

43

participation and minimises government involvement. The rationale for licensing is


that o i l and gas companies are commercially, technically and financially better
qualified to exploit petroleum reserves than government or an NOC.

Government s

role is limited to allocating acreage using a fair and transparent system, regulating
56

industry and collecting tax and other forms of revenue - such as rental payments
57

and licence fees - principally, from production activity and profit. As w i t h any
commercial

licence, whether i n the petroleum

industry or elsewhere,

the

fundamental assumption underpinning the arrangement is that the licensor is the


legitimate owner of the property being transferred to, or relied upon by, the licensee,
and that the property is capable of assignment. The authority to issue a licence whether a petroleum licence issued by government or other type of licence granted
by

a commercial

party - relies on

title to the u n d e r l y i n g subject matter.

Notwithstanding that the licence i n the present case is being issued by government,
one must examine ownership rights to do this. Governmental authority alone is
insufficient and this may

explain the limited, non-proprietary habendum model

clause i n a petroleum licence.

58

1.3.2 The government's first attempt at legislating for exploration and production - the
Petroleum (Production) Act 1918 - was a regulatory measure designed, w i t h the war
effort i n mind, to prevent the inefficiencies of competitive drilling.

59

This was a

feature of onshore production that had previously occurred i n the United States'
unregulated oil rush. Ownership of UK onshore petroleum was not expropriated at
this first legislative attempt.
1.3.3 The Petroleum (Production) Act 1934, which still remains the basis of law for
exploration and production i n the United Kingdom (by its consolidation into the
Petroleum Act 1998), took a radically different approach from its 1918 predecessor.
Its aims were a mix of regulatory (like the 1918 act), proprietary and revenue-raising.
In other words, the 1934 act not only gave the Crown exclusive rights to explore for
and produce petroleum (rights that could be licensed to IOCs), but also vested
property i n petroleum in situ i n favour of the Crown. In doing so, it turned the
licences issued under petroleum legislation from mere permissions to undertake
certain activities (1918 act) into grants i n the nature of a concession (1934 act).
1.3.4 The 1934 act was passed at a time when potential North Sea production was
unrecognised. This statement applies i n two different ways. In a geological sense, it
was not u n t i l the late 1950s that the UKCS was discussed as being a potential
petroleum-producing province. Furthermore, i n a legal sense, the rights of a coastal

56

The f u n c t i o n of g o v e r n m e n t i n p r o m o t i n g an orderly system - see Chapter 3 o n u n i t i s a t i o n , Chapter 5


o n access t o pipelines and infrastructure and Chapter 6 o n d e c o m m i s s i o n i n g

57

of disused installations and

pipelines - is a recurring theme i n the topics discussed i n t h i s book.


Previously, r o y a l t y payments calculated at 12.5% of the market value of the p e t r o l e u m p r o d u c e d were
also payable. These were payments pursuant t o the licence, rather t h a n general fiscal, p a y m e n t t o

58
59

44

g o v e r n m e n t based o n the gross value of o i l and gas w o n and saved i n a licensed area.
Q u o t e d i n paragraph 1.1.3.
For m o r e o n c o m p e t i t i v e d r i l l i n g , see Chapter .3 o n u n i t i s a t i o n and the law of capture.

state t o n a t u r a l resources u n d e r n e a t h its c o n t i n e n t a l shelf h a d n o t yet been granted


b y i n t e r n a t i o n a l law. B o t h factors c h a n g e d i n t h e decade b e t w e e n 1958 a n d 1968.

UK

law adapted t o these changes w i t h legislative a m e n d m e n t s w h i c h still c o n t i n u e t o


create uncertainties. A brief s u m m a r y of t h e c u r r e n t p o s i t i o n (and its b a c k g r o u n d ) is
set o u t i n t h e f o l l o w i n g b u l l e t points:

As several cases i n Part B make clear,"" i n t e r n a t i o n a l c o n v e n t i o n s have n o


direct effect i n U K l a w - o t h e r t h a n as a n aid t o s t a t u t o r y i n t e r p r e t a t i o n .
Similar t o j u d i c i a l reliance i n t h e event of legislative d r a f t i n g ambiguities, for
our

purposes i n t e r n a t i o n a l legal materials

provide a policy background

against w h i c h w e c a n ascertain w h a t UK legislation is a t t e m p t i n g to achieve.

T h e relevant sections of U N C L O S 1982 are the latest e x a m p l e of i n t e r n a t i o n a l


law o n t h i s subject b e i n g drafted i n j u r i s d i c t i o n a l rather t h a n p r o p r i e t a r y
language. Starting w i t h t h e T r u m a n P r o c l a m a t i o n , a n d c a r r y i n g o n t h r o u g h
t h e 1958 c o n v e n t i o n a n d U N C L O S 1982, i n t e r n a t i o n a l l a w has c o n s i s t e n t l y
failed t o g r a n t t h e coastal state absolute sovereignty over its c o n t i n e n t a l shelf
a n d therefore t h e p o w e r t o expropriate n a t u r a l resources i n t h e same m a n n e r
achieved b y t h e U n i t e d K i n g d o m for its o n s h o r e reserves.

This p o i n t is reflected i n the U n i t e d Kingdom's a p p l i c a t i o n of t h i s issue i n t o


d o m e s t i c l a w (and a c o m p a r i s o n b e t w e e n t h e m a n n e r i n w h i c h t h e U n i t e d
K i n g d o m legislates for o n s h o r e a n d offshore reserves). Section 1(1) o f t h e
1964

act states: " A n y rights exercisable

by the United Kingdom

outside

t e r r i t o r i a l waters w i t h respect t o t h e sea b e d a n d subsoil a n d t h e i r n a t u r a l


6

resources ... are hereby vested i n Her Majesty." ' T h e d r a f t i n g raises t h e


question: w h a t r i g h t s over n a t u r a l resources i n t h e c o n t i n e n t a l shelf does
62

i n t e r n a t i o n a l l a w a l l o w t h e U n i t e d K i n g d o m t o exercise - p r o p r i e t a r y o r
j u r i s d i c t i o n a l ? C o m m e n t a t o r s disagree o n t h e answer t o t h i s question. I f
m e r e l y j u r i s d i c t i o n a l (ie, c o n t r o l b u t n o t o w n e r s h i p ) , t h e n there
international

legal basis o n w h i c h

the government

is n o

can expropriate

p e t r o l e u m i n t h e UKCS.

Slade J c o n c l u d e d " t h a t t h e 1964 act e n t i t l e d t h e C r o w n t o c l a i m f o r itself


rights g r a n t e d u n d e r t h e 1958 c o n v e n t i o n . Slade J h e l d t h a t t h e 1964 act
"operated t o e x p r o p r i a t e all o r a n y rights in a n y o i l a n d n a t u r a l gas". A r i g h t
i n s o m e t h i n g c a n represent less t h a n c o m p l e t e o w n e r s h i p (ie, j u r i s d i c t i o n
over t h a t t h i n g rather t h a n o w n e r s h i p ) . But t h i s v i e w is h a r d t o reconcile
w i t h Slade J's later d e s c r i p t i o n of t h e Crown's c l a i m of 'statutory t i t l e ' - unless
t h e q u a l i f y i n g w o r d ('statutory') i m p l i e s s o m e t h i n g less t h a n f u l l o w n e r s h i p .
Based o n t h e use o f t h i s phrase, c o m m e n t a t o r s consider SladeJ's v i e w t h a t the
Crown's r i g h t s are p r o p r i e t a r y rather t h a n j u r i s d i c t i o n a l . H o w e v e r ( t o add t o
t h e u n c e r t a i n t i e s i n t h i s area), Slade J's c o m m e n t s are expressly obiter dicta
a n d w o u l d n o t be b i n d i n g if t h i s issue were decided again. (To date, c o n t r a r y

60

See Mortensen v Peters (1906) 8 F (J) 93; (1906) 14 SLT 227 - see page 141; IRC v Collco [1960] C h 592 -

61
62
63

see pages 144-146; and IRC v Lucvor Dealings Ltd [1960] 2 WLR 84 - see page 146.
The italics in this and the three following bullet points have been added for emphasis.
UK Oil & Gas Law acknowledges that this term need not be synonymous with full title.
Earl of Lonsdale v Attorney-General [1982| 1 WLR 887.

45

to

Slade J's i n t e n t i o n t h a t h i s analysis c o u l d

l i t i g a t i o n , Lonsdale

v Attorney-General

s u b s e q u e n t l y r e p o r t e d cases.)

be r e l i e d u p o n

i n future

has n o t b e e n c i t e d o n t h i s p o i n t i n a n y

64

If o n e compares t h e e x p r o p r i a t i n g language o f t h e 1934 act ("The property in


p e t r o l e u m ... is h e r e b y vested i n His M a j e s t y " ) w i t h t h e 1964 act ("Any rights
exercisable

b y t h e U n i t e d K i n g d o m ... are h e r e b y vested b y H e r M a j e s t y " ) , i t

is d i f f i c u l t t o reach t h e c o n c l u s i o n

t h a t t h e r i g h t s created are i n t e n d e d t o

a p p l y t o a s i m i l a r class o f subject matter.

T h i s p o i n t is c o m p o u n d e d b y t h e w a y t h a t t h e 1 9 3 4 act was c o n s o l i d a t e d i n t o
t h e 1998 act. T h e e x p r o p r i a t i n g Section o f t h e 1934 act ( q u o t e d above) was
n o t expressly repeated i n t h e 1998 act. I n r e l a t i o n t o o n s h o r e o i l a n d gas, the
savings p r o v i s i o n s of t h e 1934 act makes t h e lack o f r e p e t i t i o n of o w n e r s h i p
i n t h e 1998 act unnecessary. Section 1(4) a n d p a r a g r a p h 4 o f Schedule 3 i n
t h e 1998 act p r o v i d e t h a t t h e repeal o f t h e 1934 act "does n o t affect t h e
v e s t i n g i n Her M a j e s t y o f property

in petroleum

w h i c h is so vested i m m e d i a t e l y

before t h e c o m m e n c e m e n t o f t h i s Act". B u t a p p l i e d t o o f f s h o r e p e t r o l e u m , i t
is d i f f i c u l t t o f i t t h e language o f " r i g h t s exercisable b y " t h e U n i t e d K i n g d o m
(1964

act, Section

1) p u r s u a n t t o w h i c h

j u r i s d i c t i o n over t h e UKCS is

exercised

i n t o t h e d r a f t i n g o f t h e savings p r o v i s i o n ("the v e s t i n g o f ...

property

i n petroleum").

Therefore

the expropriating

language,

which

r e m a i n s p a r t of UK l a w o n l y because o f t h e savings p r o v i s i o n i n t h e 1998 act,


a r g u a b l y applies o n l y t o p r o p e r t y i n p e t r o l e u m w h i c h vested i n t h e C r o w n
u n d e r t h e 1934 act a n d n o t t h e r i g h t s t h a t vested i n t h e C r o w n u n d e r t h e
1964

act.

UK Oil & Gas Law s u m m a r i s e s t h e p o s i t i o n as f o l l o w s :


Establishing

for these purposes

the legal nature

extremely

difficult: there is no judicial authority

character

of petroleum

minerals,

and the offshore location of most

further complicates
considered

creates

matters.

these questions

property

It is hardly

should

problems
United

surprising

not be unanimous

of [offshore]

licence rights is

directly in point,

the fugacious

not experienced
Kingdom

with

other

oil and gas resources

that those authors


in their views.

who

have

65

1.3.7 Based on the uncertainties highlighted in the paragraph above, UK Oil & Gas Lav/*
does n o t go so far as t o assert t h a t g o v e r n m e n t has f u l l o w n e r s h i p o f offshore
reserves. Instead i t refers t o t h e state's " r i g h t s of a p r o p r i e t a r y n a t u r e i n t h e resources
o f t h e shelf". T h i s leaves o p e n t h e p o s s i b i l i t y t h a t g o v e r n m e n t ' s o w n e r s h i p o f
p e t r o l e u m i n t h e c o n t i n e n t a l shelf m a y be ( u s i n g a US, r a t h e r t h a n E n g l i s h , legal
t e r m ) ' q u a l i f i e d ownership', w h i c h ( u n d e r English law) is e q u i v a l e n t t o a profit d
prendre:'

I n t h e n e x t p a r a g r a p h , t h e e d i t o r s satisfy t h e m s e l v e s " t h a t t h e C r o w n

64
65
66

The few cases that d o cite Lonsdale v Attorney-General rely o n different parts of Slade J's j u d g m e n t
At paragraph 1-344.
At paragraph 1-345.

67

This real estate concept allows a person t o enter the l a n d of another for t h e purpose of t a k i n g s o m e t h i n g
of value. I t combines an easement (the right t o enter land) w i t h t h e a d d i t i o n a l element that t h e
beneficiary has t h e right t o remove produce. This right o f removal is a privilege t h a t
s o m e t h i n g less t h a n ownership.

46

represents

e n j o y s at least a l i m i t e d p r o p r i e t a r y r i g h t w h i c h it c o u l d pass o n t o a licensee". T h e


l e a d i n g t e x t b o o k i n t h i s area therefore appears t o accept t h e p o s s i b i l i t y t h a t offshore
p e t r o l e u m has n o t been f u l l y e x p r o p r i a t e d b y t h e state.

1.3.8 The position offshore, where no private real estate interests exist, is, of course, different
f r o m t h a t onshore, w h e r e (as we have seen) t h e c o m m o n law assigns o w n e r s h i p t o the
l a n d o w n e r but statute expropriates o w n e r s h i p f o r t h e state. I n relation t o offshore, the
government's stated position"* is t h a t p r o p r i e t a r y rights d o n o t exist i n un-extracted
hydrocarbons

u n d e r t h e UKCS a n d o w n e r s h i p

arises o n l y once t h e y have been

p r o d u c e d (ie, p u r s u a n t t o t h e law o f capture) u n d e r a n a p p r o p r i a t e licence.

1.3.9 This creates a dichotomy in English law between onshore and offshore petroleum.
The start o f t h i s chapter asserted t h a t g o v e r n m e n t o w n e r s h i p of UKCS p e t r o l e u m is
now

an unchallenged

commercial

reality. G i v e n t h i s status quo, t h e l i m i t e d

r e m a i n i n g life o f t h e UKCS a n d t h e lack o f a n y c o m p e t i t o r w i t h a v i a b l e c l a i m , i t is


d o u b t f u l t h a t a case w i l l reach t h e courts p r o d u c i n g a r u l i n g o n t h i s p o i n t . W i t h o u t
such l i t i g a t i o n , a degree o f u n c e r t a i n t y r e m a i n s over t h e exact n a t u r e o f t h e U K
government's o w n e r s h i p o f o f f s h o r e p e t r o l e u m in situ.

1.4 Foreign models of petroleum exploitation

1.4.1 Before discussing how the United Kingdom exercises its petroleum rights granted by
domestic

a n d i n t e r n a t i o n a l laws b y w a y o f licensing, alternative

international

m o d e l s are first considered. T h e purpose o f t h i s section is t o p r o v i d e a c o m p a r i s o n t o


UK law a n d t h e l i c e n s i n g m o d e l .

1.4.2 The language by which ownership, sovereign rights and exclusive exploration and
p r o d u c t i o n rights are asserted w i l l differ b e t w e e n j u r i s d i c t i o n s . W h e n e v e r o w n e r s h i p
or t h e r i g h t o f e x p l o r a t i o n a n d p r o d u c t i o n is reserved i n f a v o u r o f t h e state, t h e
g o v e r n m e n t is free t o decide t h e areas, p r o d u c t i o n rates a n d taxes applicable." M o r e
i m p o r t a n t l y , t h e host g o v e r n m e n t has t h e r i g h t t o select w h a t e c o n o m i c system is
used a n d w h e t h e r t h e g o v e r n m e n t (or its N O C ) w i l l participate i n e x p l o r a t i o n a n d
production.

70

Each o f these r i g h t s is e x p l i c i t l y recognised i n A r t i c l e 18(3) o f t h e

Energy Charter Treaty.

71

Furthermore, t h e fact is also recognised i n A r t i c l e 2 o f t h e

H y d r o c a r b o n s L i c e n s i n g Directive, w h i c h states t h a t m e m b e r states r e t a i n t h e r i g h t


to d e t e r m i n e t h e areas w i t h i n t h e i r t e r r i t o r y t o be made available f o r t h e exercise o f
the

activities o f prospecting, e x p l o r i n g f o r a n d p r o d u c i n g

hydrocarbons.

68
69

See DECC's Offshore Field Development Guidelines at paragraph 2.5.1(a) at page 272.
A l t h o u g h for EU member states, subject t o applicable EU law i n c l u d i n g the Hydrocarbons Licensing

70

w i l d fauna and flora (the Habitats Directive).


Even i n a jurisdiction such as the United Kingdom, w h i c h has not fundamentally altered legislative

Directive (94/22/EC) and Council Directive 94/43/EEC o n the conservation of natural habitats and of

principles since 1934, different governments have been able to alter the economic model by i n c l u d i n g
71

or w i t h d r a w i n g the participation of an NOC.


See page 73.

47

1.4.3

G i v e n t h e w i d e d i s c r e t i o n (recognised b y i n t e r n a t i o n a l law) t h a t a c o u n t r y
exercise i n e x p l o i t i n g u n d e r l y i n g o w n e r s h i p ,

may

t h i s s e c t i o n 1.4 p r o v i d e s a b r i e f

d e s c r i p t i o n o f t w o i n t e r n a t i o n a l c o m m e r c i a l a r r a n g e m e n t s c o m m o n l y used. Issues o f
u n d e r l y i n g o w n e r s h i p are n o t a n e v e r y d a y c o n c e r n t o g o v e r n m e n t o r i n d u s t r y . A
m o r e t o p i c a l debate relates t o t h e system t h a t best a l l o w s a state t o e x p l o i t reserves
f o r t h e b e n e f i t o f its c i t i z e n s a n d w i d e r e c o n o m y .

72

Since U K o i l a n d gas p r o d u c t i o n

started, successive g o v e r n m e n t s h a v e delegated r e s p o n s i b i l i t y f o r t h i s b y g r a n t i n g


licences t o I O C s t o p e r f o r m , a n d take p r o d u c t i o n f r o m , p e t r o l e u m o p e r a t i o n s . T w o
a l t e r n a t i v e m o d e l s are e x a m i n e d .

1.4.4 The determination of which system of exploitation is used is a political issue. The
attractiveness ( o r o t h e r w i s e ) o f t h e t e r m s o f f e r e d t o I O C s is i n f l u e n c e d b y t h e
p r o s p e c t i v i t y o f t h e p e t r o l e u m p r o v i n c e u n d e r c o n s i d e r a t i o n . T h e stance t a k e n m a y
e v e n be adaptable w i t h i n a c o u n t r y d e p e n d i n g o n t h e p a r t i c u l a r area b e i n g discussed.
H i s t o r i c a l l y , t h i s has o c c u r r e d i n N i g e r i a , w h i c h has d i f f e r e n t t y p e s o f o i l concession
d e p e n d i n g o n w h e t h e r t h e d e v e l o p m e n t is o n s h o r e or i n s h a l l o w or deep water. M o r e
recently, Brazil has discussed i n t r o d u c i n g d i f f e r e n t f o r m s o f concessions f o r its n e w l y
d i s c o v e r e d pre-salt reserves. T h e U n i t e d K i n g d o m , as c o u l d be assumed, n o w adopts
a

laissez-faire

approach

with

n o state p a r t i c i p a t i o n

and minimal

government

i n t e r f e r e n c e . T h i s is reflected i n t h e t e r m s o f t h e licence, t h e l e g i s l a t i o n
promotes i t and the manner i n which

that

i t is i m p l e m e n t e d . O t h e r g o v e r n m e n t s ,

p a r t i c u l a r l y f r o m those c o u n t r i e s e m e r g i n g f r o m c o l o n i a l r u l e a n d t a k i n g t h e v i e w
that unfettered foreign ownership of their petroleum

i n d u s t r y is a n u n w e l c o m e

i n t e r f e r e n c e , take a m o r e i n t e r v e n t i o n i s t a p p r o a c h .

1.4.5 There are, broadly, three different international commercial ' models for exploiting
reserves: e x c l u s i v e l i c e n s i n g , p r o d u c t i o n s h a r i n g c o n t r a c t s (PSCs) a n d risk service
contracts.

71

Each is a t y p e o f a g r e e m e n t ( o v e r l a i d w i t h v a r y i n g a m o u n t s o f p u b l i c law

regulations) w h i c h

may

be l o o s e l y d e s c r i b e d

as a c o n c e s s i o n

governing the

r e l a t i o n s h i p b e t w e e n g o v e r n m e n t (as o w n e r of, o r r i g h t s h o l d e r i n r e l a t i o n t o ,
p e t r o l e u m ) a n d licensee (as a b e n e f i c i a r y t o w h i c h t h e g o v e r n m e n t m a y transfer its
t i t l e o r r i g h t s over a specified l i c e n c e area). For t h e reasons g i v e n below, some
c o m m e n t a t o r s d o u b t w h e t h e r a PSC c a n p r o p e r l y be d e s c r i b e d as a concession. T h e
PSC, i t is argued, is b e t t e r categorised as a c o m m e r c i a l c o n t r a c t s i t t i n g b e l o w t h e
c o n c e s s i o n g r a n t e d b y t h e r e l e v a n t m i n i s t r y i n f a v o u r o f its N O C

- i n o t h e r words,

g i v e n b y t h e g o v e r n m e n t ' s r i g h t h a n d t o its left h a n d .

72

See, for example, Financial Times (November 25 2010), "Pemex approves incentive-based o i l c o n t r a c t s "
The nature of o i l concessions i n M e x i c o was a topical issue w h i l e w r i t i n g t h i s b o o k a n d provides an
example of the p o l i t i c a l d i m e n s i o n s of t h i s issue. The article states: " O i l sovereignty remains a central
tenet of M e x i c a n n a t i o n a l pride, a n d every year adults a n d c h i l d r e n alike celebrate t h e e x p r o p r i a t i o n a n d

73
74

subsequent n a t i o n a l i z a t i o n of the country's o i l industry, w h i c h t o o k place i n 1938."


This does n o t include state n a t i o n a l i s a t i o n .
O i l concessions, w h i c h previously allowed IOCs wide-ranging c o n d u c t o f p e t r o l e u m operations over
large areas o f l a n d a n d for l o n g periods, were used at the start of o i l p r o d u c t i o n i n the M i d d l e East
Because of terms h i g h l y favourable t o IOCs, they have largely fallen o u t of favour. Several M i d d l e Eastern
o i l concessions granted o n this basis were eventually renegotiated or subjected t o e x p r o p r i a t i o n

4S

1.4.6

PSCs a n d risk service contracts ( w h e n c o m p a r e d t o licences) are m o r e i n t h e nature


of c o m m e r c i a l arrangements. The IOCs' l i f t i n g of t h e i r p a r t i c i p a t i n g interest share of
petroleum
enforceable

at t h e w e l l h e a d

c a n be analysed as a c o n t r a c t u a l p a y m e n t i n k i n d

against t h e NOC,

as c o n s i d e r a t i o n for e x p l o r a t i o n a n d p r o d u c t i o n

services p r o v i d e d b y t h e IOC. This c o n t r a c t u a l p a y m e n t o f p e t r o l e u m


t i t l e transfer o f p e t r o l e u m

differs f r o m

arising b y o p e r a t i o n o f l a w - such as a grant u n d e r a

r e g u l a t o r y licence (albeit m a y b e i m p l i e d ) or the law of capture. Later i n t h i s chapter


we w i l l test whether, i n t h e U K context, a licence c a n be described p r o p e r l y as
c o n t r a c t or r e g u l a t i o n .

1.4.7 Unlike ownership uncertainties surrounding UKCS reserves, in PSC and risk-sharing
jurisdictions ownership of petroleum

is o f t e n c o n s t i t u t i o n a l l y asserted t o be t h e

p r o p e r t y o f t h e federal o r state g o v e r n m e n t .

;i

H a v i n g granted

itself t h e legal

o w n e r s h i p of p e t r o l e u m , p u r s u a n t t o a PSC t h e state allows its N O C a n d o n e or m o r e


IOCs (referred t o c o l l e c t i v e l y as t h e 'contractor') t o u n d e r t a k e e x p l o r a t i o n a n d
production

i n r e t u r n for a share o f r e s u l t i n g p e t r o l e u m .

The term

'contractor'

understates t h e IOCs' e c o n o m i c upside i n p r o d u c t i o n success. However, t h e w o r d


does emphasise t h a t t h e IOCs' e n t i t l e m e n t t o p r o d u c t i o n is c o n t r a c t u a l rather t h a n
statutory. N o doubt, r e f e r r i n g t o a n I O C as a c o n t r a c t o r also has p o l i t i c a l benefits for
a host g o v e r n m e n t w i s h i n g t o understate f o r e i g n interests i n its d o m e s t i c p e t r o l e u m
industry. A f t e r t h e I O C has l i f t e d its p e t r o l e u m
balance o f p r o d u c t i o n - n o r m a l l y

i n r e t u r n for services p r o v i d e d , the

t h e m a j o r i t y - is t a k e n

b y t h e NOC.

g o v e r n m e n t w i l l also tax p r o d u c t i o n a n d export. This c o m b i n a t i o n

76

The

of production

share a n d fiscal revenue allows t h e state f l e x i b i l i t y i n e n s u r i n g t h a t benefits f l o w t o


t h e host g o v e r n m e n t f r o m d i f f e r e n t sources. I n a d d i t i o n , t h e host g o v e r n m e n t or its
N O C retains s i g n i f i c a n t m a n a g e m e n t c o n t r o l over t h e project a n d t h e contractor.

1.4.8 A risk service contract is a form of agreement under which an IOC provides services
to t h e state i n e x p l o i t i n g reserves w h i l e n o t t a k i n g , or for p o l i t i c a l reasons appearing
to take, any e q u i t y interest i n r e s u l t i n g p r o d u c t i o n . Instead, t h e I O C m a y be granted
an o p t i o n t o purchase a n agreed q u a n t i t y of p r o d u c t i o n . As t h e w o r d 'risk' suggests,
t h e I O C is i n c e n t i v i s e d based o n e x p l o r a t i o n a n d p r o d u c t i o n success. T h e f o l l o w i n g
w o r d ('service') emphasises t h e p o i n t t h a t i t does t h i s p u r s u a n t t o a c o n t r a c t o f
services (rather t h a n e q u i t y i n p r o d u c t i o n ) . These types of agreement are c o m m o n i n
S o u t h A m e r i c a a n d o t h e r c o u n t r i e s w h i c h , o f t e n as a result of n a t i o n a l i s m f o l l o w i n g
previous f o r e i g n d o m i n a t i o n of t h e i r o i l a n d gas industry, p r o h i b i t f o r e i g n o w n e r s h i p
of p r o d u c t i o n . M o r e recently, t h e y have been used i n regions of I r a q as part of t h e
p o l i t i c a l l y sensitive r e c o n s t r u c t i o n of t h e o i l i n d u s t r y b y IOCs.

75

For example, the 1999 C o n s t i t u t i o n of the Federal Republic of Nigeria (an example of a c o u n t r y that has
moved f r o m other forms of petroleum concessions t o a PSC regime) states at Article 44(3) that: "the
entire property and c o n t r o l of all mineral oils and natural gas i n a n d under or u p o n any land i n Nigeria
or i n , under or u p o n the territorial waters and the Exclusive Economic Zone of Nigeria shall vest i n the
G o v e r n m e n t o f the Federation and shall be managed i n such manner as may be prescribed by the
National Assembly." Nigeria is not the o n l y country that claims proprietary rights over petroleum i n its

76

c o n t i n e n t a l shelf w i t h o u t explanation as t o h o w this claim is created under international law.


Compare this outcome t o modern UK licences, under w h i c h IOCs take 1 0 0 % of production.

49

1.4.9

PSCs a n d risk services c o n t r a c t s are c o m m o n i n d e v e l o p i n g w o r l d c o u n t r i e s w h e r e


t h e state reserves f o r itself a h i g h degree o f c o n t r o l over its n a t u r a l resources. As p a r t
of a c o n t r o l e c o n o m y , these c o n t r a c t s a l l o w g o v e r n m e n t t o m a n a g e t h e d e v e l o p m e n t
of i n d u s t r y o f t e n at an early stage o f d e v e l o p m e n t - a n d t h e r e f o r e d e p e n d e n t
stable s u p p l y a n d p r i c i n g o f p e t r o l e u m .

77

on

A d d i t i o n a l l y , t h e sale o f t h e N O C s share o f

p r o d u c t i o n creates a c o n s t a n t r e v e n u e f l o w o f h a r d currency.

1.4.10 A PSC may require the contractor to deliver a percentage of production (particularly
i f t h e d e v e l o p m e n t i n c l u d e s n a t u r a l gas) t o t h e d o m e s t i c m a r k e t at f a v o u r a b l e rates.
It is l i k e l y t o i n c l u d e l o c a l c o n t e n t p r o v i s i o n s c o m p e l l i n g t h e use of, a n d k n o w l e d g e
transfer to, indigenous workers and

companies. I n order t o guarantee

a level o f

c o m m i t m e n t , t h e c o n t r a c t o r w i l l agree t o a m i n i m u m l e v e l o f a n n u a l e x p e n d i t u r e
a n d w o r k p r o g r a m m e . Perhaps m o s t i m p o r t a n t l y , t h e state's ( o r its N O C s ) costs o f
exploration and
production

p r o d u c t i o n are c a r r i e d (ie, deferred) u n t i l t h e

phase. I f a n d

when

income-generating

t h e p r o d u c t i o n phase is reached,

the

NOCs

p a r t i c i p a t i n g i n t e r e s t share o f s u n k costs is r e c o v e r e d o u t o f i t s e n t i t l e m e n t t o
p e t r o l e u m p r o d u c t i o n . W h a t costs are recoverable a n d t h e speed at w h i c h t h e y are
r e p a i d are issues w h i c h are subject t o a l e n g t h y a c c o u n t i n g schedule i n t h e
W h a t e v e r a c c o u n t i n g m e t h o d o l o g y is used, t h e m o d e l has

PSC.

i n h e r e n t cash-flow

advantages f o r t h e state. M o r e s i g n i f i c a n t l y , i t e f f e c t i v e l y passes e x p l o r a t i o n r i s k

78

to

t h e IOCs: i f n o c o m m e r c i a l d i s c o v e r y is f o u n d , t h e n t h e r e w i l l be n o p r o d u c t i o n f r o m
w h i c h t h e state c a n repay its share o f e x p l o r a t i o n costs. I n s u c h c i r c u m s t a n c e s these
costs are c o n t r a c t u a l l y b o r n e b y t h e I O C s - w i t h n o recourse t o t h e

NOC.

1.4.11 Collectively, government control, taking production share in a commodity convertible


i n t o h a r d currency, d o m e s t i c s u p p l y o b l i g a t i o n s , local c o n t e n t r e q u i r e m e n t s , carried
e x p l o r a t i o n costs a n d

t h e passing o f e x p l o r a t i o n risk are a l l e x c e l l e n t benefits for

d e v e l o p i n g w o r l d e c o n o m i e s i n a p o s i t i o n t o d e m a n d these terms f r o m IOCs.

79

1.4.12 This brief overview of PSCs and risk-sharing contracts (particularly the day-to-day
c o m m e r c i a l i n f l u e n c e t h e y a f f o r d t h e h o s t g o v e r n m e n t or its NOC,
currently

811

exercised b y t h e UK

compared to that

g o v e r n m e n t ) p r o v i d e s a c o m p a r i s o n f o r t h e analysis

o f t h e l i c e n s i n g system i n t h e U n i t e d K i n g d o m w h i c h f o l l o w s . O t h e r t h a n t h i s brief

The o b l i g a t i o n o n governments t o e x p l o i t natural resources for the benefit of n a t i o n a l d e v e l o p m e n t and


the benefit of the p o p u l a t i o n of the state is an o b l i g a t i o n of Article 1 of U N
78

General Assembly Resolution

1803 of 1962. See page 70.


One of the d i s t i n g u i s h i n g features of the upstream o i l and gas i n d u s t r y is t h e significant investment
(typically, the cost of seismic tests and e x p l o r a t o r y d r i l l i n g ) t h a t is required at t h e e x p l o r a t i o n phase,

79

d u r i n g w h i c h there is a h i g h degree of u n c e r t a i n t y over the e c o n o m i c feasibility of the project.


For an analysis o f the benefits t o host governments of using PSCs, see H a m m e r s o n M, " P r o d u c t i o n

80

sharing contracts: An analysis of certain African jurisdictions," Petroleum Africa (October 2007).
The current p o s i t i o n differs f r o m the first d e v e l o p m e n t of the UKCS i n the late 1960s a n d 1970s, w h e n
state p a r t i c i p a t i o n was c o m m o n . The change is due m a i n l y t o the free market reforms of t h e 1980s
(applied generally t o UK i n d u s t r y and i n particular t o the p e t r o l e u m i n d u s t r y starting w i t h t h e O i l and
Gas (Enterprise) Act 1982). It also reflects a desire of recent g o v e r n m e n t s t o ensure t h a t the UKCS, as a
m a t u r e province, remains an attractive i n v e s t m e n t o p p o r t u n i t y . For a historic analysis of previous

UK

g o v e r n m e n t p a r t i c i p a t i o n i n the o i l and gas industry, see A p p e n d i x A i n UK Oil & Gas Law. I n the latest
e d i t i o n this section has been m o v e d f r o m the b o d y of the m a i n text t o an a p p e n d i x - r e f l e c t i n g its
historic, rather t h a n current, relevance.

SO

overview, t h i s b o o k does n o t discuss p e t r o l e u m e x p l o i t a t i o n models used outside t h e


U n i t e d K i n g d o m . PSCs a n d risk service contracts d o n o t f o r m part o f UK e x p l o r a t i o n
a n d p r o d u c t i o n . T h e system a d o p t e d i n t h e U n i t e d K i n g d o m , elsewhere i n Europe
a n d i n a few countries o u t s i d e Europe is t h e l i c e n s i n g model. To date there have been
14 o n s h o r e a n d 26 o f f s h o r e l i c e n s i n g r o u n d s i n t h e U n i t e d K i n g d o m . T h i s system is
discussed i n paragraph 1.5.

1.5 Applicable law and licensing in the United Kingdom

A. Applicable law
1.5.1

W i t h t h e largest o i l a n d gas o f f s h o r e structures capable o f p r o v i d i n g w o r k i n g a n d


a c c o m m o d a t i o n quarters f o r teams o f employees, t h e f u l l range o f h u m a n activities
w h i c h are capable o f o c c u r r i n g outside t h e o i l a n d gas i n d u s t r y a n d o f interest t o a
lawyer - crimes, torts, c o n t r a c t u a l disputes, e m p l o y m e n t grievances

a n d other

matters - can likewise occur o n , o r be related t o , f i x e d a n d f l o a t i n g installations


located i n t h e UKCS. G i v e n t h e d i f f i c u l t i e s i n d e a l i n g w i t h

( a n d accentuated

consequences of) accidents o c c u r r i n g at sea, e n v i r o n m e n t a l a n d h e a l t h a n d safety


laws are o f particular c o n c e r n t o t h e o f f s h o r e industry. G o v e r n m e n t has t w o m e t h o d s
of r e g u l a t i n g o f f s h o r e activities: t h e licence a n d e x t e n s i o n o f general l a w t o t h e
UKCS. Paragraphs D a n d E o f t h i s paragraph

1.5 review h o w t h e UK g o v e r n m e n t

c o n t r o l s a licensee b y quasi-contract a n d r e g u l a t i o n (or, i f preferred, b y quasir e g u l a t i o n a n d c o n t r a c t ) . T h i s section considers t h e a p p l i c a t i o n o f general l a w t o


activities t a k i n g place i n , o r related to, t h e UKCS.

1.5.2 Crimes, torts and contracts have existed for far longer than the commercial
e x p l o i t a t i o n of p e t r o l e u m - even i f n o t t h e actual o i l a n d gas itself. It is u n s u r p r i s i n g ,
therefore, t h a t these legal subjects trace t h e i r o r i g i n s back t o m e d i e v a l case law,
which

(over t i m e ) m a y be c o d i f i e d

i n t o statute a n d t h e n f u r t h e r r e f i n e d b y

subsequent cases. Petroleum e x p l o i t a t i o n , o n t h e o t h e r h a n d , does n o t e n j o y such a


r i c h history. A l t h o u g h its use, i f n o t its c o m m e r c i a l
c i v i l i s a t i o n , first c o m m e r c i a l

e x t r a c t i o n , pre-dates a n c i e n t

d r i l l i n g d i d n o t occur u n t i l t h e mid-1850s. I n t h e

U n i t e d K i n g d o m , i t was n o t u n t i l t h e 2 0 t h c e n t u r y (encouraged, a c c o r d i n g t o D a n i e l
Yergin,"' b y W i n s t o n Churchill's decision i n 1911 t o c o n v e r t t h e Royal Navy's fleet
f r o m coal t o o i l - f i r e d engines) t h a t t h e first c o m m e r c i a l

exploitation o f onshore

p e t r o l e u m c o m m e n c e d . A detailed h i s t o r y o f t h e o i l a n d gas i n d u s t r y i n t h e U n i t e d
Kingdom

is set o u t i n Slade J's j u d g m e n t i n Lonsdale

v Attorney-General

- and

r e p r o d u c e d as m u c h f o r h i s t o r i c a l as legal interest.

1.5.3 Despite the range of activity that takes place offshore, somewhat unusually - and
perhaps a d d i n g t o t h e a r g u m e n t t h a t a p e t r o l e u m licence s h o u l d be considered
r e g u l a t i o n rather t h a n c o n t r a c t - t h e UK p e t r o l e u m licence lacks a g o v e r n i n g l a w
clause. To t h e e x t e n t t h a t t h e licence is a c o n t r a c t a n d a g o v e r n i n g law needs t o be

81
82

Yergin D, The Prize: The Epic Quest for Oil, Money and Power.
EC/593/2008.

51

w** i a m p ,

ut,amujc

aiiu

s u u i t c a u i law

i m p l i e d , t h e parties m u s t rely o n Articles 4-1, 4-2 a n d 4-3 o f t h e R o m e I r e g u l a t i o n s


o n t h e law applicable t o contractual obligations.

82

T h i s p r o v i d e s t h a t , absent o f a

c h o i c e o f law, t h e d o c u m e n t w i l l be g o v e r n e d b y t h e l a w o f t h e c o u n t r y w h e r e t h e
p a r t y r e q u i r e d t o effect t h e characteristic p e r f o r m a n c e

has i t s h a b i t u a l residence.

However, since i t is n o l o n g e r a r e q u i r e m e n t f o r licensees t o h a v e s u c h a residence i n


the

U n i t e d K i n g d o m , t h i s p r o v i s i o n m a y n o t necessarily assist. A n e x c e p t i o n t o t h e

a s s u m p t i o n o f t h e l a w o f h a b i t u a l residence is available i n c i r c u m s t a n c e s w h e r e t h e
c o n t r a c t is m a n i f e s t l y m o r e c o n n e c t e d w i t h a n o t h e r c o u n t r y . I t is s u b m i t t e d t h a t a
p e t r o l e u m l i c e n c e is (subject t o its legal c a t e g o r i s a t i o n as a c o n t r a c t ) a n e x a m p l e o f a
c o n t r a c t t h a t is m a n i f e s t l y c o n n e c t e d

t o a p a r t i c u l a r c o u n t r y . I n t h i s case, t h a t

country's laws w i l l apply. A d m i n i s t r a t i v e m a t t e r s are expressly e x c l u d e d f r o m t h e


scope o f R o m e I a n d w h e t h e r these r e g u l a t i o n s are a p p l i c a b l e w i l l be c o n d i t i o n a l o n
the answer t o t h e q u e s t i o n discussed i n p a r a g r a p h F - t h a t is, w h e t h e r t h e licence is
m o r e p r o p e r l y classified as c o n t r a c t o r r e g u l a t i o n . T h i s is a n e x a m p l e o f w h e r e t h e
a n s w e r t o w h a t m a y seem l i k e a n a c a d e m i c q u e s t i o n m a y i n fact h a v e s i g n i f i c a n t
practical implications.

1.5.4 Outside the terms of the offshore licence (be they contractual or regulatory),
licensees w i l l be subject t o t h e e x t e n s i o n o f g e n e r a l l a w p u r s u a n t t o s t a t u t o r y
i n s t r u m e n t s m a d e p u r s u a n t t o Sections 10 ( a p p l i c a t i o n o f c r i m i n a l l a w ) a n d 11
( a p p l i c a t i o n o f c i v i l l a w ) o f t h e 1998

act. These sections a p p l y t o a c t i v i t i e s i n t h e

U n i t e d Kingdom's t e r r i t o r i a l waters, UKCS or w i t h i n 500 m e t r e s o f a n i n s t a l l a t i o n i n


s u c h waters. T h e y are c o n s i d e r e d i n t u r n :

C r i m i n a l l a w - t h e a p p l i c a t i o n o f c r i m i n a l l a w has b e e n e x t e n d e d t o t h e UK
t e r r i t o r i a l sea a n d t h e UKCS b y t h e C r i m i n a l J u r i s d i c t i o n ( O f f s h o r e Activities)
O r d e r 1987.

81

T h i s o r d e r p r o v i d e s t h a t a n y act or o m i s s i o n w h i c h w o u l d , " i f

t a k i n g place i n a n y p a r t o f t h e U n i t e d K i n g d o m , c o n s t i t u t e a n y o f f e n c e u n d e r
the l a w i n force i n t h a t p a r t " be t r e a t e d as t a k i n g place i n t h a t part. Therefore,
irrespective o f w h e t h e r t h e c r i m e takes place i n E n g l i s h , N o r t h e r n I r i s h or
S c o t t i s h waters, a n y o n e o f t h e t h r e e systems o f c r i m i n a l l a w m a y be a p p l i e d .
G i v e n t h e u n i v e r s a l a p p l i c a t i o n o f d i f f e r e n t c r i m i n a l systems, t h e r e is n o
a t t e m p t t o a l l o c a t e d i f f e r e n t sections o f t h e UKCS i n t o t h e c o n s t i t u e n t
j u r i s d i c t i o n s o f t h e U n i t e d K i n g d o m . F u r t h e r m o r e , t h e 1998 act p r o v i d e s f o r
the

possible e x t e n s i o n o f c r i m i n a l l a w f o r cross-border fields b e y o n d t h e

i n t e r n a t i o n a l boundaries of the U n i t e d Kingdom.

84

C i v i l l a w - a d i f f e r e n t a p p r o a c h is a d o p t e d i n r e l a t i o n t o t h e a p p l i c a t i o n o f
c i v i l l a w t o t h e U K t e r r i t o r i a l waters a n d UKCS. T h e C i v i l J u r i s d i c t i o n
(Offshore Activities) Order

1 9 8 7 d i v i d e s t h e r e l e v a n t seas i n t o E n g l i s h ,

N o r t h e r n I r i s h a n d S c o t t i s h sectors, a n d t h e n a p p l i e s t h e r e l e v a n t l a w i n force
" f o r t h e d e t e r m i n a t i o n o f q u e s t i o n s a r i s i n g o u t o f t h e r e l e v a n t acts t a k i n g
85

p l a c e " i n t h e r e l e v a n t sector. W h e r e a s c r i m i n a l r e g u l a t i o n s a p p l y w i d e l y t o

83
84
85

52

See pages 82 to 83.


Petroleum Act 1998, Section 10(8).
Regulation 2; see page 85.

'any act or omission', t h e a p p l i c a t i o n

o f c i v i l j u r i s d i c t i o n is l i m i t e d t o

'relevant acts'. T h i s is d e f i n e d i n t h e order as "an act or o m i s s i o n t a k i n g place


on,

u n d e r o r above t h e offshore area" i n c o n n e c t i o n w i t h

any activity

m e n t i o n e d i n w h a t is n o w Section 11 o f t h e 1998 act. T h i s includes activities


in connection with

the exploration

or e x p l o i t a t i o n

o f offshore

natural

resources, various matters r e l a t i n g t o t h e storage o f gas, t h e t r a n s p o r t a t i o n o f


t h i n g s b y p i p e l i n e a n d t h e p r o v i s i o n o f a c c o m m o d a t i o n f o r persons w o r k i n g
o n a n i n s t a l l a t i o n f o r t h e c a r r y i n g o u t o f t h e foregoing.

B. No state participation
1.5.5

We have seen t h a t there is a general a s s u m p t i o n - i n b o t h d o m e s t i c a n d i n t e r n a t i o n a l


law - i n f a v o u r o f t h e state b e i n g t h e t i t l e h o l d e r (or some similar c o n c e p t f a l l i n g
short o f o w n e r s h i p ) t o p e t r o l e u m in situ. T r a d i t i o n a l t h i n k i n g t h e n goes o n t o assert
t h a t despite state e x p r o p r i a t i o n ,

IOCs - w h e n c o m p a r e d t o t h e host g o v e r n m e n t -

have better f i n a n c i a l resources, h u m a n capital a n d t e c h n i c a l expertise t o e x p l o i t


reserves. I n some j u r i s d i c t i o n s w h e r e N O C s have developed i n t o market-leading o i l
a n d gas explorers a n d producers, t h i s a s s u m p t i o n n o w needs t o be revisited.

1.5.6 In the United Kingdom - in part because of successive governments' policies against
state p a r t i c i p a t i o n i n upstream o i l a n d gas ( a n d i n i n d u s t r y m o r e generally), a n d i n
part because of t h e m a t u r i n g q u a l i t y of available assets ( p r e v e n t i n g g o v e r n m e n t f r o m
demanding

a production

g o v e r n m e n t interference

share) - U K

a n d n o state

policy

n o w tends

towards

minimal

p a r t i c i p a t i o n . T h e British N a t i o n a l O i l

C o r p o r a t i o n (BNOC), * t h e state-owned c o m p a n y t h a t p a r t i c i p a t e d o n b e h a l f o f t h e
UK g o v e r n m e n t d u r i n g t h e N o r t h Sea's heyday, was privatised i n stages d u r i n g t h e
early t o mid-1980s. Yet even w h e n t h e U K g o v e r n m e n t ( t h r o u g h t h e agency of t h e
B N O C ) d i d actively participate i n UKCS p r o d u c t i o n , i t was carried o u t t h r o u g h t h e
m o s t laissez-faire t y p e o f p e t r o l e u m concession: t h e licence.

C. Purpose of licensing

The Government

is seeking by all practicable means

to ensure that the geological

inheritance of the U K is fully explored, and that m a x i m u m economic

recovery of those

reserves is secured over time.*

1.5.7 British society contains many examples of where a licence is required to perform
w h a t w o u l d o t h e r w i s e be p r o h i b i t e d activity. I n m a n y o f these - a l c o h o l , d r i v i n g ,
dogs, guns - t h e state does n o t c l a i m a n o w n e r s h i p interest or p r o p e r t y rights i n t h e
i t e m b e i n g licensed. T h e purpose o f licensing i n these examples is a paternalistic
desire t o c o n t r o l society's use o f h a r m f u l things. I n its p r o v i s i o n s r e l a t i n g t o issues
such as t h e e n v i r o n m e n t , co-existence w i t h

the fishing industry

n a v i g a t i o n , t h e p e t r o l e u m licence p e r f o r m s a regulatory

86
87

a n d safety o f

function similar t o other

Created by the Petroleum and Submarine Pipe-lines Act 1975.


UK offshore oil and gas: Government Response to the Committee's First Report of Session 2008-09
(October 14 2009) (HC-1010).

53

W W M C l M l i p , n i - t r i i M i i g d i m suuii.es U l IdW

e v e r y d a y licences. However, r e g u l a t o r y c o m p l i a n c e is o n l y a s e c o n d a r y p u r p o s e o f
t h e p e t r o l e u m l i c e n s i n g regime.

1.5.8 The other common motivation for establishing a licensing regime is, of course, as a
revenue-raising exercise - as r e c e n t l y seen o u t s i d e t h e o i l a n d gas i n d u s t r y w i t h t h e
s i g n i f i c a n t revenues generated f r o m t h e l i c e n s i n g o f t h i r d - g e n e r a t i o n m o b i l e p h o n e
n e t w o r k s . Revenue g e n e r a t i o n is s i m i l a r l y t h e p r i n c i p a l p u r p o s e o f a n y g o v e r n m e n t
i n petroleum licensing.

88

For a system w h i c h is d i s c r e t i o n a r y , ' w h a t o t h e r m o t i v a t i o n

does g o v e r n m e n t have f o r g i v i n g u p its o w n e r s h i p of, o r m o n o p o l y over, a valuable


c o m m o d i t y w h i c h i t c o u l d , i f so m i n d e d , e x p l o r e a n d p r o d u c e itself?

1.5.9 But unlike 3G mobile phone licences and some other petroleum systems (eg, PSCs)
w h i c h c o l l e c t sizeable a m o u n t s f r o m

t h e a w a r d o f t h e concession,

revenue is

p r i m a r i l y raised b y t a x i n g p r o d u c t i o n a n d r e s u l t i n g p r o f i t s . To a far lesser extent,


o t h e r i n c o m e is generated

f r o m r e n t a l p a y m e n t s a n d l i c e n c e fees.* However, these

m i n o r p a y m e n t s are i n t e n d e d p r i n c i p a l l y t o i n f l u e n c e p r e - p r o d u c t i o n b e h a v i o u r such

as r e l i n q u i s h i n g

unwanted

acreage

a n d d e t e r r i n g h a l f - h e a r t e d licence

a p p l i c a t i o n s - r a t h e r t h a n as a r e v e n u e - r a i s i n g exercise per se. U n l i k e a PSC regime


( w h i c h i n a d d i t i o n t o t a x d e l i v e r s p e t r o l e u m p r o d u c t i o n f o r t h e h o s t government's
N O C ) , t h e U K g o v e r n m e n t receives a far n a r r o w e r range o f b e n e f i t s as a result of
licensing

exploration and production

activity.

Fiscal r e v e n u e

generation and

p r o d u c t i o n (fiscal revenue's essential p r e - c o n d i t i o n ) are r e c u r r i n g t h e m e s i n m a n y


g o v e r n m e n t p o l i c y statements i n t h i s area. T h i s c a n also be seen i n t h e government's
p r i n c i p a l i n s t r u m e n t o f i n f l u e n c e , t h e l i c e n c e a n d its m o d e l clauses.

D. Model clauses
Government

cannot influence the amount

of oil and gas remaining in the UK

Continental Shelf. But the policies it pursues in relation to tax, regulation and licens
all have an impact on the attractiveness of producing oil and gas from the UKCS and
therefore on production levels.

1.5.10 In the area of licensing, the 1998 act principally acts as enabling legislation allowing
g o v e r n m e n t t o pass r e g u l a t i o n s s p e c i f y i n g h o w p e t r o l e u m

o p e r a t i o n s are t o be

c o n d u c t e d . T h e act p r o v i d e s l i t t l e d e t a i l i n t h i s respect a n d t h e task is left t o m o d e l


clauses prescribed b y t h e secretary o f state p u r s u a n t t o Section 4.

88

G o v e r n m e n t m a y also be i n c e n t i v i s e d b y secondary policies o f p r o m o t i n g the o i l a n d gas i n d u s t r y for


wider e c o n o m i c benefits, such as energy security, job creation a n d t h e industry's c o n t r i b u t i o n t o t h e
balance of payments. According t o a recent report, 350,000 jobs are d e p e n d e n t o n UK o i l a n d gas (House

89

of C o m m o n s Energy a n d Climate Change C o m m i t t e e report, June 17 2009) (HC-341-I).


See Section 3(1) o f the 1998 act: "The Secretary o f State ... may grant t o such persons as he t h i n k s fit

90

licences" (emphasis added).


I n the tax year 2008/2009, licence fees generated 60 m i l l i o n o f revenue for g o v e r n m e n t , compared t o

91
92

a total sum f r o m o i l a n d gas p r o d u c t i o n of nearly 1.3 b i l l i o n .


House of C o m m o n s Energy a n d Climate Change C o m m i t t e e Report, June 17 2009 (HC-341-I)
T h e m o d e l clauses refer t o the licensee i n the singular - despite a c c o m m o d a t i n g for the fact t h a t as is
the more typical position, the licensee m a y be made u p of m u l t i p l e entities. M o d e l clause 1(2) states that
"any obligations w h i c h are t o be observed a n d p e r f o r m e d b y the Licensee shall at a n y t i m e at w h i c h t h e
Licensee is more t h a n o n e person be j o i n t a n d several obligations".

1.5.11 Since t h e m a i n source of g o v e r n m e n t i n c o m e is tax o n p r o d u c t i o n a n d profits, DECC


is i n c e n t i v i s e d t o ensure t h a t the licensee"- extracts as m u c h p e t r o l e u m as possible i n
order t o p r o d u c e t h e m a x i m u m fiscal take. T h e r e q u i r e m e n t t o carry o u t a m i n i m u m
w o r k p r o g r a m m e was n o t a c o n d i t i o n i n c l u d e d i n t h e first set o f m o d e l clauses
because, a c c o r d i n g t o o n e c o m m e n t a t o r , of a lack of a p p r e c i a t i o n t h a t o i l c o m p a n i e s
m a y acquire licence areas a n d t h e n f a i l t o e x p l o i t t h e m promptly."

I t w i l l be n o

surprise, therefore, t h a t g o v e r n m e n t legislation a n d p o l i c y e n c o u r a g i n g m a x i m u m


p r o d u c t i o n is a r e c u r r i n g t h e m e t h r o u g h o u t t h e d i f f e r e n t areas covered i n t h i s book.
G o v e r n m e n t is also keen t h a t revenue start f l o w i n g w i t h o u t u n d u e delay. It is n o t i n
a c u r r e n t administration's interest t o w a t c h a licensee sit i d l y o n u n e x p l o r e d o r
u n p r o d u c e d reserves and, u n l i k e t h e first set o f m o d e l clauses, t h e c u r r e n t version
c o n t a i n s p r o v i s i o n s designed t o p r e v e n t this. Yet t h e government's recent i n i t i a t i v e s
a i m e d at m a x i m i s i n g p r o d u c t i o n a n d e x p l o i t i n g f a l l o w fields is a r e c o g n i t i o n of the
licence's l i m i t e d qualities as a r e g u l a t o r y i n s t r u m e n t

able t o deliver g o v e r n m e n t

objectives. These latest extra-contractual measures i n c l u d e t h e f o l l o w i n g :

Fallow block i n i t i a t i v e - t h i s i n i t i a t i v e encourages e x i s t i n g licensees t o e x p l o i t


f a l l o w blocks ( d e f i n e d as blocks w h i c h have n o t been subject t o a n y d r i l l i n g
for f o u r years o r i n r e l a t i o n t o w h i c h n o seismic o r o t h e r s i g n i f i c a n t a c t i v i t y
has taken place f o r t w o years). I f e n c o u r a g e m e n t is n o t successful, t h e n t h e
licensee is r e q u i r e d t o r e l i n q u i s h t h e b l o c k so t h a t i t c a n be re-licensed.

Stewardship i n i t i a t i v e - t h i s i n i t i a t i v e was l a u n c h e d i n 2005 b y a predecessor


to DECC, as a c o l l a b o r a t i v e effort b e t w e e n g o v e r n m e n t a n d i n d u s t r y ( t a k i n g
place outside t h e terms o f t h e licence) t o i m p r o v e p o o r l y p e r f o r m i n g fields.
I t is a n e x a m p l e of government's a t t e m p t s t o ensure t h a t p r o d u c t i o n rates are
maximised.

1.5.12 N o t w i t h s t a n d i n g

94

these i n i t i a t i v e s , t h e licence remains t h e government's p r i n c i p a l

tool f o r achieving

both

maximum

recovery

a n d a t i m e t a b l e t h a t ensures t h a t

p r o d u c t i o n starts w i t h o u t u n d u e delay. Examples c o n t a i n e d i n t h e licence f o r these


purposes i n c l u d e o b l i g a t i o n s o n t h e licensee to:

carry o u t a w o r k programme"

(which

normally

specifies e x p l o r a t i o n a n d

appraisal activities, such as d r i l l i n g ) c o m b i n e d w i t h government's p o w e r n o t


to e x t e n d t h e licence i n t o t h e n e x t t e r m unless t h e w o r k p r o g r a m m e has been
c o m p l e t e d - t h u s establishing t h e m i n i m u m o b l i g a t i o n s t h a t m u s t be m e t
a n d a t i m e t a b l e t o achieve p r o d u c t i o n ;

seek g o v e r n m e n t a p p r o v a l o f a d e v e l o p m e n t a n d p r o d u c t i o n p r o g r a m m e

96

g i v i n g t h e g o v e r n m e n t i n f l u e n c e over t h e p r o d u c t i o n p r o g r a m m e ;

seek g o v e r n m e n t consent for t h e a p p o i n t m e n t o f t h e operator, w h i c h t h e


g o v e r n m e n t c a n object t o based o n g r o u n d s of c o m p e t e n c e only;"

93
94
95
96
97
98

Daintith, Discretion in the Administration of Offshore Oil and Gas: A Comparative Study (AMPLA Ltd, 2005).
For more information on these initiatives, see Current Practice and Emerging Trends, chapter 4.
See model clause 16 - pages 94 and 95.
Model clauses 17 and 18 - pages 95 to 100.
Model clause 24 - pages 102.
Model clauses 20, 27 and 28 - pages 270 and 271.

55

WW

llClSllip,

ULCliMUg

dllU SUURCS

Ul

IdVV

f o r m a u n i t a n d agree a u n i t i s a t i o n agreement w i t h o t h e r licensees i f a f i e l d


5

straddles t w o or m o r e blocks' - t h u s p r e v e n t i n g one o f t h e licensees d r i l l i n g at


a l o c a t i o n ( o n its side o f t h e licence area) that, i n terms o f t h e aggregate a m o u n t
recoverable f r o m t h e f i e l d , m a y

result i n s u b - o p t i m a l p r o d u c t i o n , " a n d
1

a p p l y t o t h e m i n i s t e r before a b a n d o n i n g or p l u g g i n g w e l l s " - t h u s a l l o w i n g
g o v e r n m e n t c o n t r o l p r i o r t o a n y i r r e v o c a b l e steps b e i n g t a k e n t o seal a w e l l .

1.5.13 Each licence provision is designed to ensure government oversight over field
d e v e l o p m e n t or w e l l a b a n d o n m e n t .

1.5.14 We have previously looked at the history of legislation promoting the UK licensing
regime. We

now

e x a m i n e d i f f e r e n t types o f licences, t h e i r t e r m s a n d

f i n a l l y the

p r o p e r legal c a t e g o r i s a t i o n o f a licence.

101

E. Types and terms of licences

1.5.15 Licence t e r m s are a c r e a t i o n o f s t a t u t o r y i n s t r u m e n t . " - UK

licences can be categorised

i n d i f f e r e n t ways:
1

landward ' ' or seaward;

e x p l o r a t i o n or p r o d u c t i o n ; "

t r a d i t i o n a l ( w h i c h m a k e u p t h e vast m a j o r i t y o f seaward licences issued t o

14

and

date), f r o n t i e r or p r o m o t e .

1.5.16 These sub-categories are consistent with Section 4(2) of the 1998 act, which states
that different regulations may
freedom

of the government

be m a d e f o r d i f f e r e n t types o f l i c e n c e area.
t o set licence t e r m s is n o w

Hydrocarbons Licensing Directive Regulations

1995.

105

the

Like m u c h E u r o p e a n

law

passed a r o u n d t h e same t i m e , i t aims t o i m p l e m e n t t h e basic EU


freedom

The

constrained by

of establishment, n o n - d i s c r i m i n a t i o n between

p r i n c i p l e s of

n a t i o n a l s of

different

m e m b e r states, t h e p r o m o t i o n o f t h e single m a r k e t a n d h a r m o n i s a t i o n o f rules across


m e m b e r states. I t provides:

99

criteria

by w h i c h

l i c e n c e a p p l i c a n t s m u s t be j u d g e d , w h i c h

may

include

These issues are discussed further i n Chapter 3. I n brief, the d r i l l i n g of t w o or m o r e wells may
at least one well being drilled at a sub-optional l o c a t i o n and may

result i n

also result i n a l o w e r i n g of reservoir

pressure. B o t h factors w i l l reduce aggregate p r o d u c t i o n . To m a x i m i s e recoverability, d r i l l i n g should take


100
101

place at the apex of the reservoir.


See m o d e l clause 19 - pages 586 and 587.
The source of m u c h of the i n f o r m a t i o n c o n t a i n e d i n t h i s section B is taken f r o m , and

102
103

i n f o r m a t i o n is available at, www.og.decc.gov.uk.


Petroleum Act 1998, Section 4(3).
The Petroleum L x p l o r a t i o n and D e v e l o p m e n t Licence

104

(Exploration and Production) (Seaward and Landward Areasl Regulations 2004.


There have been recent attempts t o s i m p l i f y licensing and some of the categories (particularly the

is c o n t a i n e d

i n the Petroleum

further

Licensing

difference between e x p l o r a t i o n and p r o d u c t i o n ) are less relevant for future t h a n for historic licensees.
Seaward e x p l o r a t i o n licences are still available - a l t h o u g h their terms are a i m e d at seismic contractors
i n t e n d i n g to gather data for resale rather t h a n at o i l and gas e x p l o r a t i o n companies; see

Petroleum

105

Licensing (Exploration and Production) (Seaward and Landward Areas) Regulations 2004.
I m p l e m e n t e d by the U n i t e d K i n g d o m i n order t o c o m p l y w i t h the EU's Hydrocarbons Licensing

106

Directive (94/22/EC).
Regulation 3.

56

man.

t e c h n i c a l and

f i n a n c i a l capability, proposed w o r k p r o g r a m m e , licence fee

t e n d e r e d a n d previous performance;

i laiiiiiicisuii

1116

t h a t reasons for refusal of licence a p p l i c a t i o n m u s t be g i v e n o n request; "


t h a t terms and

c o n d i t i o n s i n the licence m u s t be justifiable exclusively for

t h e purposes of t h e proper p e r f o r m a n c e of activities, p a y m e n t of the licence


fee and

considerations

r e l a t i n g t o n a t i o n a l security, p u b l i c safety, public-

health, security of transport, p r o t e c t i o n


biological

resources and

national

of e n v i r o n m e n t , p r o t e c t i o n

treasures,

safety

workers, p l a n n e d m a n a g e m e n t of resources and

tax);

of i n s t a l l a t i o n s

of
and

108

t h a t t h e terms and c o n d i t i o n s above m u s t be a p p l i e d i n a

non-discriminatory

manner; "" a n d

t h a t any d o c u m e n t i n v i t i n g a p p l i c a t i o n s for licences, m u s t set o u t t h e criteria


to be a p p l i e d i n c o n s i d e r i n g

applications.

110

The provisions relating to non-discrimination and publication of criteria


c o n f o r m t o the p r i n c i p l e s set o u t i n Article 18(4) of the Energy Charter Treaty.

1.5.17 The first option listed above (landward or seaward) corresponds with what elsewhere
i n t h e i n d u s t r y is referred t o as o n s h o r e or offshore. However, u n l i k e those loose
i n d u s t r y terms, t h e d e m a r c a t i o n b e t w e e n l a n d w a r d and seaward is g i v e n precision i n
Regulation

and

Schedule

1 of t h e

Petroleum

( P r o d u c t i o n ) (Seaward

Areas)

Regulations (1988/1213). Seaward licences are t h e n f u r t h e r sub-divided d e p e n d i n g


o n d i f f e r e n t factors. Types of seaward licence i n c l u d e t h e f o l l o w i n g :

T r a d i t i o n a l licence - t h i s is available for applicants

with

experience

and

technical skills a p p l y i n g for a block i n an area w h i c h is n o t considered frontier.

P r o m o t e licence (first i n t r o d u c e d i n the 21st l i c e n s i n g r o u n d i n 2003) - this


is designed f o r newer entrants, w h i c h are encouraged t o a p p l y by a r e d u c t i o n
i n b o t h l i c e n s i n g fee and w o r k obligations. DECC states t h a t t h e i n t e n t i o n is
to a l l o w s m a l l c o m p a n i e s t o w o r k exclusively o n e x p l o r i n g p r o m o t e blocks
and

t h e n , i f there are g o o d prospects, a l l o w larger c o m p a n i e s t o f a r m i n t o

these o p p o r t u n i t i e s . 'Prospect fairs' are h e l d a l l o w i n g c o m p a n i e s to market


o p p o r t u n i t i e s p r o d u c e d by p r o m o t e licences.

Frontier (first i n t r o d u c e d

for t h e 2 2 n d l i c e n s i n g r o u n d i n 2004) - t h i s is

designed t o cover larger licence areas t h a t are r e m o t e (and therefore w i t h less


access t o e x i s t i n g i n f r a s t r u c t u r e ) or deep water (and therefore m o r e expensive
to

e x p l o i t ) . The

licence's

six-year, a n d

f o r West of S h e t l a n d

nine-year,

e x p l o r a t i o n phase gives licensees a l o n g e r e x p l o r a t i o n p e r i o d w i t h reduced


rental

fees

during

which

to

undertake

this

activity.

The

tougher

r e l i n q u i s h m e n t r e q u i r e m e n t s are i n t e n d e d t o reflect t h e need t o release larger


a m o u n t s of acreage d u r i n g t h e t e r m of t h e licence.

107
108
109
110

Regulation
Regulation
Regulation
Regulation

3(5).
4.
4.
5(1).

57

o w n e r s n i p , licensing a n a sources or law

1.5.18 T h e differences b e t w e e n these licences are s u m m a r i s e d below. O n e o f t h e k e y


changes relates t o t h e v a r y i n g t i m e periods a l l o w e d t o p e r f o r m c e r t a i n a c t i v i t i e s a n d
t h e a m o u n t o f acreage r e q u i r e d t o be r e l i n q u i s h e d after a c e r t a i n t i m e .

1.5.19 Modern licences are divided into three distinct periods, although the licence's
p r o v i s i o n s are of a u n i t a r y n a t u r e a n d there is n o t h i n g p r e v e n t i n g a licensee, i f i t is
a h e a d o f schedule a n d t h e necessary c o n s e n t s have b e e n g i v e n , f r o m p e r f o r m i n g

the

n e x t phase. W h e r e a s p r e v i o u s l y there was a greater e m p h a s i s o n t h e r e q u i r e m e n t t o


obtain

both exploration and production

e x p l o i t a t i o n t o appraisal a n d p r o d u c t i o n

licences, t h e c h a n g e i n a c t i v i t y
is n o w r e f l e c t e d i n t h e stages

from

contained

w i t h i n t h e same licence. T h e c o n t i n u a t i o n i n t o a s e c o n d a n d t h e n a t h i r d t e r m is
c o n d i t i o n a l o n satisfactory p e r f o r m a n c e o f t h e w o r k p r o g r a m m e i n t h e p r e v i o u s t e r m
and

t h e r e f o r e , i n s t e a d o f separate licences r e l a t i n g t o e x p l o r a t i o n a n d p r o d u c t i o n ,

t h e c o n d i t i o n a l i t y o f a u n i t a r y licence serves t h e same p u r p o s e as t w o separate


licences. T h e periods are as f o l l o w s :

I n i t i a l t e r m - t h i s is t h e p e r i o d i n w h i c h t h e w o r k p r o g r a m m e is c a r r i e d out.
It is i n t e n d e d as a p e r i o d d u r i n g w h i c h e x p l o r a t i o n , i n c l u d i n g seismic tests
a n d e x p l o r a t o r y wells, is p e r f o r m e d .

Second t e r m - p r o v i d e d

t h a t , b y t h e e n d o f t h e i n i t i a l t e r m , a specified

a m o u n t of acreage has b e e n r e l i n q u i s h e d a n d t h e w o r k p r o g r a m m e has been


p e r f o r m e d , t h e n t h e licensee m a y
intended

as a p e r i o d

undertaken.

Appraisal

e x p l o r a t i o n a n d before
confirm

a n d evaluate

during

p r o c e e d t o t h e s e c o n d t e r m . T h i s is

which

appraisal

and development

take

commercial production

a n d d e v e l o p m e n t are
place

after

successful

c o m m e n c e s , i n order t o

t h e e x p l o r a t i o n data. T h i s phase is used t o better

u n d e r s t a n d t h e field's size, l i k e l y p r o d u c t i o n rate, c o m m e r c i a l p o t e n t i a l a n d


o t h e r g e o l o g i c a l a n d geo-physical q u a l i t i e s , a n d t o d r a f t a p l a n t o produce
e f f i c i e n t l y a n d t o t h e field's f u l l p o t e n t i a l . A d d i t i o n a l d r i l l i n g of d e v e l o p m e n t
wells m a y take place t o a c h i e v e t h i s ( i n c l u d i n g b y g a t h e r i n g samples).

T h i r d t e r m - p r o v i d e d that, b y t h e e n d of t h e second t e r m , a d e v e l o p m e n t plan


has been a p p r o v e d a n d a l l acreage outside t h e d e v e l o p m e n t p l a n has been
r e l i n q u i s h e d , t h e licensee m a y proceed t o t h e t h i r d t e r m . T h i s is i n t e n d e d as a
p e r i o d d u r i n g w h i c h p r o d u c t i o n is performed. If p r o d u c t i o n is c o n t i n u i n g at the
end of t h e t h i r d term, t h e n DECC has d i s c r e t i o n t o e x t e n d t h e t e r m (subject t o
any a m e n d m e n t s t o t h e licence c o n d i t i o n s , i n c l u d i n g o n acreage a n d rentals).
A n y extension needs t o c o m p l y w i t h Article 4(b) of t h e H y d r o c a r b o n s Licensing
1

D i r e c t i v e , " w h i c h requires t h a t t h e d u r a t i o n o f t h e licence be i n s u f f i c i e n t t o


carry o u t t h e licensed a c t i v i t y a n d t h e licence t e r m s be c o m p l i e d w i t h .

1.5.20 Although not stated explicitly, each period is designed to correspond to a stage in the
lifecycle o f a n o i l a n d gas p r o j e c t (referred t o above a n d i n brackets i n t h e t a b l e
b e l o w ) . P r o v i d e d t h a t t h e r e is n o breach, a licence w i l l a u t o m a t i c a l l y e x t e n d i n t o t h e
n e x t p e r i o d . A s u m m a r y o f t h e d i f f e r e n t periods f o l l o w s .

11 1

58

Directive

94/22/EC.

I n i t i a l term

Second term

T h i r d term

(exploration)

(appraisal and

(production)

Relinquishment

development)
Landward

6 years

5 years

20 years

production

5 0 % by end of
the initial term

licence
(petroleum
exploration
and
development
licence)
Traditional

4 years

4 years

18 years

(seaward)

5 0 % by the end
of the initial
term

Promote

4 years

(seaward)

(rentals are

of the initial

reduced by

term

4 years

18 years

5 0 % by the end

9 0 % during
an initial 2
or 3-year
period)
Six-year

6 years

frontier

(rentals are

(seaward)

112

18 years

7 5 % after 3
years and 5 0 %

reduced by

of the remainder

9 0 % i n the

by the end of

first 3

initial term

years)"
Nine-year

6 years

9 years

6 years

18 years

7 5 % after 3

frontier

(rentals are

years and 5 0 %

(seaward)

reduced by

of the remainder

(West of

9 0 % i n the

by the end of

Shetland)

first 3 years)

initial term

Extended f r o m two to three years by the Petroleum Licensing (Production) (Seaward Areas) Regulations
2008/225.

59

V / w i l C l M l i p , U L C l l M l l g d l l U S O U I L e S OI IdW

1.5.21 I n a d d i t i o n t o these terms, t h e f o l l o w i n g are c o m m o n

provisions contained i n

licences:

Licensed area ( m o d e l clauses 1, 5, 6 a n d 10) - i n t h e N o r t h Sea, t h e t y p i c a l


size o f i n i t i a l l y l i c e n s e d area is a r o u n d 2 0 0 t o 2 5 0 square k i l o m e t r e s . A r t i c l e
4(a) o f t h e H y d r o c a r b o n s L i c e n s i n g D i r e c t i v e stipulates t h a t t h e b l o c k m u s t
n o t be larger t h a n t h e size j u s t i f i e d b y t h e best p o s s i b l e exercise o f t h e
licensed a c t i v i t i e s f r o m a t e c h n i c a l a n d e c o n o m i c p o i n t o f view. D u r i n g t h e
l i f e o f t h e licence, t h e area w i l l reduce i n a c c o r d a n c e w i t h m o d e l clauses 5, 6,
10 a n d 11 based o n p l a n n e d r e l i n q u i s h m e n t .

Surrender

(model

clause

11)-as

w e l l as t h e licensee b e i n g r e q u i r e d t o

r e l i n q u i s h acreage at c e r t a i n p o i n t s d u r i n g t h e l i f e o f a licence, a licensee m a y


v o l u n t a r i l y s u r r e n d e r t h e l i c e n c e o r r e l i n q u i s h a n y part. I n o r d e r t o preserve
t h e m a r k e t a b i l i t y o f r e l i n q u i s h e d areas, t h e licensee is n o t p e r m i t t e d t o create
t w o o r m o r e l i c e n c e areas t h a t d o n o t a d j o i n e a c h o t h e r . A n y s u r r e n d e r e d or
r e l i n q u i s h e d p a r t m a y be re-licensed b y D E C C and, i n o r d e r t o m a i n t a i n the
m a r k e t a b i l i t y o f s u r r e n d e r e d o r r e l i n q u i s h e d areas, m u s t be a size n o t less
t h a n a specified m i n i m u m size ( m o d e l clause 6(3)).

R e n t a l p a y m e n t s ( m o d e l clause 12) - i n m o d e r n licences r e n t a l s f a l l d u e o n


each a n n i v e r s a r y o f t h e licence. P a y m e n t s are c a l c u l a t e d o n a n escalating
scale, d e p e n d i n g o n t h e a m o u n t o f acreage h e l d b y t h e licensee o n t h e
payment

date. T h i s

is d e s i g n e d

t o incentivise

licensees t o r e l i n q u i s h

u n w a n t e d acreage.

A n t i - a s s i g n m e n t ( m o d e l clause 40) - D E C C c o n s e n t is r e q u i r e d p r i o r t o a n y
licence a s s i g n m e n t a n d D E C C has t h e r i g h t t o r e v o k e a n y l i c e n c e i f an
a s s i g n m e n t has t a k e n place (even i f b e t w e e n associated c o m p a n i e s ) w i t h o u t
p r i o r consent. W h e n c o n s i d e r i n g g r a n t i n g c o n s e n t t o a s s i g n m e n t , D E C C w i l l
take i n t o a c c o u n t issues s u c h as t e c h n i c a l a n d f i n a n c i a l c a p a b i l i t i e s , p r o v i s i o n
for

decommissioning

costs a n d t r a c k r e c o r d i n t h e U K o i l i n d u s t r y . I f

o p e r a t o r s h i p changes, t h e n these m a t t e r s w i l l be g i v e n p a r t i c u l a r a t t e n t i o n .
4

U n d e r S e c t i o n 5 A o f t h e 1998 act," t h e secretary o f state also has t h e ability,


h a v i n g g i v e n n o t i c e a n d a l l o w e d a reasonable t i m e f o r r e p r e s e n t a t i o n s , t o
d i r e c t t h a t t h e transferee a n d t h e t r a n s f e r o r u n w i n d t h e a s s i g n m e n t a n d rec o n v e y t h e assigned r i g h t s t o t h e transferor.

C h a n g e o f c o n t r o l ( m o d e l clause 41(3)) - p r i o r a p p r o v a l is n o t r e q u i r e d , b u t
D E C C reserves t h e r i g h t t o r e v o k e t h e l i c e n c e i f t h e r e is a c h a n g e o f c o n t r o l .
Prior t o c o m p l e t i n g a n y c o r p o r a t e a c t i v i t y t h a t m a y t r i g g e r a c h a n g e o f
c o n t r o l , parties t h e r e f o r e s o m e t i m e s seek g o v e r n m e n t c o m f o r t t h a t t h i s r i g h t
w i l l n o t be exercised.

113

This practice, w h i c h was i n place prior t o the EU Hydrocarbons Licensing Directive c o m i n g i n t o law
i m p l e m e n t s EU law's requirement (at Article 4 of the directive) t h a t t h e d u r a t i o n of t h e licence s h o u l d
n o t exceed the p e r i o d necessary t o carry out activities for w h i c h the licence is granted a n d that entities

114
115

s h o u l d not retain exclusive rights for longer t h a n is necessary t o p e r f o r m the licensed activities
See page 76.
See D a i n t i t h T, " C o n t r a c t u a l discretion a n d a d m i n i s t r a t i v e discretion: A u n i f i e d analysis" (2005) 68(4)
MLR 554 o n the a p p l i c a t i o n of judicial review and the transferability of p u b l i c law principles t o contracts
and a party's exercise of its discretion under contract.

60

F.

C o n t r a c t or r e g u l a t i o n ? "

1.5.22 One

possible d e f i n i t i o n of a licence is t h a t i t is a p e r m i s s i o n granted by a c o m p e t e n t

licensor t o enable t h e licensee t o exercise certain r i g h t s t h a t , b u t f o r t h e licence,


w o u l d be t o r t i o u s or c r i m i n a l . The

vary, f r o m a

standardised

o f f i c i a l p e r m i t (a rubber-stamped d o c u m e n t ) t o a h e a v i l y negotiated

commercial

agreement. We

shall see t h a t a UK

f o r m of licence may

p e t r o l e u m licence has t h e qualities of t h e f o r m e r

w i t h t h e appearance of t h e latter.

1.5.23 Outside the oil and gas industry, a licence need not necessarily be issued by government
or an administrative arm

of the state. C o m m e r c i a l life, particularly i n the fields of

intellectual property and real estate, contains m a n y examples of licences agreed between
businesses. I n these circumstances i t is clear that business relationships are i n the nature
of contractual agreements. T h e y are likely t o be negotiated documents. Contractual
obligations w i l l flow i n reciprocal directions. Furthermore, for businesspeople i t is
i m p o r t a n t t h a t licences can be enforced as contracts. Any

other c o n c l u s i o n opens up

the possibility t h a t t h e licence c o u l d be u n i l a t e r a l l y a m e n d e d and t h a t parties need t o


1

consider p u b l i c law p r i n c i p l e s such as W e d n e s b u r y unreasonableness, "' rather t h a n


private law rights ( w h i c h do n o t p r o v i d e for a pervasive p r i n c i p l e of i m p l i e d g o o d
faith

i n commercial

arrangements)."

Clearly, c o m m e r c i a l

licences

between

businesspeople are based o n contractual, rather t h a n p u b l i c law, principles. However,


for a licence granted by g o v e r n m e n t i n favour of a c o m m e r c i a l party, t h e question of
w h e t h e r t h e y are r e l y i n g o n contract or p u b l i c law is far less clear.

1.5.24 Model clauses are laid down by statutory instrument and typically entered into by
DECC a n d licensees i n t h e pro forma
1998

d e t e r m i n e d by Parliament. Section 4 ( l ) ( e ) of t h e

a c t " provides t h e secretary of state w i t h discretion, i f he t h i n k s f i t , t o m o d i f y

or exclude the

m o d e l clauses i n any

p a r t i c u l a r case. Regulation

5(3) of

the

H y d r o c a r b o n s Licensing D i r e c t i v e Regulations requires t h a t any change t o t h e terms


and c o n d i t i o n s p u b l i s h e d before t h e licence is awarded be n o t i f i e d t o every person
to w h i c h t h e y have been issued. N o t w i t h s t a n d i n g
b e i n g a l m o s t e n t i r e l y against

the

t h e substance of t h e m o d e l clauses

interests of t h e

licensee

and

i n favour

of

g o v e r n m e n t , licences have t h e appearance of a c o m m e r c i a l c o n t r a c t ( p a r t i c u l a r l y


now

that modern

practice sets o u t

the

m o d e l clauses i n f u l l ,

rather

than

i n c o r p o r a t i n g t h e m by reference). The licensee is b o u n d by the m o d e l clauses c u r r e n t


at t h e t i m e t h e licence was entered i n t o - n o t t h e m o d e l clauses t h a t may

from time

to t i m e be i n force. T h e y start w i t h a d e f i n i t i o n s clause. The operative p r o v i s i o n t h a t


f o l l o w s grants t h e licensee "exclusive licence and l i b e r t y d u r i n g t h e c o n t i n u a n c e of
t h i s licence and

subject t o the p r o v i s i o n s hereof t o search a n d

bore for, and

get,

Petroleum". T h i s is expressed t o be i n c o n s i d e r a t i o n of t h e p a y m e n t s p r o v i d e d f o r
and

p e r f o r m a n c e of t h e licence terms (thus r e c i t i n g the c o n s i d e r a t i o n required i f

English c o n t r a c t law is applicable). T h i s all appears c o n t r a c t u a l . The o t h e r p r o v i s i o n s

116
117

Associated
Provincial
Picture Houses
Ltd v Wednesbury
InterfotO Picture Library Ltd v Stiletto Visual Programmes

118

2.2.5.
See page 74.

Corporation
[1948] 1 KB 223.
Ltd (1988] 1 All ER 348 (see chapter 2, paragraph

61

( o n t e r m , w o r k o b l i g a t i o n s , p r o h i b i t i o n against a s s i g n m e n t ) are n o t d i s s i m i l a r t o a
c o m m e r c i a l l y n e g o t i a t e d agreement. Finally, i t is s i g n e d u n d e r deed: E n g l i s h law's
m o s t f o r m a l m e t h o d of e x e c u t i n g an agreement.

1.5.25 Notwithstanding the form, as Mr Justice Harman's judgment in Inland Revenue


Commissioners v Mobil North Sea Ltd"'

d e m o n s t r a t e s , i t is w r o n g a u t o m a t i c a l l y t o

assume t h a t t h e licence is a c o n t r a c t f o r a l l purposes. I n r e a c h i n g t h i s

conclusion

a b o u t t h e c a t e g o r i s a t i o n o f a p e t r o l e u m licence, H a r m a n J appears t o h a v e been


i n f l u e n c e d b y a n u m b e r of factors, i n c l u d i n g t h a t :

a p e t r o l e u m licence is n o t o r d i n a r i l y described as a c o n t r a c t :
i t is a s t r a i n e d use o f language t o describe a g r a n t b y t h e C r o w n as a c o n t r a c t ;
and

not

every d o c u m e n t c o n t a i n i n g

c o n t r a c t u a l o b l i g a t i o n s can

properly

be

described as a c o n t r a c t .

1.5.26 Harman J's conclusion that the petroleum licence was not within the meaning of the
t e r m 'contract' was, however, q u a l i f i e d b y t h e s t a t e m e n t "as [such t e r m is] used i n
s e c t i o n 111(7) o f t h e Finance Act 1981". T h e r e f o r e , i f t h e p o i n t is d e c i d e d again, t h i s
t a x case c o u l d easily be l i m i t e d t o its facts.

1.5.27 Why does this classification matter? The answer to the question of whether the
l i c e n c e is a c o n t r a c t

or

regulation will

g o v e r n m e n t a n d t h e licensee. UK

Oil & Gas

influence
120

Law

d i s t i n c t i o n between regulation and contract may

several

legal issues b e t w e e n

lists several issues o n w h i c h the


turn, i n c l u d i n g the following:

M o s t c r u c i a l l y , a n y c h a n g e t o c o n t r a c t u a l t e r m s requires t h e m u t u a l consent
o f each c o n t r a c t u a l party. I f a m e n d m e n t t o m o d e l clauses requires

the

licensee's consent, t h e n t h i s acts as a u s e f u l c h a n g e o f l a w p r o t e c t i o n against


g o v e r n m e n t i n t e r f e r e n c e i n m a t t e r s t h a t h a v e b e e n agreed b y c o n t r a c t .

On

t h e a s s u m p t i o n t h a t t h e licence is a c o n t r a c t , a c o u r t w o u l d u p h o l d its
s a n c t i t y i n t h e face of g o v e r n m e n t a c t i o n c o n t r a r y t o t h e agreed m o d e l
clauses. O n

the other hand, regulations may

be c h a n g e d b y g o v e r n m e n t s . I t

is a long-established p r i n c i p l e o f c o n s t i t u t i o n a l l a w t h a t a p a r l i a m e n t has

no

a u t h o r i t y t o b i n d its successors. I f a licence is categorised as r e g u l a t i o n , t h e n


this allows the possibility that g o v e r n m e n t may
m o d e l clauses p r e v i o u s l y

entered

into with

g o v e r n m e n t ' s a t t i t u d e t o w a r d s t h i s issue was


p a y m e n t s payable u n d e r t h e

licence - an

f r o m t i m e t o t i m e change
a licensee. A n

example

of

seen i n i t s a b o l i t i o n o f r o y a l t y
amendment

c l e a r l y i n each

licensee's i n t e r e s t ( a n d t h e r e f o r e its m a n n e r o f i m p l e m e n t a t i o n n o t subject t o


criticism). Any

119

[1986] 1 WLR
and

s i m i l a r c h a n g e b e t w e e n t w o c o m m e r c i a l p a r t i e s w o u l d have

296 - see pages 138 t o 140. The case related t o a narrow issue u n d e r t h e Finance Act

i t w o u l d be w r o n g t o a u t o m a t i c a l l y assume that Harman's c o n c l u s i o n

1981

(that a licence is n o t a

contract) w i l l apply i n all circumstances. The case was overturned i n t h e House of Lords - a l t h o u g h this
120

part of the j u d g m e n t was not appealed.


At paragraph 1-323. I n a d d i t i o n , as n o t e d above, Rome I regulations o n applicable law a p p l y t o contracts
but not a d m i n i s t r a t i v e regulations.

62

t y p i c a l l y been made by w a y o f w r i t t e n a m e n d m e n t agreement. G o v e r n m e n t ,


i n contrast, i m p l e m e n t e d t h i s change b y issuing a press release.

Furthermore, t h e licence c o n t a i n s m a n y areas where m i n i s t e r i a l powers are


exercised a n d consent a n d a p p r o v a l are required. The characterisation o f t h e
licence as c o n t r a c t or r e g u l a t i o n w i l l i n f l u e n c e t h e standards t h a t m u s t be
m e t b y g o v e r n m e n t i n exercising its d i s c r e t i o n . I f t h e m o d e l clauses are
p r o p e r l y considered t o be r e g u l a t i o n , t h e n t h e p r i n c i p l e s o f a d m i n i s t r a t i v e
law w i l l be applicable t o t h e exercise o f powers a n d discretions. These i n c l u d e
approval

of working

obligations,

development and production

121

direction and

programmes,

a n d a b a n d o n m e n t a n d p l u g g i n g of w e l l s
c o m p u l s i o n of u n i t developments.

121

122

approval

of the

approval of commencement

and approval of operators

124

and

125

D i f f e r e n t rules a p p l y t o t h e rescission o f contracts a n d t h e t e r m i n a t i o n o f


government-granted

licences. The

general p r i n c i p l e of c o n t r a c t

is t h a t

p r o v i d e d t h a t a breach is serious enough, a party may treat t h e agreement as


discharged a n d refuse t o p e r f o r m its own, or accept its counterparty's, f u r t h e r
p e r f o r m a n c e o f t h e contract. The breach, i t is o f t e n said, m u s t go t o t h e r o o t
of t h e contract. Generally, courts w i l l consider b o t h w h e t h e r rescission (as
opposed t o damages) is required t o protect t h e i n n o c e n t party adequately a n d
t h e effect o f rescission o n t h e d e f a u l t i n g party. If t h e licence is considered t o
be a contract, t h e n t h e parties w i l l rely o n o r d i n a r y p r i n c i p l e s of c o n t r a c t u a l
i n t e r p r e t a t i o n i n relation t o powers a n d discretions exercised b y t h e secretary
of state. O n t h e other hand, i f t h e licence is treated as r e g u l a t i o n , t h e n t h e
principles o f a d m i n i s t r a t i v e l a w provide t h a t l a w s h o u l d c o n t r o l t h e exercise
of discretionary powers of g o v e r n m e n t a n d courts are ready t o strike d o w n
w h a t is perceived

as a misuse of power. A d m i n i s t r a t i v e measures m u s t be

p r o p o r t i o n a t e t o t h e i r i n t e n d e d results a n d s t a t u t o r y powers m u s t be exercised


reasonably, i n g o o d f a i t h a n d o n correct grounds. A decision maker m u s t take
a c c o u n t o f relevant factors a n d ignore irrelevant matters, a n d a decision can
be set aside for Wednesbury

unreasonableness (a decision so unreasonable t h a t

n o reasonable a u t h o r i t y c o u l d ever have reached i t ) .

1.6 Sources of law


A. Federal examples
1.6.1

Typically, as i n t h e U n i t e d

Kingdom

(a c o u n t r y

with

h i s t o r i c a l l y centralised

g o v e r n m e n t ) , sovereign r i g h t s over p e t r o l e u m in situ are assumed b y t h e n a t i o n a l


a d m i n i s t r a t i o n . However, there are several i n t e r n a t i o n a l examples ( p a r t i c u l a r l y i n

121
122
123
124
125
126

M o d e l clause 16.
M o d e l clause 17.
M o d e l clause 19.
M o d e l clause 24.
M o d e l clause 27.
Previously, the Scottish National Party fought b o t h general elections i n 1974 o n the slogan "It's
Scotland's o i l " , w i n n i n g a number of seats, but w i t h o u t o b t a i n i n g the balance of parliamentary

power

necessary t o change government policy. This debate has recently attracted renewed attention.

63

c o u n t r i e s o p e r a t i n g a federal system o f g o v e r n m e n t ) w h e r e , o f t e n because o f r e g i o n a l


c o n f l i c t s , s o v e r e i g n t y is exercised b y a s u b - d i v i s i o n o f c e n t r a l g o v e r n m e n t . W i t h t h e
n e w l y created Scottish P a r l i a m e n t b e i n g g i v e n p o w e r s i n c e r t a i n d e v o l v e d areas o f
p o l i c y t o create p r i m a r y l e g i s l a t i o n ( n o t i n c l u d i n g e n e r g y o r t a x ) , j u r i s d i c t i o n a l
c l a i m s b e t w e e n t h e c o n s t i t u e n t parts o f t h e U n i t e d K i n g d o m h a v e r e c e n t l y resurfaced at a p o l i t i c a l l e v e l .

126

1.6.2 The majority of UKCS petroleum is recoverable off the coast of Scotland. Yet in recent
c o n s t i t u t i o n a l changes, e n e r g y i n g e n e r a l ( a n d o i l a n d gas i n p a r t i c u l a r ) are expressly
r e t a i n e d as reserved m a t t e r s u n d e r t h e j u r i s d i c t i o n o f t h e W e s t m i n s t e r P a r l i a m e n t .

127

D e v o l v e m e n t o f j u r i s d i c t i o n i n t h i s area is t h e c u r r e n t p o l i c y o f t h e r u l i n g p a r t y i n
t h e S c o t t i s h P a r l i a m e n t and, because o f its t o p i c a l i t y , i t is w o r t h b r i e f l y

considering

a r g u m e n t s raised w h e n t h i s p o i n t has b e e n l i t i g a t e d i n o t h e r j u r i s d i c t i o n s . A p o l i t i c a l
disagreement over sovereignty

a n d s o v e r e i g n r i g h t s b e t w e e n n a t i o n a l a n d state
128

g o v e r n m e n t s was a n issue i n New South Wales v The Commonwealth.

I n 1973 t h e Sea

a n d S u b m e r g e d L a n d s Act was passed, asserting s o v e r e i g n t y i n f a v o u r of t h e n a t i o n a l


C o m m o n w e a l t h g o v e r n m e n t o v e r t h e t e r r i t o r i a l sea a n d c o n t i n e n t a l shelf.

New

S o u t h Wales c o n t e n d e d t h a t r i g h t s o v e r t h e t e r r i t o r i a l sea s h o u l d be exercised b y the


states a n d n o t b y t h e C o m m o n w e a l t h g o v e r n m e n t . T h e issue was l i t i g a t e d i n t h e
Australian H i g h Court, w h i c h held t h a t the purpose o f the Australian Constitution
was t o vest p r o p r i e t a r y r i g h t s a n d legislative p o w e r s i n r e l a t i o n t o t h e t e r r i t o r i a l sea
(by

a five

to t w o majority)

and continental

shelf ( u n a n i m o u s l y ) i n central

government. The court, c i t i n g a decision o f t h e Canadian Supreme Court,

129

was

i n f l u e n c e d b y t h e r e q u i r e m e n t o f c e n t r a l g o v e r n m e n t t o c o n t r o l i t s t e r r i t o r i a l sea,
seabed a n d c o n t i n e n t a l shelf i n o r d e r t o assert i n d e p e n d e n t n a t i o n h o o d a n d t o be
recognised b y other nations. N o t w i t h s t a n d i n g the favourable resolution i n favour of
the

C o m m o n w e a l t h government, the outcome

legislatively m o d i f i e d

o f t h i s case was

subsequently

b y t h e Coastal Waters (State T i t l e ) A c t 1 9 8 0 a n d

other

l e g i s l a t i o n w h i c h t r a n s f e r r e d p r o p e r t y r i g h t s i n f a v o u r o f e a c h state i n its coastal


waters, b e i n g t h e state's i n t e r n a l waters a n d t e r r i t o r i a l sea ( i n c l u d i n g t h e seabed) u p
to a l i m i t o f t h r e e n a u t i c a l miles. Rights i n r e l a t i o n t o t h e sea o u t s i d e t h i s l i m i t
r e m a i n e d w i t h t h e C o m m o n w e a l t h g o v e r n m e n t i n a c c o r d a n c e w i t h t h e court's
11

decision. " T h e r e was a general a c k n o w l e d g e m e n t f o r s o m e aspects - f o r e x a m p l e , the


c o n t r o l a n d r e g u l a t i o n o f p o r t s - t h a t h i s t o r i c a l p r a c t i c e a n d p r a c t i c a l i t i e s m a d e state
administration

m o r e c o n v e n i e n t t h a n C o m m o n w e a l t h a d m i n i s t r a t i o n . I n these

cases t h e r e w e r e n o o v e r r i d i n g n a t i o n a l o r i n t e r n a t i o n a l c o n s i d e r a t i o n s

i n favour of

t h e r i g h t s b e i n g exercised b y t h e C o m m o n w e a l t h .

127
128
129
130

Scotland Act 1998, Schedule 5.


(1975) 135 C L R 337.
Reference re Ownership of Offshore Mineral Rights (1967) SCR 792; 1967 65 DLR (2d) 353.
Elsewhere, United States v California, 332 US 19 (1947) was decided, and the Submerged 1 ands Act 1973

1.31

(43 USC 1.301 to 1315) was passed, on an analogous set of facts and legislative compromise
The UK legislature passed 4,160 acts of Parliament during the period 1930 to 2009 (inclusive) (sourceHouse of Lords Library Note, May 25 2010), an average of 52 pieces of legislation each year. In addition
the number of statutory instruments from 1950 has doubled from about 2,000 to about 4,000 a year
(source: House of C o m m o n s Library Note SN/SG/2911, last updated January 23 2008).

64

Marc Hammerson

B.

Domestic law

1.6.3

The q u e s t i o n o f w h i c h a r m o f state c o n t r o l s p e t r o l e u m reserves has been a p o l i t i c a l ,


but

never a legal, q u e s t i o n i n t h e U n i t e d K i n g d o m . The c o m m e r c i a l e x p l o i t a t i o n o f

o i l a n d gas began i n an era w h i c h c o i n c i d e d w i t h t h e decline o f free m a r k e t


e c o n o m i c s a n d t h e rise o f a n i n t e r v e n t i o n i s t state i n t h e f o r m o f t h e Westminster
Parliament. It is p a r t l y f o r t h i s reason t h a t t h i s subject is so h e a v i l y d o m i n a t e d by
1

statutory, rather t h a n c o m m o n , law. " I n a d d i t i o n t o t h e post-war statist a p p r o a c h t o


industry, t h e o t h e r reason is successive governments' economic, fiscal, p o l i t i c a l ,
i n t e r n a t i o n a l a n d security interests i n e n s u r i n g t h e d e v e l o p m e n t

of the United

Kingdom's o i l a n d gas i n d u s t r y i n a m a n n e r t h a t e n h a n c e d t h e country's e c o n o m i c


d e v e l o p m e n t i n a petroleum-based economy.'" This was n o t a n area t h a t was left t o
judge-made c o m m o n law or d e v o l v e d t o subsidiary i n s t i t u t i o n s .

1.6.4 Notwithstanding the dominance of statutory law in this area, there are a number of
issues ( m a i n l y issues a m o n g c o m m e r c i a l parties, rather t h a n between
and

licensee) w h e r e reliance o n

government

case law remains i m p o r t a n t . Particularly, t h e

r e l a t i o n s h i p between operator a n d non-operators, w h i c h i n certain j u r i s d i c t i o n s is


deemed t o be o f a f i d u c i a r y n a t u r e (ie, a r e l a t i o n s h i p of trust a n d c o n f i d e n c e t h a t t h e
law imposes

o n a l i m i t e d n u m b e r o f c o m m e r c i a l arrangements), is one

where

c o m m o n law d o m i n a t e s . These cases are discussed i n C h a p t e r 2. The f o l l o w i n g t w o


chapters o n u n i t i s a t i o n agreements a n d gas sales are also areas o f c o m m e r c i a l law,
a n d therefore t h e legal materials are d o m i n a t e d b y case law.

B. European law
1.6.5

Previously, t h i s c h a p t e r assumed

t h a t sovereignty over n a t u r a l

resources

was

exercised b y t h e m o d e r n n a t i o n state (or its delegated sub-division). Yet there has


been some m o v e m e n t away f r o m t h i s structure a n d u p w a r d s i n f a v o u r of t h e
1 3

European U n i o n ' a n d also d o w n w a r d s ( a l t h o u g h n o t relevant i n t h e UK

context

there is Privy C o u n c i l o p i n i o n o n t h i s issue)'" i n f a v o u r of i n d i g e n o u s peoples.

115

1.6.6 The major legal influence during this period is the dominance of European law. The
European

C o m m u n i t y ( a n d European

m o r e i n f l u e n c e o n UK

U n i o n as i t later became) w o u l d have h a d

l a w i n t h i s area b u t f o r t h e fact t h a t b y t h e t i m e t h a t t h e EU

came t o legislate o n energy p o l i c y ( w h i c h was n o t u n t i l t h e late 1990s) a n u m b e r o f


l i b e r a l i s a t i o n measures h a d p r e v i o u s l y been a d o p t e d b y UK energy markets a n d
l a w was already c o m p l i a n t w i t h t h e new

UK

European rules. EU l e g i s l a t i o n h a d a far

m o r e drastic effect o n France a n d G e r m a n y whose i n d u s t r y was still d o m i n a t e d b y

132

The polarisation of different political views of how N o r t h Sea oil should be best used for the country's
benefit is illustrated by the d o m i n a n c e i n the 1970s of the state-owned British National Oil Corporation
(the

predecessor t o Britoil Pic, now BP Pic) and its subsequent demise d u r i n g the free market reforms of

133

the 1980s.
See Hancher,

134
135

Organisational to Regulatory Conflicts" (1998) 16 JENRL 16.


See Amodu Tijani v The Secretary, Southern Nigeria [1921] 2 AC 399.
See Marais and G l i n d e m a n n , "Native title i n Australia: The latest appeal defines scope of native title

" D e l i m i t a t i o n of Energy Law

rights" (2000) 7 IELTR 182 and

Hunt

M,

Jurisdiction i n the EU

"Mineral development

and its Member States: From

and

indigenous people -

The

implications of the Mabo case" (1993) JENRL 155.

65

O w n e r s h i p , l i c e n s i n g a n d sources o f l a w

large, state-owned i n t e g r a t e d energy c o m p a n i e s . For e x a m p l e , t h e t h r e e EU

Gas

D i r e c t i v e s (discussed i n C h a p t e r 5) h a d far less i m p a c t o n t h e U n i t e d K i n g d o m t h a n


o n o t h e r m e m b e r states.

1.6.7 The Common Market came into existence with the signing of the Treaty of Rome in
1957. T h e U n i t e d K i n g d o m acceded t o t h e t r e a t y i n 1973. A l t h o u g h t h e early h i s t o r y
of w h a t became t h e E u r o p e a n U n i o n singled o u t c e r t a i n i n d u s t r i e s f o r particular
7

a t t e n t i o n (eg, coal a n d steel"' a n d a t o m i c energy)," o i l a n d gas was largely unaffected


( o t h e r t h a n t h e a p p l i c a t i o n o f rules o n trade as t h e y a p p l i e d g e n e r a l l y ) . Even where
p e t r o l e u m i n d u s t r y l a w a n d practice (already i n place p r i o r t o t h e U n i t e d Kingdom's
8

accession) d i d c o n t r a v e n e general E u r o p e a n law," Brussels d i d n o t allocate resources


t o investigate o r (other t h a n i n t h e e n v i r o n m e n t a l sphere) regulate t h e i n d u s t r y . It was
n o t u n t i l t h e E u r o p e a n Union's stated o b j e c t i v e t o create a single m a r k e t w i t h free
9

m o v e m e n t o f capital, labour, goods a n d services ( t h e so-called f o u r f r e e d o m s ) " t h a t


t h e u p s t r e a m o i l a n d gas i n d u s t r y became subject t o specific directives, such as:

t h e First Gas D i r e c t i v e , Second Gas Package a n d T h i r d Gas Package (defined


a n d discussed i n C h a p t e r 5), w h i c h a i m e d ( a m o n g o t h e r t h i n g s ) t o create a
European internal market

i n gas, create

public

service

obligations and

c o n s u m e r p r o t e c t i o n , m o n i t o r security o f supply, a l l o w r i g h t s o f t h i r d - p a r t y
access t o i n f r a s t r u c t u r e , lay d o w n c o m m o n c r i t e r i a f o r a u t h o r i s a t i o n s relating
to the construction

o f i n f r a s t r u c t u r e a n d u n b u n d l e v e r t i c a l l y integrated

undertakings;

EU D i r e c t i v e 94/22/EEC, w h i c h was i m p l e m e n t e d i n t h e U n i t e d K i n g d o m as
the Hydrocarbons Licensing

D i r e c t i v e R e g u l a t i o n s 1995 (discussed i n this

chapter);"" a n d

EU R e g u l a t i o n 713/2009/EC e s t a b l i s h i n g a n EU a g e n c y f o r t h e c o o p e r a t i o n of
e n e r g y regulators i n d i f f e r e n t m e m b e r states.

It is not, therefore, until relatively recently that European law has had a
s i g n i f i c a n t i m p a c t o n t h e u p s t r e a m o i l a n d gas i n d u s t r y .

C.

International

law

1.6.8

UK

production,

onshore

which

began

i n t h e 1930s, d i d n o t m a t c h

initial

e x p e c t a t i o n s and, w i t h o u t t h e d i s c o v e r y o f N o r t h Sea o i l a n d gas i n t h e late 1950s


a n d 1960s, t h e U K p e t r o l e u m i n d u s t r y w o u l d h a v e b e e n a v a s t l y i n f e r i o r v e r s i o n of

136
137
138

The European Coal a n d Steel C o m m u n i t y was formed by the Treaty of Paris 1951.
The European A t o m i c Energy C o m m u n i t y was f o r m e d b y t h e Treaty o f Rome 1951.
The requirement for o i l a n d gas t o be landed i n t h e U n i t e d K i n g d o m a n d the discretionary (and therefore
p o t e n t i a l l y d i s c r i m i n a t o r y ) nature o f t h e government's grant o f licence, w h i c h at times included the
applicant's c o m m i t m e n t t o research a n d development activities i n the U n i t e d K i n g d o m , are examples of
criteria w h i c h (although a breach, or p o t e n t i a l breach, o f European law) were n o t properly investigated

139

bv the European authorities at that time.


Article 26 (1) The Union shall adopt measures with the aim of establishing or ensuring the functioning of

internal market, in accordance with the relevant provisions of the Treaties. (2) Tlie internal market sha

an area without internal frontiers in which the free movement of goods, persons, services and capital i
in accordance with the provisions of the Treaties (Treaty o n t h e F u n c t i o n i n g
140

66

(2010/C83/01)).
SI 1995/1434. See pages 79 t o 82.

o f t h e European U n i o n

Marc Hammerson

w h a t i t became. T h e legal d e v e l o p m e n t o f t h e UKCS c a n n o t be p r o p e r l y analysed


w i t h o u t a b a c k g r o u n d u n d e r s t a n d i n g of the i n t e r n a t i o n a l law c o n t e x t i n w h i c h
domestic l a w was

developed.

1.6.9 Like European law, the impact of international law on petroleum exploration and
p r o d u c t i o n has its o r i g i n s i n t h e second h a l f o f t h e 2 0 t h century. Between 1965
2008, w o r l d w i d e o i l p r o d u c t i o n nearly t r i p l e d . '

41

and

After t h e so-called 'easy o i l ' h a d

been discovered, m u c h o f t h e n e w p r o d u c t i o n ( p a r t i c u l a r l y f r o m larger fields) came


f r o m t h e o f f s h o r e sector. T h i s is a feature o f b o t h t h e U n i t e d K i n g d o m

(where,

f o l l o w i n g t h e 1934 act, o n s h o r e p r o d u c t i o n rates were d i s a p p o i n t i n g ) a n d the wider


i n t e r n a t i o n a l industry.'

42

T h e concept of a coastal state's exclusive sovereign rights

(rather t h a n absolute sovereignty) over the c o n t i n e n t a l shelf a n d b e y o n d a country's


t e r r i t o r i a l sea e m a n a t e d f r o m President Truman's p r o c l a m a t i o n i n 1945.

143

Prior t o

t h i s (and t h e wave o f i n t e r n a t i o n a l law t h a t f o l l o w e d ) , i n t e r n a t i o n a l m a r i t i m e rights


had been g o v e r n e d b y a set o f c u s t o m a r y i n t e r n a t i o n a l laws. However, p a r t l y as a
result o f t h e e c o n o m i c p o t e n t i a l

o f offshore p r o d u c t i o n

(and

t h e territorial

expansionism, a n d r e s u l t i n g conflicts, t h a t t h i s c o u l d provoke), t h e post-war p e r i o d


gave rise t o a series o f i n t e r n a t i o n a l c o n v e n t i o n s designed at a v o i d i n g a n d d e f u s i n g
i n t e r - c o u n t r y disputes. Later i n t h e 2 0 t h century, t h e need t o regulate e n v i r o n m e n t a l
matters o n a n i n t e r n a t i o n a l basis became apparent. These t w o factors l e d t o t h e
c o d i f i c a t i o n o f m a n y e x i s t i n g c u s t o m a r y i n t e r n a t i o n a l law i n t h i s area.

1.6.10 Therefore, in 1958 the United Nations Conference on the Law of the Sea at Geneva
a d o p t e d f o u r c o n v e n t i o n s o n t h e l a w o f t h e sea. These were subsequently superseded
by t h e U N C o n v e n t i o n o n t h e Law o f t h e Sea 1982, w h i c h came i n t o force i n 1994.
W h e r e a state is n o t a s i g n a t o r y t o t h e relevant i n t e r n a t i o n a l c o n v e n t i o n , c u s t o m a r y
i n t e r n a t i o n a l law ( w h i c h m a y be reflected i n t h e c o n v e n t i o n ) c o n t i n u e s t o apply. A
s u m m a r y o f t h e North Sea Continental

Shelf cases,

144

one o f t h e l e a d i n g j u d g m e n t s i n

t h i s area, is set o u t i n pages 157 t o 163. These c o n v e n t i o n s have g i v e n rise t o a


n u m b e r o f cases creating a b o d y o f j u r i s p r u d e n c e o n several issues relevant t o t h e o i l
and

gas industry. M o r e recently, i n t e r n a t i o n a l c o n v e n t i o n s

standards

(which

commitments

1 4 5

domestic l a w )

1 4 6

are b e y o n d

o n environmental

t h e scope o f t h i s b o o k ) a n d d e c o m m i s s i o n i n g

have also ( b o t h i n themselves a n d b y t h e i r i m p l e m e n t a t i o n

into

h a d a s i g n i f i c a n t i m p a c t o n t h e l i a b i l i t y i m p o s e d o n t h e industry.

These are discussed i n C h a p t e r 6.

141

Source: BP Statistical Review of World Energy (June 2009); 1,567.3 m i l l i o n tonnes of p r o d u c t i o n per day i n

142

1965 to 3,928.8 m i l l i o n tonnes of p r o d u c t i o n per day i n 2008.


The development of UK legislation can be d i v i d e d i n t o the period pre-1964 (when the law concentrated
exclusively o n the development of the United Kingdom's onshore reserves) and the period after 1964
w h e n ( w i t h the passing of the C o n t i n e n t a l Shelf Act i n that year) the United Kingdom's onshore oil and

143
144
145

gas regime was extended to include the UKCS.


See pages 147 and 148.
[1969] ICJ 3.
The most i m p o r t a n t conventions relating t o decommissioning are UNCLOS 1982,

146

C o n v e n t i o n and OSPAR Decision 98/3.


Compliance w i t h the U n i t e d Kingdom's international obligations on decommissioning is implemented

the OSPAR

by DECC using its powers under Part IV of the 1998 act.

67

u w n e r s n i p , l i c e n s i n g a n u suuices u i i a w

1.6.11 T h e 1958 c o n v e n t i o n created r i g h t s i n f a v o u r o f a coastal state over its c o n t i n e n t a l


shelf. T h i s is n o w reflected i n A r t i c l e 77 o f U N C L O S 1982, w h i c h states t h a t t h e
"coastal state exercises over t h e c o n t i n e n t a l shelf s o v e r e i g n r i g h t s f o r t h e p u r p o s e o f
e x p l o r i n g i t a n d e x p l o r i n g i t s n a t u r a l resources". T h i s expressly i n c l u d e s " m i n e r a l
a n d o t h e r n o n - l i v i n g resources o f t h e seabed a n d s u b s o i l " ( A r t i c l e 77(4)). As w e h a v e
seen, t h e g o v e r n m e n t r e s p o n d e d t o these

international developments a n d the

p o t e n t i a l o f e x p l o r a t i o n a n d p r o d u c t i o n i n t h e UKCS'

47

b y simply applying the

e x i s t i n g o n s h o r e l i c e n s i n g r e g i m e t o t h e UKCS b y t h e passing o f t h e C o n t i n e n t a l
Shelf Act 1964 a n d t h e r e b y e x t e n d i n g t h e l i c e n s i n g system t o t h e e x c l u s i v e e c o n o m i c
z o n e over w h i c h i n t e r n a t i o n a l l a w recognised t h e U n i t e d Kingdom's e x c l u s i v e rights.
I n m a n y j u r i s d i c t i o n s , t h e c o n t e m p l a t i o n o f large o i l a n d gas discoveries w o u l d have
p r o v o k e d a debate o v e r t h e best e c o n o m i c m o d e l t o use. I t is possible f o r j u r i s d i c t i o n s
- N i g e r i a is a n e x a m p l e - t o g r a n d f a t h e r e x i s t i n g p e t r o l e u m l e g i s l a t i o n f o r o n s h o r e
a c t i v i t i e s w h i l e i n t r o d u c i n g a m o r e a d v a n t a g e o u s system f o r o f f s h o r e e x p l o r a t i o n
a n d p r o d u c t i o n . W h a t is s u r p r i s i n g i n t h e U n i t e d K i n g d o m was t h e l a c k o f debate,
e i t h e r at t h e t i m e t h a t t h e C o n t i n e n t a l Shelf A c t was passed o r at t h e z e n i t h o f N o r t h
Sea p r o d u c t i o n , over t h e best e c o n o m i c m o d e l t o use. T h e r e are s o m e differences
b e t w e e n t h e t e r m s o f o f f s h o r e a n d o n s h o r e licences. However, t h e n o t e w o r t h y
feature o f t h e t w o types o f licences is t h e s i m i l a r i t y o f t e r m s a n d u n i f o r m i t y o f
statutory law applying t o b o t h

(rather t h a n t h e i r differences). P o l i c y debates -

p a r t i c u l a r l y related t o t h e p a r t i c i p a t i o n o f B N O C - h a v e t a k e n place. However, t h e


l i c e n s i n g system i n t h e U n i t e d K i n g d o m has n e v e r b e e n s e r i o u s l y c h a l l e n g e d .

1.6.12 In the same period there has been an increase in investment treaties - both noni n d u s t r y - s p e c i f i c b i l a t e r a l i n v e s t m e n t treaties'

48

a n d treaties r e l a t i n g t o t h e energy

14

i n d u s t r y * - w h i c h h a v e g i v e n rise t o a b o d y o f j u r i s p r u d e n c e o n a h o s t government's
legal r e l a t i o n s h i p w i t h c o m m e r c i a l f o r e i g n o i l a n d gas i n v e s t o r s .

1.6.13 Some of these international laws are contained in this book and it will be seen that
these h e l p t o e x p l a i n m a n y d e v e l o p m e n t s i n U K law. H o w e v e r , a n y r e l i a n c e o n
i n t e r n a t i o n a l m a t e r i a l s u n d e r d o m e s t i c l a w s h o u l d be u n d e r t a k e n

w i t h caution. A

series o f cases are r e p r o d u c e d m a k i n g t h i s p o i n t . It is a t r i t e o b s e r v a t i o n t h a t t h e r e is


n o such t h i n g as i n t e r n a t i o n a l l a w e x t r a n e o u s t o d o m e s t i c l a w o n w h i c h a p a r t y m a y
rely.

150

A l i t i g a n t has n o r i g h t s u n d e r a n i n t e r n a t i o n a l law. Its r i g h t s arise u n d e r a n act

of P a r l i a m e n t w h i c h c o n f i r m s t h e t r e a t y a n d gives i t f o r c e o f law.

151

I t is a l w a y s o p e n

t o P a r l i a m e n t (or t h e o t h e r t r e a t y c o u n t r y ) t o exercise its s o v e r e i g n l e g i s l a t i v e p o w e r


52

t o t e r m i n a t e o r a m e n d t h e d o m e s t i c l a w i m p l e m e n t i n g t h e treaty.' T h e cases g o o n

147

The UKCS was developed first b y the d e v e l o p m e n t o f natural gas fields i n t h e southern N o r t h Sea a n d
then, i n the early 1970s, b y d e v e l o p m e n t o f o i l fields i n the n o r t h e r n N o r t h Sea. I n the c o n t e x t o f an

148

analysis of UK licensing, there is l i t t l e legal difference between the t w o types of development.


The first bilateral investment treaty was signed i n 1959 between t h e Federal Republic o f G e r m a n y a n d
the Islamic Republic of Pakistan. I t is estimated t h a t there are c u r r e n t l y 2,500 bilateral

149
150
151
152

68

treaties i n force.
The best-known multilateral energy investment treaty is the Energy Charter Treaty.
Mortensen v Peters (1906) F 0 ) 93; (1906) 14 SLT 227 per the Lord Justice General.
IRC v Cottco Dealings Ltd [ I 9 6 0 ] C h 592.
IRC v Lucvor Dealings Ltd [1960] 2 WLR 84.

investment

Marc H a m m e r s o n

to state t h a t a n i n t e r n a t i o n a l treaty m a y be used as a n a i d t o i n t e r p r e t a t i o n o f a


statute. But i f a statute is u n a m b i g u o u s , its p r o v i s i o n s m u s t be f o l l o w e d even if t h e y
are c o n t r a r y t o i n t e r n a t i o n a l law.

1.6.14 Having given that caution, sections A and D of Part B reproduce some of the
i n t e r n a t i o n a l law discussed i n t h i s chapter.

Part B: Sources
A. International conventions
General Assembly Resolution 1803 (XVII) of 14 December 1962
P e r m a n e n t s o v e r e i g n t y over n a t u r a l resources
The General Assembly,
Recalling its r e s o l u t i o n s 523 (VI) o f 12 J a n u a r y 1952 a n d 626 ( V I I ) o f 2 1
December 1952,
Bearing i n m i n d its r e s o l u t i o n 1314 ( X I I I ) o f 12 December 1958, b y w h i c h i t
established t h e C o m m i s s i o n o n P e r m a n e n t Sovereignty over N a t u r a l Resources a n d
i n s t r u c t e d i t t o c o n d u c t a f u l l survey o f t h e status o f p e r m a n e n t s o v e r e i g n t y over
n a t u r a l w e a l t h a n d resources as a basic c o n s t i t u e n t o f t h e r i g h t t o s e l f - d e t e r m i n a t i o n ,
w i t h r e c o m m e n d a t i o n s , w h e r e necessary, f o r its s t r e n g t h e n i n g , a n d decided f u r t h e r
t h a t , i n t h e c o n d u c t o f t h e f u l l survey o f t h e status o f t h e p e r m a n e n t sovereignty o f
peoples a n d n a t i o n s over t h e i r n a t u r a l w e a l t h a n d resources, d u e regard s h o u l d be
p a i d t o t h e r i g h t s a n d duties o f States u n d e r i n t e r n a t i o n a l law a n d t o t h e i m p o r t a n c e
of

encouraging

international

co-operation

i n the economic

development of

developing countries,
Bearing i n m i n d its r e s o l u t i o n 1515 ( X V ) o f 15 December 1960, i n w h i c h i t
r e c o m m e n d e d t h a t t h e sovereign r i g h t o f every State t o dispose o f its w e a l t h a n d its
n a t u r a l resources s h o u l d be respected,
C o n s i d e r i n g t h a t a n y measure i n t h i s respect m u s t be based o n t h e r e c o g n i t i o n
of t h e i n a l i e n a b l e r i g h t o f all States freely t o dispose o f t h e i r n a t u r a l w e a l t h a n d
resources

i n accordance w i t h

t h e i r n a t i o n a l interests, a n d o n respect f o r t h e

e c o n o m i c i n d e p e n d e n c e o f States,
C o n s i d e r i n g t h a t n o t h i n g i n paragraph 4 b e l o w i n any w a y prejudices t h e p o s i t i o n
of a n y M e m b e r State o n a n y aspect o f t h e q u e s t i o n o f the rights a n d o b l i g a t i o n s o f
successor States a n d G o v e r n m e n t s i n respect o f p r o p e r t y acquired before the accession
to c o m p l e t e sovereignty o f c o u n t r i e s f o r m e r l y u n d e r c o l o n i a l rule,
N o t i n g t h a t t h e subject o f succession

o f States a n d G o v e r n m e n t s is b e i n g

e x a m i n e d as a m a t t e r o f p r i o r i t y b y t h e I n t e r n a t i o n a l Law C o m m i s s i o n ,
C o n s i d e r i n g t h a t i t is desirable t o p r o m o t e i n t e r n a t i o n a l c o - o p e r a t i o n f o r t h e
economic development o f developing countries, a n d that economic a n d financial
agreements b e t w e e n t h e developed a n d t h e d e v e l o p i n g c o u n t r i e s m u s t be based o n
the

principles of equality

and of the right

o f peoples

a n d n a t i o n s t o self-

determination,

69

O w n e r s h i p , l i c e n s i n g a n d sources of law

C o n s i d e r i n g t h a t t h e p r o v i s i o n o f e c o n o m i c a n d t e c h n i c a l assistance, loans a n d
increased f o r e i g n i n v e s t m e n t m u s t n o t be subject t o c o n d i t i o n s w h i c h c o n f l i c t w i t h
t h e interests o f t h e r e c i p i e n t State,
C o n s i d e r i n g the benefits t o be d e r i v e d f r o m exchanges o f t e c h n i c a l a n d s c i e n t i f i c
i n f o r m a t i o n likely t o p r o m o t e the development and

use o f s u c h resources

and

wealth, and the i m p o r t a n t part w h i c h the United Nations and other international
o r g a n i z a t i o n s are called u p o n t o p l a y i n t h a t c o n n e c t i o n ,
A t t a c h i n g particular importance

to the question of p r o m o t i n g

the economic

d e v e l o p m e n t o f d e v e l o p i n g c o u n t r i e s a n d securing t h e i r e c o n o m i c i n d e p e n d e n c e ,
N o t i n g that the creation and
States

over

their

s t r e n g t h e n i n g o f t h e i n a l i e n a b l e s o v e r e i g n t y of

natural wealth

and

resources

reinforces their

economic

independence,
D e s i r i n g t h a t t h e r e s h o u l d be f u r t h e r c o n s i d e r a t i o n b y t h e U n i t e d N a t i o n s o f the
subject o f p e r m a n e n t s o v e r e i g n t y over n a t u r a l resources i n t h e s p i r i t o f i n t e r n a t i o n a l
co-operation

i n the

field

of economic development, particularly

t h a t o f the

developing countries,
Declares t h a t :
The r i g h t o f peoples a n d n a t i o n s t o p e r m a n e n t s o v e r e i g n t y over t h e i r n a t u r a l w e a l t h
a n d resources m u s t be exercised i n t h e interest o f t h e i r n a t i o n a l d e v e l o p m e n t a n d of
t h e w e l l - b e i n g o f t h e people o f t h e State concerned.
The

exploration, development and

d i s p o s i t i o n o f such resources, as w e l l as the

i m p o r t o f t h e f o r e i g n c a p i t a l r e q u i r e d f o r these purposes, s h o u l d be i n c o n f o r m i t y
w i t h t h e rules a n d c o n d i t i o n s w h i c h t h e peoples a n d n a t i o n s freely consider t o be
necessary or desirable w i t h regard t o t h e a u t h o r i z a t i o n , r e s t r i c t i o n or p r o h i b i t i o n of
such activities.
In cases w h e r e a u t h o r i z a t i o n is granted, t h e c a p i t a l i m p o r t e d a n d t h e earnings

on

t h a t c a p i t a l shall be g o v e r n e d by t h e t e r m s thereof, b y t h e n a t i o n a l l e g i s l a t i o n i n
force, a n d by i n t e r n a t i o n a l law. The p r o f i t s d e r i v e d m u s t be shared i n t h e p r o p o r t i o n s
freely agreed u p o n , i n each case, b e t w e e n t h e investors a n d t h e r e c i p i e n t State, due
care b e i n g taken t o ensure t h a t there is n o i m p a i r m e n t , f o r a n y reason, o f t h a t State's
sovereignty over its n a t u r a l w e a l t h a n d

resources.

N a t i o n a l i z a t i o n , e x p r o p r i a t i o n or r e q u i s i t i o n i n g shall be based o n g r o u n d s or reasons


of p u b l i c u t i l i t y , security or t h e n a t i o n a l interest w h i c h are r e c o g n i z e d as o v e r r i d i n g
p u r e l y i n d i v i d u a l or p r i v a t e interests, b o t h d o m e s t i c a n d f o r e i g n . I n s u c h cases the
o w n e r shall be p a i d a p p r o p r i a t e c o m p e n s a t i o n , i n accordance w i t h t h e rules i n force
i n t h e State t a k i n g such measures i n t h e exercise o f its s o v e r e i g n t y a n d i n accordance
w i t h i n t e r n a t i o n a l law. I n a n y case w h e r e t h e q u e s t i o n o f c o m p e n s a t i o n gives rise t o
a controversy, t h e n a t i o n a l j u r i s d i c t i o n o f t h e State t a k i n g s u c h measures s h a l l be
exhausted. However, u p o n

agreement

by

sovereign

concerned, s e t t l e m e n t o f t h e d i s p u t e s h o u l d

be

States

and

made t h r o u g h

other

parties

arbitration

or

international adjudication.
The free and b e n e f i c i a l exercise o f t h e s o v e r e i g n t y o f peoples a n d n a t i o n s o v e r t h e i r
n a t u r a l resources m u s t be f u r t h e r e d b y t h e m u t u a l respect o f States based o n

their

sovereign equality.
I n t e r n a t i o n a l co-operation for t h e e c o n o m i c d e v e l o p m e n t o f d e v e l o p i n g c o u n t r i e s

70

Marc Hammerson

w h e t h e r i n t h e f o r m o f p u b l i c or p r i v a t e capital i n v e s t m e n t s , e x c h a n g e o f goods a n d
services, t e c h n i c a l assistance, or exchange o f scientific i n f o r m a t i o n , shall be such as
to f u r t h e r t h e i r i n d e p e n d e n t n a t i o n a l d e v e l o p m e n t a n d shall be based u p o n respect
for t h e i r s o v e r e i g n t y over t h e i r n a t u r a l w e a l t h a n d
7.

V i o l a t i o n o f t h e r i g h t s o f peoples a n d

resources.

n a t i o n s t o s o v e r e i g n t y over t h e i r n a t u r a l

w e a l t h a n d resources is c o n t r a r y t o t h e spirit a n d p r i n c i p l e s o f t h e Charter o f t h e


U n i t e d Nations and hinders the development of international co-operation and the
m a i n t e n a n c e o f peace.
8.

Foreign i n v e s t m e n t agreements freely entered i n t o by or b e t w e e n sovereign States


shall be observed i n g o o d f a i t h ; States a n d i n t e r n a t i o n a l o r g a n i z a t i o n s shall s t r i c t l y
a n d c o n s c i e n t i o u s l y respect t h e sovereignty o f peoples a n d n a t i o n s over t h e i r n a t u r a l
w e a l t h a n d resources i n accordance w i t h t h e Charter a n d t h e p r i n c i p l e s set f o r t h i n
t h e present r e s o l u t i o n .

General Assembly Resolution 3281 (XXIX)


Charter of economic rights and duties of states

Article 1
Every State has t h e sovereign a n d i n a l i e n a b l e r i g h t t o choose its e c o n o m i c system as
w e l l as its p o l i t i c a l , social a n d c u l t u r a l systems i n accordance w i t h t h e w i l l o f i t s
people, w i t h o u t o u t s i d e interference, c o e r c i o n or t h r e a t i n a n y f o r m whatsoever.

Article 2
1.

Every State has

and

possession, use a n d

shall freely exercise f u l l p e r m a n e n t sovereignty, i n c l u d i n g


disposal, over a l l its w e a l t h , n a t u r a l resources a n d

economic

activity.
2.

Each State has t h e r i g h t :


a.

To regulate a n d exercise a u t h o r i t y over f o r e i g n i n v e s t m e n t w i t h i n its n a t i o n a l


j u r i s d i c t i o n i n accordance w i t h its laws a n d r e g u l a t i o n s a n d i n c o n f o r m i t y w i t h
its n a t i o n a l objectives a n d

priorities. No

State shall be

compelled

to grant

preferential treatment t o foreign investments;


b.

To regulate a n d supervise t h e activities o f t r a n s n a t i o n a l c o r p o r a t i o n s w i t h i n its


n a t i o n a l j u r i s d i c t i o n a n d take measures t o ensure t h a t such activities c o m p l y
w i t h its laws, rules a n d r e g u l a t i o n s a n d c o n f o r m w i t h its e c o n o m i c a n d

social

policies. T r a n s n a t i o n a l c o r p o r a t i o n s shall n o t i n t e r v e n e i n t h e i n t e r n a l affairs o f


a h o s t State. Every State s h o u l d , w i t h f u l l regard f o r its sovereign rights, cooperate
w i t h o t h e r States i n t h e exercise o f t h e r i g h t set f o r t h i n t h i s subparagraph;
c.

To n a t i o n a l i z e , e x p r o p r i a t e or transfer o w n e r s h i p o f f o r e i g n property, i n w h i c h
case a p p r o p r i a t e c o m p e n s a t i o n s h o u l d
measures, t a k i n g i n t o

account

be

paid by

t h e State a d o p t i n g

i t s r e l e v a n t laws a n d

such

regulations i n a l l

circumstances t h a t t h e State considers p e r t i n e n t . I n a n y case w h e r e t h e q u e s t i o n


of c o m p e n s a t i o n gives rise t o a controversy, i t shall be settled u n d e r t h e d o m e s t i c
law o f t h e n a t i o n a l i z i n g State a n d b y its t r i b u n a l s , unless i t is freely a n d m u t u a l l y

71

O w n e r s h i p , l i c e n s i n g a n d sources o f l a w

agreed b y all States c o n c e r n e d t h a t o t h e r peaceful means be s o u g h t o n t t


of t h e sovereign e q u a l i t y o f States a n d i n accordance w i t h t h e p r i n c i p l e
choice of means.

Article 3
I n t h e e x p l o i t a t i o n of n a t u r a l resources shared b y t w o o r m o r e c o u n t r i e s , each State
m u s t co-operate o n t h e basis o f a system o f i n f o r m a t i o n a n d p r i o r c o n s u l t a t i o n s i n
order t o achieve o p t i m u m use o f such resources w i t h o u t causing damage t o t h e
l e g i t i m a t e interest o f others.

Article 4
Every State has t h e r i g h t t o engage i n i n t e r n a t i o n a l trade a n d o t h e r f o r m s o f
e c o n o m i c co-operation irrespective o f a n y d i f f e r e n c e i n p o l i t i c a l , e c o n o m i c a n d
social systems. N o State shall be subjected t o d i s c r i m i n a t i o n o f a n y k i n d based solely
on

such differences. I n t h e p u r s u i t o f i n t e r n a t i o n a l trade a n d o t h e r f o r m s o f

e c o n o m i c co-operation, every State is free t o choose t h e f o r m s o f o r g a n i z a t i o n o f its


f o r e i g n e c o n o m i c relations a n d t o enter i n t o b i l a t e r a l a n d m u l t i l a t e r a l arrangements
consistent w i t h its i n t e r n a t i o n a l o b l i g a t i o n s a n d w i t h t h e needs o f i n t e r n a t i o n a l
e c o n o m i c co-operations.

Article 5
A l l States have t h e r i g h t t o associate i n o r g a n i z a t i o n s o f p r i m a r y c o m m o d i t y producers
i n order t o d e v e l o p t h e i r n a t i o n a l economies, t o achieve stable f i n a n c i n g for their
d e v e l o p m e n t and, i n pursuance of t h e i r aims, t o assist i n t h e p r o m o t i o n o f sustained
growth

of the world

economy. I n p a r t i c u l a r accelerating t h e d e v e l o p m e n t of

d e v e l o p i n g countries. Correspondingly, all States have t h e d u t y t o respect t h a t right


by r e f r a i n i n g f r o m a p p l y i n g e c o n o m i c a n d p o l i t i c a l measures t h a t w o u l d l i m i t i t .

Article 6
It is t h e d u t y o f States t o c o n t r i b u t e t o t h e d e v e l o p m e n t o f i n t e r n a t i o n a l trade o f
goods, p a r t i c u l a r l y b y t h e means o f a r r a n g e m e n t s a n d b y t h e c o n c l u s i o n o f longterm

multilateral c o m m o d i t y

account

agreements, w h e r e a p p r o p r i a t e , a n d t a k i n g i n t o

t h e interest o f producers

a n d consumers. A l l States

s h a l l share t h e

r e s p o n s i b i l i t y t o p r o m o t e t h e regular f l o w a n d access o f all c o m m e r c i a l goods traded


at stable, r e m u n e r a t i v e

a n d e q u i t a b l e prices, t h u s c o n t r i b u t i n g t o t h e e q u i t a b l e

d e v e l o p m e n t o f t h e w o r l d economy, t a k i n g i n t o account, i n particular, t h e interests


of d e v e l o p i n g countries.

Energy Charter Treaty

Article 18
Sovereignty over energy resources
(1)

T h e C o n t r a c t i n g Parties recognize state s o v e r e i g n t y a n d sovereign r i g h t s over energy


resources. T h e y r e a f f i r m t h a t these m u s t be exercised i n accordance w i t h a n d subject
to t h e rules o f i n t e r n a t i o n a l law.

72

Marc Hammerson

(2)

W i t h o u t a f f e c t i n g t h e objectives o f p r o m o t i n g access t o energy resources, a n d


e x p l o r a t i o n a n d d e v e l o p m e n t t h e r e o f o n a c o m m e r c i a l basis, t h e Treaty shall i n n o
w a y p r e j u d i c e t h e rules i n C o n t r a c t i n g Parties g o v e r n i n g

t h e system o f p r o p e r t y

o w n e r s h i p of energy resources.
(3)

Each state c o n t i n u e s t o h o l d i n p a r t i c u l a r t h e r i g h t s t o decide t h e geographical areas


w i t h i n its Area t o be m a d e available f o r e x p l o r a t i o n a n d d e v e l o p m e n t o f its energy
resources, t h e o p t i m i z a t i o n o f t h e i r recovery a n d t h e rate at w h i c h t h e y m a y be
depleted or o t h e r w i s e e x p l o i t e d , t o specify a n d e n j o y a n y taxes, royalties o r o t h e r
f i n a n c i a l p a y m e n t s payable b y v i r t u e o f such e x p l o r a t i o n a n d e x p l o i t a t i o n , a n d t o
regulate t h e e n v i r o n m e n t a l a n d safety aspects of such e x p l o r a t i o n , d e v e l o p m e n t a n d
r e c l a m a t i o n w i t h i n its Area, a n d t o p a r t i c i p a t e i n such e x p l o r a t i o n a n d e x p l o i t a t i o n ,
inter alia, t h r o u g h

direct

participation

by the government

or t h r o u g h

state

enterprises.
(4)

T h e C o n t r a c t i n g Parties u n d e r t a k e t o facilitate access t o energy resources, inter alia,


by a l l o c a t i n g i n a n o n - d i s c r i m i n a t o r y m a n n e r o n t h e basis o f p u b l i s h e d

criteria

a u t h o r i z a t i o n s , licences, concessions a n d contracts t o prospect a n d e x p l o r e for o r t o


e x p l o i t o r extract energy resources.

B UK law
Petroleum Act 1998, Part I
1.

M e a n i n g of " p e t r o l e u m "
I n t h i s Part o f t h i s A c t " p e t r o l e u m " (a) i n c l u d e s a n y m i n e r a l o i l o r relative h y d r o c a r b o n a n d n a t u r a l gas e x i s t i n g i n
its n a t u r a l c o n d i t i o n i n strata; b u t
(b) does n o t i n c l u d e coal o r b i t u m i n o u s shales o r o t h e r stratified deposits.

2. Rights to petroleum vested in Her Majesty


(1)

Her M a j e s t y has t h e exclusive r i g h t o f searching

and boring for and getting

p e t r o l e u m t o w h i c h t h i s section applies.
(2)

This section applies t o p e t r o l e u m ( i n c l u d i n g p e t r o l e u m i n C r o w n l a n d ) w h i c h for the


t i m e b e i n g exists i n its n a t u r a l c o n d i t i o n i n strata i n Great B r i t a i n o r b e n e a t h t h e
t e r r i t o r i a l sea adjacent t o t h e U n i t e d K i n g d o m .

(3)

For t h e purposes of subsection (2), " C r o w n l a n d " means l a n d w h i c h (a) belongs t o Her M a j e s t y o r t h e D u c h y o f C o r n w a l l ;
(b) belongs t o a g o v e r n m e n t d e p a r t m e n t ; o r
(c) is h e l d i n trust f o r Her M a j e s t y for t h e purposes of a g o v e r n m e n t d e p a r t m e n t .

(4)

Subsection (1) is subject t o paragraph 4 of Schedule 3 a n d subsection (2) is subject t o


p a r a g r a p h 5(3) of t h a t Schedule.

153

153

Paragraph 4 of schedule 3 states: "Nothing in section 2 or 3 shall be taken to prejudice any right conferred by

any licence granted under section 2 of the Petroleum (Production) Act 1934 which is in force immediately befo

the commencement of this Act so long as the licence remains in force." Paragraph 5(3) of schedule 3 states: "S

long as that licence remains in force, section 2 shall not apply to petroleum which at the commencement of t
Petroleum (Production) Act 1934 might lawfully be got under that licence."

73

O w n e r s h i p , l i c e n s i n g a n d sources o f l a w

3.

Licences t o search a n d b o r e f o r a n d get p e t r o l e u m

(1)

T h e Secretary o f State, o n b e h a l f o f Her Majesty, m a y g r a n t t o s u c h persons as he


t h i n k s f i t licences t o search a n d b o r e f o r a n d get p e t r o l e u m t o w h i c h t h i s s e c t i o n
applies.

(2)

T h i s section applies t o (a) p e t r o l e u m t o w h i c h s e c t i o n 2 applies; a n d


(b) p e t r o l e u m w i t h respect t o w h i c h r i g h t s vested i n H e r M a j e s t y b y s e c t i o n 1(1)
of

the Continental

Shelf

Act 1964 ( e x p l o r a t i o n a n d e x p l o i t a t i o n of

c o n t i n e n t a l shelf) are exercisable.


(3)

A n y such licence shall be g r a n t e d f o r such c o n s i d e r a t i o n ( w h e t h e r b y w a y of r o y a l t y


or o t h e r w i s e ) as t h e Secretary of State w i t h t h e c o n s e n t of t h e Treasury m a y d e t e r m i n e ,
a n d u p o n such o t h e r t e r m s a n d c o n d i t i o n s as t h e Secretary o f State t h i n k s f i t .

(4)

Subsection (1) is subject t o p a r a g r a p h 4 of Schedule 3.

4. Licences: further provisions


(1)

T h e Secretary o f State s h a l l m a k e r e g u l a t i o n s p r e s c r i b i n g (a) t h e m a n n e r i n w h i c h a n d t h e persons b y w h o m a p p l i c a t i o n s f o r licences


u n d e r t h i s Part of t h i s Act m a y be made;
(b) t h e i n f o r m a t i o n t o be i n c l u d e d i n o r p r o v i d e d i n c o n n e c t i o n w i t h a n y such
application;
(c) t h e fees t o be p a i d o n a n y s u c h a p p l i c a t i o n ;
(d) t h e c o n d i t i o n s as t o t h e size a n d shape o f areas i n respect of w h i c h licences
m a y be granted;
(e) m o d e l clauses w h i c h shall, unless he t h i n k s f i t t o m o d i f y or e x c l u d e t h e m i n
a n y p a r t i c u l a r case, be i n c o r p o r a t e d i n a n y s u c h licence.

(2)

D i f f e r e n t r e g u l a t i o n s m a y be m a d e f o r d i f f e r e n t k i n d s o f licence.

(3)

A n y such r e g u l a t i o n s shall be m a d e b y s t a t u t o r y i n s t r u m e n t w h i c h s h a l l be subject

(4)

As s o o n as p r a c t i c a b l e after g r a n t i n g a licence u n d e r s e c t i o n 3, t h e Secretary o f State

t o a n n u l m e n t i n p u r s u a n c e of a r e s o l u t i o n o f e i t h e r House o f P a r l i a m e n t .

shall p u b l i s h n o t i c e o f t h e fact i n t h e L o n d o n Gazette s t a t i n g (a) t h e n a m e of t h e licensee; a n d


(b) t h e s i t u a t i o n o f t h e area i n respect of w h i c h t h e licence has b e e n granted,
and, i f t h a t area o r a n y p a r t of it is i n Scotland, t h e Secretary o f State s h a l l also
p u b l i s h t h e n o t i c e i n t h e E d i n b u r g h Gazette.
(5)

A n y i n f o r m a t i o n w h i c h t h e C o m m i s s i o n e r s o f I n l a n d Revenue possess i n c o n n e c t i o n
w i t h p e t r o l e u m w o n b y v i r t u e o f a licence g r a n t e d u n d e r s e c t i o n 3 (a) m a y be disclosed b y t h e C o m m i s s i o n e r s t o t h e Secretary o f State, o r t o a n
officer o f h i s w h o is a u t h o r i s e d

b y h i m t o receive s u c h i n f o r m a t i o n , i n

c o n n e c t i o n w i t h p r o v i s i o n s o f t h e licence r e l a t i n g t o r o y a l t y p a y m e n t s ; b u t
(b) shall n o t be disclosed b y a p e r s o n t o w h o m it is disclosed u n d e r p a r a g r a p h (a)
except (i) as a u t h o r i s e d b y t h e licence;
(ii) t o a p e r s o n t o w h o m it c o u l d h a v e b e e n disclosed u n d e r p a r a g r a p h (a); o r
(iii) f o r t h e purposes of p r o c e e d i n g s ( w h i c h m a y be a r b i t r a t i o n p r o c e e d i n g s )
i n c o n n e c t i o n w i t h t h e licence.

74

Marc H a m m e r s o n

5.

Existing licences

(1)

I n t h i s section, t h e " c u r r e n t m o d e l clauses" means, i n r e l a t i o n t o a n y paragraph o f


Schedule 1, t h e m o d e l clauses w h i c h , i m m e d i a t e l y before t h e c o m m e n c e m e n t o f t h i s
Act, w o u l d be i n c o r p o r a t e d i n a licence g r a n t e d u n d e r section 2 o f t h e P e t r o l e u m
( P r o d u c t i o n ) A c t 1934 i f t h e licence, w h e n granted, h a d i n c o r p o r a t e d t h e m o d e l
clauses m e n t i o n e d i n t h a t paragraph.

(2)

T h e reference i n subsection (1) t o t h e m o d e l clauses w h i c h , i m m e d i a t e l y before t h e


c o m m e n c e m e n t o f t h i s Act, w o u l d be i n c o r p o r a t e d i n a licence is a reference t o those
m o d e l clauses as t h e y w o u l d

t h e n have effect b u t as i f a n y reference ( h o w e v e r

expressed) i n a m o d e l clause t o a n e n a c t m e n t repealed a n d re-enacted b y t h i s A c t


were, o r (where t h e c o n t e x t requires) i n c l u d e d , a reference t o t h e c o r r e s p o n d i n g
p r o v i s i o n o f t h i s Act.
(3)

For t h e purposes o f subsection (2), a n y p r o v i s i o n o f a m o d e l clause w h i c h

would

have effect (or w o u l d have a p a r t i c u l a r effect) o n l y i n r e l a t i o n t o a licence o f a


d e s c r i p t i o n o f w h i c h n o n e is i n force i m m e d i a t e l y before t h e c o m m e n c e m e n t o f t h i s
Act shall be treated as n o t t h e n h a v i n g effect (or as n o t t h e n h a v i n g t h a t effect).
(4)

T h e Secretary o f State shall, i n a n order m a d e before t h e c o m m e n c e m e n t o f t h i s Act,

(5)

Subject t o subsections (7) a n d (8), a n y licence g r a n t e d u n d e r section 2 o f t h e

reproduce t h e c u r r e n t m o d e l clauses i n r e l a t i o n t o each paragraph o f Schedule 1.

P e t r o l e u m ( P r o d u c t i o n ) A c t 1934 w h i c h (a) is i n force i m m e d i a t e l y before t h e c o m m e n c e m e n t o f t h i s Act; a n d


(b) w h e n g r a n t e d , i n c o r p o r a t e d a n y o f t h e m o d e l clauses m e n t i o n e d

i n any

paragraph o f Schedule 1,
shall o n t h e c o m m e n c e m e n t o f t h i s A c t have effect as i f it i n c o r p o r a t e d , i n place
o f t h e r e l e v a n t m o d e l clauses, t h e c u r r e n t m o d e l clauses r e p r o d u c e d i n r e l a t i o n
t o t h a t paragraph i n t h e order u n d e r subsection (4).
(6)

For t h e purposes o f subsection (5), t h e r e l e v a n t m o d e l clauses, i n r e l a t i o n t o a n y


licence, are t h e m o d e l clauses w h i c h t h e licence i n c o r p o r a t e s i m m e d i a t e l y before t h e
c o m m e n c e m e n t o f t h i s A c t o t h e r t h a n a n y m o d e l clause w h i c h (a) was i n c o r p o r a t e d i n t o t h e licence w h e n it was granted; a n d
(b) is n o t w i t h i n a n y paragraph o f Schedule 1.

(7)

Where

immediately

before t h e c o m m e n c e m e n t

o f t h i s A c t a n y such

licence

i n c o r p o r a t e s m o d e l clauses subject t o a n y a m e n d m e n t o r m o d i f i c a t i o n , o r w i t h t h e
omission

of any model

clause, t h e c u r r e n t

model

clauses r e p r o d u c e d

under

subsection (4) shall have effect i n r e l a t i o n t o t h a t licence (a) subject t o t h e same a m e n d m e n t o r m o d i f i c a t i o n ; o r


(b) as t h e case m a y be, w i t h t h e o m i s s i o n o f t h e m o d e l clause c o r r e s p o n d i n g t o
t h e m o d e l clause o m i t t e d f r o m t h e licence.
(8)

W h e r e before t h e c o m m e n c e m e n t o f t h i s A c t m o d e l clauses ( t h e " s u b s t i t u t e m o d e l


clauses") set o u t i n a n y r e g u l a t i o n s m a d e u n d e r section 6 o f t h e P e t r o l e u m
( P r o d u c t i o n ) A c t 1934 have b e e n s u b s t i t u t e d f o r t h e m o d e l clauses o r i g i n a l l y
i n c o r p o r a t e d i n a n y licence g r a n t e d u n d e r s e c t i o n 2 o f t h a t Act, t h e licence shall be
treated f o r t h e purposes o f t h i s section as if, w h e n g r a n t e d , i t h a d i n c o r p o r a t e d t h e
s u b s t i t u t e m o d e l clauses.

(9)

I t is hereby declared t h a t a n y p r o v i s i o n i n c o r p o r a t e d i n a licence b y v i r t u e o f

75

Ownership, l i c e n s i n g a n d sources of law

subsection (5) may be altered or deleted by deed executed by the Secretary of State
and the licensee or, as respects Scotland, by an instrument subscribed by the
Secretary of State and the licensee i n accordance w i t h the Requirements of Writing
(Scotland) Act 1995.
(10)

Where any provision is replaced by virtue of subsection (5) (a) a reference in any document to that provision (or which immediately before
the commencement of this Act is to be construed as a reference to that
provision) shall, except so far as the nature of the document or context
otherwise requires, be construed as a reference to the replacement; and
(b) anything done under or for the purposes of that provision shall, except
where the context otherwise requires, be treated as having been done under
or for the purposes of the replacement.

(11)

The order to be made under subsection (4) shall be made by statutory instrument,
shall be laid before Parliament after being made and shall come i n t o force on the
commencement of this Act.

5A Rights transferred without the consent of Secretary of State


(1)

This section applies if (a) a person is (or two or more persons are) the licensee i n respect of a licence
under section 2 of the Petroleum (Production) Act 1934 or section 3 above
("the transferor"),
(b) the transferor transfers a right granted by the licence, or derived from a right
so granted, to another person ("the transferee") after commencement i n
circumstances where the consent of the Secretary of State is required for the
transfer, and
(c) that consent is not obtained.

(2)

The Secretary of State may, by notice given to the transferor and the transferee, direct

(3)

The date specified must not be earlier than the date on w h i c h the notice is given.

(4)

Before giving a notice to a person under subsection (2), the Secretary of State must (a) notify the person of the proposal to give the notice, and

that the right is to revert to the transferor from a date specified i n the notice.

(b) give the person a reasonable


representations.
(5)

period w i t h i n w h i c h to make

written

The Secretary of State may not give a notice under subsection (2) after the end of the
period of 3 months beginning w i t h the date on which the Secretary of State learns
of the transfer.

(6)

In this section "commencement" means the time when this section comes i n t o force;
"transfer" does not include a transfer by way of security for a loan.

5B Information
(1)

The Commissioners for Her Majesty's Revenue and Customs may disclose t o the
Secretary of State information relating to the transfer of a right granted by a licence
under section 2 of the Petroleum

(Production) Act 1934 or section 3 above or

derived from a right so granted, for the purpose of enabling the Secretary of State to

76

Marc Hammerson

d e t e r m i n e w h e t h e r a transfer t o w h i c h section 5A applies has t a k e n place.


(2)

T h i s section applies despite a n y s t a t u t o r y o r o t h e r r e s t r i c t i o n o n t h e disclosure o f


information.

(3)

I n f o r m a t i o n disclosed u n d e r t h i s section m u s t n o t be f u r t h e r disclosed except (a) f o r t h e p u r p o s e m e n t i o n e d i n subsection

(1), w i t h t h e c o n s e n t ( w h i c h

may

be general o r specific) o f t h e C o m m i s s i o n e r s ,
(b) i n p u r s u a n c e o f a n order o f a c o u r t , o r
(c) w i t h t h e c o n s e n t of each p e r s o n t o w h o m t h e i n f o r m a t i o n relates.
(4)

A p e r s o n w h o discloses i n f o r m a t i o n c o n t r a r y t o subsection (3) c o m m i t s a n offence i f


t h e i d e n t i t y of t h e p e r s o n t o w h o m t h e i n f o r m a t i o n relates (a) is specified i n t h e disclosure, o r
(b) c a n be d e d u c e d f r o m i t .

(5)

I t is a defence f o r a p e r s o n c h a r g e d w i t h a n offence u n d e r t h i s s e c t i o n t o p r o v e t h a t
t h e p e r s o n reasonably b e l i e v e d t h a t (a) t h e disclosure was l a w f u l , o r
(b) t h e i n f o r m a t i o n h a d already a n d l a w f u l l y b e e n m a d e a v a i l a b l e t o t h e p u b l i c .

(6)

A p e r s o n g u i l t y o f a n offence u n d e r t h i s section is liable (a) o n s u m m a r y c o n v i c t i o n , t o i m p r i s o n m e n t f o r a t e r m n o t e x c e e d i n g 12


m o n t h s o r t o a f i n e n o t e x c e e d i n g t h e s t a t u t o r y m a x i m u m , or b o t h , a n d
(b) o n c o n v i c t i o n o n i n d i c t m e n t , t o i m p r i s o n m e n t f o r a t e r m n o t e x c e e d i n g 2
years or t o a f i n e , or b o t h .

5C Offences under section 5B: supplemental


(1)

N o p r o c e e d i n g s f o r a n offence u n d e r section 5B m a y be i n s t i t u t e d i n E n g l a n d a n d
Wales except (a) b y t h e D i r e c t o r o f Revenue a n d C u s t o m s Prosecutions, o r
(b) w i t h t h e c o n s e n t o f t h e D i r e c t o r o f Public Prosecutions.

(2)

N o p r o c e e d i n g s f o r a n offence u n d e r s e c t i o n 5B m a y be i n s t i t u t e d i n N o r t h e r n
I r e l a n d except (a) b y t h e C o m m i s s i o n e r s f o r Her Majesty's Revenue a n d Customs, o r
(b) w i t h t h e c o n s e n t of t h e D i r e c t o r o f Public Prosecutions f o r N o r t h e r n I r e l a n d .

(3)

I n t h e a p p l i c a t i o n o f section 5B t o N o r t h e r n I r e l a n d t h e reference i n s e c t i o n 5B(6)(a)


t o 12 m o n t h s is t o be read as a reference t o 6 m o n t h s .

(4)

I n t h e a p p l i c a t i o n o f s e c t i o n 5B t o E n g l a n d a n d Wales i n r e l a t i o n t o a n offence
c o m m i t t e d before t h e c o m m e n c e m e n t o f section 2 8 2 o f t h e C r i m i n a l Justice A c t
2 0 0 3 (c. 44) ( s h o r t sentences) t h e reference i n s e c t i o n 5B(6)(a) t o 12 m o n t h s is t o be
read as a reference t o 6 m o n t h s .

6. Repayments for development


(1)

W h e r e a n y p e r s o n has p a i d t o t h e Secretary of State a s u m b y w a y o f r o y a l t y u n d e r


t h e t e r m s o f a licence g r a n t e d u n d e r s e c t i o n 3, t h e Secretary of State m a y w i t h t h e
a p p r o v a l o f t h e Treasury repay t o h i m t h e w h o l e or a p a r t of t h a t s u m i f t h e Secretary
o f State considers i t e x p e d i e n t t o d o so f o r t h e p u r p o s e o f f a c i l i t a t i n g or m a i n t a i n i n g
t h e d e v e l o p m e n t o f t h e p e t r o l e u m resources of t h e U n i t e d

(2)

Kingdom.

W h e r e f o r a n y chargeable p e r i o d f o r t h e p u r p o s e o f a licence g r a n t e d u n d e r section

77

O w n e r s h i p , l i c e n s i n g a n d sources o f law

3 a n y person has been r e q u i r e d t o deliver p e t r o l e u m t o t h e Secretary o f State u n d e r


t h e terms o f t h a t licence, subsection (1) shall have effect as if f o r t h a t p e r i o d t h a t
person h a d p a i d t o t h e Secretary o f State by way

o f r o y a l t y such sum,

or ( w h e r e he

has been r e q u i r e d t o deliver some b u t n o t all o f t h e p e t r o l e u m w h i c h he c o u l d have


been r e q u i r e d t o deliver) such a d d i t i o n a l sum, as he w o u l d have been r e q u i r e d t o pay
u n d e r t h e terms o f t h e licence if he h a d n o t been r e q u i r e d t o d e l i v e r t h e p e t r o l e u m .
(3)

A n y r e p a y m e n t a n d r i g h t t o a r e p a y m e n t u n d e r t h i s s e c t i o n shall be disregarded for


t h e purposes o f i n c o m e tax, c o r p o r a t i o n tax a n d p e t r o l e u m revenue tax.

7. Ancillary rights
(1)

Subject t o t h e p r o v i s i o n s o f t h i s section, t h e M i n e s ( W o r k i n g Facilities a n d


Act

1966

shall a p p l y ( i n E n g l a n d a n d

Wales a n d

Support)

Scotland) f o r t h e purpose of

e n a b l i n g a person h o l d i n g a licence u n d e r t h i s Part o f t h i s Act t o acquire such


a n c i l l a r y r i g h t s as may

be r e q u i r e d f o r t h e exercise o f t h e r i g h t s g r a n t e d by the

licence.
(2)

I n its a p p l i c a t i o n f o r t h e purposes o f t h i s section, t h e M i n e s ( W o r k i n g Facilities and


Support) Act 1966 shall have effect as if (a) references t o a person h a v i n g a r i g h t t o w o r k m i n e r a l s i n c l u d e d references t o
a person h o l d i n g a licence u n d e r t h i s Part o f t h i s Act;
(b) references t o m i n e r a l s i n c l u d e d references t o p e t r o l e u m ; a n d
(c) references t o t h e w o r k i n g o f m i n e r a l s i n c l u d e d references t o t h e getting,
c a r r y i n g away, s t o r i n g , t r e a t i n g a n d c o n v e r t i n g o f p e t r o l e u m .

(3)

W i t h o u t p r e j u d i c e t o t h e g e n e r a l i t y o f subsection (1) o f s e c t i o n 2 o f t h e M i n e s
( W o r k i n g Facilities a n d Support) Act 1966, t h a t Act shall have effect f o r t h e purposes
of t h i s section as if t h e a n c i l l a r y r i g h t s m e n t i o n e d i n t h a t subsection i n c l u d e d (a) a r i g h t t o enter u p o n l a n d a n d t o s i n k boreholes i n t h e l a n d f o r t h e purpose
o f searching f o r a n d g e t t i n g p e t r o l e u m ; a n d
(b) a r i g h t t o use a n d o c c u p y l a n d f o r (i) t h e e r e c t i o n o f such b u i l d i n g s ;
(ii) t h e l a y i n g a n d m a i n t e n a n c e o f such pipes; a n d
(iii) t h e c o n s t r u c t i o n o f such o t h e r works,
as may

be r e q u i r e d f o r t h e purpose o f searching a n d b o r i n g f o r a n d g e t t i n g , c a r r y i n g

away, s t o r i n g , t r e a t i n g a n d c o n v e r t i n g p e t r o l e u m .
(4)

W h e r e an a p p l i c a t i o n is m a d e t o t h e c o u r t u n d e r t h e M i n e s ( W o r k i n g Facilities and
Support) Act 1966 b y v i r t u e o f t h i s section (a) i n d e c i d i n g (i) w h e t h e r t o g r a n t any r i g h t a p p l i e d for; or
(ii) w h a t terms a n d c o n d i t i o n s , if any, s h o u l d be i m p o s e d u p o n t h e g r a n t of
such a r i g h t ,
t h e c o u r t shall have regard, a m o n g o t h e r c o n s i d e r a t i o n s , t o t h e effect o n

the

a m e n i t i e s o f t h e l o c a l i t y o f t h e p r o p o s e d use a n d o c c u p a t i o n o f t h e l a n d i n
respect o f w h i c h t h e r i g h t is a p p l i e d for;
(b) i n d e t e r m i n i n g t h e a m o u n t o f a n y c o m p e n s a t i o n t o be p a i d i n respect o f t h e
g r a n t o f any r i g h t , an a d d i t i o n a l a l l o w a n c e o f n o t less t h a n 10 per c e n t s h a l l
be m a d e o n a c c o u n t o f t h e a c q u i s i t i o n o f t h e r i g h t b e i n g c o m p u l s o r y -

78

Marc H a m m e r s o n

(c) t h e costs i n c o n n e c t i o n w i t h the a p p l i c a t i o n i n c u r r e d b y t h e a p p l i c a n t shall


n o t be ordered t o be p a i d b y a n y person f r o m w h o m a r i g h t is s o u g h t t o be
obtained; a n d
(d) t h e costs i n c o n n e c t i o n w i t h t h e a p p l i c a t i o n i n c u r r e d b y each person

from

w h o m a r i g h t is s o u g h t t o be o b t a i n e d shall be ordered t o be p a i d b y t h e
a p p l i c a n t unless t h e c o u r t is satisfied t h a t a n u n c o n d i t i o n a l offer i n w r i t i n g
was m a d e b y t h e a p p l i c a n t t o t h a t person o f a s u m as c o m p e n s a t i o n equal t o
or greater t h a n t h e a m o u n t o f a n y c o m p e n s a t i o n awarded t o h i m b y t h e court.

8. Power to inspect plans of mines


(1)

For t h e purpose o f a s c e r t a i n i n g o n b e h a l f o f t h e Secretary o f State t h e p o s i t i o n o f t h e


w o r k i n g s , actual a n d prospective, o f a n y m i n e s or a b a n d o n e d m i n e s t h r o u g h or near
w h i c h it is p r o p o s e d t o s i n k a n y b o r e h o l e f o r t h e purpose o f searching f o r or g e t t i n g
p e t r o l e u m , a n y officer a p p o i n t e d b y t h e Secretary o f State shall have t h e same powers
w i t h respect t o t h e p r o d u c t i o n a n d i n s p e c t i o n a n d t h e t a k i n g o f copies o f r e l e v a n t
d o c u m e n t s as m a y u n d e r s e c t i o n 20 o f t h e H e a l t h a n d Safety at W o r k etc. A c t 1974
be exercised b y a n i n s p e c t o r a c t i n g f o r t h e purpose m e n t i o n e d i n subsection (1) o f
t h a t section.

(2)

For t h e purposes o f subsection (1) (a) " r e l e v a n t d o c u m e n t s " means plans, sections, d r a w i n g s
d o c u m e n t s w h i c h , b y v i r t u e o f paragraph

o r o t h e r similar

16 o f Schedule 3 t o t h a t A c t o f

1974, are r e q u i r e d t o be kept;


(b) "an i n s p e c t o r " means a n i n s p e c t o r a p p o i n t e d u n d e r s e c t i o n 19 o f t h a t Act;
and
(c) subsections (2) a n d (3) o f s e c t i o n 19 o f t h a t A c t shall be disregarded.

9. Supplementary
(1)

N o t h i n g i n t h i s Part o f t h i s A c t shall be c o n s t r u e d as i m p o s i n g a n y l i a b i l i t y o n a n y

(2)

N o t h i n g i n t h i s Part o f t h i s A c t shall be c o n s t r u e d as c o n f e r r i n g , o r as e n a b l i n g t h e

person w h e r e i n t h e course o f m i n i n g or o t h e r l a w f u l o p e r a t i o n s p e t r o l e u m is set free.

Secretary o f State t o confer, o n a n y person, w h e t h e r a c t i n g o n b e h a l f o f Her M a j e s t y


or n o t , a n y r i g h t w h i c h he does n o t e n j o y apart f r o m t h i s Part o f t h i s Act t o enter o n
or interfere w i t h l a n d .
(3)

T h e issue o f a n a u t h o r i s a t i o n w i t h i n t h e m e a n i n g o f Part I I I o f t h i s A c t shall be


d e e m e d n o t t o derogate f r o m a licence g r a n t e d u n d e r s e c t i o n 3 w h i c h is f o r t h e t i m e
b e i n g i n force.

Hydrocarbons Licensing Directive Regulations 1995


T h e Secretary o f State, b e i n g a M i n i s t e r designated f o r t h e p u r p o s e o f s e c t i o n 2(2) o f
t h e E u r o p e a n C o m m u n i t i e s Act 1972 i n r e l a t i o n t o m a t t e r s r e l a t i n g t o t h e c o n d i t i o n s
for g r a n t i n g a n d using

authorisations for the prospection, exploration and

p r o d u c t i o n o f h y d r o c a r b o n s , hereby makes t h e f o l l o w i n g Regulations.

1. Commencement and citation


(1)

These Regulations m a y be c i t e d as t h e H y d r o c a r b o n s L i c e n s i n g D i r e c t i v e Regulations

79

O w n e r s h i p , l i c e n s i n g a n d sources o f l a w

(2)

and shall come into force on 30th June 1995.


These Regulations do not extend to Northern Ireland.

2. Interpretation
In these Regulations "1934 Act Regulations" means any regulations made under section 6 of the
Petroleum (Production) Act 1934 currently in force;
"applicant" means an entity which has lodged an application for a licence;
"application for a licence" means an application made under 1934 Act
Regulations;
"E.C. Treaty" means the Treaty establishing the European Community, signed at
Rome on the 25th March 1957;
"entity" means any natural or legal person or any group of such persons;
"licence" means a licence granted following an application for a licence.
3. Determination of applications
(1)

Subject to paragraphs (2) to (4) below, every application for a licence shall be
determined on the basis of criteria concerning (a) the technical and financial capability of the applicant;
(b) the way i n which the applicant proposes to carry out the activities that would
be permitted by the licence;
(c) in a case where tenders are invited, the price the applicant is prepared to pay
in order to obtain the licence; and
(d) where the applicant holds, or has held a licence of any description under the
Petroleum (Production) Act 1934, any lack of efficiency and responsibility
displayed by the applicant i n operations under that licence,
and the Secretary of State may refuse an application for a licence.

(2)

I n a case where two or more applications for a licence have equal merit when
assessed according to the criteria provided for i n paragraph (1) above, other relevant
criteria may be applied i n order to determine which application should be granted.

(3)

Subject to paragraph (4) below, the Secretary of State shall n o t apply any of the
criteria i n paragraphs (1) and (2) above i n a discriminatory manner.

(4)

An application for a licence may be refused on grounds of national security where


the applicant is effectively controlled by, or by nationals of, a State other than a
member State.

(5)

Where an application for a licence is refused, the reasons for the decision shall be
notified to the applicant on request.

4. Scope and application of terms and conditions


(1)

(2)

80

No licence shall be granted upon terms and conditions other than such terms and
conditions as are justified exclusively for the purpose of (a) ensuring the proper performance of the activities permitted by the licence;
(b) providing for the payment of consideration for the grant of the licence;
(c) any of the considerations specified in paragraph (2) below.
The considerations referred to i n paragraph (l)(c) above are -

Marc H a m m e r s o n

(a) n a t i o n a l security;
(b) p u b l i c safety;
(c) p u b l i c h e a l t h ;
(d) security o f t r a n s p o r t ;
(e) p r o t e c t i o n o f t h e e n v i r o n m e n t ;
(f) p r o t e c t i o n of b i o l o g i c a l resources a n d of n a t i o n a l treasures possessing artistic,
h i s t o r i c or archaeological

value;

(g) safety o f i n s t a l l a t i o n s a n d of workers;


(h) p l a n n e d m a n a g e m e n t o f h y d r o c a r b o n resources, i n c l u d i n g i n p a r t i c u l a r t h e
rate at w h i c h h y d r o c a r b o n s are depleted a n d t h e o p t i m i s a t i o n o f t h e i r
recovery;
(i) t h e need t o secure t a x revenues.
(3)

T h e terms a n d c o n d i t i o n s p r o v i d e d f o r i n paragraphs (1) a n d (2) above shall be


applied i n a non-discriminatory

manner.

5. Advance notice of terms and conditions


(1)

A n y n o t i c e w h i c h , i n accordance w i t h 1934 A c t Regulations (a) i n v i t e s a p p l i c a t i o n s f o r licences; a n d


(b) is p u b l i s h e d i n t h e O f f i c i a l J o u r n a l
shall set o u t t h e criteria t o be a p p l i e d i n d e t e r m i n i n g those a p p l i c a t i o n s .

(2)

I n a n y case w h e r e t h e Secretary o f State i n v i t e s a p p l i c a t i o n s f o r a licence i n


accordance w i t h 1934 A c t Regulations a n d i t is i n t e n d e d t h a t t h e licence s h o u l d be
g r a n t e d u p o n t e r m s o r c o n d i t i o n s w h i c h d i f f e r f r o m o r are a d d i t i o n a l t o those
prescribed i n those Regulations f o r i n c o r p o r a t i o n i n licences o f t h e relevant k i n d , a
statement o f such t e r m s a n d c o n d i t i o n s shall be m a d e available t o a n y interested
person at a n y t i m e o n request.

(3)

I f a n y change t o t h e t e r m s a n d c o n d i t i o n s i n c l u d e d i n t h e s t a t e m e n t p r o v i d e d f o r i n
p a r a g r a p h (1) above is d e c i d e d u p o n after t h e statement is first m a d e available a n d
before t h e licence t o w h i c h i t relates is granted, t h e change shall be n o t i f i e d as s o o n
as practicable t o every p e r s o n w h o has requested t h e statement.

6. Duration of the licence


(1)

Subject t o p a r a g r a p h (2) below, t h e Secretary o f State shall ensure t h a t (a) a licence o n l y grants a n e n t i t y exclusive

r i g h t s f o r t h e p e r i o d w h i c h is

necessary f o r t h e p r o p e r p e r f o r m a n c e o f t h e a c t i v i t i e s a u t h o r i s e d

by the

licence; a n d
(b) t h e d u r a t i o n of t h e licence does n o t exceed t h e p e r i o d necessary t o carry o u t
t h e a c t i v i t i e s a u t h o r i s e d b y t h e licence.
(2)

T h e Secretary o f State m a y e x t e n d t h e t e r m o f a licence if (a) t h e t e r m s a n d c o n d i t i o n s o f t h e licence p e r m i t a n e x t e n s i o n o f t h e t e r m ;


(b) t h e licensee has p e r f o r m e d its o b l i g a t i o n s i n accordance w i t h t h e t e r m s a n d
c o n d i t i o n s o f t h e licence; a n d
(c) t h e t e r m o f t h e licence has proved, o r is l i k e l y t o prove, i n s u f f i c i e n t for t h e
licensee t o c o m p l e t e t h e a c t i v i t i e s a u t h o r i s e d b y t h e licence.

O w n e r s h i p , l i c e n s i n g a n d sources o f law

7.

Information

(1)

T h e Secretary o f State m a y o n l y require a n e n t i t y w h i c h has b e e n g r a n t e d a licence


t o p r o v i d e i n f o r m a t i o n o n its i n t e n d e d or actual sources o f p r o c u r e m e n t o f supplies,
w o r k s or services if t h a t request is m a d e e x c l u s i v e l y w i t h a v i e w t o t h e o b j e c t i v e s set
o u t i n A r t i c l e 36 of t h e E.C. Treaty.

(2)

T h e Secretary o f State m a y o n l y request i n f o r m a t i o n f r o m a n e n t i t y w h i c h has been


g r a n t e d a licence t o m o n i t o r t h e activities o f t h a t e n t i t y if t h a t m o n i t o r i n g is j u s t i f i e d
by a n y o f t h e c o n s i d e r a t i o n s specified i n p a r a g r a p h (1) a n d (2) o f r e g u l a t i o n 4 above.
***

These Regulations w h i c h c o m e i n t o force o n 3 0 t h June 1995 are s u p p l e m e n t a l t o


r e g u l a t i o n s m a d e u n d e r section 6 o f t h e Petroleum ( P r o d u c t i o n ) Act 1934 ("the 1934
Act"). These Regulations give effect t o Articles 2 ( o t h e r t h a n p a r a g r a p h 1), 3 (other
t h a n paragraphs 1 t o 5), 4 ( o t h e r t h a n paragraph (a)), 5 a n d 6 o f C o u n c i l D i r e c t i v e
(94/22/EEC) o n t h e c o n d i t i o n s f o r g r a n t i n g a n d u s i n g a u t h o r i s a t i o n s f o r t h e
p r o s p e c t i o n , e x p l o r a t i o n a n d p r o d u c t i o n o f h y d r o c a r b o n s ("the D i r e c t i v e " ) . T h e
D i r e c t i v e is f u r t h e r i m p l e m e n t e d b y t h e P e t r o l e u m

( P r o d u c t i o n ) ( L a n d w a r d Areas)

Regulations 1995 (S.I. 1995/1436) a n d t h e P e t r o l e u m

( P r o d u c t i o n ) (Seaward Areas)

( A m e n d m e n t ) Regulations 1995 (S.I. 1995/1435).


The

Regulations restrict t h e criteria w h i c h t h e Secretary o f State m a y take i n t o

a c c o u n t w h e n c o n s i d e r i n g a n a p p l i c a t i o n f o r a licence m a d e i n accordance w i t h
r e g u l a t i o n s made u n d e r t h e 1934 Act ("a licence"). T h e Regulations p r o v i d e t h a t the
criteria u p o n w h i c h a p p l i c a t i o n s are t o be d e t e r m i n e d are t o be p u b l i s h e d , together
w i t h t h e n o t i c e i n v i t i n g a p p l i c a t i o n s , i n t h e O f f i c i a l J o u r n a l . T h e Regulations p r o v i d e
t h a t a n a p p l i c a t i o n m a y be refused o n t h e g r o u n d s o f n a t i o n a l security i f t h e
a p p l i c a n t is e f f e c t i v e l y c o n t r o l l e d b y n a t i o n a l s o f a state w h i c h is n o t a m e m b e r State
b u t o t h e r w i s e t h e criteria m a y n o t be a p p l i e d i n a d i s c r i m i n a t o r y manner. W h e n an
a p p l i c a t i o n is unsuccessful, t h e a p p l i c a n t is t o be n o t i f i e d o n request o f t h e reasons
for t h e decision. T h e Regulations l i m i t t h e terms a n d c o n d i t i o n s w h i c h m a y be
i m p o s e d o n t h e g r a n t o f a licence a n d p r o v i d e t h a t such t e r m s a n d c o n d i t i o n s shall
be a p p l i e d i n a n o n - d i s c r i m i n a t o r y manner.
The Regulations p r o v i d e t h a t w h e r e the Secretary o f State has i n v i t e d a p p l i c a t i o n s
for a licence he shall m a k e available t o interested parties t h e t e r m s a n d c o n d i t i o n s
u p o n w h i c h t h e licence w i l l be granted. If a change is m a d e i n those terms a n d
c o n d i t i o n s p r i o r t o t h e g r a n t o f t h e licence, t h e Secretary o f State is t o issue details o f
t h a t change t o a n y person w h o has requested a statement o f t e r m s a n d c o n d i t i o n s .
The
granted

Regulations require t h e Secretary o f State t o l i m i t t h e t e r m o f a n y licence


t o t h e p e r i o d necessary f o r t h e proper

p e r f o r m a n c e o f t h e activities

a u t h o r i s e d b y t h e licence a n d restrict t h e circumstances i n w h i c h t h e Secretary o f


State m a y e x t e n d a licence. T h e Regulations also l i m i t t h e Secretary o f State's powers
to request i n f o r m a t i o n f r o m a licensee a n d t o m o n i t o r t h e a c t i v i t i e s o f t h e licensee.

Criminal Jurisdiction (Offshore Activities) Order 1987 SI 1987/2198


Her Majesty, i n exercise o f t h e powers c o n f e r r e d o n Her b y s e c t i o n 22(1) a n d (2) o f
t h e O i l a n d Gas (Enterprise) Act 1982, is pleased, b y a n d w i t h t h e advice o f Her P r i v y
C o u n c i l , t o order, a n d it is hereby ordered, as f o l l o w s : -

82

Marc Hammerson

1.

Citation and interpretation

(1)

T h i s Order m a y be cited as t h e C r i m i n a l J u r i s d i c t i o n (Offshore Activities) Order 1987.

(2)

I n t h i s Order " t h e 1964 A c t " means t h e C o n t i n e n t a l Shelf Act 1964;


" t h e 1982 A c t " means t h e O i l a n d Gas (Enterprise) Act 1982;
" i n s t a l l a t i o n " i n c l u d e s a n i n s t a l l a t i o n i n transit.

2. Waters to which Order applies


The waters t o w h i c h t h i s Order applies are (a) t e r r i t o r i a l waters o f t h e U n i t e d K i n g d o m ; a n d
(b) waters i n a n y area for t h e t i m e b e i n g designated u n d e r section 1(7) o f t h e
1964

Act

3. Application of criminal law


A n y act o r o m i s s i o n w h i c h (a) takes place on, u n d e r o r above a n i n s t a l l a t i o n i n waters t o w h i c h this Order
applies or a n y waters w i t h i n five h u n d r e d metres o f a n y such i n s t a l l a t i o n ; a n d
(b) w o u l d , i f t a k i n g place i n a n y part o f t h e U n i t e d K i n g d o m , c o n s t i t u t e a n
offence u n d e r t h e l a w i n force i n t h a t part,
shall be treated f o r t h e purposes o f t h a t l a w as t a k i n g place i n t h a t part.

4. Application of police powers


A constable shall on, u n d e r o r above a n y i n s t a l l a t i o n i n waters t o w h i c h t h i s Order
applies or a n y waters w i t h i n five h u n d r e d metres o f such a n i n s t a l l a t i o n have a l l t h e
powers, p r o t e c t i o n a n d privileges w h i c h he has i n t h e area f o r w h i c h h e acts as
constable.

5. Commencement
T h i s Order shall c o m e i n t o force o n 1st February 1988.

Explanatory Note
T h i s O r d e r applies English, S c o t t i s h a n d N o r t h e r n I r i s h c r i m i n a l l a w t o r e l e v a n t
activities t a k i n g place o n , u n d e r o r above, o r w i t h i n 5 0 0 metres of, o f f s h o r e
i n s t a l l a t i o n s situated i n U n i t e d K i n g d o m t e r r i t o r i a l waters a n d i n waters w i t h i n areas
designated as p a r t o f t h e U n i t e d K i n g d o m c o n t i n e n t a l shelf u n d e r t h e C o n t i n e n t a l
Shelf Act 1964. I t also enables courts i n a n y place i n t h e U n i t e d K i n g d o m t o exercise
c r i m i n a l j u r i s d i c t i o n i n r e l a t i o n t o such activities.
T h i s Order replaces p r o v i s i o n s p r e v i o u s l y c o n t a i n e d i n sections 3(1) a n d 11(3) o f
t h e C o n t i n e n t a l Shelf Act 1964 w h i c h , however, a p p l i e d o n l y t o t h e designated areas

Civil Jurisdiction (Offshore Activities) Order 1987


Her Majesty, i n exercise o f t h e powers c o n f e r r e d o n Her b y s e c t i o n 23 o f t h e O i l a n d
Gas (Enterprise) A c t 1982 a n d sections 6 a n d 7 o f t h e C o n t i n e n t a l Shelf Act 1964, is
pleased b y a n d w i t h t h e advice o f Her Privy C o u n c i l , t o order, a n d i t is hereby
ordered, as f o l l o w s : -

83

O w n e r s h i p , l i c e n s i n g a n d sources o f l a w

1.
(1)

Citation and interpretation


This Order m a y be cited as t h e C i v i l J u r i s d i c t i o n ( O f f s h o r e A c t i v i t i e s ) Order 1987.

(2)

I n this O r d e r " t h e A c t " means t h e O i l a n d Gas (Enterprise) Act 1982;


"co-ordinate" means a co-ordinate o n European d a t u m (1st A d j u s t m e n t

1950);

" D i v i d i n g L i n e " means t h e d i v i d i n g l i n e as d e f i n e d i n A r t i c l e 1 o f t h e A g r e e m e n t


b e t w e e n t h e U n i t e d K i n g d o m a n d t h e Federal Republic o f G e r m a n y r e l a t i n g t o t h e
D e l i m i t a t i o n o f t h e C o n t i n e n t a l Shelf u n d e r t h e N o r t h

Sea b e t w e e n t h e t w o

countries, signed i n L o n d o n o n 25 N o v e m b e r 1971;


"installation" includes an installation i n transit;
" l i n e " , i n r e l a t i o n t o a n y list o f co-ordinates i n t h i s Order, unless it is o t h e r w i s e
p r o v i d e d , means a l o x o d r o m i c line;
"relevant a c t " means a n act o r o m i s s i o n t a k i n g place o n , u n d e r o r above t h e
o f f s h o r e area i n c o n n e c t i o n w i t h a n y a c t i v i t y m e n t i o n e d i n s e c t i o n 23(2) o f t h e Act;
" o f f s h o r e area" means (a) t i d a l waters a n d parts o f t h e sea adjacent t o t h e U n i t e d K i n g d o m u p t o t h e
seaward l i m i t s of t e r r i t o r i a l waters;
(b) waters i n a n y area f o r t h e t i m e b e i n g designated u n d e r s e c t i o n 1(7) o f t h e
C o n t i n e n t a l Shelf Act 1964; a n d
(c) i n r e l a t i o n t o i n s t a l l a t i o n s w h i c h are m a i n t a i n e d i n waters f a l l i n g w i t h i n
paragraph (a) o r (b) above, waters i n a f o r e i g n sector o f t h e c o n t i n e n t a l shelf
w h i c h are adjacent t o such waters;
" t h e Scottish b o r d e r " means (a) i n t h e N o r t h Sea, a l i n e (i) j o i n i n g t h e f o l l o w i n g co-ordinates (1)

55

48'

45"N

or

(2)

55

49'

50"N

59'

58"W

(3)

55

50'

43"N

58'

09"W

54"W

(4)

55

50'

47"N

57'

55"W

(5)

55

53'

20"N

48'

28"W

(6)

55

53'

29"N

47'

54"W

(7)

55

55'

04"N

43'

32"W

(ii) t h e n f o l l o w i n g , i n a s o u t h easterly d i r e c t i o n , t h e seaward l i m i t s o f U n i t e d


K i n g d o m t e r r i t o r i a l waters u n t i l t h e p o s i t i o n 55 5 0
31

0 0 N; 1 27

W, a n d

(iii) t h e n f o l l o w i n g , i n a n easterly d i r e c t i o n , t h e parallel o f l a t i t u d e 55 50


00

N u n t i l its i n t e r s e c t i o n w i t h t h e D i v i d i n g Line;

(b) i n t h e Irish Sea, a l i n e j o i n i n g t h e f o l l o w i n g co-ordinates -

84

(1)

54

37'

54"N

50'

46"W

(2)

54

37'

37"N

51'

04"W

(3)

54

37'

00"N

52'

04"W

(4)

54

36'

11"N

53'

51"W

(5)

54

33'

17"N

00'

10"W

(6)

54

32'

51"N

or

06"W

Marc H a m m e r s o n

(7)
(8)

54
54

31'
30'

55"N;
03"N;

4
4

03'
04'

08"W
24"W,

then following the seaward limit of United Kingdom territorial waters to


22"N;
50"W
54
30'
4
04'
(9)
(10)

54

30'

00"N;

(11)

54

30'

00"N;

05'
00'

29"W
00"W;

"the Northern Irish border" means a line joining the following co-ordinates (1)
(2)

55

26'

40"N

34'

37"W

55

23'

36"N

04'

(3)

55

20'

00"N

00'

16"W
00"W

(4)

55

10'

00"N

48'

00"W

(5)
(6)

55

00'

00"N

36'

00"W

54

24'

00"W

54

50'
40'

00"N

(7)

00"N

12'

00"W

(8)

54

30'

00"N

00'

00"W

(9)
(10)

54

26'

54"N

00'

00"W

54

20'

00"N

00'

00"W

(11)
(12)

54

10'

00"N

12'

00"W

54

00'

00"N

24'

00"W;

"the English area" means such of the offshore area adjacent to England and
Wales which lies to the south of the Scottish border and east of the Northern Irish
border together with the internal waters of England and Wales i n so far as they are
tidal or constitute parts of the sea;
"the Scottish area" means such of the offshore area adjacent to Scotland which lies
to the north of the Scottish border and east of the Northern Irish border together with
the internal waters of Scotland i n so far as they are tidal or constitute parts of the sea;
"the Northern Irish area" means such of the offshore area adjacent to Northern
Ireland which lies to the west of the Northern Irish border together with the internal
waters of Northern Ireland i n so far as they are tidal or constitute parts of the sea.
2. Application of English, Scottish and Northern Irish law

Subject to the provisions of any Order made under section 22(1) of the Act w i t h
respect to the application of criminal law (a) the law i n force i n England and Wales shall apply for the determination of
questions arising out of relevant acts taking place i n the English area;
(b) the law i n force i n Scotland shall apply for the determination of questions
arising out of relevant acts taking place i n the Scottish area; and
(c) the law i n force i n Northern Ireland shall apply for the determination of
questions arising out of relevant acts taking place i n the Northern Irish area.
3. Jurisdiction

(1)

The High Court shall have such jurisdiction for the determination of any questions

85

a r i s i n g o u t o f a relevant act w h i c h , u n d e r A r t i c l e 2(a) above, fall t o be d e t e r m i n e d i n


accordance

w i t h t h e law i n force i n E n g l a n d a n d Wales at i t w o u l d h a v e i f t h e

r e l e v a n t act h a d t a k e n place i n E n g l a n d or Wales.


(2)

The

C o u r t o f Session shall have such

j u r i s d i c t i o n f o r t h e d e t e r m i n a t i o n o f any

q u e s t i o n s a r i s i n g o u t o f a relevant act w h i c h , u n d e r A r t i c l e 2(b) above, fall t o be


d e t e r m i n e d i n accordance w i t h t h e law i n force i n S c o t l a n d as i t w o u l d h a v e i f t h e
r e l e v a n t act had t a k e n place i n Scotland.
(3)

The

High

Court

in Northern

Ireland

shall

have

such

jurisdiction

for the

d e t e r m i n a t i o n o f a n y q u e s t i o n s arising o u t o f a r e l e v a n t act w h i c h , u n d e r A r t i c l e 2(c)


above, f a l l t o be d e t e r m i n e d i n accordance w i t h t h e l a w i n force i n N o r t h e r n I r e l a n d
as i t w o u l d have i f t h e r e l e v a n t act h a d t a k e n place i n N o r t h e r n I r e l a n d .

4. Application of Wireless Telegraphy Act 1949 and the Radioactive Substances Act
1960
For t h e purposes o f t h e Wireless Telegraphy Act 1949, t h e R a d i o a c t i v e Substances Act
1960 a n d a n y r e g u l a t i o n s or orders u n d e r e i t h e r o f t h o s e Acts (subject, however, i n
the

case o f such r e g u l a t i o n s or orders m a d e hereafter, t o a n y c o n t r a r y i n t e n t i o n

a p p e a r i n g t h e r e i n ) a n y i n s t a l l a t i o n i n t h e E n g l i s h area a n d a n y waters i n t h e offshore


area w i t h i n 500 metres o f such an i n s t a l l a t i o n ( n o t b e i n g waters l y i n g i n t h e Scottish
or N o r t h e r n I r i s h area a n d w i t h i n 500 metres o f an i n s t a l l a t i o n i n e i t h e r o f those
areas) s h a l l be d e e m e d t o be situated i n E n g l a n d a n d Wales; a n y i n s t a l l a t i o n i n the
Scottish area a n d a n y such waters w i t h i n 500 metres o f such an i n s t a l l a t i o n ( n o t
b e i n g waters l y i n g i n t h e E n g l i s h or N o r t h e r n I r i s h area a n d w i t h i n 500 metres o f an
i n s t a l l a t i o n i n e i t h e r o f those areas) shall be d e e m e d t o be s i t u a t e d i n Scotland; and
a n y i n s t a l l a t i o n i n t h e N o r t h e r n I r i s h area a n d a n y such waters l y i n g w i t h i n

500

metres o f such an i n s t a l l a t i o n ( n o t b e i n g waters l y i n g w i t h i n t h e E n g l i s h o r Scottish


area a n d w i t h i n 500 metres o f an i n s t a l l a t i o n i n e i t h e r o f t h o s e areas) shall be
d e e m e d t o be situated i n N o r t h e r n I r e l a n d .

Petroleum Licensing (Production) (Seaward Areas) Regulations


2008/225
1. Citation, commencement and interpretation
(1)

These Regulations m a y

be c i t e d as t h e P e t r o l e u m L i c e n s i n g ( P r o d u c t i o n ) (Seaward

Areas) Regulations 2008 a n d shall c o m e i n t o force o n 6 t h A p r i l 2008.


(2)

I n these Regulations " p r o d u c t i o n l i c e n c e " m e a n s a licence t o search a n d b o r e for, a n d get, p e t r o l e u m


i n strata i n t h e sea bed a n d i n t h e subsoil i n a seaward area;
"seaward area" has t h e m e a n i n g g i v e n b y r e g u l a t i o n 3(1 )(a) o f t h e P e t r o l e u m
( P r o d u c t i o n ) (Seaward Areas) Regulations 1988.

2. Model clauses
(1)

For t h e purposes o f section 4 ( l ) ( e ) o f t h e P e t r o l e u m Act 1998, t h e m o d e l clauses


prescribed f o r p r o d u c t i o n licences i n seaward areas are t h o s e set o u t i n t h e Schedule.

(2)

86

The

m o d e l clauses prescribed f o r such licences b y r e g u l a t i o n 3(3) t o (6) o f

and

Schedules 2 t o 5 t o , t h e P e t r o l e u m L i c e n s i n g ( E x p l o r a t i o n a n d P r o d u c t i o n ) (Seaward
a n d L a n d w a r d Areas) R e g u l a t i o n s 2 0 0 4 s h a l l n o t a p p l y i n r e l a t i o n t o a n y licence
g r a n t e d after t h e c o m m e n c e m e n t o f these R e g u l a t i o n s .

Schedule 1 Model Clauses For Seaward Area Production Licences


1. Interpretation, etc.
(1)

I n t h i s licence, t h e f o l l o w i n g expressions h a v e t h e f o l l o w i n g m e a n i n g s "the

A c t " m e a n s t h e P e t r o l e u m A c t 1998;

" B l o c k " m e a n s a n area c o m p r i s e d

i n t h i s l i c e n c e w h i c h is d e l i n e a t e d o n t h e

reference m a p d e p o s i t e d at t h e p r i n c i p a l o f f i c e o f t h e D e p a r t m e n t o f E n e r g y a n d
C l i m a t e C h a n g e a n d t o w h i c h a reference n u m b e r was assigned a t t h e date o f t h i s
licence;
" D e v e l o p m e n t S c h e m e " has t h e m e a n i n g g i v e n b y clause 27;
" D r i l l - o r - D r o p P e r i o d " m e a n s t h e p e r i o d (if a n y ) s p e c i f i e d as s u c h i n S c h e d u l e 5
t o t h i s licence;
"Early Surrender Area" m e a n s t h e area ( i f a n y ) s p e c i f i e d as s u c h i n S c h e d u l e S t o
t h i s licence;
"Early Surrender P e r i o d " m e a n s t h e p e r i o d ( i f a n y ) specified as s u c h i n Schedule
5 t o t h i s licence;
" F r a g m e n t e d L i c e n s e d Area" m e a n s a Licensed Area c o n s i s t i n g i n t w o o r m o r e
areas a n y o n e o r m o r e o f w h i c h is separated f r o m t h e o t h e r s ;
" H a l f Year" m e a n s t h e p e r i o d f r o m 1st J a n u a r y t o 3 0 t h J u n e i n a n y year a n d t h e
p e r i o d f r o m 1st J u l y t o 31st D e c e m b e r i n a n y year;
" I n i t i a l L i c e n s e d Area" m e a n s t h e area d e s c r i b e d i n S c h e d u l e 1 t o t h i s licence o n
the date i t was g r a n t e d ;
" I n i t i a l T e r m " m e a n s t h e p e r i o d s p e c i f i e d as s u c h i n S c h e d u l e 5 t o t h i s licence;
" L i c e n s e d Area" m e a n s t h e area f o r t h e t i m e b e i n g i n w h i c h t h e Licensee m a y
exercise t h e r i g h t s g r a n t e d b y t h i s licence;
"the

Licensee" m e a n s t h e p e r s o n o r persons t o w h o m t h i s l i c e n c e is g r a n t e d , h i s

p e r s o n a l r e p r e s e n t a t i v e s a n d a n y p e r s o n o r persons t o w h o m t h e r i g h t s c o n f e r r e d b y
t h i s l i c e n c e m a y l a w f u l l y h a v e b e e n assigned;
" M a n d a t o r y Surrender Area" m e a n s t h e area s p e c i f i e d as s u c h i n Schedule 5 t o
t h i s licence;
"the

M i n i s t e r " m e a n s t h e Secretary o f State f o r E n e r g y a n d C l i m a t e C h a n g e ;

" O i l F i e l d " has t h e m e a n i n g g i v e n i n clause 27;


"Petroleum" includes a n y m i n e r a l o i l or relative h y d r o c a r b o n

a n d n a t u r a l gas

e x i s t i n g i n its n a t u r a l c o n d i t i o n i n strata b u t does n o t i n c l u d e c o a l o r b i t u m i n o u s


shales o r o t h e r s t r a t i f i e d d e p o s i t s f r o m w h i c h o i l c a n be e x t r a c t e d b y d e s t r u c t i v e
distillation;
" P r o m o t e P e r i o d " m e a n s t h e p e r i o d ( i f a n y ) s p e c i f i e d as s u c h i n S c h e d u l e 5 t o t h i s
licence;
"Second T e r m " m e a n s t h e p e r i o d s p e c i f i e d as s u c h i n S c h e d u l e 5 t o t h i s licence;
" S e c t i o n " m e a n s a p a r t o f a B l o c k c o m p r i s i n g a n area b o u n d e d b y m i n u t e l i n e s
o f l a t i t u d e a n d l o n g i t u d e o n e m i n u t e a p a r t respectively;

87

"Start Date" means t h e date specified as such i n Schedule 5 t o t h i s licence;


" T h i r d Term" means t h e p e r i o d specified as such i n Schedule 5 t o t h i s licence;
" W e l l " includes borehole;
"Work Programme" means t h e p r o g r a m m e set o u t i n Schedule 3 t o t h i s licence.
(2) A n y
any

o b l i g a t i o n s w h i c h are t o be observed and p e r f o r m e d b y t h e Licensee shall at

t i m e at w h i c h t h e Licensee is m o r e t h a n one

person be

j o i n t and

several

obligations.

2. Grant of Licence
I n c o n s i d e r a t i o n of the p a y m e n t s hereinafter p r o v i d e d for a n d t h e p e r f o r m a n c e and
observance by t h e Licensee of a l l t h e terms a n d c o n d i t i o n s hereof, t h e M i n i s t e r , i n
exercise of t h e powers conferred u p o n h i m by the Act hereby grants t o t h e Licensee
exclusive licence and

l i b e r t y d u r i n g t h e c o n t i n u a n c e of t h i s licence a n d subject t o

t h e p r o v i s i o n s hereof t o search a n d bore for, a n d get, P e t r o l e u m i n t h e sea bed

and

subsoil u n d e r t h e area described i n Schedule 1 t o t h i s licence p r o v i d e d t h a t n o t h i n g


i n t h i s licence shall affect t h e r i g h t of t h e M i n i s t e r t o g r a n t a m e t h a n e drainage
licence i n respect of t h e w h o l e or any p a r t of t h e Licensed Area or affect t h e exercise
o f any rights g r a n t e d u n d e r any such m e t h a n e drainage licence.

3. Term of Licence
(1)

T h i s licence shall c o m m e n c e w i t h t h e later of (a) t h e Start Date; and


(b) t h e date o n w h i c h t h i s licence was

(2)

granted.

Unless sooner d e t e r m i n e d u n d e r any of its p r o v i s i o n s , t h i s licence shall c o n t i n u e (a) for t h e I n i t i a l Term, subject t o clause 10 and (where applicable) clauses 4 and
5;
(b) f o r t h e Second Term, subject t o clauses 6 and
(c) for t h e T h i r d Term, subject t o clauses 8 a n d

(3)

On

10;
10.

e x p i r y of t h e T h i r d Term, t h i s licence shall d e t e r m i n e unless e x t e n d e d i n

accordance w i t h clause 9.

4. Initial Term
(1)

W h e r e a D r i l l - o r - D r o p Period is specified, t h i s licence shall, unless t h e M i n i s t e r i n his


d i s c r e t i o n decides otherwise, a u t o m a t i c a l l y cease and

determine on

t h e e x p i r y of

t h a t p e r i o d i n t h e event of failure b y t h e Licensee before t h e e x p i r y o f t h a t p e r i o d t o

(a) take the actions that are described in Part I of the Work Programme; and
(b) u n d e r t a k e t o c o m p l e t e o n

or before e x p i r y of t h e I n i t i a l T e r m t h e w o r k

described i n Part I I of t h e W o r k Programme.


(2)

W h e r e a P r o m o t e Period is specified, t h i s licence shall, unless t h e M i n i s t e r i n his


d i s c r e t i o n decides otherwise, a u t o m a t i c a l l y cease a n d

determine on

t h e e x p i r y of

t h a t p e r i o d i n t h e event of failure by t h e Licensee before t h e e x p i r y of t h a t p e r i o d t o

(a) take the actions that are described in Part I of the Work Programme;
(b) u n d e r t a k e t o complete, before

ss

the e x p i r y of t h e I n i t i a l Term, t h e

work

described i n Part I I o f t h e W o r k P r o g r a m m e ; a n d
(c) d e m o n s t r a t e t o t h e s a t i s f a c t i o n o f t h e M i n i s t e r ( w h o s e d e c i s i o n s h a l l be f i n a l )

(i) t h e f i n a n c i a l c a p a c i t y o f t h e Licensee t o m e e t t h e o b l i g a t i o n s u n d e r t a k e n
u n d e r s u b - p a r a g r a p h (b) a b o v e i n a d d i t i o n t o a l l o f t h e

obligations

i m p o s e d b y t h i s licence; a n d
(ii) t h e c o m p e t e n c e o f t h e r e l e v a n t persons t o o r g a n i s e a n d supervise a n y

of

t h e o p e r a t i o n s o f s e a r c h i n g or b o r i n g f o r P e t r o l e u m .
(3)

The

r e l e v a n t persons r e f e r r e d t o i n p a r a g r a p h (2)(c)(ii) o f t h i s clause are (a) a n y p e r s o n n o m i n a t e d b y t h e Licensee f o r a p p r o v a l u n d e r clause 24 o f t h i s


licence; o r
(b) t h e Licensee, w h e r e t h e Licensee is o n e
a n y b o d y for such

person and

he has n o t

nominated

approval.

5. Surrender during Initial Term ("Frontier" licences)


(1)

T h i s clause s h a l l a p p l y w h e r e a n Early S u r r e n d e r Area a n d an Early S u r r e n d e r Period

(2)

No

are specified.
later t h a n o n e

Licensee m a y

m o n t h before

t h e e x p i r y o f t h e Early S u r r e n d e r Period,

give notice i n w r i t i n g t o the M i n i s t e r i n d i c a t i n g

the

(a) t h a t he w i l l d e t e r m i n e t h i s l i c e n c e i n r e l a t i o n t o a p a r t o f t h e L i c e n s e d Area
which, when

taken

together

with

any

one

or

more

areas

previously

s u r r e n d e r e d i n a c c o r d a n c e w i t h clause 10, is n o less t h a n t h e Early S u r r e n d e r


Area; a n d
(b) t h e d a t e n o later t h a n t h e e x p i r y o f t h e Early S u r r e n d e r P e r i o d o n w h i c h t h e
s u r r e n d e r o f t h a t p a r t o f t h e L i c e n s e d Area shall take effect.
(3)

T h i s l i c e n c e s h a l l a u t o m a t i c a l l y cease a n d

determine on

the expiry of the

Early

S u r r e n d e r P e r i o d unless (a) t h e Licensee has g i v e n n o t i c e i n a c c o r d a n c e w i t h p a r a g r a p h (2); or


(b) at t h e request o f t h e Licensee, t h e M i n i s t e r has d i r e c t e d t h a t t h e l i c e n c e s h a l l
continue w i t h o u t such notice h a v i n g been given.

6. Option to continue licence into a Second Term


(1)

At any

t i m e n o t later t h a n o n e

Licensee m a y

m o n t h before t h e e x p i r y of the I n i t i a l Term

the

(a) subject t o p a y m e n t o f t h e s u m s s p e c i f i e d i n S c h e d u l e 2 a n d t o p e r f o r m a n c e o f
the

terms and

conditions

contained

i n this licence

including,

l i m i t a t i o n , t h o s e c o n d i t i o n s set o u t i n p a r a g r a p h (3) o f t h i s clause;


(b) c o n d i t i o n a l u p o n due

without
and

p e r f o r m a n c e b y t h e Licensee o f t h e W o r k P r o g r a m m e

before t h e e x p i r y of t h e I n i t i a l Term,
give notice i n w r i t i n g t o the M i n i s t e r i n t h e m a n n e r hereinafter p r o v i d e d

that

he

desires t h i s l i c e n c e t o c o n t i n u e i n force i n r e l a t i o n t o p a r t o f t h e L i c e n s e d Area ("the


Continuing
(2)

Part").

W h e r e t h e Licensee gives n o t i c e t o t h e M i n i s t e r i n a c c o r d a n c e w i t h p a r a g r a p h (1) o f


t h i s clause s u c h n o t i c e m u s t i n d i c a t e t h a t he w i l l d e t e r m i n e t h i s l i c e n c e i n r e l a t i o n
t o s u c h p a r t o f t h e L i c e n s e d Area as s h a l l be described b y t h e Licensee i n t h e n o t i c e

89

("the Surrendered Part") i n accordance w i t h t h e r e q u i r e m e n t s o f paragraph (3) o f t h i s


clause.
(3)

Subject t o paragraph (4) o f t h i s clause, t h e Surrendered Part m u s t consist i n an area


w h i c h , w h e n taken together w i t h a n y one or m o r e areas p r e v i o u s l y surrendered, is
n o less t h a n t h e M a n d a t o r y Surrender Area.

(4)

The Licensee shall n o t be o b l i g e d t o surrender so m u c h o f t h e Licensed Area t h a t

(5)

A n y n o t i c e served i n accordance w i t h paragraph (1) o f t h i s clause shall specify a date

f o l l o w i n g such surrender t h e Licensed Area comprises less t h a n t h i r t y Sections.

n o t later t h a n t h e e x p i r y o f t h e I n i t i a l Term o n w h i c h t h e Surrendered

Part is t o be

surrendered.
(6)

This licence shall u p o n t h e o p t i o n c o n f e r r e d b y t h i s clause b e i n g d u l y exercised b u t


subject t o t h e p r o v i s i o n s o f clause 3 o f t h i s licence c o n t i n u e i n respect o f t h e
C o n t i n u i n g Part f o r t h e Second Term.

7. Extension of the Initial or Second Term


(1)

T h i s clause enables an e x t e n s i o n t o be made t o t h e I n i t i a l T e r m or as t h e case m a y be

(2)

A t a n y t i m e n o t later t h a n three m o n t h s before t h e e x p i r y o f t h e relevant t e r m t h e

t o t h e Second Term ("the relevant t e r m " ) .

Licensee may, subject t o p a y m e n t o f t h e sums specified i n Schedule 2 a n d t o


p e r f o r m a n c e o f t h e terms a n d c o n d i t i o n s h e r e i n c o n t a i n e d , give n o t i c e i n w r i t i n g t o
t h e M i n i s t e r t h a t he desires t h a t t e r m t o be e x t e n d e d for a f u r t h e r p e r i o d .
(3)

W h e r e n o t i c e is g i v e n i n pursuance o f paragraph (1) of t h i s clause, t h e M i n i s t e r may


i n his d i s c r e t i o n direct i n w r i t i n g t h a t t h e relevant t e r m be extended; a n d paragraph
(2) of t h i s clause shall a p p l y t o t h a t t e r m as so extended.

(4)

A n e x t e n s i o n g i v e n b y a d i r e c t i o n i n pursuance o f t h i s clause shall be for a period,


a n d subject t o such c o n d i t i o n s , as t h e M i n i s t e r m a y

determine.

(5)

W h e r e a relevant t e r m is e x t e n d e d i n pursuance o f t h i s clause, clause 3 shall a p p l y i n

(6)

W h e r e t h e I n i t i a l Term is e x t e n d e d b y a p e r i o d i n pursuance o f t h i s clause, t h e

respect o f t h a t t e r m as so extended.

Second Term shall ( w i t h o u t p r e j u d i c e t o paragraph (2)) be reduced b y t h e same


a m o u n t ; a n d w h e r e t h e Second Term is e x t e n d e d b y a p e r i o d i n pursuance o f this
clause, t h e T h i r d Term shall be reduced b y t h e same a m o u n t .

8. Option to continue the Licence into a Third Term


(1)

A t a n y t i m e n o t later t h a n three m o n t h s before t h e e x p i r y o f t h e Second T e r m t h e


Licensee may, subject t o p a y m e n t o f those sums specified i n Schedule 2 a n d t o
p e r f o r m a n c e o f t h e terms a n d c o n d i t i o n s h e r e i n c o n t a i n e d , give n o t i c e i n w r i t i n g t o
the M i n i s t e r t h a t he desires t h i s licence t o c o n t i n u e as t o a p a r t o f t h e Licensed Area
("the P r o d u c i n g

(2)

Part").

Such n o t i c e shall describe t h e P r o d u c i n g Part, w h i c h shall be a n area t h a t comprises


n o Section t h a t is n o t w h o l l y or i n part t h e subject of a consent, a p p r o v a l or
p r o g r a m m e described i n paragraph (3) o f t h i s clause.

(3)

If such n o t i c e is given t h i s licence shall c o n t i n u e i n force after t h e e x p i r y o f t h e


Second Term as p r o v i d e d b y t h e f o l l o w i n g paragraphs o f t h i s clause i n t h e event t h a t
before such e x p i r y -

90

(a) t h e M i n i s t e r has g i v e n a c o n s e n t i n p u r s u a n c e o f clause 17(1) o f t h i s licence


a n d s u c h c o n s e n t is s t i l l i n force u p o n e x p i r y o f t h e Second Term; o r
(b) t h e M i n i s t e r has i n p u r s u a n c e o f clause 17(4) o f t h i s l i c e n c e a p p r o v e d

p r o g r a m m e s u b m i t t e d t o h i m i n p u r s u a n c e o f clause 17(2) a n d s u c h a p p r o v a l
is s t i l l i n force u p o n e x p i r y o f t h e Second Term; o r
(c) t h e M i n i s t e r has served a p r o g r a m m e o n t h e Licensee i n p u r s u a n c e o f clause
17(6) o f t h i s licence a n d s u c h p r o g r a m m e is s t i l l i n force u p o n e x p i r y o f t h e
Second Term.
W h e r e t h i s licence c o n t i n u e s i n force b y v i r t u e o f t h i s clause i t shall, subject t o t h e
p r o v i s i o n s o f clause 3 o f t h i s licence, so c o n t i n u e d u r i n g t h e T h i r d Term.

Power further to extend term of Licence


W h e r e t h i s Licence is c o n t i n u e d i n force b y v i r t u e o f clause 8 o f t h i s Licence t o t h e
e n d o f t h e T h i r d Term, t h e M i n i s t e r , o n a p p l i c a t i o n b e i n g m a d e t o h i m i n w r i t i n g n o t
later t h a n t h r e e m o n t h s before t h e e x p i r y o f s u c h p e r i o d , m a y

i n h i s d i s c r e t i o n agree

w i t h t h e Licensee t h a t t h i s Licence shall c o n t i n u e i n force t h e r e a f t e r f o r s u c h f u r t h e r


p e r i o d as t h e M i n i s t e r a n d t h e Licensee m a y

agree a n d subject t o s u c h m o d i f i c a t i o n

of t h e t e r m s a n d c o n d i t i o n s o f t h i s licence ( w h i c h m o d i f i c a t i o n m a y

include making

p r o v i s i o n f o r a n y f u r t h e r e x t e n s i o n o f t h e t e r m o f t h i s licence) as t h e M i n i s t e r a n d
t h e Licensee m a y

t h e n agree is a p p r o p r i a t e .

Right of Licensee to determine Licence or surrender part of Licensed Area


W i t h o u t p r e j u d i c e t o a n y o b l i g a t i o n or l i a b i l i t y i m p o s e d b y or i n c u r r e d u n d e r t h e
terms h e r e o f t h e Licensee m a y

at a n y t i m e b y g i v i n g t o t h e M i n i s t e r n o t less t h a n

o n e month's n o t i c e i n w r i t i n g t o t h a t effect d e t e r m i n e t h i s licence o r s u r r e n d e r a n y


p a r t o f t h e Licensed Area b e i n g a p a r t w h i c h c o m p l i e s w i t h clause 11 hereof.

Areas surrendered
A n y area s u r r e n d e r e d b y t h e Licensee p u r s u a n t t o clause 5, 6 o r 10 o f t h i s licence a n d
a n y area a c c o r d i n g l y r e t a i n e d b y h i m shall, unless t h e M i n i s t e r has o t h e r w i s e agreed
i n w r i t i n g b e f o r e t h e date o n w h i c h t h e a p p r o p r i a t e n o t i c e is g i v e n b y t h e Licensee
to the Minister (a) be b o u n d e d b y m i n u t e lines o f l a t i t u d e e x t e n d i n g n o t less t h a n t w o
of l o n g i t u d e a n d

minutes

m i n u t e l i n e s o f l o n g i t u d e e x t e n d i n g n o t less t h a n

two

minutes of latitude;
(b) consist o f n o t less t h a n t h i r t y Sections; a n d
(c) subject always t o p a r a g r a p h (2) o f t h i s clause h a v e b o u n d a r i e s w h i c h , w h e t h e r
they run

north

and

south

o r east a n d

west, e i t h e r c o i n c i d e

c o r r e s p o n d i n g b o u n d a r i e s o f t h e B l o c k o r are n o t less t h a n t w o

with

the

Sections

d i s t a n t f r o m those b o u n d a r i e s .
T h e s u r r e n d e r b y t h e Licensee o f a n y area p u r s u a n t t o clause 5, 6 o r 10 o f t h i s licence
shall n o t , unless t h e M i n i s t e r has o t h e r w i s e agreed i n w r i t i n g b e f o r e t h e date o n
w h i c h t h e a p p r o p r i a t e n o t i c e is g i v e n b y t h e Licensee t o t h e M i n i s t e r , result i n t h e
c r e a t i o n o f a F r a g m e n t e d Licensed Area.
U p o n t h e date o n w h i c h a n y d e t e r m i n a t i o n o f t h i s licence o r a n y s u r r e n d e r o f p a r t

91

of t h e Licensed Area i n t h e m a n n e r p r o v i d e d f o r b y a n y clause o f t h i s licence is t o


take effect t h e rights g r a n t e d b y t h i s licence shall cease i n respect o f t h e Licensed
Area or o f t h e part so surrendered as t h e case m a y be b u t w i t h o u t p r e j u d i c e t o a n y
o b l i g a t i o n or l i a b i l i t y i m p o s e d u p o n t h e Licensee or i n c u r r e d b y h i m u n d e r t h e terms
of t h i s licence p r i o r t o t h a t date.

12. Payment of consideration for Licence


(1)

The Licensee shall make t o t h e M i n i s t e r as c o n s i d e r a t i o n f o r t h e g r a n t o f t h i s Licence

(2)

T h e Licensee shall n o t b y reason o f d e t e r m i n a t i o n o f t h i s Licence or surrender o f any

p a y m e n t s i n accordance w i t h Schedule 2 t o t h i s Licence.

part o f t h e Licensed Area be e n t i t l e d t o be repaid or a l l o w e d a n y s u m payable t o the


M i n i s t e r p u r s u a n t t o t h i s licence before t h e date o f d e t e r m i n a t i o n o r surrender.

13. Provision of contact details to Minister


(1)

A notice, d i r e c t i o n or o t h e r d o c u m e n t a u t h o r i s e d or r e q u i r e d ( i n w h a t e v e r terms) t o
be g i v e n t o t h e Licensee b y v i r t u e o f t h i s licence is treated as g i v e n t o t h e Licensee if
it is g i v e n t o t h e person specified b y t h e Licensee u n d e r p a r a g r a p h (2) at t h e address
so specified.

(2)

T h e Licensee m u s t s u p p l y t h e M i n i s t e r w i t h t h e n a m e a n d address o f a person t o


w h o m notices, d i r e c t i o n s a n d o t h e r d o c u m e n t s are t o be g i v e n .

(3)

T h e Licensee m u s t ensure that, w h e r e there is a change i n t h e person t o w h o m , or


the address t o w h i c h , i n f o r m a t i o n s h o u l d be sent i n accordance w i t h paragraph (2),
the M i n i s t e r is n o t i f i e d o f t h e change as s o o n as is reasonably practicable.

(4)

I f t h e Licensee fails t o c o m p l y w i t h paragraph (2) t h e M i n i s t e r m a y give t h e Licensee


a notice w h i c h (a) requires t h e Licensee t o c o m p l y w i t h paragraph (2) w i t h i n t h e p e r i o d of 30
days b e g i n n i n g w i t h t h e date o f t h e notice; a n d
(b) states that, i f t h e Licensee fails t o d o so, t h e Licensee w i l l be treated as h a v i n g
s u p p l i e d u n d e r paragraph (2) t h e n a m e a n d address specified b y t h e M i n i s t e r
i n t h e notice.

14.

Measurement o f Petroleum o b t a i n e d f r o m the Licensed Area

(1)

T h e Licensee shall measure o r w e i g h b y a m e t h o d o r m e t h o d s c u s t o m a r i l y used i n


g o o d o i l f i e l d practice a n d f r o m t i m e t o t i m e a p p r o v e d b y t h e M i n i s t e r all Petroleum
won

(2)

a n d saved f r o m t h e Licensed Area.

If a n d t o t h e e x t e n t t h a t t h e M i n i s t e r so directs, t h e d u t y i m p o s e d b y paragraph (1)


of t h i s clause shall be discharged separately i n r e l a t i o n t o P e t r o l e u m w o n a n d saved

(a) from each part of the Licensed Area which is an Oil Field for the purposes of
the O i l T a x a t i o n Act 1975;
(b) f r o m each part o f t h e Licensed Area w h i c h f o r m s part o f such a n O i l Field
e x t e n d i n g b e y o n d t h e Licensed Area; a n d
(c) f r o m each W e l l p r o d u c i n g Petroleum f r o m a part o f t h e Licensed Area w h i c h
is n o t w i t h i n such a n O i l Field.
(3)

92

If and t o t h e e x t e n t t h a t t h e M i n i s t e r so directs, t h e p r e c e d i n g p r o v i s i o n s o f t h i s clause

s h a l l a p p l y as i f t h e d u t y t o m e a s u r e o r w e i g h P e t r o l e u m i n c l u d e d a d u t y t o ascertain
its q u a l i t y o r c o m p o s i t i o n o r b o t h ; a n d w h e r e a d i r e c t i o n u n d e r t h i s p a r a g r a p h is i n
force, t h e f o l l o w i n g p r o v i s i o n s o f t h i s clause s h a l l h a v e effect as i f references t o
m e a s u r i n g o r w e i g h i n g i n c l u d e d references t o a s c e r t a i n i n g q u a l i t y o r c o m p o s i t i o n .
(4)

T h e Licensee s h a l l n o t m a k e a n y a l t e r a t i o n i n t h e m e t h o d o r m e t h o d s o f m e a s u r i n g
or w e i g h i n g u s e d b y h i m o r i n a n y a p p l i a n c e s u s e d f o r t h a t p u r p o s e w i t h o u t t h e
c o n s e n t i n w r i t i n g o f t h e M i n i s t e r a n d t h e M i n i s t e r m a y i n a n y case r e q u i r e t h a t n o
a l t e r a t i o n s h a l l be m a d e save i n t h e presence o f a p e r s o n a u t h o r i s e d b y t h e M i n i s t e r .

(5)

The Minister m a y f r o m t i m e to t i m e direct that a n y w e i g h i n g or measuring appliance


s h a l l be t e s t e d o r e x a m i n e d i n s u c h m a n n e r , u p o n s u c h o c c a s i o n s o r at s u c h i n t e r v a l s
a n d b y s u c h persons as m a y be s p e c i f i e d b y t h e M i n i s t e r ' s d i r e c t i o n a n d t h e Licensee
s h a l l p a y t o a n y s u c h p e r s o n o r t o t h e M i n i s t e r s u c h fees a n d expenses f o r test o r
e x a m i n a t i o n as t h e M i n i s t e r m a y specify.

(6)

I f a n y m e a s u r i n g o r w e i g h i n g a p p l i a n c e s h a l l u p o n a n y s u c h test o r e x a m i n a t i o n as
is m e n t i o n e d i n p a r a g r a p h (5) o f t h i s clause b e f o u n d t o be false o r u n j u s t t h e same
s h a l l i f t h e M i n i s t e r so d e t e r m i n e s after c o n s i d e r i n g a n y r e p r e s e n t a t i o n s i n w r i t i n g
m a d e b y t h e Licensee b e d e e m e d t o h a v e e x i s t e d i n t h a t c o n d i t i o n d u r i n g t h e p e r i o d
since t h e last o c c a s i o n u p o n w h i c h t h e same was t e s t e d o r e x a m i n e d p u r s u a n t t o
p a r a g r a p h (5) o f t h i s clause.

15. Keeping of accounts


(1)

T h e Licensee s h a l l k e e p w i t h i n t h e U n i t e d K i n g d o m f u l l a n d c o r r e c t a c c o u n t s i n a
f o r m f r o m time t o time approved by the Minister of (a) t h e q u a n t i t y o f P e t r o l e u m i n t h e f o r m o f gas w o n a n d saved;
(b) t h e q u a n t i t y o f P e t r o l e u m i n a n y o t h e r f o r m w o n a n d saved;
(c) t h e n a m e a n d address

o f a n y person

to whom

any Petroleum

has b e e n

s u p p l i e d b y t h e Licensee, t h e q u a n t i t y so s u p p l i e d , t h e p r i c e t h e r e o f o r o t h e r
c o n s i d e r a t i o n therefor a n d t h e place t o w h i c h t h e Petroleum was c o n v e y e d
pursuant t o the agreement for such supply; a n d
(d) s u c h o t h e r p a r t i c u l a r s as t h e M i n i s t e r m a y f r o m t i m e t o t i m e d i r e c t .
(2)

T h e q u a n t i t i e s o f P e t r o l e u m s t a t e d i n s u c h a c c o u n t s m a y e x c l u d e a n y w a t e r separated
f r o m t h e P e t r o l e u m a n d s h a l l be expressed as v o l u m e s i n c u b i c m e t r e s m e a s u r e d at,
or c a l c u l a t e d as i f m e a s u r e d at, a t e m p e r a t u r e o f 15 C e l s i u s a n d a pressure o f 1.0132
bar b u t i f t h e M i n i s t e r serves n o t i c e i n w r i t i n g o n t h e Licensee d e t e r m i n i n g a n y o t h e r
manner i n which

any quantity of Petroleum

or any quantity of any form of

P e t r o l e u m is t o b e expressed t h a t q u a n t i t y s h a l l be so expressed.
(3)

S u c h a c c o u n t s s h a l l state s e p a r a t e l y t h e q u a n t i t i e s o f p e t r o l e u m u s e d f o r t h e p u r p o s e s
of c a r r y i n g o n d r i l l i n g a n d p r o d u c t i o n o p e r a t i o n s a n d p u m p i n g t o f i e l d storage, a n d
q u a n t i t i e s n o t so used, a n d i n t h e case o f P e t r o l e u m n o t i n t h e f o r m o f gas s h a l l state
the

specific g r a v i t y o f t h e Petroleum and, i f Petroleum o f d i f f e r e n t specific gravities

has b e e n w o n a n d saved, t h e r e s p e c t i v e q u a n t i t i e s o f P e t r o l e u m

o f each specific

gravity.
(4)

T h e Licensee s h a l l w i t h i n t w o m o n t h s after t h e e n d o f e a c h H a l f Year i n w h i c h t h i s


l i c e n c e is i n f o r c e a n d w i t h i n t w o m o n t h s after t h e e x p i r a t i o n o r d e t e r m i n a t i o n o f
t h i s licence deliver t o t h e M i n i s t e r a n abstract i n a f o r m f r o m t i m e t o t i m e approved

93

b y t h e M i n i s t e r o f t h e accounts f o r t h a t H a l f Year or f o r t h e p e r i o d p r i o r t o such


e x p i r a t i o n or d e t e r m i n a t i o n as t h e case may

be.

16. Working obligations


(1)

The

Licensee shall before t h e e x p i r y of t h e I n i t i a l T e r m carry o u t t h e W o r k

Programme.
(2)

If at a n y t i m e t h e M i n i s t e r serves a n o t i c e i n w r i t i n g o n t h e Licensee r e q u i r i n g h i m
t o s u b m i t t o t h e Minister, before a date specified i n t h e notice, an

appropriate

p r o g r a m m e f o r e x p l o r i n g f o r P e t r o l e u m i n t h e Licensed Area d u r i n g a p e r i o d so
specified, t h e Licensee shall c o m p l y w i t h t h e notice; a n d f o r t h e purposes o f this
paragraph an a p p r o p r i a t e p r o g r a m m e is one w h i c h a n y person who, if he (a) were e n t i t l e d t o e x p l o i t t h e rights g r a n t e d b y t h i s licence; a n d
(b) h a d t h e c o m p e t e n c e a n d resources needed t o e x p l o i t those r i g h t s t o t h e best
c o m m e r c i a l advantage; a n d
(c) were seeking t o e x p l o i t those rights t o t h e best c o m m e r c i a l advantage,
c o u l d reasonably be expected t o carry o u t d u r i n g t h e p e r i o d specified i n t h e notice,
a n d t h a t p e r i o d m u s t be w i t h i n t h e t e r m of t h i s licence.
(3)

If a p r o g r a m m e is s u b m i t t e d t o t h e M i n i s t e r i n consequence o f a n o t i c e served by
h i m i n pursuance o f paragraph (2) o f t h i s clause, t h e n (a) he shall n o t be e n t i t l e d t o revoke t h i s licence o n

t h e g r o u n d t h a t the

p r o g r a m m e does n o t satisfy t h e r e q u i r e m e n t s o f t h a t

paragraph

("the

Relevant Requirements"); b u t
(b) i f he is o f t h e o p i n i o n t h a t t h e p r o g r a m m e does n o t satisfy t h e Relevant
Requirements he may

serve a n o t i c e i n w r i t i n g o n t h e Licensee stating his

o p i n i o n a n d t h e reasons f o r i t .
(4)

W h e r e n o t i c e i n respect o f a p r o g r a m m e is served o n t h e Licensee i n pursuance of


paragraph (3) o f t h i s clause t h e Licensee shall e i t h e r (a) w i t h i n 28 days b e g i n n i n g w i t h t h e date o f service o f t h e n o t i c e refer to
a r b i t r a t i o n , i n t h e m a n n e r p r o v i d e d b y clause 43 o f t h i s licence, t h e q u e s t i o n
w h e t h e r t h e p r o g r a m m e satisfies t h e Relevant Requirements; or
(b) w i t h i n a reasonable p e r i o d b e g i n n i n g w i t h t h e date o f service o f such notice
s u b m i t t o t h e M i n i s t e r a f u r t h e r p r o g r a m m e w h i c h satisfies t h e Relevant
Requirements,
and

w h e r e i t is d e t e r m i n e d i n consequence o f a n y

reference t o a r b i t r a t i o n i n

pursuance o f sub-paragraph (a) of t h i s paragraph t h a t t h e p r o g r a m m e i n q u e s t i o n


does n o t satisfy t h e Relevant Requirements t h e Licensee shall s u b m i t t o t h e Minister,
as s o o n as possible after t h e date o f t h e d e t e r m i n a t i o n , a f u r t h e r p r o g r a m m e w h i c h
satisfies t h e Relevant Requirements.
(5)

The Licensee shall carry o u t any p r o g r a m m e s u b m i t t e d b y h i m i n pursuance o f t h i s


clause as t o w h i c h either (a) t h e M i n i s t e r serves n o t i c e i n w r i t i n g o n t h e Licensee s t a t i n g t h a t t h e M i n i s t e r
approves t h e p r o g r a m m e ; or
(b) it is d e t e r m i n e d i n consequence o f any reference t o a r b i t r a t i o n i n t h e m a n n e r
p r o v i d e d b y clause 43
Relevant Requirements,

94

of t h i s licence t h a t t h e p r o g r a m m e satisfies t h e

and any p r o g r a m m e approved by the Minister i n pursuance of this paragraph


shall

be

deemed

f o r t h e purposes

of this licence

t o satisfy

the

Relevant

Requirements.
(6)

Where, i n consequence of any breach or non-observance

b y t h e Licensee o f a n y

p r o v i s i o n o f p a r a g r a p h (2), (4) o r (5) o f t h i s clause, t h e M i n i s t e r has p o w e r b y v i r t u e


o f p a r a g r a p h (1) o f clause 41 o f t h i s l i c e n c e t o r e v o k e t h i s licence, he m a y

i f he t h i n k s

f i t exercise t h a t p o w e r i n r e l a t i o n t o s u c h p a r t o n l y o f t h e L i c e n s e d Area as he

may

specify; a n d w h e r e he does so t h e r i g h t s g r a n t e d b y t h i s l i c e n c e s h a l l cease i n respect


o f t h e s p e c i f i e d p a r t o f t h a t area w i t h o u t p r e j u d i c e t o a n y o b l i g a t i o n o r l i a b i l i t y
i m p o s e d u p o n t h e Licensee o r i n c u r r e d b y h i m u n d e r t h e t e r m s o f t h i s licence.
(7)

W h e r e t h e Licensee has a d u t y b y v i r t u e o f t h i s clause t o c a r r y o u t a p r o g r a m m e


d u r i n g a p a r t o f t h e t e r m o f t h i s licence, t h e M i n i s t e r m a y

serve n o t i c e i n p u r s u a n c e

o f p a r a g r a p h (2) o f t h i s clause i n respect o f a n o t h e r p a r t o f t h a t t e r m .

17. Development and production programmes


(1)

T h e Licensee shall n o t (a) erect o r c a r r y o u t a n y

Relevant W o r k s , e i t h e r i n t h e L i c e n s e d Area

or

elsewhere, f o r t h e p u r p o s e o f g e t t i n g P e t r o l e u m f r o m t h a t area o r f o r t h e
p u r p o s e o f c o n v e y i n g t o a place o n l a n d P e t r o l e u m g o t f r o m t h a t area; o r
(b) get P e t r o l e u m f r o m t h a t area o t h e r w i s e t h a n i n t h e course o f s e a r c h i n g f o r
P e t r o l e u m o r d r i l l i n g Wells,
except w i t h

the consent

in writing

of the Minister

or i n accordance

with

p r o g r a m m e w h i c h t h e M i n i s t e r has a p p r o v e d o r served o n t h e Licensee i n p u r s u a n c e


o f t h e f o l l o w i n g p r o v i s i o n s o f t h i s clause.
(2)

T h e Licensee s h a l l p r e p a r e a n d s u b m i t t o t h e M i n i s t e r , i n s u c h f o r m a n d b y s u c h t i m e
a n d i n respect o f s u c h p e r i o d d u r i n g t h e t e r m o f t h i s l i c e n c e as t h e M i n i s t e r

may

direct, a p r o g r a m m e specifying (a) t h e R e l e v a n t W o r k s w h i c h t h e Licensee proposes t o erect o r c a r r y o u t d u r i n g


t h a t p e r i o d f o r e i t h e r o f t h e purposes m e n t i o n e d i n p a r a g r a p h ( l ) ( a ) o f t h i s
clause;
(b) t h e p r o p o s e d l o c a t i o n s o f t h e w o r k s , t h e purposes f o r w h i c h i t is p r o p o s e d t o
use t h e w o r k s a n d t h e t i m e s at w h i c h i t is p r o p o s e d t o b e g i n a n d t o c o m p l e t e
the erection or c a r r y i n g o u t of t h e works;
(c) t h e m a x i m u m a n d m i n i m u m q u a n t i t i e s o f P e t r o l e u m i n t h e f o r m o f gas a n d
the m a x i m u m and m i n i m u m quantities of Petroleum i n other forms w h i c h (i) i n e a c h c a l e n d a r year; o r
(ii) i n e a c h s u c h p e r i o d o f m o r e o r less t h a n o n e c a l e n d a r year as m a y

be

specified by t h e Minister,
t h e Licensee proposes t o get as m e n t i o n e d i n p a r a g r a p h ( l ) ( b ) o f t h i s clause.
(3)

I f t h e M i n i s t e r d i r e c t s t h e Licensee (a) t o p r e p a r e d i f f e r e n t p r o g r a m m e s i n p u r s u a n c e o f p a r a g r a p h (2) o f t h i s clause


i n respect o f P e t r o l e u m f r o m s u c h d i f f e r e n t parts o f t h e L i c e n s e d Area as are
specified i n t h e d i r e c t i o n ; or
(b) w h e r e a p r o g r a m m e a p p r o v e d o r served i n p u r s u a n c e o f t h i s clause relates t o
a p a r t i c u l a r p e r i o d d u r i n g t h e t e r m o f t h i s licence, t o p r e p a r e a p r o g r a m m e o r

95

O w n e r s h i p , licensing a n d sources or law

p r o g r a m m e s i n p u r s u a n c e o f p a r a g r a p h (2) o f t h i s clause i n respect o f a


f u r t h e r p e r i o d or f u r t h e r p e r i o d s d u r i n g t h a t t e r m ,
t h e Licensee shall c o m p l y w i t h t h e d i r e c t i o n .
(4)

I t shall be t h e d u t y o f t h e M i n i s t e r e x p e d i t i o u s l y t o c o n s i d e r a n y

programme

s u b m i t t e d t o h i m i n p u r s u a n c e o f p a r a g r a p h (2) o f t h i s clause a n d w h e n he has d o n e


so t o give n o t i c e i n w r i t i n g t o t h e Licensee s t a t i n g (a) t h a t t h e M i n i s t e r a p p r o v e s t h e p r o g r a m m e ; o r
(b) t h a t t h e M i n i s t e r a p p r o v e s t h e p r o g r a m m e subject t o t h e c o n d i t i o n t h a t such
o f t h e Relevant W o r k s as are s p e c i f i e d i n t h e n o t i c e s h a l l n o t be used before
t h e e x p i r a t i o n o f t h e p e r i o d so s p e c i f i e d i n r e l a t i o n t o t h e w o r k s o r s h a l l n o t
be used w i t h o u t t h e c o n s e n t i n w r i t i n g o f t h e M i n i s t e r ; o r
(c) t h a t t h e M i n i s t e r rejects t h e p r o g r a m m e o n o n e o r b o t h o f t h e f o l l o w i n g
grounds, n a m e l y (i) t h a t t h e c a r r y i n g o u t o f a n y p r o p o s a l s i n c l u d e d

i n the programme i n

p u r s u a n c e o f p a r a g r a p h (2) o f t h i s clause w o u l d be c o n t r a r y t o g o o d
o i l f i e l d practice;
(ii) t h a t t h e p r o p o s a l s i n c l u d e d i n t h e p r o g r a m m e i n p u r s u a n c e o f t h e subp a r a g r a p h (c) o f t h e said p a r a g r a p h (2) are, i n t h e o p i n i o n o f t h e M i n i s t e r ,
n o t i n t h e n a t i o n a l interest,
a n d a n o t i c e i n p u r s u a n c e o f sub-paragraph (b) o f t h i s p a r a g r a p h m a y

contain

d i f f e r e n t c o n d i t i o n s i n respect o f d i f f e r e n t w o r k s b u t s h a l l n o t be g i v e n unless t h e
M i n i s t e r is satisfied t h a t t h e c o n d i t i o n m e n t i o n e d i n t h e n o t i c e is r e q u i r e d i n t h e
n a t i o n a l interest.
(5)

W h e r e t h e M i n i s t e r gives n o t i c e o f r e j e c t i o n o f a p r o g r a m m e i n p u r s u a n c e o f subp a r a g r a p h (c) o f p a r a g r a p h (4) o f t h i s clause, t h e n (a) i f t h e g r o u n d s o f t h e r e j e c t i o n consist o f o r i n c l u d e t h e g r o u n d m e n t i o n e d i n


p a r a g r a p h (i) o f t h a t sub-paragraph he s h a l l i n c l u d e i n t h e n o t i c e a s t a t e m e n t
of t h e m a t t e r s i n c o n s e q u e n c e o f w h i c h h e r e j e c t e d t h e p r o g r a m m e o n t h a t
ground; and
(b) i f t h e g r o u n d s o f t h e r e j e c t i o n consist o f o r i n c l u d e t h e g r o u n d m e n t i o n e d i n
p a r a g r a p h ( i i ) o f t h a t sub-paragraph he s h a l l i n c l u d e i n t h e n o t i c e a s t a t e m e n t
of t h e rates at w h i c h h e c o n s i d e r s t h a t , i n t h e n a t i o n a l i n t e r e s t , P e t r o l e u m
s h o u l d be g o t f r o m t h e area t o w h i c h t h e p r o g r a m m e relates; a n d
(c) t h e Licensee shall prepare a n d s u b m i t t o t h e M i n i s t e r , b e f o r e t h e t i m e
specified i n t h e n o t i c e (i) w h e r e t h e n o t i c e c o n t a i n s s u c h a s t a t e m e n t as is m e n t i o n e d

i n sub-

p a r a g r a p h (a) above, m o d i f i c a t i o n s o f t h e p r o g r a m m e w h i c h e n s u r e t h a t
t h e c a r r y i n g o u t o f t h e p r o g r a m m e w i t h t h o s e m o d i f i c a t i o n s w o u l d n o t be
c o n t r a r y t o g o o d o i l f i e l d practice;
(ii) w h e r e t h e n o t i c e c o n t a i n s such a s t a t e m e n t as is m e n t i o n e d

i n sub-

p a r a g r a p h (b) above, m o d i f i c a t i o n s o f t h e p r o g r a m m e w h i c h ensure t h e


g e t t i n g o f P e t r o l e u m f r o m t h e area t o w h i c h t h e p r o g r a m m e relates a t t h e
rates s p e c i f i e d i n t h e s t a t e m e n t a n d w h i c h

( e x c e p t so f a r as m a y

be

necessary i n o r d e r t o get P e t r o l e u m at t h o s e rates) are n o t s u c h t h a t t h e


carrying out of the programme

96

with

those m o d i f i c a t i o n s

would

be

Marc H a m m e r s o n

c o n t r a r y t o g o o d o i l f i e l d practice,
but

t h e Licensee s h a l l n o t be r e q u i r e d b y v i r t u e o f p a r a g r a p h (i) o f t h i s sub-

p a r a g r a p h t o s u b m i t m o d i f i c a t i o n s i f i t is d e t e r m i n e d i n c o n s e q u e n c e o f a n y
reference t o a r b i t r a t i o n i n t h e m a n n e r p r o v i d e d b y clause 43 o f t h i s l i c e n c e t h a t
t h e c a r r y i n g o u t o f t h e p r o g r a m m e w i t h o u t m o d i f i c a t i o n s w o u l d n o t be c o n t r a r y
t o g o o d o i l f i e l d practice.
(6)

I f t h e M i n i s t e r gives n o t i c e i n w r i t i n g t o t h e Licensee t h a t t h e M i n i s t e r a p p r o v e s t h e
m o d i f i c a t i o n s o f a p r o g r a m m e w h i c h have been s u b m i t t e d t o h i m i n pursuance o f
sub-paragraph

(c) o f p a r a g r a p h

(5) o f t h i s clause, t h e p r o g r a m m e

with

those

m o d i f i c a t i o n s shall be d e e m e d t o be a p p r o v e d b y t h e M i n i s t e r ; b u t i f t h e Licensee
fails t o p e r f o r m t h e d u t y i m p o s e d o n h i m b y t h a t sub-paragraph t h e M i n i s t e r may, i f
he t h i n k s f i t , i n s t e a d o f r e v o k i n g t h i s l i c e n c e i n c o n s e q u e n c e o f t h e f a i l u r e , serve o n
t h e Licensee s u c h a p r o g r a m m e as t h e M i n i s t e r c o n s i d e r s t h a t t h e Licensee s h o u l d
have s u b m i t t e d t o h i m i n respect o f t h e area a n d p e r i o d t o w h i c h t h e rejected
p r o g r a m m e related.
(7)

W h e r e t h e M i n i s t e r proposes t o a p p r o v e a p r o g r a m m e subject t o a c o n d i t i o n i n
p u r s u a n c e o f p a r a g r a p h (4)(b) o f t h i s clause o r t o reject a p r o g r a m m e i n p u r s u a n c e o f
p a r a g r a p h (4)(c) o f t h i s clause o r t o serve a p r o g r a m m e o n t h e Licensee i n p u r s u a n c e
o f p a r a g r a p h (6) o f t h i s clause he shall b e f o r e d o i n g so (a) give t h e Licensee p a r t i c u l a r s o f t h e p r o p o s a l a n d a n o p p o r t u n i t y t o m a k e
representations t o t h e Minister about t h e technical a n d financial

factors

w h i c h t h e Licensee c o n s i d e r s are r e l e v a n t i n c o n n e c t i o n w i t h t h e p r o p o s a l ;
and
(b) c o n s i d e r a n y s u c h r e p r e s e n t a t i o n s t h e n m a d e t o h i m b y t h e Licensee.
(8)

T h e Licensee s h a l l c a r r y o u t a n y p r o g r a m m e a p p r o v e d o r served o n h i m b y t h e
M i n i s t e r i n p u r s u a n c e o f t h i s clause or, i f s u c h a p r o g r a m m e is v a r i e d i n p u r s u a n c e
o f clause 18 o f t h i s licence, t h e p r o g r a m m e as so v a r i e d except i n so f a r as t h e
Licensee is a u t h o r i s e d i n w r i t i n g b y t h e M i n i s t e r t o d o o t h e r w i s e o r is r e q u i r e d t o d o
o t h e r w i s e b y s u c h a c o n d i t i o n as is m e n t i o n e d i n p a r a g r a p h (4)(b) o f t h i s clause; b u t
i f i t is necessary t o c a r r y o u t c e r t a i n w o r k s i n o r d e r t o c o m p l y

with

provisions

i n c l u d e d i n a p r o g r a m m e b y v i r t u e o f p a r a g r a p h (5)(c) o f t h i s clause o r p r o v i s i o n s o f
a p r o g r a m m e served o n t h e Licensee i n p u r s u a n c e o f p a r a g r a p h (6) o f t h i s clause o r
p r o v i s i o n s o f a p r o g r a m m e as v a r i e d i n p u r s u a n c e o f clause 18 o f t h i s licence, t h e n ,
n o t w i t h s t a n d i n g a n y t h i n g i n t h e p r o g r a m m e as t o t h e t i m e w h e n t h o s e p r o v i s i o n s
are t o be c o m p l i e d w i t h , t h e Licensee shall n o t be t r e a t e d as h a v i n g f a i l e d t o c o m p l y
w i t h those provisions before t h e e x p i r a t i o n o f t h e period reasonably required f o r
carrying o u t t h e works.
(9)

I n t h i s clause " R e l e v a n t W o r k s " m e a n s a n y s t r u c t u r e s a n d

any other

works

w h a t s o e v e r w h i c h are i n t e n d e d b y t h e Licensee t o be p e r m a n e n t a n d are n e i t h e r


d e s i g n e d t o be m o v e d f r o m place t o place w i t h o u t m a j o r d i s m a n t l i n g n o r i n t e n d e d
b y t h e Licensee t o be used o n l y f o r s e a r c h i n g f o r P e t r o l e u m .

18. Provisions supplementary to clause 17


(1)

A c o n s e n t g i v e n b y t h e M i n i s t e r i n p u r s u a n c e o f clause 17(1) o f t h i s l i c e n c e m a y be
g i v e n s u b j e c t t o s u c h c o n d i t i o n s as are s p e c i f i e d i n t h e d o c u m e n t s i g n i f y i n g t h e

97

Ownership, licensing and sources of law

consent a n d m a y i n particular, w i t h o u t prejudice to the generality o f the preceding


p r o v i s i o n s o f t h i s p a r a g r a p h , be l i m i t e d t o a p e r i o d so s p e c i f i e d .
(2)

Where (a) t h e M i n i s t e r gives n o t i c e i n respect o f a p r o g r a m m e i n p u r s u a n c e o f p a r a g r a p h


(4)(a) o r (b) o r p a r a g r a p h (6) o f clause 17 o f t h i s l i c e n c e o r serves a p r o g r a m m e
i n p u r s u a n c e o f t h e said p a r a g r a p h (6); o r
(b) i t is d e t e r m i n e d i n c o n s e q u e n c e o f a n y r e f e r e n c e t o a r b i t r a t i o n i n t h e m a n n e r
provided
virtue

b y clause 4 3 o f t h i s l i c e n c e t h a t t h e Licensee is n o t r e q u i r e d b y

of paragraph

modifications

(i) o f clause

of a programme

17(5)(c)

i n respect

of this

of which

licence
notice

t o submit
o f rejection

c o n t a i n i n g s u c h a s t a t e m e n t as is m e n t i o n e d i n t h e said p a r a g r a p h (i) was


g i v e n b y t h e M i n i s t e r i n p u r s u a n c e o f clause 17(4)(c) o f t h i s l i c e n c e ,
t h e M i n i s t e r m a y g i v e t o t h e Licensee, w i t h t h e n o t i c e g i v e n

or t h e programme

served as m e n t i o n e d i n s u b - p a r a g r a p h (a) o f t h i s p a r a g r a p h or, i n a case f a l l i n g w i t h i n


s u b - p a r a g r a p h (b) o f t h i s p a r a g r a p h , w i t h i n t h e p e r i o d o f t h r e e m o n t h s b e g i n n i n g
w i t h t h e d a t e o f t h e a r b i t r a t o r ' s o r arbiter's d e t e r m i n a t i o n , a n o t i c e ( h e r e a f t e r i n t h i s
clause r e f e r r e d t o as a " L i m i t a t i o n N o t i c e " ) a u t h o r i s i n g t h e M i n i s t e r , b y a f u r t h e r
n o t i c e g i v e n t o t h e Licensee f r o m t i m e t o t i m e a f t e r t h e e x p i r a t i o n o f t h e
specified i n t h e L i m i t a t i o n Notice, t o provide

period

that t h e p r o g r a m m e t o w h i c h the

L i m i t a t i o n N o t i c e relates s h a l l h a v e e f f e c t w h i l e t h e f u r t h e r n o t i c e is i n f o r c e w i t h the
substitution for a n y q u a n t i t y of Petroleum or any period specified i n the programme
i n p u r s u a n c e o f clause 17(2)(c) o f t h i s l i c e n c e o f a d i f f e r e n t q u a n t i t y o f P e t r o l e u m or
a different period specified i n the f u r t h e r notice.
(3)

A q u a n t i t y o r p e r i o d s p e c i f i e d i n s u c h a f u r t h e r n o t i c e as t h a t t o b e s u b s t i t u t e d f o r a
q u a n t i t y o r p e r i o d w h i c h is s p e c i f i e d i n t h e p r o g r a m m e i n q u e s t i o n s h a l l be such as
t o secure t h a t t h e e x p e n d i t u r e t o b e i n c u r r e d b y t h e L i c e n s e e i n c o m p l y i n g w i t h the
f u r t h e r n o t i c e , i n a case w h e r e a n e f f e c t o f t h e n o t i c e is t o increase t h e q u a n t i t y o f
P e t r o l e u m w h i c h t h e Licensee is r e q u i r e d t o g e t f r o m t h e L i c e n s e d Area i n a n y
p e r i o d , is less t h a n t h e cost o f d r i l l i n g a n e w W e l l i n t h e L i c e n s e d Area at t h e t i m e
w h e n t h e f u r t h e r n o t i c e is g i v e n .

(4)

W h e r e t h e M i n i s t e r proposes t o give a L i m i t a t i o n N o t i c e o r a n y s u c h f u r t h e r notice


as a f o r e s a i d h e s h a l l b e f o r e d o i n g so (a) g i v e t h e Licensee p a r t i c u l a r s o f t h e p r o p o s a l a n d a n o p p o r t u n i t y t o m a k e
representations

t o t h e M i n i s t e r a b o u t t h e t e c h n i c a l a n d f i n a n c i a l factors

w h i c h t h e Licensee c o n s i d e r s are r e l e v a n t i n c o n n e c t i o n w i t h t h e

proposal;

and
(b) c o n s i d e r a n y s u c h r e p r e s e n t a t i o n s t h e n m a d e t o h i m b y t h e Licensee,
a n d t h e M i n i s t e r s h a l l n o t g i v e s u c h a f u r t h e r n o t i c e o f w h i c h a n e f f e c t is t o increase
t h e q u a n t i t y o f P e t r o l e u m w h i c h t h e Licensee is r e q u i r e d t o get f r o m t h e L i c e n s e d
Area d u r i n g a n y p e r i o d u n l e s s t h e M i n i s t e r is s a t i s f i e d t h a t t h e n o t i c e is r e q u i r e d b y
r e a s o n o f a n a t i o n a l e m e r g e n c y a n d s h a l l n o t g i v e a n y o t h e r s u c h f u r t h e r n o t i c e as
a f o r e s a i d unless h e is s a t i s f i e d t h a t t h e n o t i c e is r e q u i r e d i n t h e n a t i o n a l i n t e r e s t
(5)

A L i m i t a t i o n N o t i c e o r a n y s u c h f u r t h e r n o t i c e as a f o r e s a i d m a y (a) specify a n y q u a n t i t y o r p e r i o d b y reference t o s u c h f a c t o r s as t h e M i n i s t e r


thinks fit; a n d

98

iviarc n d i i i i i i e i s u n

(b) i n t h e case o f s u c h a f u r t h e r n o t i c e , c o n t a i n p r o v i s i o n s as t o (i) t h e d a t e w h e n t h e n o t i c e is t o c o m e i n t o force;


(ii) t h e d a t e w h e n t h e n o t i c e is t o cease t o be i n force,
and

specify d i f f e r e n t dates i n p u r s u a n c e

o f this sub-paragraph

for different

provisions of the notice,


and the Minister may

r e v o k e s u c h a f u r t h e r n o t i c e at a p a r t i c u l a r t i m e b y s e r v i n g o n

t h e Licensee a n o t i c e i n w r i t i n g s t a t i n g t h a t t h e f u r t h e r n o t i c e is r e v o k e d at t h a t t i m e .
(6)

A n y q u e s t i o n a r i s i n g u n d e r clause 17 o f t h i s l i c e n c e o r t h i s clause as t o w h a t is, is n o t


or is r e q u i r e d i n t h e n a t i o n a l i n t e r e s t o r as t o w h a t is, is n o t o r is r e q u i r e d b y reason
of, a n a t i o n a l e m e r g e n c y s h a l l be d e t e r m i n e d b y t h e M i n i s t e r .

(7)

The

Licensee s h a l l e n s u r e t h a t a n y c o n d i t i o n s t o w h i c h a n a p p r o v a l is s u b j e c t i n

p u r s u a n c e o f clause 17(4)(b) o f t h i s l i c e n c e o r t o w h i c h a c o n s e n t is subject i n


p u r s u a n c e o f p a r a g r a p h (1) o f t h i s clause are c o m p l i e d w i t h .
(8)

I f i n respect o f p a r t o f t h e L i c e n s e d Area (a) a c o n s e n t has b e e n g i v e n i n p u r s u a n c e o f p a r a g r a p h (1) o f clause 17 o f t h i s


licence; o r
(b) t h e Licensee has s u b m i t t e d t o t h e M i n i s t e r , i n a c c o r d a n c e w i t h a d i r e c t i o n
g i v e n b y v i r t u e o f p a r a g r a p h (3) (a) o f t h a t clause, a p r o g r a m m e i n p u r s u a n c e
o f p a r a g r a p h (2) o f t h a t clause (i) as respects w h i c h t h e M i n i s t e r has served n o t i c e i n p u r s u a n c e o f p a r a g r a p h
(4)(a) o r (b) o r p a r a g r a p h (6) o f t h a t clause; o r
(ii) i n c o n s e q u e n c e o f w h i c h t h e M i n i s t e r has served a p r o g r a m m e o n t h e
Licensee i n p u r s u a n c e o f t h e said p a r a g r a p h (6); o r
( i i i ) i n respect o f w h i c h

i t has b e e n d e t e r m i n e d i n c o n s e q u e n c e o f a n y

reference t o a r b i t r a t i o n i n t h e m a n n e r p r o v i d e d b y clause 43 o f t h i s
l i c e n c e t h a t t h e Licensee is n o t r e q u i r e d b y v i r t u e o f p a r a g r a p h (5)(c)(i)
o f t h a t clause t o s u b m i t m o d i f i c a t i o n s ,
p a r a g r a p h (1) o f clause 4 1 o f t h i s l i c e n c e s h a l l n o t a u t h o r i s e t h e M i n i s t e r t o r e v o k e
t h i s l i c e n c e i n r e l a t i o n t o t h a t p a r t o f t h e L i c e n s e d Area i n c o n s e q u e n c e o f a n y b r e a c h
or n o n - o b s e r v a n c e , w h i l e t h e c o n s e n t is i n force o r d u r i n g t h e p e r i o d t o w h i c h t h e
p r o g r a m m e relates, o f a n y p r o v i s i o n o f t h e said clause 17 i n c o n n e c t i o n w i t h a
d i f f e r e n t p a r t o f t h e L i c e n s e d Area.
(9)

W h e r e i n consequence of any breach or non-observance

b y t h e Licensee o f a n y

p r o v i s i o n o f clause 17 o f t h i s l i c e n c e t h e M i n i s t e r has p o w e r b y v i r t u e o f p a r a g r a p h
(1) o f clause 4 1 o f t h i s l i c e n c e t o r e v o k e t h i s l i c e n c e or, i n c o n s e q u e n c e o f p a r a g r a p h
(8) o f t h i s clause, t o r e v o k e i t i n respect o f p a r t o n l y o f t h e L i c e n s e d Area, h e m a y i f
he t h i n k s fit (a) i n a case w h e r e h e has p o w e r t o r e v o k e t h i s l i c e n c e , exercise t h e p o w e r i n
r e l a t i o n t o s u c h p a r t o n l y o f t h e L i c e n s e d Area as h e m a y

specify; a n d

(b) i n a case w h e r e b y v i r t u e o f t h e said p a r a g r a p h (8) he has p o w e r t o r e v o k e i t


i n respect o f p a r t o n l y o f t h e L i c e n s e d Area, exercise t h e p o w e r i n r e l a t i o n t o
s u c h p o r t i o n o n l y o f t h a t p a r t as h e m a y

specify,

a n d w h e r e i n c o n s e q u e n c e o f t h e said p a r a g r a p h (8) o r b y v i r t u e o f t h e p r e c e d i n g
p r o v i s i o n s o f t h i s p a r a g r a p h t h e M i n i s t e r r e v o k e s t h i s l i c e n c e i n respect o f a p a r t o r
p o r t i o n o f t h e L i c e n s e d Area, t h e r i g h t s g r a n t e d b y t h i s l i c e n c e s h a l l cease i n respect

99

O w n e r s h i p , l i c e n s i n g a n d sources or l a w

of t h a t p a r t o r p o r t i o n w i t h o u t p r e j u d i c e t o a n y o b l i g a t i o n o r l i a b i l i t y i m p o s e d u p o n
the Licensee o r i n c u r r e d b y h i m u n d e r t h e t e r m s o f t h i s l i c e n c e .

19. Commencement and abandonment and plugging of Wells


[See C h a p t e r 6, pages 586 a n d 587.]

20. Distance of Wells from boundaries of Licensed Area


[See C h a p t e r 3, page 270.]

21. Control of Development Wells


(1)

The

Licensee s h a l l n o t s u s p e n d w o r k o n t h e d r i l l i n g o f a D e v e l o p m e n t W e l l , or

h a v i n g s u s p e n d e d i t i n a c c o r d a n c e w i t h t h i s p a r a g r a p h s h a l l n o t b e g i n i t again,
except w i t h t h e consent i n w r i t i n g of t h e M i n i s t e r a n d

i n a c c o r d a n c e w i t h the

c o n d i t i o n s , i f any, s u b j e c t t o w h i c h t h e c o n s e n t is g i v e n .
(2)

W h e n w o r k o n t h e d r i l l i n g o f a D e v e l o p m e n t W e l l is s u s p e n d e d i n a c c o r d a n c e w i t h
p a r a g r a p h (1) o f t h i s clause, t h e Licensee s h a l l f o r t h w i t h f u r n i s h t h e M i n i s t e r w i t h
s u c h i n f o r m a t i o n r e l a t i n g t o t h e W e l l as t h e M i n i s t e r m a y

(3)

specify.

T h e Licensee (a) s h a l l n o t d o a n y C o m p l e t i o n W o r k i n respect o f a W e l l i n t h e L i c e n s e d Area


e x c e p t i n a c c o r d a n c e w i t h a p r o g r a m m e o f C o m p l e t i o n W o r k a p p r o v e d b y the
M i n i s t e r i n respect o f t h e W e l l ;
(b) s h a l l f u r n i s h t o t h e M i n i s t e r , i n a c c o r d a n c e w i t h t h e p r o v i s i o n s o f such a
p r o g r a m m e , p a r t i c u l a r s o f a n y C o m p l e t i o n W o r k d o n e b y h i m i n respect of a
W e l l i n t h e L i c e n s e d Area; a n d
(c) s h a l l n o t r e m o v e o r alter a n y

casing or e q u i p m e n t

installed by way

of

C o m p l e t i o n W o r k i n respect o f a W e l l e x c e p t w i t h t h e c o n s e n t i n w r i t i n g of
the M i n i s t e r a n d i n a c c o r d a n c e w i t h t h e c o n d i t i o n s , i f any, subject t o w h i c h
the c o n s e n t is g i v e n .
(4)

I n t h i s clause " C o m p l e t i o n Work", i n r e l a t i o n t o a W e l l , m e a n s w o r k , b y w a y o f t h e i n s t a l l a t i o n


of a c a s i n g o r e q u i p m e n t o r o t h e r w i s e after t h e W e l l has b e e n d r i l l e d , f o r t h e purpose
of b r i n g i n g t h e W e l l i n t o use as a D e v e l o p m e n t W e l l ; a n d
" D e v e l o p m e n t W e l l " m e a n s a W e l l w h i c h t h e Licensee uses o r i n t e n d s t o use i n
c o n n e c t i o n w i t h t h e g e t t i n g o f P e t r o l e u m i n t h e L i c e n s e d Area, o t h e r t h a n a W e l l
w h i c h f o r t h e t i m e b e i n g he uses o r i n t e n d s t o use o n l y f o r s e a r c h i n g f o r P e t r o l e u m .

22. Provision of storage tanks, pipes, pipelines or other receptacles


The

Licensee s h a l l use m e t h o d s a n d

p r a c t i c e c u s t o m a r i l y used

i n good

oilfield

practice f o r c o n f i n i n g t h e P e t r o l e u m o b t a i n e d f r o m t h e L i c e n s e d Area i n tanks,


gasholders, pipes, p i p e - l i n e s o r o t h e r receptacles c o n s t r u c t e d f o r t h a t p u r p o s e .

23. Avoidance of harmful methods of working


(1)

The

Licensee s h a l l m a i n t a i n a l l a p p a r a t u s a n d

appliances and

a l l Wells i n the

Licensed Area w h i c h h a v e n o t b e e n a b a n d o n e d a n d p l u g g e d as p r o v i d e d b y clause 19


o f t h i s l i c e n c e i n g o o d repair a n d c o n d i t i o n a n d s h a l l e x e c u t e a l l o p e r a t i o n s i n o r i n

100

Marc Hammerson

connection

with

t h e Licensed

Area i n a p r o p e r

and workmanlike

manner i n

a c c o r d a n c e w i t h m e t h o d s a n d p r a c t i c e c u s t o m a r i l y used i n g o o d o i l f i e l d p r a c t i c e a n d
w i t h o u t p r e j u d i c e t o t h e g e n e r a l i t y o f t h e f o r e g o i n g p r o v i s i o n t h e Licensee s h a l l take
a l l steps p r a c t i c a b l e i n o r d e r (a) t o c o n t r o l

the flow

a n d t o p r e v e n t t h e escape o r w a s t e o f P e t r o l e u m

d i s c o v e r e d i n o r o b t a i n e d f r o m t h e L i c e n s e d Area;
(b) t o c o n s e r v e t h e L i c e n s e d Area f o r p r o d u c t i v e o p e r a t i o n s ;
(c) t o p r e v e n t d a m a g e t o a d j o i n i n g P e t r o l e u m - b e a r i n g strata;
(d) t o p r e v e n t t h e e n t r a n c e o f w a t e r t h r o u g h W e l l s t o P e t r o l e u m - b e a r i n g strata
except f o r t h e purposes of secondary recovery; a n d
(e) t o p r e v e n t t h e escape o f P e t r o l e u m i n t o a n y w a t e r s i n o r i n t h e v i c i n i t y o f t h e
L i c e n s e d Area.
(2)

T h e Licensee s h a l l c o m p l y w i t h a n y i n s t r u c t i o n s f r o m t i m e t o t i m e g i v e n b y t h e
M i n i s t e r i n w r i t i n g r e l a t i n g t o a n y o f t h e m a t t e r s set o u t i n t h e f o r e g o i n g p a r a g r a p h .
If t h e Licensee o b j e c t s t o a n y s u c h i n s t r u c t i o n o n t h e g r o u n d t h a t i t is u n r e a s o n a b l e
he may, w i t h i n f o u r t e e n days f r o m t h e d a t e u p o n w h i c h t h e s a m e was g i v e n , refer
t h e m a t t e r t o a r b i t r a t i o n i n m a n n e r p r o v i d e d b y clause 43 o f t h i s l i c e n c e .

(3)

N o t w i t h s t a n d i n g a n y t h i n g i n t h e p r e c e d i n g p r o v i s i o n s o f t h i s clause, t h e Licensee
shall n o t (a) flare a n y gas f r o m t h e L i c e n s e d Area; o r
(b) use gas f o r t h e p u r p o s e o f c r e a t i n g o r i n c r e a s i n g t h e pressure b y m e a n s o f
w h i c h P e t r o l e u m is o b t a i n e d f r o m t h a t area,
except w i t h t h e consent

i n w r i t i n g o f t h e Minister a n d i n accordance w i t h t h e

c o n d i t i o n s , i f any, o f t h e c o n s e n t .
(4)

A n a p p l i c a t i o n f o r c o n s e n t i n p u r s u a n c e o f p a r a g r a p h (3) o f t h i s clause m u s t be m a d e
i n w r i t i n g t o t h e M i n i s t e r a n d m u s t s p e c i f y t h e d a t e o n w h i c h t h e Licensee p r o p o s e s
t o b e g i n t h e f l a r i n g o r use i n q u e s t i o n ; a n d s u b j e c t t o p a r a g r a p h (5) o f t h i s clause t h a t
d a t e m u s t n o t be b e f o r e t h e e x p i r a t i o n o f t h e p e r i o d o f t w o years b e g i n n i n g w i t h t h e
date w h e n t h e M i n i s t e r receives t h e a p p l i c a t i o n .

(5)

I f t h e M i n i s t e r gives n o t i c e i n w r i t i n g t o t h e Licensee s t a t i n g t h a t , i n c o n s e q u e n c e o f
p l a n s m a d e b y t h e Licensee w h i c h t h e M i n i s t e r c o n s i d e r s are reasonable, t h e M i n i s t e r
w i l l e n t e r t a i n a n a p p l i c a t i o n f o r c o n s e n t i n p u r s u a n c e o f p a r a g r a p h (3) o f t h i s clause
w h i c h n o t i c e specifies a d a t e after t h e e x p i r a t i o n o f a p e r i o d m e n t i o n e d i n t h e n o t i c e
which

is s h o r t e r t h a n t h e p e r i o d m e n t i o n e d

i n paragraph

(4) o f t h i s clause, a n

a p p l i c a t i o n m a d e i n c o n s e q u e n c e o f t h e n o t i c e m a y specify, as t h e d a t e o n w h i c h t h e
a p p l i c a n t p r o p o s e s t o b e g i n t h e f l a r i n g o r use i n q u e s t i o n , a d a t e after t h e e x p i r a t i o n
of that shorter period.
(6)

Before d e c i d i n g t o w i t h h o l d c o n s e n t o r t o g r a n t i t s u b j e c t t o c o n d i t i o n s i n p u r s u a n c e
o f p a r a g r a p h (3) o f t h i s clause, t h e M i n i s t e r s h a l l g i v e t h e Licensee a n o p p o r t u n i t y t o
make representations i n w r i t i n g t o t h e Minister about t h e technical a n d financial
f a c t o r s w h i c h t h e Licensee c o n s i d e r s a r e r e l e v a n t i n c o n n e c t i o n w i t h t h e case a n d
s h a l l c o n s i d e r a n y s u c h r e p r e s e n t a t i o n s t h e n m a d e t o h i m b y t h e Licensee.

(7)

C o n s e n t i n p u r s u a n c e o f p a r a g r a p h (3) o f t h i s clause s h a l l n o t b e r e q u i r e d f o r a n y
f l a r i n g w h i c h , i n c o n s e q u e n c e o f a n e v e n t w h i c h t h e Licensee d i d n o t foresee i n t i m e
t o d e a l w i t h i t o t h e r w i s e t h a n b y f l a r i n g , is necessary i n o r d e r -

101

uwnersnip. licensing a i i u Miuiiea u i i a w

(a) t o r e m o v e o r reduce t h e risk o f i n j u r y t o persons i n t h e v i c i n i t y o f t h e W e l l i n


question; or
(b) t o m a i n t a i n a f l o w o f P e t r o l e u m f r o m t h a t o r a n y o t h e r W e l l ,
b u t w h e n t h e Licensee does a n y f l a r i n g w h i c h is necessary as aforesaid h e shall
f o r t h w i t h i n f o r m t h e M i n i s t e r t h a t h e has d o n e i t a n d shall, i n t h e case o f f l a r i n g
t o m a i n t a i n a f l o w o f P e t r o l e u m , stop t h a t

flaring

u p o n being directed by the

M i n i s t e r t o d o so.
(8)

T h e Licensee shall give n o t i c e t o t h e M i n i s t e r o f a n y e v e n t c a u s i n g t h e escape or


waste o f Petroleum, damage t o P e t r o l e u m - b e a r i n g strata o r t h e e n t r a n c e o f water
t h r o u g h Wells t o Petroleum-bearing strata except f o r t h e purposes o f secondary
recovery f o r t h w i t h after t h e occurrence o f t h a t e v e n t a n d shall, f o r t h w i t h after the
occurrence o f a n y e v e n t causing t h e escape o f P e t r o l e u m i n t o t h e sea, give n o t i c e o f
t h e event t o t h e C h i e f Inspector o f Her Majesty's Coastguard.

(9)

T h e Licensee shall c o m p l y w i t h a n y reasonable i n s t r u c t i o n s f r o m t i m e t o t i m e given


b y t h e M i n i s t e r w i t h a v i e w t o e n s u r i n g t h a t f u n d s are available t o discharge a n y
l i a b i l i t y f o r damage a t t r i b u t a b l e t o t h e release o r escape o f P e t r o l e u m i n t h e course
of activities c o n n e c t e d w i t h t h e exercise o f r i g h t s g r a n t e d b y t h i s licence; b u t where
the M i n i s t e r proposes t o give such i n s t r u c t i o n s h e shall before g i v i n g t h e m (a) give t h e Licensee particulars o f t h e p r o p o s a l a n d a n o p p o r t u n i t y t o make
representations t o t h e M i n i s t e r a b o u t t h e proposal; a n d
(b) consider a n y representations t h e n m a d e t o h i m b y t h e Licensee a b o u t t h e
proposal.

24. Appointment of operators


(1)

The Licensee shall ensure t h a t a n o t h e r person ( i n c l u d i n g , i n t h e case w h e r e t h e


Licensee is t w o or m o r e persons, a n y o f those persons) does n o t exercise a n y f u n c t i o n
of o r g a n i s i n g or s u p e r v i s i n g a l l o r a n y o f t h e o p e r a t i o n s o f s e a r c h i n g o r b o r i n g for or
g e t t i n g P e t r o l e u m i n pursuance o f t h i s licence unless t h a t o t h e r p e r s o n is a person
a p p r o v e d i n w r i t i n g b y t h e M i n i s t e r a n d t h e f u n c t i o n i n q u e s t i o n is o n e t o w h i c h
t h a t a p p r o v a l relates.

(2)

T h e M i n i s t e r shall n o t refuse t o give his a p p r o v a l o f a person i n pursuance of paragraph


(1) o f this clause if that person is c o m p e t e n t t o exercise t h e f u n c t i o n i n question, b u t
w h e r e a n approved person is n o longer c o m p e t e n t

t o exercise t h a t f u n c t i o n t h e

M i n i s t e r may, b y notice i n w r i t i n g g i v e n t o t h e Licensee, revoke h i s a p p r o v a l .

25. Fishing and navigation


[See C h a p t e r 6, page 587.]

26. Training
(1)

T h e M i n i s t e r m a y f r o m t i m e t o t i m e give t o t h e Licensee i n s t r u c t i o n s i n w r i t i n g as to
the t r a i n i n g o f persons e m p l o y e d o r t o be e m p l o y e d , w h e t h e r b y t h e Licensee o r b y
a n y o t h e r person, i n a n y a c t i v i t y w h i c h is related t o t h e exercise o f t h e r i g h t s g r a n t e d
b y t h i s licence a n d t h e Licensee shall ensure t h a t a n y i n s t r u c t i o n s so g i v e n are
complied with.

(2)

102

T h e M i n i s t e r shall n o t give i n s t r u c t i o n s i n pursuance o f p a r a g r a p h (1) o f t h i s clause

Marc I l a m m e r s o n

unless h e has c o n s u l t e d as t o t h e p r o v i s i o n s proposed

t o be i n c l u d e d i n such

i n s t r u c t i o n s t h e P e t r o l e u m I n d u s t r y T r a i n i n g Board o r such o t h e r b o d y o f a like


nature as m a y f r o m t i m e t o t i m e be c a r r y i n g o n activities o f a substantially similar
k i n d t o those at present p e r f o r m e d b y t h e said Board.
(3)

T h e Licensee shall f u r n i s h t h e M i n i s t e r w i t h such i n f o r m a t i o n r e l a t i n g t o t h e


t r a i n i n g o f persons referred t o i n paragraph (1) o f t h i s clause as t h e M i n i s t e r m a y
f r o m t i m e t o t i m e request.

27. Unit development


[See Chapter 3, pages 2 7 0 a n d 271.]

28. Directions as to Oil Fields across boundaries


[See Chapter 3, page 271.]

29. Licensee to keep records


(1)

T h e Licensee shall keep accurate records i n a f o r m f r o m t i m e t o t i m e approved b y t h e


M i n i s t e r o f t h e d r i l l i n g , deepening, p l u g g i n g or a b a n d o n m e n t o f all Wells a n d of a n y
alterations i n t h e casing thereof. Such records shall c o n t a i n particulars o f t h e
f o l l o w i n g matters (a) t h e site o f a n d n u m b e r assigned t o every Well;
(b) t h e subsoil a n d strata t h r o u g h w h i c h t h e Well was d r i l l e d ;
(c) t h e casing inserted i n a n y W e l l a n d a n y a l t e r a t i o n t o such casing;
(d) a n y Petroleum, water, m i n e s o r w o r k a b l e seams o f coal e n c o u n t e r e d i n t h e
course o f such activities; a n d
(e) such o t h e r matters as t h e M i n i s t e r m a y f r o m t i m e t o t i m e direct.

(2)

T h e Licensee shall keep w i t h i n t h e U n i t e d K i n g d o m accurate geological plans a n d


maps r e l a t i n g t o t h e Licensed Area a n d such o t h e r records i n r e l a t i o n t h e r e t o as m a y
be necessary t o preserve all i n f o r m a t i o n w h i c h t h e Licensee has about t h e geology of
t h e Licensed Area.

(3)

T h e Licensee shall deliver copies o f t h e said records, plans a n d maps referred t o i n


t h e t w o f o r e g o i n g paragraphs t o t h e M i n i s t e r w h e n requested t o d o so either (a) w i t h i n a n y t i m e l i m i t specified i n t h e request; or
(b) if there is n o t i m e l i m i t specified, w i t h i n f o u r weeks o f t h e request.

30. Returns
(1)

T h e Licensee shall f u r n i s h t o t h e M i n i s t e r o n t h e first a n n i v e r s a r y o f t h e Start Date,


a n d at intervals o f three m o n t h s thereafter d u r i n g t h e p e r i o d i n w h i c h t h i s licence is
i n force, a r e t u r n i n a f o r m f r o m t i m e t o t i m e a p p r o v e d

by the Minister of the

progress o f his o p e r a t i o n s i n t h e Licensed Area. Such r e t u r n shall c o n t a i n (a) a statement o f all geological work, i n c l u d i n g surveys a n d tests, w h i c h has
been carried o u t a n d t h e areas i n w h i c h a n d t h e persons b y w h o m t h e w o r k
has been carried o u t a n d t h e results thereof;
(b) t h e n u m b e r assigned t o each Well, a n d i n t h e case o f a n y W e l l t h e d r i l l i n g o f
w h i c h was b e g u n o r t h e n u m b e r o f w h i c h has been c h a n g e d d u r i n g such
p e r i o d o f three m o n t h s , t h e site thereof;

103

O w n e r s h i p , l i c e n s i n g a n d sources or l a w

(c) a s t a t e m e n t o f t h e d e p t h d r i l l e d i n each Well;


(d) a s t a t e m e n t o f a n y P e t r o l e u m , water, m i n e s or w o r k a b l e seams o f coal or o t h e r
m i n e r a l s e n c o u n t e r e d i n t h e course o f t h e said o p e r a t i o n s ; a n d
(e) a s t a t e m e n t o f all P e t r o l e u m w o n a n d saved.
(2)

W i t h i n t w o m o n t h s after t h e e n d o f each calendar year w h i c h falls w h o l l y or p a r t l y


w i t h i n t h e p e r i o d i n w h i c h t h i s licence is i n force a n d w i t h i n t w o m o n t h s after the
e x p i r a t i o n or d e t e r m i n a t i o n o f t h i s licence o r a n y r e n e w a l t h e r e o f t h e Licensee shall
f u r n i s h t o t h e M i n i s t e r a n a n n u a l r e t u r n i n a f o r m f r o m t i m e t o t i m e a p p r o v e d by
t h e M i n i s t e r o f t h e o p e r a t i o n s c o n d u c t e d i n t h e Licensed Area d u r i n g t h a t year or the
p e r i o d p r i o r t o such e x p i r a t i o n or d e t e r m i n a t i o n as t h e case m a y be t o g e t h e r w i t h a
p l a n u p o n a scale a p p r o v e d b y t h e M i n i s t e r s h o w i n g t h e s i t u a t i o n o f a l l Wells. The
Licensee shall also i n d i c a t e o n t h e said p l a n a l l d e v e l o p m e n t

a n d o t h e r works

executed b y h i m i n c o n n e c t i o n w i t h searching, b o r i n g f o r o r g e t t i n g Petroleum.


(3)

T h e Licensee shall f u r n i s h t h e M i n i s t e r w i t h such i n f o r m a t i o n as t h e M i n i s t e r m a y f r o m


t i m e t o t i m e request about any aspect of activities o f t h e Licensee w h i c h are attributable
directly or i n d i r e c t l y t o t h e g r a n t o f t h i s licence, except t h a t t h e Licensee shall n o t by
v i r t u e o f this paragraph be required t o f u r n i s h i n f o r m a t i o n i n respect of his activities i n
c o n n e c t i o n w i t h a n y crude o i l after he has appropriated it f o r r e f i n i n g b y h i m .

(3A)

T h e f u n c t i o n s o f t h e M i n i s t e r u n d e r p a r a g r a p h (3) shall be exercisable c o n c u r r e n t l y


b y t h e C h a n c e l l o r o f t h e Exchequer.

(4)

T h e Licensee shall c o m p l y w i t h a n y request f o r i n f o r m a t i o n m a d e i n accordance


w i t h paragraph (3) above e i t h e r (a) w i t h i n a n y t i m e l i m i t specified i n t h e request; o r
(b) if t h e r e is n o t i m e l i m i t specified, w i t h i n f o u r weeks o f t h e request.

31. Licensee to keep samples


(1)

As far as reasonably practicable t h e Licensee s h a l l c o r r e c t l y label a n d preserve for


reference f o r a p e r i o d o f five years samples o f t h e sea b e d a n d o f t h e strata
e n c o u n t e r e d i n a n y W e l l a n d samples o f a n y P e t r o l e u m o r w a t e r d i s c o v e r e d i n any
W e l l i n t h e Licensed Area.

(2)

T h e Licensee shall n o t dispose o f a n y sample after t h e e x p i r y o f t h e said p e r i o d of


f i v e years unless (a) he has at least six m o n t h s before t h e date o f t h e disposal g i v e n n o t i c e i n
w r i t i n g t o t h e M i n i s t e r o f h i s i n t e n t i o n t o dispose o f t h e same; a n d
(b) t h e M i n i s t e r or a n y p e r s o n a u t h o r i s e d b y h i m has n o t w i t h i n t h e said period
of six m o n t h s i n f o r m e d t h e Licensee i n w r i t i n g t h a t h e wishes t h e sample to
be delivered t o h i m .

(3)

T h e M i n i s t e r or a n y person a u t h o r i s e d b y h i m shall be e n t i t l e d at a n y t i m e (a) t o i n f o r m t h e Licensee i n w r i t i n g t h a t h e wishes t h e w h o l e o r a n y p a r t o f any


sample preserved b y t h e Licensee t o be d e l i v e r e d t o h i m ; o r
(b) t o inspect a n d analyse a n y sample preserved b y t h e Licensee.

(4)

T h e Licensee shall f o r t h w i t h c o m p l y w i t h a n y request f o r t h e d e l i v e r y o f t h e w h o l e


or a n y part o f a n y sample w h i c h is m a d e i n accordance w i t h t h e p r e c e d i n g p r o v i s i o n s
of t h i s clause.

104

Marc H a m m e r s o n

32. Reports to be treated as confidential


A l l records, returns, plans, maps, samples, accounts a n d i n f o r m a t i o n ( i n t h i s clause
referred t o as "the specified data") w h i c h t h e Licensee is or m a y f r o m t i m e t o t i m e be
r e q u i r e d t o f u r n i s h u n d e r t h e p r o v i s i o n s o f t h i s licence shall be s u p p l i e d at t h e
expense o f t h e Licensee a n d shall n o t (except w i t h t h e consent i n w r i t i n g o f t h e
Licensee w h i c h shall n o t be u n r e a s o n a b l y w i t h h e l d ) be disclosed t o a n y person n o t
i n t h e service or e m p l o y m e n t o f t h e C r o w n Provided t h a t (a) t h e M i n i s t e r shall be e n t i t l e d at a n y t i m e t o make use of a n y o f t h e specified
data f o r t h e purpose o f p r e p a r i n g a n d p u b l i s h i n g such returns a n d reports as
m a y be r e q u i r e d o f t h e M i n i s t e r b y law;
(b) t h e M i n i s t e r shall be e n t i t l e d at a n y t i m e t o f u r n i s h a n y of the specified data t o
the Natural E n v i r o n m e n t Research C o u n c i l a n d t o a n y other b o d y o f a like
nature as m a y f r o m t i m e t o t i m e be c a r r y i n g o n activities o f a substantially
similar k i n d t o the geological activities at present carried o n b y t h e said C o u n c i l ;
(c) t h e Minister, t h e said C o u n c i l a n d a n y such other b o d y shall be e n t i t l e d at
any t i m e t o prepare a n d p u b l i s h reports a n d surveys of a general nature using
i n f o r m a t i o n d e r i v e d f r o m a n y o f t h e specified data;
(d) t h e M i n i s t e r , t h e said C o u n c i l a n d a n y other such b o d y shall be e n t i t l e d t o
p u b l i s h a n y o f t h e specified data o f a geological, scientific o r t e c h n i c a l k i n d
either (i) after t h e e x p i r a t i o n o f t h e p e r i o d o f three years b e g i n n i n g w i t h t h e date
w h e n the data were due t o be s u p p l i e d t o t h e M i n i s t e r i n accordance w i t h
clause 29 o r 30 o f t h i s licence, o r i f earlier, t h e date w h e n t h e M i n i s t e r
received those data;
(ii) after

t h e licence

ceases t o h a v e

effect,

whether

because

of its

d e t e r m i n a t i o n , r e v o c a t i o n o r t h e e f f l u x i o n o f time; o r
(iii) after the e x p i r a t i o n of such longer p e r i o d as t h e M i n i s t e r m a y d e t e r m i n e
after c o n s i d e r i n g a n y representations made t o h i m b y t h e Licensee a b o u t
t h e p u b l i c a t i o n o f data i n pursuance o f t h i s sub-paragraph.

33. Inspection of records etc


T h e Licensee shall (a) p e r m i t

a n y p e r s o n i n t h e service o r e m p l o y m e n t o f t h e C r o w n w h o is

a p p o i n t e d b y t h e M i n i s t e r for t h e purpose t o inspect, a n d t o take copies o f


a n d m a k e notes f r o m , all books, papers, maps a n d other records o f a n y k i n d
kept b y t h e Licensee i n pursuance o f t h i s licence o r i n c o n n e c t i o n w i t h
activities a b o u t w h i c h t h e M i n i s t e r is e n t i t l e d t o o b t a i n i n f o r m a t i o n i n
pursuance o f clauses 26(3) a n d 30(3) o f t h i s licence; a n d
(b) f u r n i s h t h a t person at reasonable times w i t h such i n f o r m a t i o n a n d p r o v i d e
h i m at reasonable times w i t h such reasonable assistance as h e m a y request i n
c o n n e c t i o n w i t h or arising o u t of a n i n s p e c t i o n i n pursuance o f t h i s clause.

34. Rights of access


Any

p e r s o n o r persons a u t h o r i s e d b y t h e M i n i s t e r shall be e n t i t l e d at a l l reasonable

105

O w n e r s h i p , l i c e n s i n g a n d sources o t l a w

t i m e s t o enter i n t o a n d u p o n a n y o f t h e Licensee's i n s t a l l a t i o n s o r e q u i p m e n t

used

or t o be used i n c o n n e c t i o n w i t h searching, b o r i n g f o r o r g e t t i n g P e t r o l e u m i n t h e
Licensed Area f o r t h e purposes h e r e i n a f t e r m e n t i o n e d (a) t o e x a m i n e t h e i n s t a l l a t i o n s , Wells, p l a n t , a p p l i a n c e s a n d w o r k s m a d e or
executed b y t h e Licensee i n pursuance o f t h e licence a n d t h e state o f repair
a n d c o n d i t i o n thereof; a n d
(b) t o execute a n y w o r k s o r t o p r o v i d e a n d i n s t a l l a n y e q u i p m e n t w h i c h t h e
M i n i s t e r m a y be e n t i t l e d t o execute or p r o v i d e a n d i n s t a l l i n accordance w i t h
t h e p r o v i s i o n s hereof.

35. Power to execute works


If t h e Licensee shall at a n y t i m e f a i l t o p e r f o r m t h e o b l i g a t i o n s a r i s i n g u n d e r the
t e r m s a n d c o n d i t i o n s o f a n y o f clauses 14, 19, 2 2 o r 23, o f t h i s licence, t h e M i n i s t e r
shall be e n t i t l e d , after g i v i n g t o t h e Licensee reasonable n o t i c e i n w r i t i n g o f his
i n t e n t i o n , t o execute a n y w o r k s a n d t o p r o v i d e a n d i n s t a l l a n y e q u i p m e n t w h i c h i n
t h e o p i n i o n o f t h e M i n i s t e r m a y be necessary t o secure t h e p e r f o r m a n c e o f t h e said
o b l i g a t i o n s o r a n y o f t h e m a n d t o recover t h e costs a n d expenses o f so d o i n g f r o m
t h e Licensee.

36.

R i g h t o f distress

(1)

T h i s clause applies i n respect o f a n y part o f t h e Licensed Area s i t u a t e d w i t h i n the


E n g l i s h o r N o r t h e r n I r i s h areas as d e f i n e d i n article 1(2) o f t h e C i v i l J u r i s d i c t i o n
( O f f s h o r e A c t i v i t i e s ) Order 1987.

(2)

I f a n d w h e n e v e r a n y o f t h e p a y m e n t s m e n t i o n e d i n clause 12(1) o f t h i s licence or


a n y part t h e r e o f shall be i n arrear o r u n p a i d f o r 28 days n e x t after a n y o f t h e days
w h e r e o n t h e same o u g h t t o be p a i d ( w h e t h e r t h e same shall h a v e been legally
d e m a n d e d o r n o t ) t h e n a n d so o f t e n as t h e same m a y h a p p e n t h e M i n i s t e r m a y (as
an a d d i t i o n a l r e m e d y a n d w i t h o u t p r e j u d i c e t o a n y o t h e r r i g h t s a n d remedies t o
w h i c h he w o u l d be e n t i t l e d ) enter i n t o a n d u p o n a n y o f t h e Licensee's installations
a n d e q u i p m e n t used or t o be used i n c o n n e c t i o n w i t h searching, b o r i n g for o r getting
P e t r o l e u m i n t h e Licensed Area a n d m a y seize a n d d i s t r a i n a n d sell as a l a n d l o r d may
do

f o r r e n t a l l o r a n y o f t h e stocks o f P e t r o l e u m , engines, m a c h i n e r y , tools,

i m p l e m e n t s , chattels a n d o t h e r effects b e l o n g i n g t o t h e Licensee w h i c h shall be


f o u n d i n o r u p o n o r a b o u t a n y o f t h e Licensee's i n s t a l l a t i o n s a n d e q u i p m e n t so
e n t e r e d u p o n a n d o u t o f t h e m o n e y s a r i s i n g f r o m t h e sale o f such distress m a y retain
a n d p a y a l l t h e arrears o f t h e said p a y m e n t s a n d also t h e costs a n d expenses o f a n d
i n c i d e n t t o such distress a n d sale a n d shall p a y t h e surplus (if a n y ) t o t h e Licensee.

37. Diligence
(1)

T h i s clause applies i n respect o f a n y part o f t h e Licensed Area s i t u a t e d w i t h i n t h e


Scottish area as d e f i n e d i n article 1(2) o f t h e C i v i l J u r i s d i c t i o n ( O f f s h o r e A c t i v i t i e s )
Order 1987.

(2)

I f a n d w h e n e v e r a n y o f t h e p a y m e n t s m e n t i o n e d i n clause 12(1) o f t h i s licence or


a n y part t h e r e o f shall be i n arrear o r u n p a i d f o r 28 days n e x t after a n y o f t h e days
w h e r e o n t h e same o u g h t t o be p a i d ( w h e t h e r t h e same shall h a v e been legally

106

Marc Hammerson

demanded or not), then and so often as the same may happen the Minster may (as
a n a d d i t i o n a l r e m e d y a n d w i t h o u t p r e j u d i c e t o a n y o t h e r r i g h t s a n d remedies t o
w h i c h h e w o u l d be e n t i t l e d ) d o d i l i g e n c e i n respect t h e r e o f i n l i k e m a n n e r as a
l a n d l o r d m a y d o d i l i g e n c e i n respect o f u n p a i d arrears o f r e n t a n d s u c h d i l i g e n c e
s h a l l be e f f e c t u a l t o a t t a c h a l l o r a n y o f t h e stocks o f P e t r o l e u m , engines, m a c h i n e r y ,
tools, i m p l e m e n t s a n d o t h e r effects b e l o n g i n g t o t h e Licensee w h i c h s h a l l be f o u n d
o n o r a b o u t a n y o f t h e Licensee's i n s t a l l a t i o n s a n d e q u i p m e n t used o r t o b e used i n
c o n n e c t i o n w i t h searching, b o r i n g f o r o r g e t t i n g P e t r o l e u m i n t h e L i c e n s e d Area, a n d
w h e r e i n p u r s u a n c e o f s u c h a d i l i g e n c e a sale o f s u c h effects as s h a l l h a v e b e e n
a t t a c h e d t h e r e b y takes place t h e M i n i s t e r m a y o u t o f t h e proceeds t h e r e o f r e t a i n a n d
p a y a l l t h e arrears o f t h e said p a y m e n t s a n d also t h e expenses o f s u c h i n c i d e n t t o
s u c h d i l i g e n c e a n d sale a n d s h a l l p a y t h e surplus t h e r e o f (if a n y ) t o t h e Licensee.

38. Indemnity against third party claims


The Licensee s h a l l at a l l t i m e s keep t h e M i n i s t e r e f f e c t u a l l y i n d e m n i f i e d against a l l
actions, p r o c e e d i n g s , costs, charges, c l a i m s a n d d e m a n d s w h a t s o e v e r w h i c h m a y be
m a d e o r b r o u g h t against t h e M i n i s t e r b y a n y t h i r d p a r t y i n r e l a t i o n t o o r i n
c o n n e c t i o n w i t h t h i s l i c e n c e o r a n y m a t t e r o r t h i n g d o n e o r p u r p o r t e d t o be d o n e i n
p u r s u a n c e thereof.

39. Advertisements, prospectuses etc.


N o s t a t e m e n t s h a l l be m a d e e i t h e r i n a n y n o t i c e , a d v e r t i s e m e n t , p r o s p e c t u s o r o t h e r
d o c u m e n t issued b y o r t o t h e k n o w l e d g e

o f t h e Licensee o r i n a n y o t h e r m a n n e r

c l a i m i n g o r s u g g e s t i n g w h e t h e r expressly o r b y i m p l i c a t i o n t h a t H e r M a j e s t y o r a n y
G o v e r n m e n t D e p a r t m e n t o r a n y p e r s o n o r b o d y a c t i n g o n b e h a l f o f H e r M a j e s t y has
or h a v e f o r m e d o r expressed a n y o p i n i o n t h a t t h e L i c e n s e d Area is f r o m its g e o l o g i c a l
f o r m a t i o n o r o t h e r w i s e o n e i n w h i c h P e t r o l e u m is l i k e l y t o be o b t a i n a b l e .

40. Restrictions on assignment, etc


(1)

T h e Licensee s h a l l n o t , e x c e p t w i t h t h e c o n s e n t i n w r i t i n g o f t h e M i n i s t e r a n d i n
a c c o r d a n c e w i t h t h e c o n d i t i o n s (if a n y ) o f t h e c o n s e n t d o a n y t h i n g

whatsoever

w h e r e b y , u n d e r t h e l a w ( i n c l u d i n g t h e rules o f e q u i t y ) o f a n y p a r t o f t h e E u r o p e a n
U n i o n o r o f a n y o t h e r place, a n y r i g h t g r a n t e d b y t h i s licence o r d e r i v e d f r o m a r i g h t
so g r a n t e d b e c o m e s exercisable b y o r f o r t h e b e n e f i t o f o r i n a c c o r d a n c e w i t h t h e
d i r e c t i o n s o f a n o t h e r person.
(2)

A n a g r e e m e n t p e r m i t t i n g t h e c a r r y i n g o u t o f g e o l o g i c a l surveys b y p h y s i c a l o r
c h e m i c a l m e a n s i n t h e L i c e n s e d Area is n o t p r o h i b i t e d b y p a r a g r a p h (1) o f t h i s clause
if t h e p e r s o n b y w h o m s u c h surveys are t o be c a r r i e d o u t is (a) t h e h o l d e r o f a licence g r a n t e d b y t h e M i n i s t e r o f t h e r i g h t , i n c o m m o n w i t h
a l l o t h e r persons t o w h o m t h e l i k e r i g h t m a y h a v e b e e n g r a n t e d , t o search f o r
P e t r o l e u m i n respect o f a n area w h i c h w o u l d i n c l u d e t h e L i c e n s e d Area, b u t
f o r a p r o v i s o t h e r e i n e x c l u d i n g t h e exercise o f s u c h r i g h t i n t h e L i c e n s e d Area
w i t h o u t t h e c o n s e n t o f t h e Licensee; o r
(b) t h e h o l d e r o f a l i c e n c e g r a n t e d b y t h e M i n i s t e r t o search a n d b o r e for, a n d get,
P e t r o l e u m i n a n area a d j a c e n t t o t h e L i c e n s e d Area,

107

cnvnersmp. licensing anu

and

s o u r c e s u i idv\

i f t h e i n f o r m a t i o n i n t e n d e d t o be o b t a i n e d b y such survey is r e a s o n a b l y

necessary t o enable t h a t h o l d e r m o r e e f f i c i e n t l y t o exercise t h e r i g h t s g r a n t e d b y t h e


licence w h i c h he h o l d s f r o m t h e Minister.
(3)

The Licensee shall n o t enter i n t o a n y agreement p r o v i d i n g f o r a p e r s o n o t h e r t h a n


the Licensee t o b e c o m e e n t i t l e d t o , or t o a n y proceeds o f sale of, a n y P e t r o l e u m
w h i c h , at t h e t i m e w h e n t h e agreement is made, has n o t b e e n b u t m a y

be w o n

and

saved f r o m t h e Licensed Area unless t h e terms o f t h e a g r e e m e n t h a v e b e e n a p p r o v e d


in w r i t i n g b y t h e M i n i s t e r e i t h e r u n c o n d i t i o n a l l y or subject t o c o n d i t i o n s , b u t t h e
p r e c e d i n g p r o v i s i o n s o f t h i s p a r a g r a p h do n o t a p p l y t o (a) a n agreement for t h e sale o f such P e t r o l e u m u n d e r w h i c h t h e price is payable
after t h e P e t r o l e u m is w o n a n d saved; a n d
(b) a n agreement i n so far as i t p r o v i d e s t h a t , after a n y P e t r o l e u m has been

won

a n d saved f r o m t h e Licensed Area, i t shall be e x c h a n g e d f o r o t h e r Petroleum.


(4)

The Licensee shall not, w i t h o u t t h e c o n s e n t o f t h e M i n i s t e r , dispose o f a n y Petroleum


w o n a n d saved i n t h e Licensed Area or a n y proceeds o f sale o f such P e t r o l e u m i n such
a m a n n e r t h a t t h e disposal does, t o t h e k n o w l e d g e o f t h e Licensee o r w i t h o u t his
k n o w i n g i t , f u l f i l or enable a n o t h e r p e r s o n t o f u l f i l o b l i g a t i o n s w h i c h a p e r s o n
c o n t r o l s t h e Licensee, or a p e r s o n w h o

is c o n t r o l l e d b y a p e r s o n w h o

who

c o n t r o l s the

Licensee, is r e q u i r e d t o f u l f i l b y a n agreement w h i c h , i f t h e p e r s o n r e q u i r e d t o f u l f i l
the o b l i g a t i o n s were t h e Licensee, w o u l d be a n a g r e e m e n t o f w h i c h t h e t e r m s require
a p p r o v a l b y v i r t u e o f p a r a g r a p h (3) o f t h i s clause; a n d subsections (2) a n d (4) t o (6)
of s e c t i o n 416 o f t h e I n c o m e a n d C o r p o r a t i o n Taxes A c t 1988 shall apply, f o r the
purposes o f d e t e r m i n i n g w h e t h e r f o r t h e purposes o f t h i s p a r a g r a p h a person has
c o n t r o l o f a n o t h e r person, w i t h t h e f o l l o w i n g m o d i f i c a t i o n s , n a m e l y (a) for t h e w o r d s " t h e greater p a r t " w h e r e v e r t h e y o c c u r i n t h e said subsection (2)
t h e r e shall be s u b s t i t u t e d t h e w o r d s " o n e - t h i r d or more"; a n d
(b) i n t h e said subsection (6), f o r t h e w o r d "may"
word

" s h a l l " , t h e w o r d s f r o m "and

t h e r e shall be s u b s t i t u t e d the

such a t t r i b u t i o n s " o n w a r d s shall be

o m i t t e d a n d i n t h e o t h e r p r o v i s i o n s o f t h a t s u b s e c t i o n a n y reference t o an
associate o f a p e r s o n shall be c o n s t r u e d as i n c l u d i n g o n l y a relative o f his (as
d e f i n e d b y s e c t i o n 417(4) o f t h a t Act), a p a r t n e r o f h i s a n d a trustee of a
s e t t l e m e n t (as d e f i n e d b y section 681(4) o f t h a t A c t ) o f w h i c h

he is a

beneficiary.
(5)

W h e r e t h e Licensee is t w o o r m o r e persons, t h e n , w i t h o u t p r e j u d i c e t o t h e p r e c e d i n g
p r o v i s i o n s o f t h i s clause, n o n e o f those persons shall e n t e r i n t o a n a g r e e m e n t w i t h
respect t o t h e e n t i t l e m e n t o f a n y o f t h e m t o (a) t h e b e n e f i t o f a n y r i g h t g r a n t e d b y t h i s licence; or
(b) a n y P e t r o l e u m w o n a n d saved f r o m t h e Licensed Area; o r
(c) a n y proceeds o f sale o f such Petroleum,
unless t h e t e r m s o f t h e agreement have been a p p r o v e d i n w r i t i n g b y t h e M i n i s t e r , b u t
the p r e c e d i n g p r o v i s i o n s o f t h i s paragraph d o n o t a p p l y t o a n a g r e e m e n t for t h e sale,
or f o r t h e proceeds o f such sale, o f such P e t r o l e u m u n d e r w h i c h t h e p r i c e is payable
after t h e P e t r o l e u m is w o n a n d saved a n d a n agreement i n so far as i t p r o v i d e s that,
after a n y P e t r o l e u m has been w o n
e x c h a n g e d f o r o t h e r Petroleum.

108

a n d saved f r o m t h e Licensed Area, i t s h a l l be

iviarc n a m m e r s o n

41.

P o w e r of r e v o c a t i o n

(1)

If any of t h e events specified i n t h e f o l l o w i n g paragraph shall occur t h e n a n d i n any


s u c h case t h e M i n i s t e r m a y

r e v o k e t h i s l i c e n c e a n d t h e r e u p o n t h e same a n d a l l t h e

r i g h t s h e r e b y g r a n t e d s h a l l cease a n d d e t e r m i n e b u t s u b j e c t n e v e r t h e l e s s a n d w i t h o u t
p r e j u d i c e t o a n y o b l i g a t i o n o r l i a b i l i t y i n c u r r e d b y t h e Licensee o r i m p o s e d u p o n h i m
b y o r u n d e r t h e t e r m s a n d c o n d i t i o n s hereof.
(2)

T h e e v e n t s r e f e r r e d t o i n t h e f o r e g o i n g p a r a g r a p h are (a) a n y p a y m e n t s m e n t i o n e d i n clause 12(1) o f t h i s l i c e n c e o r a n y p a r t t h e r e o f


b e i n g i n arrear o r u n p a i d f o r t w o m o n t h s n e x t after a n y o f t h e d a y s w h e r e o n
t h e same o u g h t t o h a v e b e e n p a i d ;
(b) a n y

breach or non-observance

b y t h e Licensee o f a n y

of the terms

and

c o n d i t i o n s o f t h i s licence;
(c) i n G r e a t B r i t a i n , t h e b a n k r u p t c y o r s e q u e s t r a t i o n o f t h e Licensee;
(d) i n Great

Britain, the making

by

t h e Licensee

of any

arrangement

or

c o m p o s i t i o n w i t h his creditors;
(e) i n G r e a t B r i t a i n , if t h e Licensee is a c o m p a n y , t h e a p p o i n t m e n t o f a receiver
or a d m i n i s t r a t o r or a n y l i q u i d a t i o n w h e t h e r c o m p u l s o r y or v o l u n t a r y ;
(f) i n a

jurisdiction

other

procedure or t h e m a k i n g

than

Great

Britain, the c o m m e n c e m e n t

of

any

of any arrangement or a p p o i n t m e n t substantially

c o r r e s p o n d i n g t o a n y o f t h o s e m e n t i o n e d i n sub-paragraphs (c) t o (e) o f t h i s


paragraph;
(g) a n y b r e a c h o r n o n - o b s e r v a n c e b y t h e Licensee o f t h e t e r m s a n d c o n d i t i o n s o f
a D e v e l o p m e n t Scheme;
( h ) if t h e Licensee is a c o m p a n y , t h e Licensee's c e a s i n g t o d i r e c t a n d

control

either (i) its o p e r a t i o n s u n d e r t h e l i c e n c e ; o r


(ii) a n y c o m m e r c i a l activities i n c o n n e c t i o n w i t h those operations, f r o m a
f i x e d place w i t h i n t h e U n i t e d K i n g d o m ;
(i) a n y b r e a c h o f a c o n d i t i o n s u b j e c t t o w h i c h t h e M i n i s t e r gave h i s a p p r o v a l i n
p u r s u a n c e o f clause 4 0 ( 3 ) o f t h i s licence;
(j) a n y b r e a c h o f clause 4 0 ( 5 ) o f t h i s l i c e n c e ,
a n d w h e r e t w o o r m o r e p e r s o n s are t h e Licensee a n y r e f e r e n c e t o t h e Licensee i n subp a r a g r a p h s (c) t o ( h ) o f t h i s p a r a g r a p h is a r e f e r e n c e t o a n y o f t h o s e persons.
(3)

The Minister may

r e v o k e t h i s l i c e n c e , w i t h t h e l i k e c o n s e q u e n c e s as are m e n t i o n e d

i n p a r a g r a p h (1) o f t h i s clause, i f (a) t h e Licensee is a c o m p a n y ; a n d


(b) t h e r e is a c h a n g e i n t h e c o n t r o l o f t h e Licensee; a n d
(c) t h e M i n i s t e r serves n o t i c e i n w r i t i n g o n t h e Licensee s t a t i n g t h a t t h e M i n i s t e r
proposes t o revoke this licence i n pursuance of this paragraph unless such a
f u r t h e r c h a n g e i n t h e c o n t r o l o f t h e Licensee as is s p e c i f i e d i n t h e n o t i c e takes
p l a c e w i t h i n t h e p e r i o d o f t h r e e m o n t h s b e g i n n i n g w i t h t h e d a t e o f service o f
the notice; and
(d) t h a t f u r t h e r c h a n g e does n o t t a k e p l a c e w i t h i n t h a t p e r i o d .
(4)

T h e r e is a c h a n g e i n t h e c o n t r o l o f t h e Licensee f o r t h e p u r p o s e s o f p a r a g r a p h ( 3 ) ( b )
o f t h i s clause w h e n e v e r a p e r s o n has c o n t r o l o f t h e Licensee w h o

d i d n o t have

109

u v v n e r s n i p , l i c e n s i n g ana sources o t law

c o n t r o l o f t h e Licensee w h e n t h i s licence was g r a n t e d (or, i f there has been an


assignment o r assignation of rights conferred b y t h i s licence, w h e n those r i g h t s were
assigned t o t h e Licensee); a n d subsections (2) a n d (4) t o (6) o f section 416 o f t h e
I n c o m e a n d C o r p o r a t i o n Taxes Act 1988 shall apply, f o r t h e purpose o f d e t e r m i n i n g
w h e t h e r f o r t h e purposes of t h i s paragraph a person has or h a d c o n t r o l o f the
Licensee, w i t h t h e m o d i f i c a t i o n s specified i n clause 40(4) of t h i s licence.
(5)

W h e r e t w o or m o r e persons are t h e Licensee a n d a n y of t h e m is a company,


paragraphs (3) a n d (4) o f t h i s clause shall have effect as if (a) sub-paragraph (a) o f paragraph (3) were o m i t t e d ;
(b) i n sub-paragraph (b) o f t h a t paragraph, after t h e w o r d "of" t h e r e were inserted
the

w o r d s "any

company

included

among

t h e persons

who

together

constitute"; and
(c) for t h e w o r d "Licensee" i n a n y o t h e r p r o v i s i o n o f those paragraphs there were
substituted t h e w o r d "company".

42. Power of partial revocation


(1)

T h i s clause applies i n a case w h e r e t w o or m o r e persons are t h e Licensee a n d (a) a n event m e n t i o n e d i n clause 41(2)(c), (d), (e), (f) o r ( h ) occurs i n relation to
one o f those persons; or
(b) t h e c o n d i t i o n s specified i n clause 41(3) are satisfied i n r e l a t i o n t o one o f those
persons.

(2)

W h e r e t h i s clause applies, t h e M i n i s t e r m a y

exercise t h e p o w e r o f r e v o c a t i o n i n

clause 41 t o revoke t h e licence i n so far as i t applies t o t h e person m e n t i o n e d i n


paragraph ( l ) ( a ) or (b).
(3)

If t h e M i n i s t e r exercises t h e p o w e r i n paragraph (2), t h e r i g h t s g r a n t e d t o t h e person


u n d e r t h i s licence cease, b u t w i t h o u t p r e j u d i c e t o any o b l i g a t i o n or l i a b i l i t y incurred
b y t h e person or i m p o s e d u n d e r t h e terms a n d c o n d i t i o n s o f t h i s licence.

(4)

W h e r e t h i s licence is r e v o k e d i n r e l a t i o n t o one person u n d e r t h i s clause, i t continues


to have effect i n respect o f t h e o t h e r person w h o constitutes, or persons w h o together
c o n s t i t u t e , t h e Licensee a n d i n r e l a t i o n t o w h o m i t is n o t revoked.

43. Arbitration
(1)

If at any t i m e any dispute, difference or q u e s t i o n shall arise b e t w e e n t h e M i n i s t e r and


the

Licensee as t o a n y m a t t e r arising u n d e r or b y v i r t u e o f t h i s licence or as t o their

respective rights a n d liabilities i n respect thereof t h e n t h e same shall, except where


it is expressly p r o v i d e d b y t h i s licence t h a t t h e m a t t e r or t h i n g t o w h i c h t h e same
relates is t o be d e t e r m i n e d , decided, directed, a p p r o v e d or c o n s e n t e d t o b y the
Minister, be referred t o a r b i t r a t i o n as p r o v i d e d b y t h e f o l l o w i n g paragraphs.
(2)

The a r b i t r a t i o n referred t o i n t h e f o r e g o i n g paragraph shall be b y a single arbitrator


who, i n default o f agreement b e t w e e n t h e M i n i s t e r a n d t h e Licensee and, i n t h e case
of a r b i t r a t i o n i n r e l a t i o n t o a D e v e l o p m e n t Scheme, o t h e r Licensees affected b y that
scheme, as t o his a p p o i n t m e n t , shall be a p p o i n t e d b y t h e L o r d C h i e f Justice o f
E n g l a n d f o r t h e t i m e being.

(3)

To t h e e x t e n t t h a t t h i s clause applies t o any part o f t h e Licensed Area situated w i t h i n


the

110

Scottish area, as d e f i n e d i n article 1(2) of t h e C i v i l J u r i s d i c t i o n

(Offshore

A c t i v i t i e s ) O r d e r 1987,

t h i s clause shall have effect as if -

(a) for t h e w o r d " a r b i t r a t o r " , w h e r e v e r i t occurs i n paragraphs (2) a n d (5) of t h i s


clause t h e r e were s u b s t i t u t e d the w o r d "arbiter"; a n d
(b) for t h e w o r d s "the L o r d C h i e f Justice of England", i n p a r a g r a p h (2) t h e r e were
s u b s t i t u t e d t h e w o r d s "the L o r d President of t h e C o u r t o f Session".
(4)

To t h e e x t e n t t h a t t h i s clause applies t o a n y part of t h e Licensed Area situated

within

t h e N o r t h e r n I r i s h area, as d e f i n e d i n article 1(2) o f the C i v i l J u r i s d i c t i o n ( O f f s h o r e


A c t i v i t i e s ) O r d e r 1987,

t h i s clause shall have effect as if for t h e w o r d s "the L o r d C h i e f

Justice o f England", i n p a r a g r a p h (2), t h e r e were s u b s t i t u t e d

t h e w o r d s "the

Lord

C h i e f Justice o f N o r t h e r n I r e l a n d " .
(5)

I n the case of a n y such a r b i t r a t i o n w h i c h relates t o a D e v e l o p m e n t Scheme the Licensee


shall unless the arbitrator otherwise determines p e r f o r m a n d observe the terms a n d
c o n d i t i o n s of the D e v e l o p m e n t Scheme p e n d i n g the decision of the arbitrator.

44. Ministry of Defence


(1)

T h e Licensee shall give t h e M i n i s t r y

o f Defence six m o n t h s ' p r i o r n o t i c e o f a n y

(2)

T h e Licensee shall give t h e M i n i s t r y of Defence six weeks' p r i o r n o t i c e o f a n y seismic

(3)

T h e Licensee shall at h i s o w n expense, i n s t a l l a n d m a i n t a i n u n d e r w a t e r sonar

i n s t a l l a t i o n m o v e m e n t s w i t h i n a Block.

survey w i t h i n a Block.

beacons t o M i n i s t r y

o f Defence specifications

o n a n y structures t h a t

m a y be

t e m p o r a r i l y w i t h i n a Block p r o v i d e d t h a t t h e r e shall be n o r e q u i r e m e n t t o f i t such


beacons t o f i x e d a n d c h a r t e d i n s t a l l a t i o n s .

45. Relationship with fishing industry


(1)

T h e Licensee s h a l l a p p o i n t a fisheries l i a i s o n o f f i c e r w h o s h a l l agree

suitable

a r r a n g e m e n t s w i t h t h e seismic survey a n d s u p p l y vessel o w n e r s e m p l o y e d b y t h e


Licensee, t h e i r masters a n d t h e o r g a n i s a t i o n s w h i c h represent t h e l o c a l f i s h i n g
i n d u s t r y i n order t o p r o m o t e g o o d w o r k i n g r e l a t i o n s h i p s b e t w e e n t h e v a r i o u s parties.
The

s e t t i n g u p o f t h e a r r a n g e m e n t s shall be t h e r e s p o n s i b i l i t y o f t h e Licensee. I n

p a r t i c u l a r t h e Licensee s h a l l (a) c o n s u l t t h e o r g a n i s a t i o n s w h i c h represent t h e l o c a l f i s h i n g i n d u s t r y a b o u t t h e


sea routes t o be used b y s u p p l y vessels;
(b) after i n f o r m i n g t h e M i n i s t e r o f t h e result o f such c o n s u l t a t i o n s , agree w i t h
him

which

routes s h a l l be used t o m i n i m i s e i n t e r f e r e n c e w i t h

fishing

a c t i v i t i e s w i t h o u t t h e r e b y u n r e a s o n a b l y i n c r e a s i n g t r a n s i t times;
(c) ensure t h a t t h e agreed routes are used unless safety o f n a v i g a t i o n o r security
o f cargo c o n s i d e r a t i o n s d i c t a t e o t h e r w i s e ; a n d
(d) take a l l reasonable steps t o ensure t h a t a responsible p e r s o n w h o is f l u e n t i n
E n g l i s h is a m e m b e r o f t h e crew of t h e s u p p l y vessel.
(2)

T h e Licensee shall m a k e every e f f o r t t o locate a n d remove, w i t h o u t u n r e a s o n a b l e


delay, a n y debris r e s u l t i n g f r o m the licensed activities. T h e Licensee shall c o n s u l t t h e
r e l e v a n t f i s h i n g o r g a n i s a t i o n s o n t h e m e t h o d o f clearance a n d i n f o r m t h e M i n i s t e r
o f t h e result o f such c o n s u l t a t i o n .
determines that

the method

I f as a result o f such c o n s u l t a t i o n t h e M i n i s t e r

o f clearance o f debris s h o u l d

be m o d i f i e d , such

ill

(3)

m o d i f i c a t i o n s shall be observed b y t h e Licensee.


C l a i m s f o r damage t o or loss o f gear or loss o f f i s h i n g t i m e a r i s i n g f r o m r e p o r t e d
debris shall be dealt w i t h p r o m p t l y b y t h e Licensee.

Petroleum Licensing (Production) (Seaward Areas) Regulations


2008/225
Explanatory Note
These Regulations prescribe t h e m o d e l clauses w h i c h , unless t h e Secretary o f State
t h i n k s f i t t o m o d i f y or exclude t h e m i n a n y particular case, w i l l be i n c o r p o r a t e d i n
p e t r o l e u m p r o d u c t i o n licences f o r seaward areas. T h e m o d e l clauses prescribed w i l l
a p p l y f o r t h e purposes o f t h e 2 5 t h a n d subsequent r o u n d s o f l i c e n s i n g f o r those areas.
As regards previous r o u n d s o f licensing, a n d as regards o t h e r k i n d s o f p e t r o l e u m
licence, t h e m o d e l clauses p r e v i o u s l y prescribed, m o s t r e c e n t l y b y t h e Petroleum
Licensing ( E x p l o r a t i o n a n d P r o d u c t i o n ) (Seaward a n d L a n d w a r d Areas) Regulations
2004 (S.I. 2004/352) ("the 2 0 0 4 Regulations") (as amended), w i l l s t i l l apply.
I n c o n t r a s t t o t h e three d i s t i n c t sets o f m o d e l clauses prescribed f o r p r o d u c t i o n
licences i n seaward areas b y t h e 2 0 0 4 Regulations (for t h e d i f f e r e n t types o f licence
k n o w n as " T r a d i t i o n a l " , " F r o n t i e r " a n d "Promote"), these Regulations prescribe a
single set o f m o d e l clauses w h i c h w i l l a p p l y i n t h e case o f a l l t h r e e types o f licence.
For t h e m o s t part, t h e changes made are l i m i t e d t o c l a r i f y i n g a n d s i m p l i f y i n g the
e x i s t i n g provisions. I n a d d i t i o n , however, clauses are a d d e d w h i c h (1) require certain
c o n t a c t details t o be p r o v i d e d t o t h e M i n i s t e r ; (2) give t h e M i n i s t e r a p o w e r t o require
the

p l u g g i n g a n d a b a n d o n m e n t o f a suspended well; (3) a m e n d t h e d e f i n i t i o n of a

change of c o n t r o l i n clause 41; a n d (4) enable t h e M i n i s t e r t o revoke t h e interests of


one o r more, rather t h a n all, o f t h e j o i n t licensees o f a licence. Those a d d i t i o n a l
clauses are i d e n t i c a l t o clauses p r o p o s e d t o be inserted i n t o all e x i s t i n g p e t r o l e u m
licences b y p r o v i s i o n s c u r r e n t l y i n Schedule 3 t o t h e Energy Bill (Bill 53 o f 2007-08).
An

Impact

Assessment has n o t been prepared

f o r these

Regulations. The

Regulations have n o i m p a c t o n e x i s t i n g licences, a p p l y i n g o n l y f o r t h e purpose of


f u t u r e l i c e n s i n g rounds; a n d f o r t h e m o s t part t h e changes represent o n l y a
s i m p l i f i c a t i o n o f t h e e x i s t i n g m o d e l clauses, rather t h a n a s u b s t a n t i v e change. ...

C UK cases
Mitchell v Mosley [1914] 1 Ch 438
I n t h i s case a dispute arose as t o w h e t h e r a leasehold c o n v e y a n c e o f l a n d i n c l u d e d
the m i n e s a n d minerals b e l o w t h e surface. I t was decided t h a t i t d i d .

Cozens-Hardy MR:
... I n m y o p i n i o n we s h o u l d be g o i n g c o n t r a r y t o p e r f e c t l y w e l l settled p r i n c i p l e s o f
law if we were t o a l l o w f o r a m o m e n t a n y d o u b t t o arise o n t h e c o n s t r u c t i o n o f these
t w o conveyances, w h i c h alone we m u s t l o o k at. We c a n have n o d o u b t as t o t h e i r
m e a n i n g a n d effect. I t seems t o me

q u i t e clear t h a t t h e y are conveyances o f

e v e r y t h i n g - conveyances o f t h e l a n d w h i c h i n c l u d e (unless y o u c a n f i n d

112

something

to the contrary) everything d o w n to the centre of the earth. The grant of the land
includes the surface and all that is supra - houses, trees, and the like - cujus est solum
ejus est usque ad caelum - and all that is infra, i.e. mines, earth, clay, etc. I t is, however,
w i t h i n the right of the lessees to get the coal and cannel d u r i n g the term. Subject to
that right, so far as i t can be and is exercised by the lessees under the lease, it is t o
m y m i n d quite clear as a matter of construction of the conveyances that not merely
the surface rights but the whole substratum to the centre of the earth, even including
the vacant spaces f r o m w h i c h during the term the coal may have been worked out
by the lessees - all that passed by the conveyance to the Mitchells. ...
Swinfen Eady LJ:
... There is n o t h i n g u p o n the face of these deeds to except minerals. I n my o p i n i o n
the minerals passed by b o t h these conveyances. ...
Phillimore LJ:
I agree w i t h the decision of the rest of the Court and w i t h the judgment of Eve J i n
the Court below. Very powerful arguments have been addressed t o us by counsel for
the appellant to show the inconvenience of our having to construe these deeds i n
the way that we are construing them. They are not, however, to my m i n d sufficiently
powerful t o enable us t o disregard the recognized rule of law w h i c h governs the
construction of conveyances of this nature.
Earl of Lonsdale v Attorney-General [1982] 1 WLR 887; [1982] 3 All ER 579
Slade J:
... I n this action, the 7th Earl of Lonsdale, as plaintiff, seeks a declaration that the
ownership of any o i l or natural gas i n or under certain tracts of land w h i c h f o r m part
of the bed of the sea adjacent t o the Cumbrian coast and are referred t o i n the
pleadings as "the Lonsdale Off-Shore Areas" d o w n to the b o t t o m of the coal
measures i n and under such areas, is vested i n h i m as tenant for life under a
settlement dated October 5, 1936. The t w o defendants are H.M. Attorney-General
and Ultramar Exploration Ltd ("Ultramar"). On August 4, 1969, the C r o w n granted
or purported to grant t o Ultramar a licence t o search and bore for and get o i l and
natural gas i n an area f o r m i n g part of the Lonsdale Off-Shore Areas. The prayer to the
statement of claim seeks also a declaration that this licence is n o t b i n d i n g o n the
plaintiff, Lord Lonsdale, or his successors i n title. However, [we] have been t o l d that
this licence has now been determined. Accordingly he seeks no declaration as against
Ultramar, w h i c h itself has not been represented before me. The contest is now one
between Lord Lonsdale and the Crown.
The action raises questions o n the construction and legal effect of a lease of 1860,
articles of agreement of 1880, a conveyance of 1880 and a deed of exchange of 1935.
Most particularly, i t concerns the proper interpretation t o be given t o a provision
contained i n the conveyance of 1880 whereby the C r o w n granted to predecessors i n
title of Lord Lonsdale its interest i n all of certain specified mineral substances w i t h i n
or under certain tracts of land and also "all other mines and minerals (if any) d o w n

113

to t h e b o t t o m

o f t h e c o a l measures i n a n d u n d e r t h e same tracts o f l a n d " . T h e

i n t e r p r e t a t i o n o f t h e w o r d s just q u o t e d is t h e first p r i n c i p a l issue i n t h e a c t i o n . I f ,


c o n t r a r y t o t h e Crown's c o n t e n t i o n , t h e effect o f o n e o r m o r e o f t h e f o u r i n s t r u m e n t s
was t o vest a n y o i l o r n a t u r a l gas i n L o r d Lonsdale's predecessors i n t i t l e , t h e f u r t h e r
q u e s t i o n arises w h e t h e r a l l o r a n y p a r t o f t h e o i l o r n a t u r a l gas c l a i m e d b y h i m has
i n t h e e v e n t vested again i n t h e C r o w n b y v i r t u e o f s u b s e q u e n t l e g i s l a t i o n , t h a t is t o
say t h e P e t r o l e u m ( P r o d u c t i o n ) A c t 1 9 3 4 a n d t h e C o n t i n e n t a l Shelf A c t 1 9 6 4 o r o n e
of t h e m . T h i s is t h e o t h e r p r i n c i p a l issue i n t h e a c t i o n . ...

The issues
The

plaintiff contends that, u p o n their true construction, t h e words "mines and

m i n e r a l s , " as used i n t h e phrase " a l l o t h e r m i n e s a n d m i n e r a l s ( i f a n y ) d o w n t o t h e


bottom

o f t h e c o a l measures," w h i c h appeared i n t h e parcels clauses o f t h e 1880

c o n v e y a n c e a n d t h e 1935 deed o f exchange, i n c l u d e o i l a n d n a t u r a l gas a n d t h a t is


what

entitles

h i m t o the declaration w h i c h

h e seeks. T h e

Attorney-General's

p r i n c i p a l answers t o t h i s c l a i m [is]
Oil and natural gas are by their nature a fluid and a gas respectively which flow or
permeate and are not mined. Natural gas in the form of firedamp at the respective times
of the 1860 lease and the 1880 conveyance created hazards in a mine. Neither oil nor
natural gas would at either of those times have been regarded as a mineral substance or
mine or mineral to be conveyed for value by a conveyance of a Cumberland mine. In the
premises and on its true construction the 1880 conveyance conveyed no interest in oil or
natural gas...

Paragraph 10 begins:
Alternatively the oil and natural gas claimed by the plaintiff is petroleum within the
meaning of the Petroleum (Production) Act 1934 and the Crown has title thereto under
that Act and the Continental Shelf Act 1964 or one of them ...
It is c o m m o n g r o u n d t h a t t h e o i l a n d n a t u r a l gas c l a i m e d b y t h e p l a i n t i f f are
" p e t r o l e u m " w i t h i n t h e m e a n i n g o f t h e A c t o f 1934. ... I n t h e p r e m i s e s t h e three
p r i n c i p a l issues t h a t n o w f a l l t o be decided, t h o u g h t h e s e c o n d is s u b s i d i a r y t o t h e
first, are these. (1) Does t h e phrase " m i n e s a n d m i n e r a l s " as u s e d i n t h e 1880
c o n v e y a n c e a n d t h e 1935 d e e d o f e x c h a n g e o n its t r u e c o n s t r u c t i o n i n c l u d e o i l a n d
n a t u r a l gas o r e i t h e r o f t h e m ? (2) I f t h e a n s w e r t o q u e s t i o n (1) is Yes, w h a t is t h e
m e a n i n g o f t h e phrase " d o w n t o t h e b o t t o m o f t h e c o a l measures" i n t h e r e l e v a n t
grants? (3) I f t h e answer t o q u e s t i o n (1) is Yes, w e r e t h e r i g h t s i n o i l a n d n a t u r a l gas
or e i t h e r o f t h e m w h i c h h a d b e e n g r a n t e d b y t h e 1 8 8 0 c o n v e y a n c e a n d t h e 1935
deed o f e x c h a n g e o r e i t h e r o f t h e m revested i n t h e C r o w n b y v i r t u e o f t h e

Petroleum

( P r o d u c t i o n ) A c t 1934 a n d t h e C o n t i n e n t a l Shelf A c t 1 9 6 4 o r o n e o f t h e m ?

The background of the transactions of 1880


. . . I t h i n k t h e r e are r e l a t i v e l y f e w d i s p u t e d issues o f fact and, w i t h t h i s preface, w i l l
n o w state f i n d i n g s o f fact o n c e r t a i n m a t t e r s w h i c h I regard, o r a h i g h e r c o u r t m i g h t
regard, as r e l e v a n t .
N a t u r a l gas a n d o i l are, l i k e coal, h y d r o c a r b o n substances. T h e y o c c u r n a t u r a l l y i n

interstices, cracks a n d j o i n t s of u n d e r g r o u n d rocks. N a t u r a l gas is m o r e f l u i d t h a n o i l


and some varieties o f o i l are m u c h thicker a n d m o r e w a x y t h a n others. But, i n
general, b o t h natural gas a n d o i l can m o v e for considerable distances h o r i z o n t a l l y
and vertically t h r o u g h t h e interstices, cracks a n d joints o f rocks. They are always
seeking a w a y t o t h e surface. Accordingly, i n order t h a t there s h o u l d be a n economic
deposit of o i l or natural gas, there must also be an impermeable layer of rock w h i c h
prevents i t f r o m rising t o t h e surface a n d being lost. Because o f the f l u i d i t y a n d
m i g r a t o r y nature of o i l or natural gas, it is d i f f i c u l t t o ascribe t o i t a precise location
i n the earth; the place f r o m w h i c h i t is recovered m a y w e l l n o t be the place f r o m
w h i c h i t emanated. ...
(4)

As at 1880, t h e existence i n m a n y countries of t h e l i q u i d b i t u m i n o u s substance n o w


c o m m o n l y k n o w n as " p e t r o l e u m " was w e l l k n o w n a n d h a d been well k n o w n i n
England f o r very m a n y years: ...

(5)

Furthermore, b y 1880 i t was w e l l k n o w n i n England that p e t r o l e u m h a d considerable


potentialities f o r commercial use, i n particular for l i g h t i n g purposes. ... [The] rapid
increase i n these i m p o r t s a n d some accidents connected w i t h t h e m led to legislation.
In 1862 a n d 1871 there were passed t w o Petroleum Acts w h i c h c o n t a i n e d a n u m b e r

of provisions designed t o ensure t h e safe keeping o f petroleum. The fact that this
legislation was considered necessary lends support t o t h e inference t h a t o i l was
w i d e l y used i n t h i s c o u n t r y b y 1871, particularly for l i g h t i n g purposes. Furthermore,
a p e t r o l e u m - d i s t i l l i n g i n d u s t r y h a d been established here before 1880.
(6)

O n t h e evidence, however, I f i n d t h a t t h e extraction a n d p r o d u c t i o n o f o i l i


England was of l i t t l e commercial significance at that date. ...
[Paragraphs 7, 8, 9, 10 a n d 11 concluded t h a t firedamp, a f o r m o f natural gas
f o u n d i n coal mines, h a d some commercial use b y the e n d of t h e e i g h t e e n t h c e n t u r y
and t h a t natural gas was used i n street l i g h t i n g . However, t h e presence of firedamp
i n m i n i n g areas was m o r e of a hazard t h a n a n asset. As at 1880 n o one knew w h e t h e r
o i l a n d gas existed b e l o w t h e relevant tracts of land.]
These factors clearly indicate that, as at 1880, t h e p o t e n t i a l

commercial

i m p o r t a n c e a n d value o f a r i g h t t o search for a n d extract o i l a n d natural gas i n


England or i n t h e bed of t h e sea adjacent thereto were n o t nearly so f u l l y appreciated
as t h e y are today, i n 1982. ...
Conclusions from the authorities concerning mines and minerals

... This c o n c l u s i o n leads o n t o w h a t I regard as five crucial p o i n t s i n the c o n s t r u c t i o n


of t h e grant of " a l l other mines a n d minerals (if a n y ) " i n the particular c o n t e x t of t h e
(1)

1880 conveyance.
I n m y j u d g m e n t , i t was m a n i f e s t l y n o t i n t e n d e d t o i n c l u d e substances w h i c h c o u l d
o n l y be w o r k e d b y q u a r r y i n g , d r i l l i n g , b o r i n g or other w o r k i n v o l v i n g disturbance
w i t h t h e surface of t h e land. I t was o n l y i n t e n d e d t o i n c l u d e substances w h i c h c o u l d
be w o n b y means o f u n d e r g r o u n d

(2)

works, b e g i n n i n g o n t h e adjacent lands o f the

grantee.
So far as t h e evidence shows, o i l a n d natural gas are n o t a n d never have been capable
of b e i n g extracted f r o m the earth as a c o m m e r c i a l basis b y means of u n d e r g r o u n d
m i n i n g , w h e t h e r b y t u n n e l s or excavation. The available m e t h o d s of e x t r a c t i o n are

US

e i t h e r b y m e a n s o f d r i l l i n g or, i n t h e case o f o i l , b y m e a n s o f a s h a f t d u g f r o m t h e
surface. As at 1 8 8 0 t h e latter, m o r e p r i m i t i v e , m e t h o d was t h e o n e m o r e c o m m o n l y
used i n Europe. H o w e v e r , i n t h e case o f o i l s i t u a t e d b e n e a t h t h e b e d o f t h e sea, as
opposed t o d r y land, extraction b y means o f a d u g shaft w o u l d n o t have been
p r a c t i c a l ... T h e express p o w e r s o f w o r k i n g g r a n t e d b y t h e 1 8 8 0 c o n v e y a n c e , n a m e l y
p o w e r s o f " s e a r c h i n g for, w o r k i n g , g e t t i n g , r a i s i n g a n d c a r r y i n g a w a y " c o n t e m p l a t e d
a sequence o f events c o n n e c t e d

w i t h s o l i d substances, n o t w i t h l i q u i d o r f u g a c i o u s

substances. T h e reasonable i n f e r e n c e , I t h i n k , is t h a t t h e p a r t i e s c o n t e m p l a t e d

that

t h e " o t h e r m i n e s a n d m i n e r a l s (if a n y ) " g r a n t e d b y t h e 1 8 8 0 c o n v e y a n c e w o u l d be


s o l i d substances w o n , i f at a l l , i n t h e course o f s e a r c h i n g for, w o r k i n g , g e t t i n g , r a i s i n g
a n d c a r r y i n g a w a y c o a l , c u l m , i r o n s t o n e o r fireclay. T h i s , I i n f e r , is t h e reason

why

t h e y t h o u g h t i t u n n e c e s s a r y t h a t t h e g r a n t e e s h o u l d be g i v e n a n y s p e c i f i c p o w e r o f
recovery i n relation t o "other mines a n d minerals."
(3)

T h e t h i r d p o i n t is c l o s e l y b o u n d u p w i t h t h e s e c o n d . I n t h e parcels clause t o t h e 1880


c o n v e y a n c e , t h e w o r d s " o t h e r m i n e s a n d m i n e r a l s (if a n y ) " c l o s e l y f o l l o w a reference
t o "coal, c u l m , i r o n s t o n e a n d fireclay," all o f w h i c h have t h e c o m m o n characteristics
t h a t t h e y are s o l i d

substances,

which

are capable

of being w o n

b y means of

u n d e r g r o u n d w o r k i n g b e g i n n i n g o n t h e adjacent l a n d o f t h e grantee f o l l o w e d by
d i g g i n g . T h i s p o i n t b y i t s e l f d i s t i n g u i s h e s t h e facts o f t h e p r e s e n t case f r o m t h o s e i n
Hext v Gill LR 7 C h A p p 699, w h e r e M e l l i s h LJ at p. 713 p o i n t e d o u t t h a t i n t h a t case
there were n o special w o r d s before "mines a n d minerals," w h i c h m i g h t f u r n i s h an
a r g u m e n t f o r r e s t r i c t i n g t h e m t o t h i n g s ejusdem generis. I n t h e p r e s e n t case t h e p r o p e r
i n f e r e n c e seems t o m e t h a t t h e d r a f t s m a n o f t h e 1 8 8 0 articles a n d 1 8 8 0 c o n v e y a n c e
d i d i n d e e d use t h e p h r a s e " m i n e r a l s " i n t h e sense o f s o l i d substances b e l o n g i n g t o
t h e c a t e g o r y t o w h i c h I h a v e j u s t referred.
(5)

O n t h e a u t h o r i t y o f Barnard v Farquharson [ 1 9 1 2 ] A C 864, 8 6 9 per L o r d A t k i n s o n , I


t h i n k I a m e n t i t l e d t o t a k e i n t o a c c o u n t t h e state o f k n o w l e d g e o f p e t r o l e u m a n d
n a t u r a l gas i n 1 8 8 0 a n d t h e w a y i n w h i c h t h e y w e r e t h e n r e g a r d e d a n d t r e a t e d .
... I i n f e r t h a t t h e p a r t i e s t o t h e t w o deeds o f 1 8 8 0 n e v e r i n t e n d e d t h a t r i g h t s t o
e x t r a c t o i l a n d n a t u r a l gas, i f any, s h o u l d pass t o t h e grantee. As a t t h a t date, I i n f e r
f r o m t h e evidence

t h a t n e i t h e r c a t e g o r y o f r i g h t s w o u l d h a v e b e e n r e g a r d e d as

h a v i n g a n y use o r c o m m e r c i a l v a l u e b y p e r s o n s d e a l i n g w i t h t h e sale o f m i n e r a l s i n
t h e r e l e v a n t area o f C u m b e r l a n d a n d i n d e e d t h a t t h e e x i s t e n c e o f gas, i f any, w o u l d
h a v e b e e n r e g a r d e d as a d a n g e r o u s n u i s a n c e .
These f i v e p o i n t s i n m y j u d g m e n t m a k e i t r e a s o n a b l y p l a i n t h a t , i n t h e c o n t e x t
o f t h e 1 8 8 0 articles a n d 1 8 8 0 c o n v e y a n c e , t h e p h r a s e " m i n e s a n d m i n e r a l s (if a n y ) "
was n o t i n t e n d e d t o i n c l u d e a n y t h i n g e x c e p t s o l i d substances, c a p a b l e o f b e i n g d u g
o u t o f t h e e a r t h b y means o f a m i n e , a n d i n particular was n o t i n t e n d e d t o i n c l u d e
o i l a n d n a t u r a l gas. ...
T h i s c o n c l u s i o n m a k e s i t s t r i c t l y u n n e c e s s a r y t o c o n s i d e r t h e s e c o n d issue i n t h e
case, r e l a t i n g t o t h e m e a n i n g o f t h e p h r a s e " d o w n t o t h e b o t t o m

o f t h e coal

measures," a n d t h e t h i r d issue, r e l a t i n g t o t h e e f f e c t o f t h e P e t r o l e u m

(Production)

Act 1 9 3 4 a n d t h e C o n t i n e n t a l Shelf A c t 1964.1 feel s o m e h e s i t a t i o n i n e x p r e s s i n g a n y


o p i n i o n s o n these m a t t e r s , n o t o n l y because these o p i n i o n s w i l l b e o b i t e r a n d w i l l
s u b s t a n t i a l l y p r o l o n g m y j u d g m e n t , b u t also because t h e t h i r d issue raises q u e s t i o n s

116

Marc H a m m e r s o n

t h a t c o u l d be i m p o r t a n t i n o t h e r cases besides t h i s one. Nevertheless, since I have


h a d t h e b e n e f i t o f f u l l a r g u m e n t o n t h e m . I t h i n k I s h o u l d a t t e m p t t o deal w i t h
t h e m , i n case t h i s m a y be o f assistance t o t h e parties o r a h i g h e r c o u r t .

The effect of the Acts of 1934 and 1964


Section 1(1) o f t h e P e t r o l e u m ( P r o d u c t i o n ) A c t 1918, so far as m a t e r i a l , p r o v i d e d :
No person other than a person acting on behalf of His Majesty, or holding a licence
under this Act for the purpose, shall search or bore for or get petroleum within the United
Kingdom ...
The

statute d i d n o t d e f i n e t h e phrase " t h e U n i t e d K i n g d o m , " b u t s e c t i o n 5 ( 1 )

d e f i n e d t h e expression " p e t r o l e u m " f o r t h e purposes o f t h e Act, as m e a n i n g :


... all petroleum and its relative hydrocarbons (except coal and bituminous shales and

other stratified deposits from which oil can be extracted by distillation) and natural ga
existing in its natural condition in strata.
The expression t h u s i n c l u d e d o i l a n d n a t u r a l gas. ...
There t h e n f o l l o w e d t h e Petroleum ( P r o d u c t i o n ) Act 1934, w h i c h described itself as
An Act to vest in the Crown the property in petroleum and natural gas within Great
Britain and to make provision with respect to the searching and boring for and getting
of petroleum and natural gas, and for purposes connected with the matters aforesaid.
[Slade J c i t e d p r o v i s i o n s f r o m t h e 1934 Act]
Sections 1(1) a n d 11(3) o f t h e A c t o f 1934 t h u s m a k e i t p l a i n t h a t t h e A c t is t o
a p p l y t o o i l a n d n a t u r a l gas e x i s t i n g i n t h e i r n a t u r a l c o n d i t i o n i n strata i n "Great
B r i t a i n , " w h a t e v e r "Great B r i t a i n " m a y mean, b u t t h e A c t u n f o r t u n a t e l y c o n t a i n s n o
f u r t h e r d e f i n i t i o n o f t h i s c r u c i a l l y i m p o r t a n t phrase. T h e C r o w n , as its p r i m a r y
s u b m i s s i o n i n t h i s c o n t e x t , c l a i m s t h a t , i n t h e A c t o f 1934, t h e expression i n c l u d e s
n o t o n l y t h e l a n d c o m p r i s e d w i t h i n t h e g e o g r a p h i c a l l i m i t s o f Great B r i t a i n , as
s h o w n o n t h e map, b u t also t h e sea b e d a n d subsoil o f its t e r r i t o r i a l waters. Thus, i t
submits, e v e n i f t h e 1 8 8 0 c o n v e y a n c e o p e r a t e d t o g r a n t t o t h e 4 t h Earl r i g h t s i n o i l
or n a t u r a l gas, t h e r i g h t s i n a n y such substances s i t u a t e d b e l o w those parts o f t h e
r e l e v a n t tracts o f l a n d w h i c h l a y w i t h i n t e r r i t o r i a l waters became revested i n t h e
C r o w n b y v i r t u e o f t h e A c t o f 1934. I t f u r t h e r c o n t e n d s t h a t i t was e m p o w e r e d b y
t h a t A c t t o g r a n t licences o f t h e n a t u r e w h i c h i t d i d i n fact g r a n t t o U l t r a m a r .
It is n o t i n dispute t h a t Parliament, i n e n a c t i n g t h e Act o f 1934, w o u l d have h a d t h e
power t o legislate i n regard t o t h e t e r r i t o r i a l waters o f Great B r i t a i n a n d all t h a t lay
b e n e a t h t h e m , i n c l u d i n g o i l a n d n a t u r a l gas: see, for example, Pianka v The Queen [1979]
AC

107. M r B r o m l e y s u b m i t t e d t h a t a n y m u n i c i p a l statute o f t h e U n i t e d K i n g d o m

Parliament, i n t h e absence o f l i m i t i n g words, extends t o t h e w h o l e o f t h e t e r r i t o r y o f t h e


U n i t e d K i n g d o m a n d t o all persons w i t h i n it: see per L o r d W i l b e r f o r c e at p. 122E-F.
I n t h e present case, however, s e c t i o n 1(1) o f t h e A c t o f 1934 does c o n t a i n a n
express l i m i t i n g

p r o v i s i o n , i n a s m u c h as i t is expressed t o a p p l y

t o petroleum

" e x i s t i n g i n its n a t u r a l c o n d i t i o n i n strata i n Great B r i t a i n . " T h e q u e s t i o n is w h a t t h e


expression "Great B r i t a i n " m e a n s i n t h i s c o n t e x t .
I h a v e b e e n referred t o n o general s t a t u t o r y p r o v i s i o n w h i c h attaches a d e f i n i t i o n
to

this expression

w h e r e v e r i t appears i n a statute. T h e d u t y o f t h e c o u r t i n

c o n s t r u i n g a n y s t a t u t e is, o f course, t o ascertain t h e i n t e n t i o n o f t h e legislature as

117

O w n e r s h i p , l i c e n s i n g a n d sources of l a w

expressed i n t h e w o r d s used b y i t . If these w o r d s are clear a n d u n a m b i g u o u s , t h e y


m u s t be d e e m e d

t o represent Parliament's i n t e n t i o n , w h a t e v e r

their

effect.

F u r t h e r m o r e , as i n t h e case of o t h e r i n s t r u m e n t s , i f t h e r e is n o t h i n g t o alter o r q u a l i f y
the m e a n i n g o f t h e w o r d s used, t h e y m u s t be c o n s t r u e d a c c o r d i n g t o t h e i r o r d i n a r y
and natural meaning.
Nevertheless, i t has t o be b o r n e i n m i n d t h a t section 1(1) o f t h e A c t o f 1934, so
far as i t applies at all i n t h e present case, w o u l d have h a d t h e effect o f e x p r o p r i a t i n g
r i g h t s o f t h e plaintiff's predecessors i n t i t l e w i t h o u t c o m p e n s a t i o n . I t is, I t h i n k , well
established b y a u t h o r i t y , t h a t a n i n t e n t i o n t o divest p r i v a t e citizens o f r i g h t s i n
property w i t h o u t compensation

is n o t t o be i m p u t e d t o t h e legislature, unless t h a t

i n t e n t i o n is expressed i n clear a n d u n a m b i g u o u s terms. I n m y j u d g m e n t therefore


the

o n u s m u s t fall o n t h e C r o w n t o satisfy t h e c o u r t t h a t s e c t i o n 1(1) o f t h e Act of

1934 was capable o f a p p l y i n g t o a n y r i g h t s o f t h e p l a i n t i f f ' s predecessors i n title i n


o i l a n d n a t u r a l gas situated b e n e a t h t e r r i t o r i a l waters, as w e l l as b e n e a t h d r y land.
M r Bromley, i n s u b m i t t i n g t h a t t h e phrase "Great B r i t a i n " has a n o r d i n a r y
m e a n i n g w h i c h i n c l u d e s " t e r r i t o r i a l waters," c i t e d a n u m b e r o f d i c t a i n w h i c h judges
have referred t o t e r r i t o r i a l waters as i f t h e y are p a r t o f t h e realm. I w i l l take a few
e x a m p l e s o f his c i t a t i o n s [Slade J referred t o Reg. v Keyn (1876) 2 Ex D 63, per Lord
C o l e r i d g e CJ, Lord Advocate v Clyde Navigation Trustees (1891) 19 R (Ct o f Sess) 174,
per L o r d Y o u n g at p. 183, Lord Advocate v Wemyss [1900] AC 48 per L o r d W a t s o n at p.
66, Lord Fitzhardinge v Purcell [1908] 2 C h 139 per Parker J at pp. 166-167, AttorneyGeneral for the Province of British Columbia v Attorney-General for the Dominion of
Canada [1914] AC 153 per V i s c o u n t H a l d a n e LC, at pp. 174-175 a n d Secretary of State
for India in Council v Chelikani Rama Rao (1916) LR 43 I n d A p p 192].
For present purposes, p a r t i c u l a r l y i n t h e l i g h t o f t h e Chelikani decision, I am
c o n t e n t t o assume i n f a v o u r o f t h e C r o w n t h a t , as M r B r o m l e y s u b m i t t e d , b y 1918
the

E n g l i s h c o u r t s h a d c o m e t o recognise t h e s o v e r e i g n t y o f t h e C r o w n , i n c l u d i n g

b e n e f i c i a l o w n e r s h i p , over t h e t h r e e m i l e t e r r i t o r i a l belt o f Great B r i t a i n a n d w h a t


lies b e n e a t h

i t . I also accept t h a t , b y t h a t t i m e , t h e r e w e r e m a n y j u d i c i a l dicta

r e f e r r i n g t o t h i s subject m a t t e r as p a r t o f t h e t e r r i t o r y o r r e a l m o f Great B r i t a i n .
I n n o n e o f t h e cases relied o n b y t h e C r o w n , however, d i d t h e c o u r t have t o
consider w h e t h e r t h e expression "Great B r i t a i n , " w h e n used i n a g e o g r a p h i c a l sense,
e i t h e r i n a statute o r a n y o t h e r i n s t r u m e n t , is apt t o i n c l u d e t e r r i t o r i a l waters. I n m y
j u d g m e n t i t c a n n o t possibly be m a i n t a i n e d that, as at 1934, t h e expression h a d a
clear, o r d i n a r y m e a n i n g w h i c h

included territorial

waters, i f o n l y because n o

p r e v i o u s statute t h a t has been referred t o i n a r g u m e n t d e m o n s t r a b l y e m p l o y e d t h e


phrase i n t h i s sense, w h i l e at least t w o earlier, w e l l - k n o w n statutes h a d e m p l o y e d t h e
phrase

" t h e U n i t e d K i n g d o m " i n a sense w h i c h

demonstrably

d i d not i n c l u d e

t e r r i t o r i a l waters. ...
[Slade J t h e n r e v i e w e d Kirkness v John Hudson & Co. Ltd [1955] A C 6 9 6 a n d t h e
M i n i s t r y o f Fuel a n d Power A c t 1945].
The same o b s e r v a t i o n m a y be m a d e i n r e l a t i o n t o t h e n e x t statute o n w h i c h t h e
C r o w n relies. T h i s is t h e C o n t i n e n t a l Shelf Act 1964, o n e o f t h e expressed purposes
of w h i c h was " t o make p r o v i s i o n as t o t h e e x p l o r a t i o n a n d e x p l o i t a t i o n o f t h e
c o n t i n e n t a l shelf."

118

Marc H a m m e r s o n

The C o n v e n t i o n o n t h e C o n t i n e n t a l Shelf d o n e at Geneva o n A p r i l 29, 1958, w h i c h I w i l l call " t h e first c o n v e n t i o n o f 1958," - t o w h i c h t h e U n i t e d K i n g d o m

was

a party, came i n t o force o n June 10, 1964. A r t i c l e 1 d e f i n e d t h e t e r m " c o n t i n e n t a l


shelf" f o r t h e purposes o f t h e c o n v e n t i o n as referring: [Slade J q u o t e d f r o m articles 1
a n d 2 o f t h e 1958 c o n v e n t i o n - see page 148.]
A r t i c l e 2.4 d e f i n e d " n a t u r a l resources" i n t e r m s clearly w i d e e n o u g h t o i n c l u d e
p e t r o l e u m a n d n a t u r a l gas.
The Act o f 1964 became law o n A p r i l 15, 1964. Section 1 was, 1 t h i n k , m a n i f e s t l y
i n t e n d e d t o procure, inter alia, t h a t a n y r i g h t s w h i c h w o u l d be exercisable b y t h e
U n i t e d K i n g d o m as a coastal state u n d e r i n t e r n a t i o n a l law, p u r s u a n t t o t h e first
c o n v e n t i o n o f 1958, s h o u l d vest i n t h e C r o w n u n d e r m u n i c i p a l law. T h i s section
provided:
"(1)

A n y r i g h t s exercisable by t h e U n i t e d K i n g d o m outside t e r r i t o r i a l waters w i t h respect


to t h e sea bed

and

subsoil a n d

t h e i r n a t u r a l resources, except so far as t h e y are

exercisable i n r e l a t i o n t o coal, are h e r e b y vested i n Her Majesty. ...


(3)

I n relation to any

petroleum

w i t h respect t o w h i c h those r i g h t s are exercisable

sections 2 a n d 6 o f t h e P e t r o l e u m ( P r o d u c t i o n ) Act 1934 ( w h i c h relate t o t h e g r a n t i n g


of licences t o search a n d b o r e for, a n d get, p e t r o l e u m ) shall a p p l y as t h e y a p p l y i n
relation to petroleum

i n Great B r i t a i n , a n d

section 3 o f t h a t Act ( w h i c h enables

persons h o l d i n g licences u n d e r t h a t Act t o acquire a n c i l l a r y r i g h t s ) a n d section 5 o f


t h a t Act ( w h i c h makes p r o v i s i o n as t o receipts a n d e x p e n d i t u r e u n d e r t h a t Act) shall
have effect as i f t h i s subsection were p a r t o f t h a t Act.
(4)

M o d e l clauses prescribed u n d e r s e c t i o n 6 o f t h e P e t r o l e u m ( P r o d u c t i o n ) Act 1934

as

a p p l i e d by t h e p r e c e d i n g subsection shall i n c l u d e p r o v i s i o n f o r t h e safety, h e a l t h a n d


welfare o f persons e m p l o y e d o n o p e r a t i o n s u n d e r t a k e n u n d e r t h e a u t h o r i t y o f any
licence g r a n t e d u n d e r t h a t Act as so a p p l i e d . "

[Slade J continued by citing sub-clauses (5) to (8)]


I n terms, s e c t i o n 1 o f t h e Act o f 1964 was t h u s e x p l i c i t l y d e a l i n g o n l y w i t h rights
exercisable b y t h e U n i t e d K i n g d o m o u t s i d e t e r r i t o r i a l waters w i t h respect t o t h e
seabed a n d subsoil. M r Bromley, however, s u b m i t t e d i n effect t h a t , i n e n a c t i n g t h i s
section, P a r l i a m e n t was

proceeding

on

the i m p l i c i t assumption that the rights

exercisable b y t h e C r o w n i n s i d e t e r r i t o r i a l waters w i t h respect t o t h e seabed

and

subsoil h a d already b e e n dealt w i t h by t h e t h r e e Acts referred t o i n t h i s section,


n a m e l y t h e Act o f 1934, t h e C o a l I n d u s t r y N a t i o n a l i s a t i o n Act 1946 a n d t h e M i n i s t r y
of Fuel a n d Power A c t 1945. He p o i n t e d o u t t h a t s e c t i o n 1 o f t h e Act o f 1964 h a d t h e
effect o f e x t e n d i n g t h e t h r e e earlier Acts t o t h e seabed a n d subsoil outside t e r r i t o r i a l
waters. He

s u b m i t t e d t h a t i t c a n n o t have b e e n Parliament's i n t e n t i o n t o o m i t t h e

seabed a n d

subsoil i n s i d e t e r r i t o r i a l waters f r o m t h e a m b i t o f a l l t h i s l e g i s l a t i o n .

Section l ( 5 ) ( a ) o f t h e A c t o f 1964, he s u b m i t t e d , m a d e i t p l a i n t h a t s u c h was

not

Parliament's i n t e n t i o n , because i t refers t o "licences u n d e r t h e said Act o f

1934

g r a n t e d i n t h a t year i n respect o f areas b e y o n d low-water mark...". I see force i n t h e


latter p o i n t , b u t d o n o t f i n d i t c o m p e l l i n g . The

reference t o " t h a t year" i n s e c t i o n

l ( 5 ) ( a ) is clearly i n t e n d e d as a reference t o f u t u r e f i n a n c i a l years f o l l o w i n g t h e Act o f


1964, d u r i n g w h i c h licences u n d e r t h e Act o f 1934, as a p p l i e d b y s e c t i o n 1(3) o f t h e

119

O w n e r s h i p , l i c e n s i n g a n d sources of law

A c t o f 1964, w o u l d f a l l t o be g r a n t e d i n respect o f areas o u t s i d e t e r r i t o r i a l waters. I t


is possible t h a t t h e legislature, i n u s i n g t h e phrase " i n respect o f areas b e y o n d l o w
w a t e r m a r k " i n s e c t i o n 1(5), m e r e l y h a d s u c h licences i n m i n d . M o r e g e n e r a l l y , i t is
possible t h a t , t h r o u g h o u t t h e A c t o f 1964, i t p r o c e e d e d u p o n e r r o n e o u s a s s u m p t i o n s
as t o t h e t r u e c o n s t r u c t i o n o f t h e A c t o f 1934 a n d t h e o t h e r statutes t o w h i c h i t
referred. I t is e v e n possible, i f p e r h a p s less l i k e l y , t h a t i t was c o n t e n t d e l i b e r a t e l y t o
leave areas b e n e a t h

territorial

waters o u t s i d e t h e a m b i t o f a l l t h i s

legislation.

S p e c u l a t i o n , however, is fruitless i n r e g a r d t o these m a t t e r s . O n a n y f o o t i n g i n m y


j u d g m e n t t h e A c t o f 1 9 6 4 gives n o clear g u i d a n c e as t o t h e t r u e c o n s t r u c t i o n o f t h e
phrase "Great B r i t a i n , " as used i n s e c t i o n 1 o f t h e A c t o f 1934.
As a n a l t e r n a t i v e a r g u m e n t o n t h i s p a r t o f t h e case, M r B r o m l e y s u b m i t t e d t h a t
t h e phrase "Great B r i t a i n , " i n t h e c o n t e x t o f s e c t i o n 1(1) o f t h e A c t o f 1934, means
"Great B r i t a i n " as f r o m t i m e t o t i m e d e f i n e d b y t h e C r o w n , w h e t h e r b y s t a t u t e o r i n
exercise o f t h e r o y a l p r e r o g a t i v e . T h e r e l e v a n t p r i n c i p l e is t o be f o u n d set o u t i n
D i p l o c k LJ's j u d g m e n t i n Post Office v Estuary Radio Ltd [ 1 9 6 8 ] 2 QB 740, 753:
It still lies within the prerogative power of the Crown

to extend its sovereignty and

jurisdiction to areas of land or sea over which it has not previously claimed or exercised
sovereignty or jurisdiction. For such extension the authority of Parliament is not
required. The Queen's courts, upon being informed by Order in Council or by the

appropriate Minister or law officer of the Crown's claim to sovereignty or jurisdiction


over any place, must give effect to it and are bound by it: see T h e Fagernes [1927] P
311. And

so, when any Act of Parliament refers to the United Kingdom

or to the

territorial waters adjacent thereto those expressions must p r i m a facie be construed as


referring to such area of land or sea as may from time to time be formally declared by
the Crown to be subject to its sovereignty and jurisdiction as part of the United Kingdom
or the territorial waters of the United Kingdom, and not as confined to the precise
geographical area of the United Kingdom or its territorial waters at the precise moment
at which the Act received the Royal Assent.
By t h e G e n e v a C o n v e n t i o n o n T e r r i t o r i a l Sea a n d C o n t i g u o u s Z o n e 1 9 5 8 d o n e at
G e n e v a o n A p r i l 29, 1 9 5 8 - w h i c h I w i l l c a l l " t h e s e c o n d C o n v e n t i o n o f 1 9 5 8 - t o
w h i c h t h e U n i t e d K i n g d o m was a p a r t y , t h e parties agreed, inter alia, as f o l l o w s .
A r t i c l e 1.1 p r o v i d e d :
The sovereignty of a state extends, beyond its land territory and its internal waters, to
belt of the sea adjacent to its coast, described as the territorial sea.
A r t i c l e 2 p r o v i d e d : "The s o v e r e i g n t y o f a coastal state e x t e n d s t o t h e a i r space
o v e r t h e t e r r i t o r i a l sea as w e l l as t o its b e d a n d subsoil." S u b s e q u e n t p r o v i s i o n s o f t h e
c o n v e n t i o n d e f i n e d t h e l i m i t s o f t h e t e r r i t o r i a l sea a n d d e a l t w i t h o t h e r s u c h m a t t e r s
as t h e r i g h t o f i n n o c e n t passage. T h e c o n v e n t i o n c a m e i n t o f o r c e o n S e p t e m b e r 10,
1964.
By t h e T e r r i t o r i a l Waters O r d e r i n C o u n c i l 1964, m a d e o n S e p t e m b e r 25, 1964,
w h i c h was p r o m u l g a t e d t o g i v e effect t o t h i s c o n v e n t i o n , t h e C r o w n , i n t h e exercise
of its p r e r o g a t i v e powers, e s t a b l i s h e d t h e baseline f r o m w h i c h " t h e b r e a d t h o f t h e
t e r r i t o r i a l sea a d j a c e n t t o t h e U n i t e d K i n g d o m " falls t o be m e a s u r e d .
M r Bromley confirmed o n instructions that the C r o w n claims that, whatever the
p o s i t i o n m a y h a v e b e e n b e f o r e 1964, as a result o f r a t i f i c a t i o n b y v i r t u e o f t h e

120

Marc H a m m e r s o n

Crown's p r e r o g a t i v e a n d t h e e n t r y i n t o force o f t h e second c o n v e n t i o n o f 1958, a n d


as c o n f i r m e d b y t h e O r d e r o f 1964, t h e U n i t e d K i n g d o m has s o v e r e i g n t y over t h e
t e r r i t o r i a l sea a n d t h e sea b e d a n d subsoil thereof, w i t h i n t h e l i m i t s r e s u l t i n g f r o m
t h e Order o f 1964.
I accept

that the United Kingdom

does i n d e e d

have s o v e r e i g n t y over t h e

t e r r i t o r i a l sea a n d t h e seabed a n d subsoil t h e r e o f w i t h i n these l i m i t s . However, i t does


n o t i n m y j u d g m e n t f o l l o w t h a t t h e expression "Great B r i t a i n , " i n t h e c o n t e x t o f t h e
Act o f 1934, s h o u l d n o w be c o n s t r u e d as i n c l u d i n g t e r r i t o r i a l waters a n d t h e seabed
and

subsoil b e n e a t h t h e m . First, t h e O r d e r o f 1964 d i d n o t itself p u r p o r t t o

i n c o r p o r a t e t e r r i t o r i a l waters w i t h i n t h e expression " t h e U n i t e d K i n g d o m . " A r t i c l e


2(1) referred

t o "the territorial

sea adjacent

to the United

Kingdom,"

thus

r e p r o d u c i n g t h e clear d i f f e r e n t i a t i o n b e t w e e n t h e U n i t e d K i n g d o m a n d its t e r r i t o r i a l
waters, w h i c h is t o be seen i n b o t h earlier a n d later l e g i s l a t i o n . Secondly, I have
already referred t o t h e general rule t h a t a statute s h o u l d n o t be c o n s t r u e d so as t o
i m p u t e t o t h e legislature a n i n t e n t i o n t o e x p r o p r i a t e p r o p e r t y i n f a v o u r o f t h e
C r o w n , w i t h o u t g i v i n g t h e legal r i g h t t o c o m p e n s a t i o n , unless t h e i n t e n t i o n is
expressed i n clear, u n e q u i v o c a l terms. I n m y j u d g m e n t , i n c o n s t r u i n g t h e A c t o f
1934, i t w o u l d n o t be r i g h t t o i m p u t e t h e i n t e n t i o n t h a t i t s h o u l d be o p e n t o t h e
C r o w n thereafter t o e x t e n d t h e o p e r a t i o n o f its e x p r o p r i a t i n g p r o v i s i o n s b y a p p l y i n g
t h e m t o substances situated b e n e a t h t e r r i t o r i a l waters m e r e l y b y a n exercise o f t h e
r o y a l prerogative.
For all these reasons, i n m y j u d g m e n t t h e A c t o f 1934 o n w h i c h t h e C r o w n relies
w o u l d n o t o n a n y f o o t i n g have d i v e s t e d t h e t i t l e o f t h e p l a i n t i f f o r his predecessors
to a n y o i l or n a t u r a l gas l y i n g within t e r r i t o r i a l waters, i f , c o n t r a r y t o m y view, h e o r
t h e y h a d o b t a i n e d a n y t i t l e t o o i l o r n a t u r a l gas u n d e r t h e 1880 conveyance.
However, i n m y j u d g m e n t , v e r y d i f f e r e n t c o n s i d e r a t i o n s w o u l d a p p l y t o o i l o r
n a t u r a l gas l y i n g outside t e r r i t o r i a l waters for these s h o r t reasons. Section 1(1) o f t h e
Act o f 1964, w h i c h have already read, provides:
A n y r i g h t s exercisable b y t h e U n i t e d K i n g d o m o u t s i d e t e r r i t o r i a l waters w i t h respect
to t h e seabed a n d subsoil a n d t h e i r n a t u r a l resources, except so far as t h e y are
exercisable i n r e l a t i o n t o coal, are h e r e b y vested i n Her Majesty."
Section 1(3), read i n c o n j u n c t i o n w i t h section 1(8) o f t h e A c t o f 1964 a n d section
1(2) o f t h e A c t o f 1934 m a k e i t p l a i n , i f t h e r e were o t h e r w i s e a n y d o u b t , t h a t t h e
n a t u r a l resources t h u s referred t o i n c l u d e o i l a n d n a t u r a l gas. O n e effect o f section
1(1) o f t h e A c t o f 1964 was t o e x t e n d t h e e x p r o p r i a t i o n effected b y section 1(1) o f
t h e A c t o f 1934, so t h a t i t w o u l d a p p l y t o " a n y r i g h t s exercisable b y t h e U n i t e d
K i n g d o m o u t s i d e t e r r i t o r i a l waters" w i t h respect t o t h e sea b e d a n d subsoil a n d t h e i r
o i l a n d n a t u r a l gas, i f any. T h e d i s p u t e i n t h e present c o n t e x t has c e n t r e d r o u n d t h e
m e a n i n g o f t h e phrase " a n y r i g h t s exercisable b y t h e U n i t e d K i n g d o m . " M r Rattee,
o n b e h a l f o f t h e p l a i n t i f f , has c o n t e n d e d , s i m p l y a n d forcefully, t h a t i n t h e present
case a n y r e l e v a n t r i g h t s i n respect o f o i l a n d n a t u r a l gas situate i n t h e sea b e d o u t s i d e
t e r r i t o r i a l waters were n o t "exercisable b y t h e U n i t e d K i n g d o m , " o n t h e g r o u n d s t h a t
such r i g h t s h a d b e e n g r a n t e d
predecessors.

t o a n d were exercisable b y t h e p l a i n t i f f o r h i s

M r Bromley, o n b e h a l f o f t h e C r o w n , s u b m i t t e d i n effect t h a t a n y

r e l e v a n t r i g h t s o f t h e p l a i n t i f f or his predecessors i n respect o f s u c h o i l a n d n a t u r a l

121

O w n e r s h i p , l i c e n s i n g a n d sources of l a w

gas d i d fall w i t h i n t h e a m b i t o f t h e s u b s e c t i o n , o n t h e g r o u n d s t h a t t h e y w e r e
i n c l u d e d a m o n g t h e r i g h t s exercisable b y t h e state o f t h e U n i t e d K i n g d o m as a m a t t e r
of i n t e r n a t i o n a l law.
N o d o u b t s o m e i n t e r n a t i o n a l lawyers m i g h t seek t o c o n t e n d t h a t , as a m a t t e r o f
i n t e r n a t i o n a l law, at t h e date o f t h e 1 8 8 0 c o n v e y a n c e a n d t h e 1935 d e e d o f e x c h a n g e
t h e C r o w n possessed n o r i g h t s w h i c h w e r e b o t h (a) exercisable i n respect o f n a t u r a l
resources i n t h e sea b e d o u t s i d e t e r r i t o r i a l waters; a n d (b) c a p a b l e o f b e i n g e f f e c t i v e l y
g r a n t e d t o t h e p l a i n t i f f s predecessors i n t i t l e . Nevertheless i n m y j u d g m e n t i t w o u l d
n o t p r o f i t t h e p l a i n t i f f , w h o derives h i s t i t l e , i f any, t o t h e r e l e v a n t n a t u r a l resources
f r o m t h e C r o w n itself, t o p u t f o r w a r d e i t h e r o f these c o n t e n t i o n s a n d I d o n o t t h i n k
t h a t M r Rattee o n h i s b e h a l f s o u g h t t o d o so. Essentially w h a t h e has s o u g h t t o argue
is t h a t t h e r e l e v a n t r i g h t s , i f any, i n respect o f t h e seabed o u t s i d e t e r r i t o r i a l waters
w e r e no longer "exercisable b y t h e U n i t e d K i n g d o m " as at t h e d a t e o f t h e A c t o f 1964,
because s u c h r i g h t s h a d b e e n g r a n t e d t o t h e p l a i n t i f f ' s predecessors b y t h e 1880
c o n v e y a n c e a n d t h e 1935 deed o f exchange.
The phrase " r i g h t s exercisable b y t h e U n i t e d K i n g d o m , " w h i c h appears i n section
1(1) o f t h e Act o f 1964, is at first s i g h t a n o d d one. I h a v e n o t b e e n referred t o a n y
o t h e r s t a t u t e w h i c h refers t o r i g h t s b e i n g exercisable o r exercised b y " t h e U n i t e d
K i n g d o m " o r e m p l o y s s i m i l a r phraseology. Nevertheless, t h e m e a n i n g o f t h e phrase
b e c o m e s r e a s o n a b l y clear w h e n reference is m a d e t o t h e f i r s t C o n v e n t i o n o f 1958.
A r t i c l e 2 o f t h i s C o n v e n t i o n h a d p r o v i d e d , inter alia, t h a t t h e coastal state exercises
over t h e c o n t i n e n t a l shelf sovereign rights for t h e purpose o f e x p l o r i n g i t and
e x p l o i t i n g its n a t u r a l resources a n d t h a t s u c h r i g h t s are e x c l u s i v e i n t h e sense t h a t , i f
t h e coastal state does n o t e x p l o r e t h e c o n t i n e n t a l s h e l f o r e x p l o i t i t s n a t u r a l
resources, n o o n e m a y u n d e r t a k e these a c t i v i t i e s o r m a k e a c l a i m t o t h e c o n t i n e n t a l
shelf w i t h o u t t h e express c o n s e n t o f t h e coastal state. T h e p u r p o s e o f t h e legislature
i n e n a c t i n g s e c t i o n 1(1) o f t h e A c t o f 1 9 6 4 was i n m y j u d g m e n t , c l e a r l y t o e n t i t l e the
C r o w n t o c l a i m f o r itself, as a m a t t e r o f m u n i c i p a l law, t h e e x c l u s i v e r i g h t s w h i c h
a r t i c l e 2 w o u l d c o n f e r o n i t u n d e r i n t e r n a t i o n a l l a w as s o o n as t h e f i r s t C o n v e n t i o n
of 1 9 5 8 c a m e i n t o f o r c e and, c o r r e s p o n d i n g l y , t o d i v e s t i n f a v o u r o f itself a n y such
r i g h t s so far as t h e y m i g h t be vested i n o t h e r persons. I n m y j u d g m e n t , i n t h e c o n t e x t
o f s e c t i o n 1(1) o f t h e A c t o f 1964, t h e phrase " a n y r i g h t s exercisable b y t h e U n i t e d
K i n g d o m " c a n bear o n l y o n e m e a n i n g , t h a t is t o say, a n y r i g h t s exercisable b y t h e
state o f t h e U n i t e d K i n g d o m as against o t h e r states u n d e r i n t e r n a t i o n a l law, i n
p a r t i c u l a r h a v i n g regard t o t h e first C o n v e n t i o n o f 1958.
I n t h e present case, n o t w i t h s t a n d i n g t h e 1880 c o n v e y a n c e , t h e r e l e v a n t r i g h t s i n
t h e r e l e v a n t parts o f t h e sea b e d a n d subsoil o u t s i d e t e r r i t o r i a l waters, were, i n m y
j u d g m e n t , as at t h e date o f t h e Act o f 1964, m a n i f e s t l y exercisable b y t h e state o f t h e
U n i t e d K i n g d o m u n d e r i n t e r n a t i o n a l law, h a v i n g regard t o t h e p r o v i s i o n s o f article 2
of t h e first C o n v e n t i o n o f 1958. I t f o l l o w s i n m y j u d g m e n t t h a t t h e A c t o f 1 9 6 4 w o u l d
h a v e o p e r a t e d t o e x p r o p r i a t e all o r a n y r i g h t s i n a n y o i l a n d n a t u r a l gas i n r e l e v a n t
parts o f t h e sea b e d a n d s u b s o i l o u t s i d e t e r r i t o r i a l waters w h i c h - c o n t r a r y t o m y v i e w
- m i g h t h a v e p r e v i o u s l y b e e n vested i n t h e p l a i n t i f f ' s predecessors i n t i t l e , a n d t o vest
t h e m i n t h e Sovereign, i n h e r p o l i t i c a l c a p a c i t y i n r i g h t o f t h e C r o w n . T h e fact t h a t
any

122

such e x p r o p r i a t i o n w o u l d have been effected w i t h o u t c o m p e n s a t i o n t o t h e

Marc Hammerson

f o r m e r owners o f t h e rights does n o t p r e v e n t such a c o n c l u s i o n , since t h e w o r d i n g of


the Act o f 1964 is i n m y j u d g m e n t clear a n d inescapable. The Act o f 1934 afforded an
e q u a l l y clear e x a m p l e

o f t h e legislature e f f e c t i n g w i t h o u t

compensation

the

e x p r o p r i a t i o n o f o i l a n d n a t u r a l gas i n Great B r i t a i n , insofar as these substances are


situated i n or b e l o w d r y land. The crucial difference b e t w e e n t h a t Act a n d t h e Act o f
1964 is t h a t t h e earlier Act d i d n o t i n m y o p i n i o n clearly a n d u n e q u i v o c a l l y deal w i t h
substances situated i n or b e n e a t h t h e bed a n d subsoil o f t h e sea.
These o b i t e r c o n c l u s i o n s as t o t h e i n t e r p r e t a t i o n o f these t w o Acts m a y

be

t h o u g h t t o i n v o l v e c e r t a i n a n o m a l i e s i n that, i f correct, t h e y m e a n t h a t t h e C r o w n
can c l a i m a s t a t u t o r y t i t l e t o o i l a n d n a t u r a l gas situated b e n e a t h t h e c o n t i n e n t a l
shelf, b u t n o t t o those substances w h e n situated b e n e a t h t e r r i t o r i a l waters. But I have
been u n a b l e t o f i n d a n escape f r o m t h e m .

Summary of conclusions
Counsel o n b o t h sides have referred i n a r g u m e n t t o t h e t h e o r e t i c a l possibility t h a t
d i f f e r e n t c o n c l u s i o n s c o u l d a p p l y i n respect o f o i l a n d

o f n a t u r a l gas. I have

t h r o u g h o u t t h i s j u d g m e n t b o r n e i n m i n d t h i s possibility. N e i t h e r side, however, has


i n v i t e d me

t o d r a w a n y d i s t i n c t i o n between t h e t w o substances or has directed

attention to any points w h i c h i n my


d i s t i n c t i o n . To

summarise my

my

j u d g m e n t make i t necessary t o d r a w any such

c o n c l u s i o n s , t h e y are as follows. (1) The

1880

conveyance a n d t h e 1935 deed o f exchange d i d n o t operate t o pass a n y rights t o o i l


or n a t u r a l gas t o t h e plaintiff's predecessors i n t i t l e , p r i n c i p a l l y because (a) t h e phrase
"mines a n d m i n e r a l s " is an i n d e f i n i t e t e r m w h i c h m a y bear m a n y d i f f e r e n t m e a n i n g s
i n d i f f e r e n t c o n t e x t s a n d there is n o rule o f c o n s t r u c t i o n w h i c h requires t h a t i t s h o u l d
be c o n s t r u e d as i n c l u d i n g o i l or n a t u r a l gas i n t h e absence o f a s u f f i c i e n t i n d i c a t i o n
to t h e c o n t r a r y ; (b) there is n o clear evidence that, i n t h e v e r n a c u l a r o f t h e m i n i n g
w o r l d , l a n d o w n e r s or c o m m e r c i a l m e n

as at 1880 or 1935, t h e phrase i n c l u d e d o i l or

n a t u r a l gas; (c) there are a n u m b e r o f i n d i c a t i o n s t o be d e r i v e d f r o m t h e

1880

conveyance itself w h i c h suggest t h a t t h e phrase was n o t i n t e n d e d t o i n c l u d e a n y t h i n g


except solid substances d u g o u t o f t h e earth b y means o f a m i n e or m i n e s o p e n e d o n
the adjacent l a n d o f t h e grantee; (d) t h e phrase is at least an a m b i g u o u s one and, since
these were grants b y t h e C r o w n , i t was i n c u m b e n t o n t h e grantees t o require t h e
i n c l u s i o n o f e x p l i c i t w o r d s i n c l u d i n g o i l a n d n a t u r a l gas, i f i t was t h e i r i n t e n t i o n t h a t
these substances s h o u l d be i n c l u d e d i n t h e grant. (2) The phrase " d o w n t o t h e b o t t o m
of t h e coal measures" i n t h e relevant grants refers t o t h e b o t t o m o f t h e lowest
i d e n t i f i a b l e seam o f coal t h a t is or m i g h t be w o r t h m i n i n g . (3) I f i t h a d become
necessary t o decide t h e p o i n t s , I w o u l d have h e l d t h a t (a) t h e r i g h t s i n any o i l a n d
n a t u r a l gas situated i n t h e Lonsdale Off-Shore Areas outside t e r r i t o r i a l waters w h i c h
may

have been g r a n t e d t o t h e plaintiff's predecessors became revested i n t h e C r o w n

b y v i r t u e o f t h e C o n t i n e n t a l Shelf A c t 1964; b u t (b) t h e rights i n a n y o i l a n d n a t u r a l


gas situated i n t h e Lonsdale Off-Shore areas inside t e r r i t o r i a l waters w h i c h m a y

have

been g r a n t e d t o t h e plaintiff's predecessors d i d n o t b e c o m e revested i n t h e C r o w n b y


v i r t u e o f t h e P e t r o l e u m ( P r o d u c t i o n ) Act 1934 or any o t h e r legislation.
However, i n v i e w o f m y d e c i s i o n o n t h e first issue, these second a n d t h i r d issues
do n o t arise. As t h i n g s are, I m u s t dismiss t h i s a c t i o n .

123

O w n e r s h i p , l i c e n s i n g a n d sources o f law

Bocardo SA v Star Energy Onshore Limited and


1756

another [2008] E W H C

(Ch)

Peter Smith J:

Bocardo's Claim
22.

Bocardo claims t h a t t h e l a y i n g o f t h e pipes u n d e r n e a t h t h e surface o f t h e O x t e d


Estate is a trespass. It can have n o c l a i m t o t h e o i l itself because t h e t i t l e t o t h e o i l is
vested i n t h e C r o w n . Nevertheless i t c o n t e n d s t h a t t h e v e s t i n g o f t h e o i l i n the
C r o w n d i d n o t confer o n

the C r o w n any

r i g h t s o f access a n d

that had

t o be

n e g o t i a t e d . The D e f e n d a n t s failed t o n e g o t i a t e access a n d t h e r e f o r e are trespassing.


Initially the Defendants contended that the statutory provisions and

t h e Licence

a f f o r d e d i t n o t o n l y t o t h e r i g h t t o extract t h e o i l b u t all necessary a n c i l l a r y rights to


enable t h a t e x t r a c t i o n t o take place. It a b a n d o n e d t h a t stance at t h e c o m m e n c e m e n t
of t h e t r i a l .
23.

Nevertheless i t d i d m a i n t a i n t h e stance t h a t its a c t i o n s i n d r i l l i n g t h e bore holes d i d


n o t c o n s t i t u t e a trespass t h a t t h e Courts s h o u l d be c o n c e r n e d w i t h because it was too
far r e m o v e d f r o m Bocardo's o w n e r s h i p o f t h e O x t e d Estate a n d t h e soil b e n e a t h i t .
Bocardo's c l a i m o f course is t h a t by v i r t u e o f its o w n e r s h i p o f t h e O x t e d Estate i t also
is t h e o w n e r o f all airspace above i t a n d all t h e e a r t h b e n e a t h i t d o w n t o t h e centre
of t h e earth.

Tlie Statutory Regime


30.

P r o p e r t y i n p e t r o l e u m e x i s t i n g i n its n a t u r a l c o n d i t i o n i n strata i n Great B r i t a i n was


vested i n t h e C r o w n b y s e c t i o n 1 o f t h e P e t r o l e u m
was

repealed a n d

( P r o d u c t i o n ) Act 1934. T h a t Act

its m a t e r i a l sections re-enacted i n t h e P e t r o l e u m

Act 1998.

By

s e c t i o n 2 o f t h e 1934 Act t h e Board o f Trade (later t h e Secretary o f State f o r Trade and


I n d u s t r y ) was

empowered

t o g r a n t "licences t o search

and

bore for and

get

petroleum".
31.

Section 3(1) o f t h e 1934 Act p r o v i d e d t h a t Part 1 o f t h e M i n e s ( W o r k i n g Facilities and


S u p p o r t ) Act 1923

s h o u l d a p p l y for t h e purpose o f e n a b l i n g a p e r s o n h o l d i n g a

licence u n d e r t h e 1934 Act t o acquire such " a n c i l l a r y r i g h t s " as m i g h t be r e q u i r e d for


t h e exercise o f t h e r i g h t s g r a n t e d by t h e Licence. These were stated t o i n c l u d e "a right
to enter u p o n l a n d a n d t o s i n k boreholes t h e r e i n f o r t h e purposes o f searching for
a n d g e t t i n g p e t r o l e u m " a n d "a r i g h t t o use a n d o c c u p y l a n d f o r ... t h e l a y i n g and
m a i n t e n a n c e o f such pipes ... as may

be r e q u i r e d f o r t h e p u r p o s e o f searching

and

b o r i n g f o r a n d g e t t i n g ... p e t r o l e u m " .
32.

Section 10(3) o f t h e 1934 Act p r o v i d e d t h a t " N o t h i n g i n t h i s Act s h a l l be c o n s t r u e d


as c o n f e r r i n g , or as e n a b l i n g t h e Board o f Trade t o confer, o n a n y person, w h e t h e r
a c t i n g o n b e h a l f o f His Majesty or n o t , a n y r i g h t w h i c h he does n o t e n j o y apart f r o m
t h i s Act t o enter o n or interfere w i t h l a n d " .

33.

Part 1 o f t h e 1923 Act was repealed a n d replaced by t h e M i n e s ( W o r k i n g Facilities a n d


S u p p o r t ) Act 1966, w h i c h p r o v i d e d t h a t t h e reference t o Part 1 o f t h e 1923
s e c t i o n 3 o f t h e 1934 Act was n o w

Act i n

a reference t o t h e 1966 Act (1966 Act Schedules 1

a n d 2). Section 1 o f t h e 1966 Act e m p o w e r e d t h e C o u r t t o c o n f e r t h e r i g h t s described

124

Marc H a m m e r s o n

i n t h e subsequent Table. These i n c l u d e d c o n f e r r i n g o n a person h a v i n g t h e r i g h t t o


w o r k m i n e r a l s "an a n c i l l a r y r i g h t " . T h e expression " a n c i l l a r y r i g h t " is d e f i n e d i n
s e c t i o n 2 as i n c l u d i n g :
A right of airway, shaft way or surface or underground wayieave or other right for the
purpose of access to or conveyance of minerals or the ventilation or drainage of the
mines.
34.

T h u s t h e r e g i m e was t o vest t h e m i n e r a l i n t h e C r o w n a n d divest i t f r o m t h e


landowner ( w i t h o u t compensation).

However the divesting of the mineral did n o t

carry w i t h i t a u t o m a t i c r i g h t s o f access f o r t h e purpose o f w i n n i n g o r e x t r a c t i n g t h e


same. Those h a d t o be a c q u i r e d t o enable t h e e x t r a c t i o n t o take place.
35.

T h u s as I have said i n i t i a l l y t h e D e f e n d a n t s c o n t e n d e d t h a t t h e o p e r a t i o n o f t h e Acts


vested t h e r i g h t s t o w i n t h e o i l w i t h o u t a n y f u r t h e r r e q u i r e m e n t . T h a t stance was
a b a n d o n e d at t h e start o f t h e t r i a l .

Compensation
36.

A l t h o u g h as I have said t h e e x p r o p r i a t i o n o f t h e o i l d i d n o t c o n f e r a n y r i g h t t o
c o m p e n s a t i o n t h e same is n o t t h e case i n respect o f access r i g h t s t o i t .

46.

Before I consider t h e evidence

I w i l l deal w i t h t h e Defendants' first

submission

n a m e l y t h a t t h e r e was n o trespass at all. T h i s s u b m i s s i o n is based o n t h e fact t h a t t h e


pipelines i n q u e s t i o n are at least 8 0 0 feet b e l o w sea level a n d t h e i r l a y i n g a n d t h e
subsequent e x t r a c t i o n o f t h e o i l ( w h i c h is o f course n o t o w n e d b y Bocardo) d i d n o t
affect t h e use a n d e n j o y m e n t o f t h e O x t e d Estate o n e iota. I n d e e d a c c o r d i n g t o t h e
Claimant's

evidence

t h e o i l was e x t r a c t e d f o r 17 years before its e x t r a c t i o n was

n o t i c e d . I t is said t h a t t h e o i l a n d gas i n d u s t r y i n general have i n t h e m a i n n o t


regarded i t as necessary t o seek p e r m i s s i o n f r o m o w n e r s o f a d j o i n i n g l a n d i n order t o
d r i l l d e v i a t e d w e l l s at t h e substantial d e p t h t o w h i c h t h e y are d r i l l e d . Equally o f
course i f a f i e l d o f o i l as i n t h e present case has o i l e x t r a c t e d f r o m its e n t i r e t y or a
substantial p a r t at a n y rate v i a (for e x a m p l e ) t h e pipes u n d e r t h e O x t e d Estate t h e o i l
can be r e m o v e d f r o m a d j o i n i n g l a n d w i t h o u t even l a y i n g a p i p e u n d e r i t . There is o f
course t h e n n o basis f o r a r g u i n g t h a t t h e r e is a n y trespass because all t h a t happens is
t h a t t h e o i l ( w h i c h is i n t h e o w n e r s h i p o f t h e State a n d Licenced t o t h e extractor) is
" s i p h o n e d o u t " o f t h e a d j o i n i n g l a n d . T h a t m i g h t be w h y Peter G i b s o n J i n t h e Ryder
case said (page 2 4 4 K) "a l a n d o w n e r c a n n o t p r e v e n t a Licensee o i l c o m p a n y w h i c h
has a w e l l o u t s i d e his l a n d f r o m l i f t i n g o i l a n d gas w h i c h m a y c o m e f r o m u n d e r his
land"
47.

ist

Bocardo's case i n effect i n v o l v e s a s k i n g t h e C o u r t t o a p p l y t h e m a x i m "cuius est solum


eius est usque ad coelum et ad inferos". T h i s is a p p a r e n t l y a n o l d phrase " o f t e n u p o n
the

lips o f lawyers since i t was first c o i n e d b y Accursius i n B o l o g n a i n t h e late 1 3 t h

c e n t u r y " {Bernstein (Baron) v Skyviews Ltd [1978] 1 QB 4 7 9 at page 485). T h a t d e c i s i o n


rejected t h e c o n c e p t o f t h e o w n e r s h i p o f l a n d r e a c h i n g u p w a r d s t o t h e heavens. I n
so c o n c l u d i n g G r i f f i t h s J (as he t h e n was) a d o p t e d L o r d Wilberforce's analysis of t h e
m a x i m i n Commissioner for Railways v The Valuer-General [1974] A C

328 at 3 5 1

n a m e l y t h a t t h e m a x i m was so s w e e p i n g u n s c i e n t i f i c a n d u n p r a c t i c a l a d o c t r i n e i t
was u n l i k e l y t o appeal t o t h e c o m m o n l a w m i n d . I n Sovmots Investments Ltd v
Secretary of State for the Environment [1977] QB 4 1 1 B r o w n e LJ i n r e f e r r i n g t o t h e

125

Ownership, licensing and sources of law

m a x i m w h i l s t h e d i d n o t t h i n k i t was necessary t o c o n s i d e r i t i n t h e c o n t e x t o f t h e
case suggested t h a t t h e o b s e r v a t i o n s o f L o r d W i l b e r f o r c e t h r e w great d o u b t u p o n i t .
48.

T h e c o n c l u s i o n o f G r i f f i t h s J was t h a t t h e r i g h t s o f a n o w n e r t o t h e airspace w e r e n o t
a b s o l u t e u p t o t h e heavens. T h e p r o b l e m was t o b a l a n c e t h e r i g h t s o f a n o w n e r t o
e n j o y t h e use o f h i s l a n d against t h e r i g h t s o f t h e g e n e r a l p u b l i c t o t a k e a d v a n t a g e
a l l t h a t science t h e n o f f e r e d i n t h e use o f t h e airspace. T h e o v e r f l y i n g i n t h a t case
was n o t a c t i o n a b l e . H o w e v e r t h a t is n o t t o say t h a t o v e r f l y i n g c a n n e v e r be
a c t i o n a b l e n o r o v e r s a i l i n g o f cranes e v e n i f n o d a m a g e occurs ...

49.

Is t h e p o s i t i o n t h e same as regards t h e subsoil? I n p r i n c i p l e t h e r e is n o reason w h y


t h e s u b s o i l s h o u l d be t r e a t e d a n y d i f f e r e n t l y . A s u b t e r r a n e a n m o l e l i k e passage u n d e r
t h e s u b s o i l c a n h a r d l y be d i f f e r e n t f r o m f l y i n g o v e r t h e surface a t 40,000 feet. The
m a j o r d i f f e r e n c e o f course is t h a t t h e r e are v a l u a b l e resources s i t u a t e d b e l o w t h e
subsoil n a m e l y
contemplated

m i n e r a l s . T h o s e c a n be l o c a t e d at d e p t h s b e y o n d

even

those

b y t h e present case. Possession o f t h e surface o f l a n d prima facie

i n c l u d e s possession

o f t h e s u b j a c e n t m i n e r a l s also see C l a r k &

L i n d s e l l "Torts"

p a r a g r a p h 19-14. I n d e e d M r R a b i n o w i t z Q C w h o w i t h M i s s F i t z g e r a l d a p p e a r e d for
t h e D e f e n d a n t s a c k n o w l e d g e d t h a t t h e o i l c o u l d n o t b e r e m o v e d m o l e l i k e before i t
v e s t e d i n t h e C r o w n u n d e r t h e 1 9 3 4 Act. He c o n c e d e d t h a t h i s c l i e n t s c o u l d n o t have
r e m o v e d t h e o i l t h e r e f o r e h a d i t n o t b e e n e x p r o p r i a t e d b y t h a t Act. T h a t c a n o n l y be
o n t h e basis t h a t t h e m i n e r a l s at t h a t d e p t h (or a n y o t h e r d e p t h ) b e l o n g e d t o t h e
o w n e r o f t h e surface unless expressly t a k e n a w a y b y S t a t u t e o r s o m e o t h e r p r o v i s i o n .
T h i s i n m y v i e w f a t a l l y f l a w e d t h e D e f e n d a n t s ' a r g u m e n t s . Before a n y m i n e r a l s are
severed f r o m t h e o w n e r s h i p o f t h e surface c l e a r l y M r R a b i n o w i t z Q C

acknowledges

t h e o w n e r o f t h e surface has also t h e o w n e r s h i p o f t h e m i n e r a l s . As h e o w n s t h e


access t o t h e m i n e r a l s h e has n o n e e d f o r a n y e a s e m e n t o f access. He w i l l access t h e m
as o w n e r o f t h e g r o u n d b e n e a t h t h e surface a n d w i l l exercise a r i g h t as a quasi
easement.
50.

W h e n t h e m i n e r a l s b e c o m e v e s t e d e i t h e r i n t h e C r o w n o r s o m e b o d y else (say for


example b y virtue of an exception a n d reservation o n conveyance) t h e land i n
q u e s t i o n is t h e r e f o r e severed so t h a t t h e surface a n d t h e m i n e r a l r i g h t s b e c o m e i n
separate o w n e r s h i p . H o w e v e r t h e m i n e r a l r i g h t s i n o r d e r t o b e r e m o v e d n e e d a n
access. I t has a l w a y s b e e n t h e case t h a t t h e o w n e r s h i p o f t h e m i n e r a l s d i d n o t o f itself
c o n f e r r i g h t s t o e n t e r a n d r e m o v e t h e same. T h i s is w e l l i l l u s t r a t e d b y t h e d e c i s i o n i n
Re Markham

Main Colliery Ltd [1925] 134 LT 2 5 3 (referred t o b y Peter G i b s o n J i n Ryder

at page 2 4 4 J). ... T h e a r g u m e n t s as s u m m a r i s e d i n t h e j u d g m e n t at page 2 5 7 reflect


t h e a r g u m e n t s b e f o r e m e t o a c e r t a i n e x t e n t n a m e l y t h a t t h e o w n e r o f t h e surface
because h e c a n b l o c k t h e e x t r a c t i o n o f t h e s u b j a c e n t m i n e r a l s a n d c a n h o l d t h e m t o
r a n s o m is e n t i t l e d t o a large sum. T h e c o m p e t i n g a r g u m e n t is t h a t as h e h a s n o r i g h t
t o t h e m i n e r a l s a n d h e has n o e n t i t l e m e n t t o a n y c o m p e n s a t i o n . S a n k e y J o b s e r v e d
t h a t t h e p u r p o s e o f t h e [1923 A c t ] was t h a t c o m p e n s a t i o n s h o u l d be assessed " [ o n
t h e basis] t h a t a l l c i r c u m s t a n c e s o f t h e case m u s t be t a k e n i n t o c o n s i d e r a t i o n . I t m u s t
be t a k e n i n t o c o n s i d e r a t i o n t h a t [ t h e 1 9 2 3 A c t ] was passed t o p r e v e n t p e o p l e f r o m
h o l d i n g u p coal b y unreasonable claims
J i n Ryder d i s t i n g u i s h e d t h e Markham

(ibid page 257). A l t h o u g h Peter G i b s o n

case i t is i n m y v i e w r e l e v a n t a n d i n s t r u c t i v e

w h e n I c o m e t o c o n s i d e r t h e c o r r e c t basis f o r c o m p e n s a t i o n .

126

Marc H a m m e r s o n

51.

The significance o f t h e case o f M a r k h a m i n t h i s part o f t h e j u d g m e n t is t h a t if M r


R a b i n o w i t z QC's

a r g u m e n t s are correct there w o u l d have been n o royalties payable

whatsoever; t h e r e w o u l d m e r e l y be c o m p e n s a t i o n

f o r d i m i n u t i o n i n value a n d

i n j u r i o u s a f f e c t i o n . T h i s was never t h e practice as regards t h e e x t r a c t i o n o f coal. The


reason f o r t h i s is t h a t before t h e o w n e r s h i p o f t h e coal is severed f r o m t h e surface
o w n e r s h i p i t is clearly p a r t o f t h e l a n d t h a t belongs t o t h e o w n e r o f t h e surface. A n
a t t e m p t t o r e m o v e such m i n e r a l s w o u l d be a trespass i n t w o ways. First t h e e n t e r i n g
o n t o t h e subsoil t o r e m o v e t h e m i n e r a l s w o u l d be a trespass a n d second t h e r e m o v a l
of t h e m i n e r a l s themselves w o u l d also be a second trespass. W h e n t h e o w n e r s h i p o f
the

m i n e r a l s is d i v o r c e d

from

the ownership

o f t h e surface t h e r e

remains

nevertheless t h e p l a i n fact t h a t t o access those m i n e r a l s requires access over t h e


r e m a i n d e r o f t h e l a n d b e n e a t h t h e subsoil. I c a n n o t see t h a t a v a c u u m is created
w h e r e b y t h a t part o f t h e subsoil becomes ownerless.
52.

I n effect t h e Act r e m o v e d t h e o w n e r s h i p o f t h e o i l f o r t h e b e n e f i t o f t h e State. It d i d


n o t address r i g h t s o f access b u t t h e c o m p e n s a t i o n p r o v i s i o n s a n d t h e p o w e r t o g r a n t
t h e rights o n a p p l i c a t i o n are designed as Sankey J said t o p r e v e n t a rapacious
l a n d o w n e r asserting a r a n s o m p o s i t i o n .

53.

Thus i n my

v i e w after t h e o i l is severed f r o m t h e surface o w n e r t h e r e can be

no

q u e s t i o n o f a n y c l a i m for trespass a r i s i n g o u t o f t h e r e m o v a l o f such p r o p e r t y because


it belongs t o t h e C r o w n . There r e m a i n s nevertheless t h e secondary trespass n a m e l y
access t o enable it t o be r e m o v e d . I t was a trespass before severance a n d I c a n n o t see
h o w it c a n n o t r e m a i n a trespass afterwards.
54.

... The o w n e r o f t h e subsoil clearly has a l e g i t i m a t e interest i n t h e subsoil because it


is used t o enable s o m e b o d y else t o pass t h r o u g h it t o o b t a i n a v a l u a b l e asset t h a t
belongs t o i t i.e. t h e o i l .

55.

A n y suggestion t h a t t h a t c o u l d n o t be a trespass m e r e l y because t h e m i n e r a l s were


b e i n g extracted at great d e p t h seems t o me t o be a nonsense.

56.

D u r i n g t h e course o f a r g u m e n t M r R a b i n o w i t z QC

conceded t h a t t h i s p r i n c i p l e o n l y

operated w h e n t h e m i n e r a l s s o u g h t t o be r e m o v e d were at a d e p t h w h e r e b y it w o u l d
have n o i m p a c t o n t h e o w n e r o f t h e surface. He d e c l i n e d ( q u i t e u n d e r s t a n d a b l y ) t o
f i x t h e relevant d e p t h . The d i f f i c u l t y w i t h t h i s s u b m i s s i o n h o w e v e r i n t h i s c o n t e x t is
t h a t logic w o u l d d i c t a t e t h a t if a n y m i n e r a l s c o u l d be extracted w i t h o u t causing any
damage t o t h e surface o r a f f e c t i n g t h e surface owners' use a n d e n j o y m e n t o f t h e
surface t h e r e can be n o trespass b y r e m o v i n g those m i n e r a l s n o r h a v i n g access
t h r o u g h t h e subsoil i n order t o r e m o v e t h e same.
57.

I do n o t t h i n k i t is a m a t t e r o f d e p t h ; it is a m a t t e r o f t h e use t o w h i c h t h e access is
sought. W h i l s t t h e r e m i g h t be an a r g u m e n t (for e x a m p l e ) t h a t a deep t u n n e l t h r o u g h
w h i c h a r a i l w a y m i g h t pass can give n o a c t i o n a b l e trespass t h e same is n o t t h e case
in my

v i e w if t h e access is t o r e m o v e a v a l u a b l e m i n e r a l l y i n g b e l o w t h e surface.

W h i l s t t h e m a x i m c a n n o t be t a k e n l i t e r a l l y i t is clear f r o m t h e several a u t h o r i t i e s
p r o v i d e d b y t h e parties t h a t t h e r e are occasions w h e r e t h e r e have been h e l d t o be
trespass b y b o r i n g deep u n d e r t h e Claimant's l a n d : see f o r e x a m p l e Bulli Coal Mining
Co v Osborne [1899] AC

154

B P Petroleum

Development

3 5 1 . S i m i l a r l y t h e r e are a u t h o r i t i e s i n o t h e r j u r i s d i c t i o n s t o

v Ryder

[1987] 2 EGLR 233.

127

Ownership, licensing and sources of law

the like effect: see Edwards v Simms [1929] 24 SW 2 d 619 (The United States). The
Defendants rely upon the dissenting judgment of Logan J but the majority judgment
was i n 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 i n accordance w i t h the m a x i m is not the
case. Whatever the criticisms of the m a x i m they do not i n m y view detract f r o m the
analysis that I have set out above. I do not see how i n 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 i n the remainder of the field can be anything
other than a trespass. I n 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 i n Stoke on Trent Council v W & / Wass Ltd [1988] 1 WLR at page 1411.
58.

I therefore reject the Defendants' contention that their activities d i d not cause any
trespass. I f i n d that there was a trespass and the next question t o consider is the
remedy w h i c h is available to the Claimant for such trespass.

Star Energy UK Onshore Ltd, Star Energy Weald Basin Ltd v Bocardo SA

[2009] EWCA Civ 579


Aikens LJ:

Outline of the case so far, including the decision of Peter Smith J

1.

This case raises interesting issues about the rights of landowners i n England under
whose land there are naturally occurring deposits of petroleum. The specific
questions raised are: (1) where an oil company has been granted a licence under the
Petroleum

(Production) Act 1934 ("the 1934 Act") t o search, bore for and get

petroleum i n the licensed area w h i c h is beneath land belonging t o another and,


w i t h o u t obtaining that landowner's agreement, or an "ancillary r i g h t " pursuant to
statute to do so, the licensee bores pipelines at depth beneath the landowner's land
in order t o recover petroleum from w i t h i n the licensed area, is he c o m m i t t i n g a
trespass? (2) if the petroleum licensee is thereby c o m m i t t i n g a trespass, then what
measure of damages is the landowner entitled to obtain for any past and continuing
trespass, assuming that the court does not grant an injunction?
2.

I n his judgment of 24 July 2007, Peter Smith J held that i n this case the
defendant/appellants had committed such a trespass. He also held that damages for
that trespass should be assessed at 9 % of the value of the income received by the
trespassers from the time the trespass began (subject to a l i m i t a t i o n point) and until
the oil and gas became exhausted or the extraction was finished. Both conclusions
are challenged i n this appeal.

7.

The judge held that Bocardo's title to the land beneath the surface of the Oxted estate
extended to the depths at w h i c h the three wells/pipelines passed t h r o u g h the strata
under the estate. However, he found that laying the pipes, extracting the oil and
p u m p i n g i n water did not result i n any physical or other actual damage to Bocardo.
There was no disturbance of the soil or the like. In fact, he decided, the whole
exercise "did not affect the use and enjoyment of the Oxted estate one iota"

128

Marc H a m m e r s o n

8.

However, t h e judge h e l d t h a t a l t h o u g h Star ( a n d its predecessors as licensees) h a d t h e


r i g h t t o b o r e for a n d get p e t r o l e u m f r o m w i t h i n t h e strata b e n e a t h t h e O x t e d estate,
t h a t licence d i d n o t a u t o m a t i c a l l y g r a n t a r i g h t t o g a i n access t o t h e o i l w i t h i n t h e
strata t h a t were o w n e d b y Bocardo. He t h e r e f o r e c o n c l u d e d t h a t , as n e i t h e r Star n o r
its predecessors h a d ever s o u g h t a r i g h t o f access, either b y agreement w i t h t h e
l a n d o w n e r , o r b y o b t a i n i n g a n " a n c i l l a r y r i g h t " t o d o so p u r s u a n t t o section 3(1) o f
the 1934 Act, t h e i n s e r t i o n o f t h e p i p e l i n e s b e n e a t h t h e O x t e d estate for t h e purposes
of r e m o v i n g o i l f r o m b e n e a t h t h e estate ( a n d i n t h e r e m a i n d e r o f t h e o i l field)
" [ c a n n o t ] be a n y t h i n g o t h e r t h a n a trespass".

The Statutory Framework


15.

Before 1918 t h e r e was n o s t a t u t o r y regime c o n c e r n i n g o w n e r s h i p o f a n y p e t r o l e u m


to be f o u n d n a t u r a l l y i n strata b e n e a t h " o n s h o r e " l a n d w i t h i n Great B r i t a i n . There
was a n English c o m m o n l a w rule t h a t a n y gold, silver a n d saltpetre f o u n d o n o r
u n d e r t h e l a n d o f t h e k i n g d o m b e l o n g e d t o t h e C r o w n . But t h i s rule d i d n o t e x t e n d
to o t h e r v a l u a b l e minerals, such as coal. We were n o t s h o w n a n y m a t e r i a l w h i c h
i n d i c a t e d h o w t h e c o m m o n l a w treated t h e rights o f o w n e r s h i p a n d possession o f
l i q u i d p e t r o l e u m deposits f o u n d i n strata b e n e a t h l a n d i n t h e U n i t e d K i n g d o m .
W h e t h e r those r i g h t s were treated b y t h e c o m m o n law i n t h e same m a n n e r as o t h e r
valuable s o l i d m i n e r a l s such as coal, or w h e t h e r (if t h e p e t r o l e u m is i n l i q u i d f o r m )
those rights were treated i n t h e same w a y as water, m a y be a n o p e n q u e s t i o n w h i c h
I need n o t investigate.

16.

T h e P e t r o l e u m ( P r o d u c t i o n ) A c t 1918 p r o h i b i t e d a n y o n e o t h e r t h a n t h e C r o w n (or
s o m e o n e licensed

under

that

Act) from

searching or b o r i n g

f o r or getting

" p e t r o l e u m " w i t h i n t h e U n i t e d K i n g d o m . If a n u n a u t h o r i s e d person d i d so, he w o u l d


f o r f e i t t o t h e C r o w n a s u m e q u a l t o three t i m e s t h e v a l u e o f a n y p e t r o l e u m so
" g o t t e n " (sic) b y h i m . By section 2 o f t h a t Act, t h e M i n i s t e r o f M u n i t i o n s was
e m p o w e r e d t o g r a n t licences c o n f e r r i n g a u t h o r i t y t o search a n d bore f o r a n d get
p e t r o l e u m . But, s e c t i o n 2 c o n t i n u e d :

...nothing in this Act shall be construed as conferring on any person any right to enter
on or interfere with land for the purpose of searching or boring for or getting petroleum
which he does not enjoy apart from this Act, or shall prejudice or affect the rights, if any,
of any person interested in any land in respect of petroleum gotten through or from the
land in which he is so interested.
17.

T h e 1918 A c t was repealed b y t h e 1934 Act. I have set o u t t h e r e l e v a n t p r o v i s i o n s o f


the

1934 A c t a n d t h o s e o f t h e 1966 A c t i n A n n e x 1 t o t h i s j u d g m e n t . B u t f o r

c o n v e n i e n c e I w i l l e x p l a i n here t h e scheme o f t h e 1934 Act a n d t h e 1966 Act, as w e l l


the predecessor o f t h e latter, t h e 1923 Act.
18.

Section 1(1) o f t h e 1934 A c t stated t h a t t h e p r o p e r t y i n p e t r o l e u m e x i s t i n g i n its


n a t u r a l c o n d i t i o n i n strata i n Great B r i t a i n "is h e r e b y vested i n His Majesty, a n d His
M a j e s t y shall have t h e exclusive r i g h t o f s e a r c h i n g a n d b o r i n g f o r a n d g e t t i n g such
p e t r o l e u m " . Section 1(2) defines p e t r o l e u m i n t h e same t e r m s as i n t h e 1918 Act: see
f o o t n o t e 25 above. Section 2(1) p r o v i d e s t h a t t h e Board o f Trade w i l l have power, "...
o n b e h a l f o f His Majesty", t o g r a n t licences t o search a n d bore for a n d get p e t r o l e u m .
These licences w i l l be g r a n t e d f o r such c o n s i d e r a t i o n as t h e Board o f Trade ( w i t h t h e

129

Ownership, licensing and sources of law

consent of the Treasury) shall determine and upon such other terms and conditions
as the Board of Trade shall t h i n k fit. Section 6(1) provides that before any licences are
granted under the 1934 Act the Board of Trade (now the DTI) w i l l make regulations
prescribing various matters. These include, by section 6(1) paragraph (d), "model
clauses" w h i c h are to be incorporated i n any licence granted, unless the relevant
department of state thinks fit to modify or exclude t h e m i n any particular case.
Tlte issues on the appeal
48.
Mr Driscoll and Mr Gaunt agreed that the issues raised o n the appeal should be
considered under t w o broad headings. The first heading concerned property law
issues. Counsel agreed that the key question under this heading was: did the
predecessors of Star c o m m i t a trespass t o Bocardo's l a n d by d r i l l i n g the
wells/pipelines PW5, PW8 and PW9 through strata under the surface of Bocardo's
land? Mr Driscoll accepted that if a trespass was committed by d r i l l i n g the wells, then
the trespass would have continued u n t i l now. I t h i n k it is logical t o examine the
question of whether there was a trespass or not at the time when, (having taken
account of the l i m i t a t i o n issue) the cause of action arose, i.e. July 2000, although I
believe n o t h i n g turns on the precise date at w h i c h the issue is considered.
49.

Counsel accepted the general proposition that a trespass occurs w h e n there is an


unjustifiable intrusion by A upon the land i n the possession of another, B. Counsel
also agreed that, given the provisions of the 1934 Act and the terms of the licence
granted to Star's predecessors, Conoco (UK) Limited, i t must follow that Bocardo had
neither ownership nor possession of the oil i n the reservoir beneath its land. Nor did
Bocardo have the right to possess such oil. Further, b y virtue of section 1 of the 1934
Act, at no time did Bocardo have any right to search, bore for or get that oil from
beneath its land; only the Crown or its licensee had the right to do so.

50.

Counsel therefore agreed that the court must consider three questions under the first
main heading: (i) D i d Bocardo have ownership to the strata beneath the surface of
the Oxted estate at the depth where the deviated bores for PW5, PW8 and PW9 had
been drilled and remain? (ii) D i d Bocardo have such "factual" or "exclusive"
possession or a right to possession of those strata as to give i t a right to sue in
trespass? (iii) Counsel agreed that if an intrusion onto another's land is justifiable in
law, then no action for trespass w i l l lie. Therefore the t h i r d question is whether the
intrusion i n t o the strata beneath the Oxted estate by Star and their predecessors as
licensees is justifiable, generally or by virtue of the provisions of the 1934 Act and
the licence granted under it, so as to amount to a defence to an action for trespass?

The arguments of the parties on each of the issues


54.

I n relation to the first main heading, i.e. the property law issues, Mr Driscoll's
arguments were, i n summary, as follows: (i) the owner of the surface of land does not
have title to the strata beneath down to the centre of the earth, any more than he
owns the air above "to the heavens". The owner can only claim title for so far
beneath the surface as is reasonable to enjoy his ownership of the surface land, (ii)

The 13th century latin maxim "cuius est solum, eius est usque ad coelum et ad inf
is not and never has been a rule of English law. It is, to adopt Lord Wilberforce's

130

Marc H a m m e r s o n

remarks i n Commissioner

for Railways

v Valuer General, "so sweeping, u n s c i e n t i f i c a n d

u n p r a c t i c a l a d o c t r i n e [as] is u n l i k e l y t o appeal t o t h e c o m m o n law m i n d " a n d i t has


n o t d o n e so. ( i i i ) Even i f Bocardo has t i t l e t o t h e strata t h r o u g h w h i c h t h e pipes r u n ,
i t does n o t have " f a c t u a l " or "exclusive" possession of t h e m . A l t h o u g h t h e person
w i t h paper t i t l e t o l a n d ( w h i c h for t h i s a r g u m e n t is assumed t o i n c l u d e t h e subjacent
strata concerned) t h e r e f o r e has t h e r i g h t t o possession a n d so w i l l prima

facie have

factual possession o f t h e strata, t h a t p o s i t i o n can be displaced u p o n p r o o f t h a t


a n o t h e r h a d b o t h exclusive p h y s i c a l c o n t r o l o f t h e l a n d (or relevant s u b s t r a t u m ) a n d
an i n t e n t i o n t o possess i t . (iv) I n t h e present case Bocardo does n o t have exclusive
physical c o n t r o l of t h e strata t h r o u g h w h i c h t h e pipes r u n , because Star a n d its
predecessors as licensees h a v e been g i v e n t h e r i g h t t o bore f o r a n d get o i l w i t h i n t h e
licensed area, p u r s u a n t t o s e c t i o n 2 of t h e 1934

Act. (v) A l t e r n a t i v e l y , t h e licence

granted p u r s u a n t t o s e c t i o n 2 is s u f f i c i e n t t o j u s t i f y t h e licensee e n t e r i n g t h e strata


i n pursuance of t h e r i g h t t o b o r e f o r a n d get o i l w i t h i n t h e licensed area. Therefore,
o n e i t h e r basis, t h e Star c o m p a n i e s have a defence t o an a c t i o n f o r trespass.
M r Gaunt's a r g u m e n t s o n t h e p r o p e r t y law issues were, i n s u m m a r y : (i) There is a rule
of English law t h a t he w h o

o w n s t h e surface l a n d w i l l o w n

t h e substrata b e n e a t h i t

unless there is some r e s e r v a t i o n or c o n v e y a n c e t o t h e contrary. A p r o p o s i t i o n t h a t


there is a l i m i t a t i o n o f o w n e r s h i p t o o n l y t h a t p o r t i o n of t h e substrata w h i c h enables
t h e surface o w n e r t o e n j o y t h e surface is n o t b o r n e o u t by t h e cases, (ii) The
m a x i m may

latin

be h y p e r b o l i c , b u t is i l l u s t r a t i v e of t h e basic English law p o s i t i o n , ( i i i ) I t

is possible t o c o m m i t a trespass b y i n v a d i n g someone's l a n d at d e p t h , e.g. w h e r e


minerals, w h i c h are o w n e d b y s o m e o n e o t h e r t h a n t h e l a n d o w n e r have been w o r k e d
a n d there is a v o i d , w h i c h t h e n reverts t o t h e l a n d o w n e r , (iv) If, as Star m u s t concede,
Bocardo is t h e o w n e r a n d i n possession of t h e surface l a n d of t h e O x t e d estate, i t has
the r i g h t t o possess a n d so must, prima

facie, have exclusive p h y s i c a l possession of

the strata beneath. But i n any event, i t is s u f f i c i e n t t h a t Bocardo has t h e right to


possession

and

an

i n v a s i o n o f t h e substrata is an

possession w h i c h c o n s t i t u t e s a trespass, (v) O n

interference w i t h the right t o

t h e correct c o n s t r u c t i o n of section 2

a n d section 10(3) o f t h e 1934 Act, t h e y do n o t detract f r o m e i t h e r Bocardo's p h y s i c a l


possession of t h e strata, n o r its r i g h t t o possession. F u r t h e r m o r e , those sections do
n o t give a p e r s o n w h o
own,

is g r a n t e d a licence u n d e r t h a t Act any j u s t i f i c a t i o n , o n t h e i r

t o go t h r o u g h strata b e n e a t h s o m e o n e else's l a n d i n order t o get access t o o i l

u n d e r t h a t l a n d , e v e n i f t h e licensed area is b e n e a t h t h a t l a n d . Section 10(3) c o n f i r m s


t h i s p o s i t i o n a n d t h e w o r d " i n t e r f e r e n c e " there i n c l u d e s " e n t e r i n g i n t o s o m e t h i n g
w i t h o u t r i g h t or i n v i t a t i o n " . T h a t is w h y
r i g h t " i n s e c t i o n 3 ( l ) ( b ) of t h e 1934

there is such a w i d e d e f i n i t i o n of " a n c i l l a r y


Act. The

licensee s h o u l d

have s o u g h t

an

u n d e r g r o u n d wayleave o n c e i t h a d been d e c i d e d t o p e r f o r m a "deviated b o r e " f r o m


C o n e y H i l l u n d e r Bocardo's l a n d . As i t h a d

failed t o do so, t h e wells a n d

pipes

c o n s t i t u t e d a trespass a n d w i l l c o n t i n u e t o do so.

7>je property law issues


Does Bocardo have t i t l e t o t h e strata b e n e a t h t h e surface its l a n d t h r o u g h w h i c h t h e
lines PW5,

PW8

a n d PW9

h a v e been bored?

I have n o d o u b t t h a t Accursius' m a x i m , or brocard, "cuius est solum

eius esse usque

ad

131

O w n e r s h i p , l i c e n s i n g a n d sources of l a w

caelum et ad inferos" is not part of English law. As Lord Wilberforce stated somewha
tartly i n Commissioner for Railways v Valuer General, its use, "whether w i t h refere
to mineral rights, or trespass i n the air space by projections, animals or wires, is
imprecise a n d it is m a i n l y serviceable as dispensing w i t h analysis". If that is correct,
then, i n the absence of any complications concerning deposits of gold, silver,
saltpetre a n d petroleum, it is necessary to ask: w h a t is the general rule at common
law about the ownership of the substrata beneath the surface of land of w h i c h A is

the registered freehold proprietor? I t h i n k that the law is as stated b y the Court of
Appeal i n Mitchell v Mosley, but shorn of its references t o Accursius' maxim. I n short
the registered freehold proprietor of the surface w i l l also be t h e owner of strata
beneath the surface of his land, i n c l u d i n g minerals, unless there has been some
express or i m p l i e d alienation of the whole or a particular part of the strata to another.
60.

I n this case it is not suggested that there is, or was at any relevant point, any other
entity w i t h the right to claim title to the strata beneath the Oxted estate, apart from
any petroleum deposits situated there. I n m y view, Bocardo's title certainly extends
to the strata (other than the petroleum) to be f o u n d at the depth of the pipes PW5,
PW8 and PW9 at 2800 feet below the surface of the Oxted estate. Precisely how much
further i n t o the earth's crust that ownership may go is a question that I need not
decide; but if ownership carries o n to the centre of the earth, landowners all have a
lot of neighbours.

61.

In my o p i n i o n it is not helpful to t r y and make analogies between the rights of an


owner of land w i t h regard to the airspace above it a n d the rights of the landowner
w i t h regard to the strata beneath the surface. First, there are m a n y potential users of
the airspace above land, whereas, generally speaking, the general public has no right
to use or go i n t o substrata beneath someone else's land. Secondly, the use of airspace
above land is h i g h l y regulated by statutes a n d regulations concerning aviation,
w h i c h have t o take account of the actual a n d potential rights a n d duties of many
others apart f r o m those w i t h a proprietary interest i n the surface land. There is no
such equivalent regime for strata beneath the surface.

62.

Therefore, like the judge, I w o u l d answer the first of the property law questions in
favour of Bocardo. Has Bocardo "factual" or "exclusive" possession of the strata
beneath the surface of its land such as t o give it the right t o sue the defendants in
trespass? If so, or i n any event, is the intrusion by Star a n d the predecessors to the
licence justifiable by virtue of the terms of the 1934 Act a n d the licence, so as to be
a defence to an action for trespass?

63.

I appreciate that this title conflates the second and t h i r d issues I have set out above.
But it seems to me that these questions have to be taken together because they both
revolve around the provisions of the 1934 and 1966 Acts a n d the licence.
[Paragraphs 64 and 68 discuss the tort of trespass a n d Aikens LJ's conclusion on
this p o i n t is set out i n the next paragraph]

69.

So I return to the facts of this case. O n the face of things, Bocardo is the paper title
owner to the strata a n d all w i t h i n it (other t h a n any gold, silver, saltpetre a n d the
petroleum). Subject to arguments about the effect of the 1934 Act, it has the prima
facie right to possession of those strata, so is deemed to be i n factual possession of
them. O n the face of things, therefore, any intrusion i n t o those strata is an

132

Marc Hammerson

i n t e r f e r e n c e w i t h t h e possessory r i g h t s o f Bocardo a n d so is a trespass. There are, i t


seems t o me, o n l y t w o ways t h a t Star c a n a v o i d t h a t c o n c l u s i o n . First, i f i t c a n s h o w
t h a t t h e r e is some c o m m o n l a w p r i n c i p l e b y w h i c h a p a r t y e n t i t l e d t o recover
m i n e r a l s f r o m a p a r t i c u l a r area b e n e a t h t h e surface is also e n t i t l e d t o create a n d use
a passage (at d e p t h ) t h r o u g h t h e l a n d b e l o n g i n g t o a n o t h e r t o get at a n d recover
those minerals. A l t e r n a t i v e l y , b y e s t a b l i s h i n g t h a t t h e effect of sections 1(1) a n d 2(1)
of t h e 1934 A c t " j u s t i f i e s " w h a t w o u l d o t h e r w i s e be a trespass b y Star b y b o r i n g a n d
u s i n g p i p e l i n e s at d e p t h t h r o u g h l a n d o w n e d b y Bocardo. M r D r i s c o l l s u b m i t s t h a t
b o t h p r o p o s i t i o n s c a n be established.
70.

First, t h e c o m m o n l a w issue: t h e 1934 Act a n d t h e 1923 A c t ( t o w h i c h i t refers o n the


issue o f " a n c i l l a r y r i g h t s " ) were passed against t h e b a c k g r o u n d o f t h e c o m m o n l a w
r i g h t s of l a n d o w n e r s a n d m i n e r a l o w n e r s t o get at a n d e x p l o i t minerals, p a r t i c u l a r l y
coal, b e n e a t h t h e surface. Was t h e r e a p r i n c i p l e at c o m m o n law, ( a n d i f so w h y ) ,
w h e r e b y a p e r s o n (A) w h o o w n e d o r was e n t i t l e d t o w o r k m i n e r a l s subjacent t o t h e
l a n d o w n e d b y a n o t h e r (B), h a d some k i n d o f r i g h t , as against B t o c o n s t r u c t a n
u n d e r g r o u n d t u n n e l u n d e r t h e l a n d o f B t o get t o t h e minerals, a l t h o u g h t h e actual
entrance t o t h e t u n n e l was o n l a n d o w n e d b y A, o r e v e n C? As I read t h e cases, t h e
answer is t h a t t h e c o m m o n l a w gave A t h e r i g h t t o d o so i n c e r t a i n

circumstances,

even i n t h e absence of a n express agreement b e t w e e n A a n d B.


71.

This seems clear f r o m statements of t h e C o u r t of Appeal i n Re an Arbitration between


Lord Gerard and London and North Western Railway Company, o n w h i c h M r D r i s c o l l
relied. L o r d Esher stated:
At common

law, where, by agreement, the upper portion of land is sold, the mines being

reserved, without any express stipulation, I think a necessary implication arises in


favour of the mine-owner that, if he cannot get the coal otherwise, he may, working in
a reasonable way, bore through the upper land which is sold to get at the mine.

Rigby LJ said:
... where an owner has sold the surface, reserving the mines, the implication even at
common

law would be that, if the circumstances of the case rendered it proper, the mine

- owner might sink a shaft through the surface for the purpose of getting at the minerals
... The law is that, where there is an exception of minerals, there is a right, if necessary,
to use the ordinary and proper means of working in order to get the minerals excepted,
even although it may involve interference with the land sold.

Halsbury's Laws of England, "Mines, Minerals and Quarries", states:


If minerals cannot be got otherwise, the owner or lessee of the minerals may bore in a
reasonable way through the lessor's land and minerals not included in the demise in
order to reach them, and it does not matter whether the barrier is horizontal or vertical.

[Aikens LJ considered Eardley v Granville and his conclusion is set out in the next
paragraph]
74.

A l t h o u g h t h e judges i n those cases d o n o t expressly say so, i t seems t o me t h a t t h e


p r i n c i p l e o f l a w w h i c h t h e y i n v o k e t o give t h e r i g h t o f t h e r e l e v a n t person t o get
access t o t h e m i n e r a l s i n strata w h i c h he o w n s o r has leased m u s t be t h e p r i n c i p l e o f

O w n e r s h i p , l i c e n s i n g a n d sources o f l a w

non-derogation

f r o m grant. A person

who

sells o r lets l a n d , k n o w i n g t h a t t h e

p u r c h a s e r i n t e n d s t o use i t f o r a p a r t i c u l a r p u r p o s e , m a y n o t d o a n y t h i n g t o h a m p e r
the

use o f t h e purchaser's

o r lessee's l a n d f o r t h e p u r p o s e w h i c h

both

parties

c o n t e m p l a t e d at t h e t i m e o f t h e t r a n s a c t i o n . T h e p r i n c i p l e b i n d s successors i n t i t l e
t o t h e v e n d o r o r lessor.
75.

T h e same p r i n c i p l e c a n n o t a p p l y d i r e c t l y t o t h e p r e s e n t case, because, a l t h o u g h t h e


C r o w n o w n s a n y p e t r o l e u m e x i s t i n g i n t h e strata w h e r e i t is t o b e n a t u r a l l y f o u n d
a n d , can, e f f e c t i v e l y , " s e l l " i t t o a licensee, t h e C r o w n d o e s n o t o w n t h e s u r r o u n d i n g
strata; a t h i r d party, B o c a r d o , does so. T h e C r o w n has n o t s o l d t o a l i c e n s e e t h e r i g h t
to

search a n d b o r e f o r a n d get p e t r o l e u m from within land owned

T h e r e f o r e , I m u s t reject t h e s u b m i s s i o n

analogous t o t h e c o m m o n law right, w h i c h


petroleum

through

the surrounding

by the Crown.

o f M r D r i s c o l l t h a t t h e r e is s o m e right,
e n t i t l e s Star t o h a v e access t o t h e

strata,

even

i f this

would

i n v o l v e no

u n r e a s o n a b l e i n t e r f e r e n c e w i t h t h e r i g h t s o f a n y o n e else.
76.

T h a t leaves t h e s e c o n d p o s s i b i l i t y , viz. t h a t s e c t i o n s 1(1) a n d 2 ( 1 ) o f t h e 1 9 3 4 Act,


t a k e n t o g e t h e r w i t h s e c t i o n s 3 ( 1 ) a n d 10(3) g i v e s o m e r i g h t o r j u s t i f i c a t i o n f o r t h e
i n t r u s i o n , a t d e p t h , w i t h i n Bocardo's l a n d . T h e q u e s t i o n is w h e t h e r , t o g e t h e r , t h e y
p r e c l u d e B o c a r d o f r o m s u i n g Star, as licensee u n d e r t h e 1 9 3 4 Act, i n trespass, if it
bores o r uses p i p e l i n e s at d e p t h , t h r o u g h strata o w n e d b y B o c a r d o , f o r t h e sole
p u r p o s e o f s e a r c h i n g f o r a n d g e t t i n g p e t r o l e u m i n t h e l i c e n c e d area; a n d does so
w i t h o u t c a u s i n g "one iota" o f i n t e r f e r e n c e t o Bocardo's use o r e n j o y m e n t o f its land?
Before t h e j u d g e , c o u n s e l f o r Star ( n o t M r D r i s c o l l ) h a d c o n c e d e d t h a t , as a m a t t e r of
law, t h e effect o f t h e l i c e n c e f r o m t h e C r o w n d i d n o t e n t i t l e Star t o e x t r a c t t h e
p e t r o l e u m f r o m t h e r e s e r v o i r a n d get i t t h r o u g h t h e s t r a t a a b o v e t h e reservoir. That
c o n c e s s i o n o f l a w was w i t h d r a w n b e f o r e us; b e i n g a c o n c e s s i o n o f law, w e c o u l d n o t
be b o u n d b y i t a n y w a y .

77.

I start f r o m t h e p o s i t i o n B o c a r d o w o u l d h a v e b e e n i n a p a r t f r o m t h e 1 9 3 4 Act. Apart


f r o m s e c t i o n 1(1), i t m u s t be h i g h l y a r g u a b l e t h a t B o c a r d o w o u l d h a v e o w n e d the
p e t r o l e u m l y i n g b e n e a t h t h e surface o f its l a n d . F u r t h e r m o r e , a p a r t f r o m s e c t i o n 1(1)
of t h e Act, i t m u s t also be h i g h l y a r g u a b l e t h a t B o c a r d o w o u l d h a v e h a d t h e exclusive
r i g h t (as l a n d o w n e r ) t o search, b o r e f o r a n d get a n y p e t r o l e u m u n d e r its l a n d , just as
a l a n d o w n e r c o u l d extract coal f o u n d beneath

i t s l a n d . ( I a c c e p t t h a t these t w o

p r o p o s i t i o n s are s u b j e c t t o t h e q u e s t i o n o f w h e t h e r ,

a t c o m m o n law, p e t r o l e u m

w o u l d h a v e b e e n t r e a t e d i n t h e same w a y as c o a l o r as w a t e r ) . B u t s e c t i o n 1(1) o f the


1934 A c t declares t h a t t h e p e t r o l e u m b e l o n g s t o t h e C r o w n , n o t t h e p a p e r t i t l e o w n e r
of t h e l a n d i n w h i c h i t is t o b e f o u n d . M o r e o v e r , s e c t i o n s 1(1) a n d 2 ( 1 ) o f t h e A c t take
away any rights that t h e l a n d o w n e r m a y

h a v e h a d t o search, b o r e f o r a n d get

p e t r o l e u m b e n e a t h its l a n d a n d i n s t e a d g i v e t h e C r o w n o r its l i c e n s e e t h e exclusive


right t o d o t h o s e t h i n g s .
78.

M r D r i s c o l l argues t h a t t h e effect o f these p r o v i s i o n s is t h a t t h e o w n e r o f t h e strata


w i t h i n w h i c h t h e p e t r o l e u m is t o b e f o u n d h a s s u f f e r e d a c u r t a i l m e n t o f its r i g h t s o f
e x c l u s i v e possession o f its l a n d . T h e effect is said t o be a n a l o g o u s t o t h e o w n e r (or
lessee) o f l a n d (A) g r a n t i n g a n o t h e r (B), a l i m i t e d r i g h t t o e n t e r o n t o ( o r b e n e a t h )
l a n d f o r l i m i t e d , d e f i n e d purposes. T h e r i g h t c a n be i m p l i e d (as i n Earl G r a n v i l l e ' s
case), so t h a t , i n respect o f t h e p a r t i c u l a r l i m i t e d p u r p o s e s o n l y , n o trespass is

Marc H a m m e r s o n

c o m m i t t e d . I n t h a t case, t h e c o p y h o l d e r o f t h e l a n d d i d n o t have exclusive factual


possession of t h e strata b e n e a t h his l a n d because Earl G r a n v i l l e was e n t i t l e d t o use i t
t o t r a n s p o r t C r o w n coal.
79.

But t h i s a r g u m e n t b y a n a l o g y t h e n p r o m p t s the q u e s t i o n : is t h i s c o n s i s t e n t w i t h t h e
p r o v i s i o n s o f t h e s t r u c t u r e o f t h e A c t as a w h o l e a n d i n p a r t i c u l a r s e c t i o n 3(1)
c o n c e r n i n g " a n c i l l a r y r i g h t s " a n d section 10(3)? A n y r i g h t s e n a b l i n g a licensee u n d e r
t h e 1934 Act t o i n t r u d e i n t o strata b e n e a t h t h e l a n d o w n e d b y a n o t h e r c o u l d o n l y
be g r a n t e d b y v i r t u e o f t h e effect of sections 1(1) a n d 2(1) of t h e Act. However, t h e y
do

n o t p o s i t i v e l y give a licensee t h a t r i g h t . T h e y o n l y declare t h e three t h i n g s

m e n t i o n e d above: t h e Crown's o w n e r s h i p o f t h e p e t r o l e u m ; t h e Crown's exclusive


r i g h t t o search, bore f o r a n d get t h a t p e t r o l e u m ; a n d t h e Crown's exclusive r i g h t t o
grant licences t o others t o d o those t h i n g s .
80.

I confess I have f o u n d t h e q u e s t i o n of t h e effect of t h e 1934 Act a v e r y d i f f i c u l t o n e


a n d I have altered m y v i e w as t o its effect m o r e t h a n once. But, u l t i m a t e l y , a n d ( I
confess w i t h some reluctance), I have c o n c l u d e d t h a t i t is i m p o s s i b l e t o say t h a t t h e
1934

Act, w h e n read w i t h t h e 1923 A c t a n d t h e e x i s t i n g c o m m o n law, grants a

licensee u n d e r t h e 1934 Act t h e express o r i m p l i e d r i g h t t o bore p i p e l i n e s at d e p t h


t h r o u g h t h e l a n d o f a n o t h e r w i t h i n t h e licensed area i n t h e absence of agreement o r
the grant o f a n " a n c i l l a r y r i g h t " u n d e r t h a t Act, even w h e r e t h i s w i l l n o t interfere
w i t h t h a t l a n d "one i o t a " .
81.

M y reasoning is as f o l l o w s : first, there is n o express r i g h t i n t h e 1934 A c t w h i c h


p e r m i t s t h e b o r i n g o f a p i p e l i n e at d e p t h t h r o u g h l a n d w i t h i n t h e licensed area, i n
pursuance o f t h e licence. Secondly, section 3(1) expressly a c k n o w l e d g e s t h a t a
licensee u n d e r t h e Act m a y need t o acquire " a n c i l l a r y r i g h t s " t o exercise t h e r i g h t s
granted b y t h e licence g i v e n t o i t . O n e o f t h e types o f " a n c i l l a r y r i g h t " expressly
c o n t e m p l a t e d is t h e " r i g h t t o enter u p o n l a n d a n d t o s i n k boreholes t h e r e i n for t h e
purpose of searching f o r a n d g e t t i n g petroleum...". I have c o n c l u d e d t h a t t h e phrase
"enter u p o n l a n d " is i n t e n t i o n a l l y general

a n d m u s t embrace l a n d w i t h i n t h e

licensed area. Moreover, I t h i n k t h a t M r G a u n t is correct i n s u b m i t t i n g t h a t t h e


phrase is b r o a d e n o u g h t o i n c l u d e e n t e r i n g i n t o l a n d b e n e a t h t h e surface.
82.

T h i r d l y , c o n f i r m a t i o n t h a t t h e k i n d o f " a n c i l l a r y r i g h t s " t h a t m i g h t be r e q u i r e d
i n c l u d e s " a n c i l l a r y r i g h t s " f o r use o f l a n d b e n e a t h t h e surface is f o u n d i n t h e
d e s c r i p t i o n of t h e types o f " a n c i l l a r y r i g h t s " i n section 3(2)(b) of t h e 1923 Act, w h i c h
includes a " r i g h t of... u n d e r g r o u n d wayleave". T h a t phrase is, i n m y view, b r o a d
e n o u g h t o encompass a r i g h t t o bore a p i p e t h r o u g h strata as w e l l as create a n d use
a passage t o get t o a n d carry m i n e r a l s such as coal.

83.

Fourthly, there is t h e w o r d i n g o f section 10(3) o f t h e 1934 Act. T h e section was


clearly i n t e n d e d

t o protect t h e rights o f landowners where petroleum

m i g h t be

f o u n d , w h o s e r i g h t s m i g h t o t h e r w i s e have been adversely affected b y t h e g r a n t o f


licences p u r s u a n t t o s e c t i o n 2(1) o f t h e Act. I take t h e w o r d i n g o f s e c t i o n 10(3) t o
m e a n t h a t i f a licensee has a r i g h t (by agreement, t h e c o m m o n law, o r some o t h e r
statute) t o "enter o n o r interfere w i t h l a n d " , t h e licensee c a n c o n t i n u e t o d o so.
F u r t h e r m o r e , i t c a n d o so b y exercising r i g h t s expressly p r o v i d e d for b y t h e 1934 Act,
t h a t is, b y a c q u i r i n g a n " a n c i l l a r y r i g h t " . But, apart f r o m those rights, n o o t h e r r i g h t
is c o n f e r r e d b y t h e A c t o n a licensee a n d t h e C r o w n c a n n o t b y licence c o n f e r a n y

135

O w n e r s h i p , l i c e n s i n g a n d sources of l a w

o t h e r r i g h t o n a licensee t o " e n t e r o n o r i n t e r f e r e w i t h l a n d " . T o m y m i n d , t h e w o r d s


" e n t e r on... l a n d " i n t h a t s e c t i o n m u s t i n c l u d e e n t e r i n g o n l a n d at d e p t h . I w o u l d be
p r e p a r e d t o give " i n t e r f e r e w i t h l a n d " a p r a c t i c a l m e a n i n g , s u c h as h a v i n g

some

d e l e t e r i o u s effect u p o n t h e l a n d o r its use b y t h e l a n d o w n e r , b u t t h a t does n o t assist


Star i n t h i s case, because i t has e n t e r e d u p o n Bocardo's l a n d at d e p t h .
84.

T h i s m e a n s t h a t Star h a v e trespassed o n Bocardo's l a n d . I r e a c h t h i s c o n c l u s i o n w i t h


r e l u c t a n c e o n t h e facts o f t h e p r e s e n t case. First, because, as t h e j u d g e f o u n d , t h i s
trespass d i d n o t affect Bocardo's use o r e n j o y m e n t o f t h e l a n d " o n e i o t a " . Secondly,
t h e b o r i n g a n d use o f t h e p i p e l i n e s t o e x t r a c t t h e o i l d i d n o t i m p i n g e o n a n y rights
t h a t B o c a r d o h a d p r e v i o u s l y had. I t h a d n o r i g h t s t o t h e o i l o r t o search, b o r e f o r or
get i t . T h i r d l y , t h e fact t h a t t h e r e is a trespass

has r e s u l t e d i n e x p e n s i v e a n d

p r o t r a c t e d l i t i g a t i o n o n t h e issue o f damages, whereas, f o r reasons I s h a l l g i v e i n the


n e x t s e c t i o n o f t h i s j u d g m e n t , B o c a r d o w i l l g a i n v i r t u a l l y n o e c o n o m i c b e n e f i t at all.
85.

I t m a y be t h a t p a r t o f t h e p r o b l e m is t h a t w h e n t h e 1 9 3 4 A c t was passed, "deviated


d r i l l i n g " was u n k n o w n . O n e c a n t h i n k o f e v e n m o r e e x t r e m e cases. I m a g i n e (as was
t h e fact i n t h e BP v Ryder case) t h a t , w i t h i n t h e l i c e n s e d area, t h e r e are m a n y owners
o f t h e surface l a n d , e.g., w i t h i n a t o w n , u n d e r n e a t h w h i c h lies a large d e p o s i t of
petroleum

i n its n a t u r a l state, w i t h t h e a p e x o f t h e o i l f i e l d d i r e c t l y u n d e r t h e centre

of the t o w n . I n order t o m i n i m i s e d i s r u p t i o n t o t h e u r b a n e n v i r o n m e n t , the well


h e a d is s i t u a t e d o u t o f t o w n a n d t h e licensee d r i l l s f r o m t h e r e i n a " d e v i a t e d " w a y to
t h e a p e x o f t h e o i l f i e l d , w h i c h is, say, at 2 8 0 0 feet u n d e r t h e surface. T h i s means
b o r i n g b e n e a t h m a n y houses o r b a c k gardens, at c o n s i d e r a b l e d e p t h , t o get f r o m
w e l l - h e a d t o t h e a p e x o f t h e o i l f i e l d . I w i l l assume, as i n t h e p r e s e n t case, t h a t the
o w n e r s ' l a n d a n d t h e i r e n j o y m e n t o f i t is n o t a f f e c t e d " o n e i o t a " . M y

conclusion

m e a n s t h a t , i n t h e absence o f a g r e e m e n t w i t h e a c h l a n d o w n e r , a n " a n c i l l a r y r i g h t "


t o b o r e b e n e a t h each h o u s e o w n e r is n e e d e d a n d e a c h h o u s e h o l d e r w o u l d be e n t i t l e d
to

some

form

of compensation

under

section

8 ( 2 ) o f t h e 1 9 6 6 A c t . Private

a r r a n g e m e n t s w i t h so m a n y l a n d o w n e r s w o u l d be i m p r a c t i c a l , so t h e licensee w o u l d
h a v e t o a p p l y t o t h e c o u r t u n d e r sections 1 a n d 3(2) o f t h e 1 9 6 6 Act. D o u b t l e s s the
process w o u l d be l o n g a n d c o s t l y a n d f o r n o one's b e n e f i t o t h e r t h a n t h e lawyers,
unless s u b s t a n t i a l c o m p e n s a t i o n , p u r s u a n t t o s e c t i o n 8 ( 2 ) o f t h e 1 9 6 6 Act, was be
s h a r e d b e t w e e n t h e n u m e r o u s o w n e r s o f t h e t o w n . But, as I say, f o r reasons I w i l l
e x p l a i n below, m y c o n c l u s i o n is t h a t t h e c o m p e n s a t i o n p a y a b l e f o r t h e c o n s t r u c t i o n
o f a p i p e l i n e at d e p t h t h r o u g h a n area l i c e n s e d u n d e r t h e 1 9 3 4 A c t w o u l d be very
s m a l l i n d e e d i f t h e r e is n o i n t e r f e r e n c e ( i n a n y p r a c t i c a l sense) w i t h t h e l a n d t h r o u g h
w h i c h t h e p i p e is b o r e d .
86.

T h e j u d g e a r r i v e d a t t h e same c o n c l u s i o n , a l t h o u g h , I t h i n k , b y a s l i g h t l y d i f f e r e n t
r o u t e . T h e essence o f t h e judge's r e a s o n i n g is t h a t because t h e o b j e c t o f c r e a t i n g the
access t h r o u g h strata o w n e d b y B o c a r d o was t o i n s e r t pipes t o r e m o v e t h e valuable
petroleum
within

l y i n g b e n e a t h t h e surface, t h a t c o n s t i t u t e s a n u n j u s t i f i a b l e

Bocardo's l a n d

a n d was t h u s

intrusion

a trespass. As I u n d e r s t a n d i t , t h e judge

c o n c l u d e d t h a t t h e trespass is t r i g g e r e d b y t h e fact t h a t t h e i n t r u s i o n is t o r e m o v e a
v a l u a b l e m i n e r a l w i t h i n t h e l a n d , e v e n if t h e p e r s o n r e m o v i n g i t has t h e r i g h t t o do
so b y h i s licence. ...
87.

136

M y c o n c l u s i o n o n t h e first m a i n issue is, t h e r e f o r e , t h a t Star a n d i t s predecessors

Marc H a m m e r s o n

c o m m i t t e d a n a c t i o n a b l e trespass w i t h i n Bocardo's lands b y t h e c o n s t r u c t i o n of t h e


p i p e l i n e s PW5, P W 8 a n d P W 9 at a d e p t h of 8 0 0 t o 2 8 0 0 feet b e n e a t h t h e surface o f
t h e O x t e d estate. I m u s t t h e r e f o r e consider n e x t t h e damages issue.

Bocardo SA v Star Energy UK Onshore Ltd [2010] UKSC 35


Lord Hope:
4.

T h e issues t h a t t h i s case raises fall i n t o t w o parts. First, there is a q u e s t i o n w h e t h e r


t h e d r i l l i n g of t h e three wells u n d e r Bocardo's l a n d was a n a c t i o n a b l e trespass. Peter
S m i t h J h e l d t h a t i t was: [2008] E W H C 1756 (Ch); [2009] 1 A l l ER 517. His decision
was a f f i r m e d b y t h e C o u r t of Appeal (Jacob, Aikens a n d S u l l i v a n LJJ) [2009] E W C A
C i v 579; [2009] 3 W L R 1010;

[2010] C h 100. Secondly, i f there was a n actionable

trespass, there is a q u e s t i o n w h a t is t h e correct measure of damages. T h e measure t h a t


was a d o p t e d b y t h e t r i a l judge was rejected b y t h e C o u r t of Appeal, w h i c h m a d e a
very s u b s t a n t i a l r e d u c t i o n i n t h e a w a r d o f damages. Bocardo appeal t o t h i s c o u r t o n
t h e damages issue, a n d t h e r e s p o n d e n t s cross-appeal o n t h e issue of trespass.
6.

It is c o m m o n g r o u n d t h a t a trespass occurs w h e n there is a n u n j u s t i f i e d i n t r u s i o n b y


one p a r t y u p o n l a n d w h i c h is i n t h e possession of another. ... I t is c o m m o n g r o u n d
t o o t h a t Bocardo d i d n o t , a n d does n o t , o w n a n y of t h e p e t r o l e u m

i n t h e reservoir

t h a t is situated b e n e a t h its l a n d . N o r does i t possess, or have t h e r i g h t t o possess, a n y


of t h a t p e t r o l e u m . Those r i g h t s b e l o n g e d t o t h e h o l d e r of t h e licence g r a n t e d b y t h e
Secretary of State u n d e r s e c t i o n 2 of t h e P e t r o l e u m ( P r o d u c t i o n ) Act 1934,

Conoco

(UK) Ltd. T h e y n o w b e l o n g t o t h e respondents ( c u r r e n t l y t h e first respondent, Star


Energy Weald Basin L t d ) as t h e o r i g i n a l holder's assignees. By v i r t u e of section 1 o f
t h e 1934 Act, w h i c h vested

the property i n petroleum

e x i s t i n g i n its n a t u r a l

c o n d i t i o n i n strata i n Great B r i t a i n i n t h e C r o w n , at n o t i m e d i d Bocardo have a n y


r i g h t t o search, b o r e f o r o r get t h a t p e t r o l e u m

f r o m t h e reservoir b e n e a t h its land.

O n l y t h e C r o w n o r its licensee h a d t h e r i g h t t o d o so.


7.

T h e q u e s t i o n w h e t h e r t h e d r i l l i n g of t h e three wells u n d e r Bocardo's l a n d , a n d t h e


c o n t i n u e d presence o f t h e w e l l casing a n d t u b i n g w i t h i n t h e m , was a n a c t i o n a b l e
trespass raises t h e f o l l o w i n g issues: (1) w h e t h e r Bocardo's t i t l e t o t h e l a n d extends
d o w n t o t h e strata b e l o w t h e surface t h r o u g h w h i c h t h e three wells a n d t h e i r casing
a n d t u b i n g pass; (2) w h e t h e r possession or a r i g h t t o possession is a p r e - c o n d i t i o n for
b r i n g i n g a c l a i m f o r trespass a n d , i f so, w h e t h e r Bocardo has o r is e n t i t l e d t o
possession of t h e subsurface strata t h r o u g h w h i c h these facilities pass; (3) w h e t h e r
t h e respondents have a r i g h t u n d e r t h e 1934 Act ( a n d s u b s e q u e n t l y t h e 1998 Act) t o
d r i l l a n d use t h e three wells a n d t h e i r casing a n d t u b i n g t o e x t r a c t p e t r o l e u m

from

b e n e a t h Bocardo's l a n d w h i c h gives a defence t o a c l a i m o f trespass.


9.

Bocardo's case is t h a t i t is t r i t e law t h a t a c o n v e y a n c e of l a n d i n c l u d e s t h e surface a n d


e v e r y t h i n g b e l o w i t , unless there have b e e n exceptions

from

t h e g r a n t such as

c o m m o n l y occurs i n t h e case o f minerals. T h e r e s p o n d e n t s d o n o t d i s p u t e t h i s


p r o p o s i t i o n as a general rule t h a t applies w h e r e t h e r i g h t s of t h e surface o w n e r are
i n t e r f e r e d w i t h . But t h e y m a i n t a i n t h a t i t does n o t e x t e n d t o t h e d e p t h at w h i c h t h e
o p e r a t i o n s were a n d are b e i n g carried o u t i n t h i s case. T h e m i n i m u m d e p t h was 8 0 0
feet, w h i l e f o r t h e m o s t part t h e d e p t h s were g r e a t l y i n excess o f t h i s . M r D r i s c o l l Q C

137

Ownership, licensing and

sources of law

for the respondents said that he accepted that i n law the surface owner owned the
substrata to some depth, but not that far. He submitted that the wells and their tubes
and casing d i d not interfere w i t h or enter u p o n the " l a n d " i n any meaningful way at
all. Moreover the right t o search, bore for and get the petroleum was vested i n the
10.

Crown. Bocardo d i d not, and no right to possess, the petroleum.


It has often been said that prima facie the owner of the surface is entitled to the surface
itself and everything below it d o w n t o the centre of the earth. ... The proposition that
prima facie everything below the surface belongs to the surface owner is often linked
to the proposition that everything above it belongs to h i m too: "everything up to the
sky", as Sir W i l l i a m James VC put it i n Corbett v Hill (1870) LR 9 R 671, 673, or
"everything under the sky" i n the words of Bowen LJ i n Poutney v Clayton. I n Mitchell
v Mosley [1914] 1 Ch 438, 450, Cozens Hardy MR

said that the grant of the land

includes the surface and all that is supra - houses, trees and the like - and everything
that is infra - mines, earth, clay, etc. Agreeing w i t h him, Swinfen Eady and Phillimore
LJJ said that this was a recognised rule of law. Plainly, the source for these remarks was
the well-known Latin brocard cuius est solum, eius est usque ad coelum et ad infernos.
14.

I think, w i t h respect, that Aikens LJ [in the Court of Appeal] was perhaps a little too

15.

hasty i n asserting that the brocard is not part of English law. ...
The C r o w n has asserted ownership of the petroleum, but it does not assert ownership
of the strata that surround it. The o n l y plausible candidate is the registered owners
of the land above, w h i c h is exactly what the bocard itself indicates. Mr Driscoll was
unable to p o i n t to any contrary authority.

27.

The better view, as the Court of Appeal recognised [2009] 3 WLR,

[2010] Ch 100, para

59, is to h o l d that the owner of the surface is the owner of the strata beneath it,
i n c l u d i n g the minerals that are t o be f o u n d there, unless there has been an alienation
of t h e m by a conveyance, at c o m m o n law or by statute to someone else. That was
the view that the Court of Appeal took i n Mitchell v Mosely [1914] 1 Ch 438. Much
has happened since then, as the use of technology has penetrated deeper and deeper
i n t o the earth's surface. But I see no reason why its view should not still be regarded
as good law. ...
28.

I w o u l d h o l d therefore that the appellant's title extends d o w n t o the strata through


w h i c h the three wells and their casing and t u b i n g pass.

36.

For all these reasons I w o u l d hold, i n agreement w i t h the Court of Appeal, that the
respondents have trespassed on Bocardo's land and that, subject to their submissions
as to the amount of damages, they have no defence t o Bocardo's claim. I would
dismiss the cross-appeal.

Inland Revenue Commissioners v Mobil North Sea Ltd [1986] 1 WLR 296
The taxpayer company, a subsidiary of a large United States oil company, was in
business f i n d i n g and extracting o i l from the N o r t h Sea. I n 1972

the taxpayer

company was granted a licence by the British Government t o w i n o i l f r o m a specified


block i n the Beryl Field. I n 1979 the taxpayer company entered i n t o a fixed fee
contract w i t h B. Ltd for the construction of installations required for o i l extraction
in the northern part of that field. In April, May and June 1981, B. Ltd, as agent for

138

Marc H a m m e r s o n

t h e taxpayer c o m p a n y , entered i n t o three separate contracts w i t h three c o n s t r u c t i o n


c o m p a n i e s f o r t h e p r o v i s i o n o f three topside modules, each c o s t i n g some 15m., for
t h a t o i l r i g i n s t a l l a t i o n . By December 1982

p a y m e n t s a m o u n t i n g t o 232.8 m.,

had

been m a d e b y t h e taxpayer c o m p a n y o n t h e c o m p l e t i o n of t h e c o n s t r u c t i o n . For its


p e r i o d of c l a i m e n d i n g 30 J u n e 1982

t h e taxpayer c o m p a n y c l a i m e d e x p e n d i t u r e

s u p p l e m e n t at 35 per cent u n d e r t h e relevant p r o v i s i o n s of t h e O i l T a x a t i o n


1975, as amended. The

Act

revenue refused t o accede t o its c l a i m o n t h e g r o u n d t h a t

u n d e r t h e p r o v i s i o n s of section 111(1) a n d (7) o f t h e Finance Act 1981


reduce t o n i l t h e percentage of costs a l l o w e d

(intended to

for d e d u c t i o n as s u p p l e m e n t i n

c o m p u t i n g t h e a m o u n t of p e t r o l e u m revenue tax chargeable o n

o i l won)

the

e x p e n d i t u r e o n t h e topside m o d u l e s d i d n o t c o n s t i t u t e e x p e n d i t u r e b y t h e taxpayer
c o m p a n y i n c u r r e d before 1 J a n u a r y 1983
before 1 J a n u a r y 1981. The
commissioners on

into

u p h e l d b y t h e special

t h e g r o u n d t h a t t h e e x p e n d i t u r e i n q u e s t i o n was

pursuance o f " t h e 1979


rig was

" i n pursuance o f " a c o n t r a c t entered

taxpayer company's appeal was

incurred " i n

contract, that being the " c o n s t i t u t i o n under w h i c h the o i l

constructed."

It was
granted

h e l d , a l l o w i n g t h e appeal, t h a t t h e licence t o prospect f o r o i l t h a t

t o t h e t a x p a y e r c o m p a n y i n 1972

was

d i d n o t fall w i t h i n t h e m e a n i n g of a

" c o n t r a c t " as used i n section 111 of t h e Finance Act 1981

and a c c o r d i n g l y i t c o u l d

n o t c o n s t i t u t e t h e c o n t r a c t u n d e r w h i c h t h e e x p e n d i t u r e t h a t was

i n issue

was

Leaver f o r t h e taxpayer c o m p a n y

(Mr

i n c u r r e d f o r t h e p u r p o s e of section 111(7) of t h a t Act.

Harman J:
... I t was

v i g o r o u s l y pressed u p o n me

by M r

Bates left t h i s p o i n t t o his j u n i o r , an a c t i o n w h i c h may


of t h e soundness of t h e p o i n t ) . He

or may

n o t i l l u s t r a t e his v i e w

argued t h a t t h e licence was

itself a c o n t r a c t ;

further, t h a t i t was a c o n t r a c t of w h i c h , at least w h e n fleshed o u t b y t h e p r o g r a m m e ,


specific p e r f o r m a n c e w o u l d be o b t a i n a b l e i n t h i s d i v i s i o n ( l e a v i n g aside any special
considerations a r i s i n g f r o m t h e o t h e r c o n t r a c t i n g p a r t y b e i n g t h e C r o w n ) . Thus, said
Mr

Leaver, since b o t h licence a n d

p r o g r a m m e were before t h e " c u t - o f f " date,

r e q u i r e d t h e w o r k s t o be done, e x p e n d i t u r e u p o n those w o r k s was

and

incurred " i n

pursuance o f " a q u a l i f y i n g c o n t r a c t .
To t h i s c o n t e n t i o n M r Clarke m a d e t w o answers. First he s u b m i t t e d t h a t i n t h i s
legislation licences are w e l l recognised a n d
N o w h e r e was

are referred t o b y

that description.

a licence described as a c o n t r a c t . T h u s t h e w o r d s used, each h a v i n g a

clear concept, s h o u l d be treated as r e f e r r i n g t o d i f f e r e n t subject matters. Second he


s u b m i t t e d t h a t i t was a s t r a i n e d use o f language t o describe a g r a n t b y t h e C r o w n as
a contract, even t h o u g h o b l i g a t i o n s b i n d i n g u p o n t h e grantee, less clearly u p o n t h e
Secretary of State, c o u l d be spelt o u t of i t . T h i r d l y he s u b m i t t e d t h a t there was

good

a u t h o r i t y f o r h o l d i n g t h a t n o t every d o c u m e n t c o n t a i n i n g c o n t r a c t u a l o b l i g a t i o n s
was

p r o p e r l y described as "a contract." He

[1984] QB

referred t o Saul v Norfolk County Council

559 w h e r e t h e C o u r t of Appeal h e l d t h a t a t e n a n c y g r a n t e d by a c o u n t y

c o u n c i l i n respect of a s m a l l h o l d i n g was n o t an "agreement" w i t h i n t h e m e a n i n g of


t h e relevant schedule t o t h e A g r i c u l t u r e Act 1970. Yet i t is o b v i o u s t h a t a t e n a n c y
originates

i n an

agreement between

landlord

and

tenant;

indeed,

tenancy

139

O w n e r s h i p , l i c e n s i n g a n d sources o f l a w

documents are often called "tenancy agreements." I find the Court of Appeal's
reasoning w h o l l y convincing, and am
language i n t h i s case is apt. I n m y

satisfied t h a t M r

Clarke's a n a l o g y w i t h the

j u d g m e n t t h e licence, w i t h or w i t h o u t the

p r o g r a m m e , is n o t w i t h i n t h e m e a n i n g o f t h e t e r m "a c o n t r a c t " as used i n section


111(7) o f t h e Finance Act

1981.

Mortensen v Peters (1906) 8 F (J) 93; (1906) 14 SLT 227


The Lord Justice General:
The facts of t h i s case are t h a t t h e a p p e l l a n t b e i n g a f o r e i g n subject, a n d master of a
vessel registered i n a f o r e i g n c o u n t r y , exercised t h e m e t h o d o f f i s h i n g k n o w n as otter
t r a w l i n g at a p o i n t w i t h i n t h e M o r a y F i r t h , m o r e t h a n three m i l e s f r o m t h e shore, b u t
to t h e west o f a l i n e d r a w n f r o m D u n c a n s b y Head i n Caithness t o Rattray P o i n t i n
Aberdeenshire; t h a t b e i n g thereafter f o u n d w i t h i n B r i t i s h t e r r i t o r y , t o wit,

at Grimsby,

he was s u m m o n e d t o t h e Sheriff C o u r t at D o r n o c h t o answer t o a c o m p l a i n t against


h i m for h a v i n g c o n t r a v e n e d t h e 7 t h section o f t h e H e r r i n g Fishery Act, 1889, and the
bye-law o f t h e Fishery Board, t h e r e u n d e r made, a n d was c o n v i c t e d . ...
My

Lords,

I apprehend

that the question

is one

of c o n s t r u c t i o n and

of

c o n s t r u c t i o n only. I n t h i s C o u r t we have n o t h i n g t o d o w i t h t h e q u e s t i o n o f w h e t h e r
t h e legislature has or has n o t d o n e w h a t f o r e i g n powers may

consider a u s u r p a t i o n i n

a q u e s t i o n w i t h t h e m . N e i t h e r are we a t r i b u n a l s i t t i n g t o decide w h e t h e r an act of the


legislature is ultra vires as i n c o n t r a v e n t i o n o f generally a c k n o w l e d g e d principles of
i n t e r n a t i o n a l law. For us an Act o f Parliament d u l y Passed b y Lords a n d C o m m o n s and
assented t o by t h e King, is supreme, a n d we are b o u n d t o give effect t o its terms. The
counsel f o r t h e a p p e l l a n t a d v a n c e d t h e p r o p o s i t i o n t h a t statutes c r e a t i n g offences
m u s t be p r e s u m e d t o a p p l y (1) t o B r i t i s h subjects; a n d (2) t o f o r e i g n subjects i n British
t e r r i t o r y ; b u t t h a t s h o r t o f express e n a c t m e n t t h e i r a p p l i c a t i o n s h o u l d n o t be further
extended. The a p p e l l a n t is a d m i t t e d l y n o t a B r i t i s h subject, w h i c h excludes (1);

and

he f u r t h e r argued t h a t t h e locus delicti, b e i n g i n t h e sea b e y o n d t h e three-mile l i m i t ,


was n o t w i t h i n B r i t i s h t e r r i t o r y ; a n d t h a t c o n s e q u e n t l y t h e a p p e l l a n t was n o t i n c l u d e d
in

the

prohibition

of the

statute. V i e w e d

p r e s u m p t i o n s p u t f o r w a r d by t h e a p p e l l a n t m a y

as

general

propositions the

two

be t a k e n as correct. This, however,

advances t h e m a t t e r b u t l i t t l e , f o r like all p r e s u m p t i o n s t h e y m a y

be redargued,

and

t h e q u e s t i o n r e m a i n s w h e t h e r t h e y have been redargued o n t h i s occasion.


The

first t h i n g t o be n o t e d is t h a t t h e p r o h i b i t i o n here, a b r e a c h o f w h i c h

c o n s t i t u t e s t h e offence, is n o t a n absolute p r o h i b i t i o n against d o i n g a c e r t a i n t h i n g ,


b u t a p r o h i b i t i o n against d o i n g i t i n a c e r t a i n place. Now,

w h e n a legislature, u s i n g

w o r d s o f a d m i t t e d g e n e r a l i t y - " I t shall n o t be l a w f u l , " etc., "Every p e r s o n who,"

etc.

- c o n d i t i o n s an offence b y t e r r i t o r i a l l i m i t s , i t creates, I t h i n k , a v e r y s t r o n g i n f e r e n c e
t h a t i t is, f o r t h e purposes specified, a s s u m i n g a r i g h t t o legislate f o r t h a t t e r r i t o r y
against

a l l persons whomsoever. This

strengthened

w h e n i t is o b v i o u s

i n f e r e n c e seems t o

me

still

further

t h a t t h e r e m e d y t o t h e m i s c h i e f s o u g h t t o be

o b t a i n e d b y t h e p r o h i b i t i o n w o u l d be e i t h e r defeated or r e n d e r e d less effective i f all


persons w h o m s o e v e r were n o t affected by t h e e n a c t m e n t . I t is o b v i o u s t h a t t h e latter
c o n s i d e r a t i o n a p p l i e d i n t h e present case. W h a t e v e r m a y

140

be t h e v i e w s o f a n y o n e as

Marc H a m m e r s o n

to t h e p r o p r i e t y or e x p e d i e n c y of s t o p p i n g t r a w l i n g , t h e e n a c t m e n t shews o n t h e face
of i t t h a t i t c o n t e m p l a t e s s u c h s t o p p i n g ; a n d i t w o u l d be m o s t clearly i n e f f e c t i v e t o
debar t r a w l i n g by t h e B r i t i s h subject w h i l e t h e subjects o f o t h e r n a t i o n s were a l l o w e d
so t o fish.
It is said by t h e a p p e l l a n t t h a t all t h i s m u s t give way
I n t e r n a t i o n a l Law

to the consideration that

has f i r m l y f i x e d t h a t a locus such as t h i s is b e y o n d t h e l i m i t s o f

t e r r i t o r i a l sovereignty; a n d t h a t c o n s e q u e n t l y

i t is n o t t o be t h o u g h t t h a t i n such a

place t h e legislature c o u l d seek t o affect any b u t t h e King's subjects.


It is a t r i t e o b s e r v a t i o n t h a t t h e r e is n o such t h i n g as a standard of I n t e r n a t i o n a l
Law, extraneous t o t h e d o m e s t i c law o f a k i n g d o m , t o w h i c h appeal may

be made.

I n t e r n a t i o n a l Law, so far as t h i s C o u r t is concerned, is t h e b o d y of d o c t r i n e regarding


t h e i n t e r n a t i o n a l r i g h t s a n d duties of States w h i c h has been a d o p t e d a n d m a d e part
of t h e Law o f Scotland. N o w

can i t be said t o be clear by t h e law of Scotland t h a t t h e

locus here is b e y o n d w h a t t h e legislature may

assert r i g h t t o affect by legislation

against all w h o m s o e v e r f o r t h e p u r p o s e of r e g u l a t i n g m e t h o d s of f i s h i n g ?
I d o n o t t h i n k I n e e d say a n y t h i n g a b o u t w h a t is k n o w n as t h e three-mile l i m i t .
It may

be assumed t h a t w i t h i n t h e t h r e e miles t h e t e r r i t o r i a l s o v e r e i g n t y w o u l d be

s u f f i c i e n t t o cover a n y such l e g i s l a t i o n as t h e present. I t is e n o u g h t o say t h a t t h a t is


n o t a p r o o f o f t h e c o u n t e r p r o p o s i t i o n t h a t outside t h e three miles n o such result
c o u l d be l o o k e d for. The

locus, a l t h o u g h outside t h e three-mile l i m i t , is w i t h i n t h e

bay k n o w n as t h e M o r a y F i r t h , a n d t h e M o r a y F i r t h , says t h e respondent, is intra


fauces

terrae. Now,

I c a n n o t say t h a t there is any d e f i n i t i o n o f w h a t fauces

terrae

e x a c t l y are. But t h e r e are at least t h r e e p o i n t s w h i c h go far t o s h o w t h a t t h i s spot


m i g h t be considered as l y i n g t h e r e i n . ...
I t seems t o me

therefore, w i t h o u t l a y i n g d o w n the p r o p o s i t i o n that the M o r a y

F i r t h is f o r every p u r p o s e w i t h i n t h e t e r r i t o r i a l sovereignty, i t can at least be clearly


said t h a t t h e a p p e l l a n t c a n n o t m a k e o u t his p r o p o s i t i o n t h a t i t is i n c o n c e i v a b l e t h a t
t h e B r i t i s h legislature s h o u l d a t t e m p t for fishery r e g u l a t i o n t o legislate against all a n d
s u n d r y i n such a place. A n d

i f t h a t is so, t h e n I revert t o t h e c o n s i d e r a t i o n s already

stated w h i c h as a m a t t e r o f c o n s t r u c t i o n m a k e me

t h i n k t h a t i t d i d so legislate. ...

If i t h a d been a t t e m p t e d t o i n f e r f r o m t h e terms of t h e Act a p r o h i b i t i o n of w h i c h


t h e effect was t o give t o subjects a n d d e n y t o foreigners t h e r i g h t t o fish, t h e n t h e
C o n v e n t i o n m i g h t be apt t o suggest an a r g u m e n t against such a c o n s t r u c t i o n . But
t h a t is n o t so. Subjects a n d foreigners are ex hypothesi
I am

i n t h i s m a t t e r treated alike.

t h e r e f o r e o f o p i n i o n t h a t t h e C o n v i c t i o n was

right, that b o t h

s h o u l d be a n s w e r e d i n t h e a f f i r m a t i v e a n d t h a t t h e appeal s h o u l d be

questions

dismissed.

Lord Kyllachy:
... I t is n o t d i s p u t e d t h a t , if t h i s s t a t u t o r y e n a c t m e n t falls, o n its just c o n s t r u c t i o n , t o
be read l i t e r a l l y a n d w i t h o u t q u a l i f i c a t i o n , t h e a p p e l l a n t was r i g h t l y c o n v i c t e d . T h i s
C o u r t is, o f course, n o t e n t i t l e d t o canvass t h e p o w e r of t h e legislature t o m a k e t h e
e n a c t m e n t . The

o n l y q u e s t i o n o p e n is as t o its just c o n s t r u c t i o n . N o r can t h e r e be

a n y d o u b t as t o t h a t c o n s t r u c t i o n i f t h e language is t o be read literally, or o n o r d i n a r y


p r i n c i p l e s of c o n s t r u c t i o n , a n d apart f r o m i m p l i c a t i o n s s o u g h t t o be deduced f r o m
outside.

141

O w n e r s h i p , l i c e n s i n g a n d sources o f l a w

The

appellant, however, c o n t e n d s t h a t t h e statute c a n n o t be read l i t e r a l l y , b u t

m u s t be read w i t h reference t o c e r t a i n alleged rules of i n t e r n a t i o n a l law; a n d t h a t i n


t h a t v i e w i t does not, o n its just c o n s t r u c t i o n , apply, as regards foreigners, t o such part
o f t h e area specified, as, a c c o r d i n g t o i n t e r n a t i o n a l law, lies o u t s i d e t h e t e r r i t o r y or
at least t h e t e r r i t o r i a l j u r i s d i c t i o n of t h e B r i t i s h C r o w n . He f u r t h e r c o n t e n d s t h a t the
larger part of t h e area specified, i n c l u d i n g t h e part i n w h i c h his alleged o f f e n c e was
c o m m i t t e d , is, o n e the p r i n c i p l e s of i n t e r n a t i o n a l law, o u t s i d e t h e said l i m i t s .
Now, d e a l i n g first w i t h t h e p o i n t o f c o n s t r u c t i o n - t h e q u e s t i o n as t o w h a t t h e
s t a t u t o r y e n a c t m e n t means - i t m a y p r o b a b l y be c o n c e d e d t h a t t h e r e is always a
c e r t a i n p r e s u m p t i o n against t h e Legislature o f a c o u n t r y asserting o r a s s u m i n g t h e
existence o f a t e r r i t o r i a l j u r i s d i c t i o n g o i n g clearly b e y o n d l i m i t s established

by the

c o m m o n c o n s e n t o f n a t i o n s - t h a t is t o say b y I n t e r n a t i o n a l law. Such assertion or


a s s u m p t i o n is, of course, n o t impossible. T h e legislature of a c o u n t r y is n o t quoad

hoc

q u i t e i n t h e same p o s i t i o n as its C o u r t s o f Law exercising, o r c l a i m i n g t o exercise, a


j u r i s d i c t i o n ex proprio motu.

A legislature m a y q u i t e conceivably, b y oversight or even

design, exceed w h a t a n i n t e r n a t i o n a l t r i b u n a l (if such existed) m i g h t h o l d t o be its


i n t e r n a t i o n a l r i g h t s . S t i l l , there is always a p r e s u m p t i o n against its i n t e n d i n g to do
so. I t h i n k t h a t is a c k n o w l e d g e d . But t h e n i t is o n l y a p r e s u m p t i o n ; and, as such, i t
m u s t always give w a y t o t h e language used i f i t is clear, a n d also t o a l l counter
p r e s u m p t i o n s w h i c h m a y l e g i t i m a t e l y be h a d i n v i e w i n d e t e r m i n i n g , o n o r d i n a r y
p r i n c i p l e s , t h e true m e a n i n g a n d i n t e n t o f t h e l e g i s l a t i o n . Express w o r d s w i l l , of
course, be conclusive; a n d so also w i l l p l a i n i m p l i c a t i o n .
N o w i t must, I t h i n k , be c o n c e d e d t h a t t h e language o f t h e e n a c t m e n t here i n
q u e s t i o n is f a i r l y express-express, t h a t is t o say, t o t h e effect o f m a k i n g a n u n l i m i t e d
and

u n q u a l i f i e d p r o h i b i t i o n , a p p l y i n g t o t h e w h o l e area specified, a n d affecting

e v e r y b o d y - w h e t h e r B r i t i s h subjects o r foreigners. T h e p r i m a r y e n a c t m e n t , i t w i l l be
observed, is directed, n o t against persons o r classes o f persons, I t is directed against
c e r t a i n t h i n g s - the c o m m i s s i o n o f c e r t a i n acts - w i t h i n a precisely d e f i n e d area. I t
c o n t a i n s n o elastic expressions - n o i n d e f i n i t e terms. I t declares s i m p l y , t h a t w i t h i n
a precisely d e f i n e d area a c e r t a i n m e t h o d of f i s h i n g k n o w n as b e a m o r o t t e r t r a w l i n g
shall n o t be practised. T h a t is t h e p r i m a r y e n a c t m e n t ; a n d its scope is n o t , I t h i n k ,
affected b y t h e association

o f ancillary provisions

p r o h i b i t i o n b y penalties. Prima

for t h e enforcement of the

facie, therefore, i t seems d i f f i c u l t t o read such an

e n a c t m e n t o t h e r w i s e t h a n as expressly p r o v i d i n g

t h a t i n n o p a r t o f t h e area

m e n t i o n e d shall t h e m e t h o d o f f i s h i n g i n q u e s t i o n be practised b y anybody. A n y


o t h e r m e a n i n g c a n o n l y be reached b y t h e i n t e r p o l a t i o n o f w o r d s w h i c h are n o t
used, a n d w h i c h , i f i n t e r p o l a t e d , w o u l d m a t e r i a l l y alter t h e sense. A n d n o case has
yet o c c u r r e d - c e r t a i n l y n o n e has been c i t e d - w h e r e t h e p r e s u m p t i o n o n w h i c h the
appellant

f o u n d s has been h e l d

adequate t o l i m i t

or q u a l i f y t h e terms of an

e n a c t m e n t t h u s d e f i n i t e - expressed i n q u i t e d e f i n i t e language a n d a p p l i e d t o a quite


d e f i n i t e area. ...

[Lord Johnston's judgment has been omitted.]

142

Marc Hammerson

L o r d Salvesen:
... I t was c o n c e d e d f o r t h e C r o w n , a n d I t h i n k r i g h t l y , t h a t i f an offence is created b y
a Statute o f t h e B r i t i s h Parliament, i t w i l l , i n t h e o r d i n a r y case, be p r e s u m e d t o have
n o a p p l i c a t i o n b e y o n d t e r r i t o r i a l waters. But as t h i s p r e s u m p t i o n m u s t y i e l d t o a n
express clause, t h a t t h e Act shall a p p l y t o foreigners a n d B r i t i s h subjects alike; so I
t h i n k i t w i l l y i e l d t o a clear i m p l i c a t i o n t o t h e like effect. W h e r e a B r i t i s h statute
p r o h i b i t s a c e r t a i n t h i n g t o be d o n e w i t h i n a d e f i n i t e g e o g r a p h i c a l area, i t seems t o
me

t h a t there is n o p r e s u m p t i o n t h a t such a p r o h i b i t i o n shall be c o n f i n e d o n l y t o

B r i t i s h subjects. Still more, i f , o n e x a m i n i n g t h e subject-matter o f t h e p r o h i b i t i o n , i t


is f o u n d t h a t i t w i l l be f u t i l e or i n e f f e c t u a l unless its o p e r a t i o n is general, t h e n I t h i n k
its g e n e r a l i t y is n o t capable o f a n y
ordinarily

owe

obedience t o t h e

l i m i t a t i o n i n f a v o u r o f persons w h o
British

do

not

Parliament. These c o n s i d e r a t i o n s are

applicable t o t h e present case. The statutes a n d bye-laws c o n t r a v e n e d have, f o r t h e i r


objects, t h e p r o t e c t i o n o f l i n e f i s h e r m e n , a n d t h e p r e s e r v a t i o n o f t h e s p a w n i n g beds
of f i s h i n t h e interests or supposed interests of t h e w h o l e f i s h i n g c o m m u n i t y . If t h e y
were t o be c o n s t r u e d as i m p l i e d l y e x c e p t i n g f r o m t h e i r scope all foreigners f i s h i n g
f r o m f o r e i g n vessels, such a c o n s t r u c t i o n w o u l d n o t m e r e l y defeat t h e object o f t h e
legislature, b u t w o u l d c o n f e r a p r i v i l e g e u p o n foreigners w h i c h was d e n i e d t o B r i t i s h
subjects. I t can scarcely be supposed t h a t a B r i t i s h P a r l i a m e n t s h o u l d pass legislation
which

would

n e i t h e r have t h e effect o f p r o t e c t i n g

line

fishermen

from

the

c o m p e t i t i o n o f trawlers, n o r o f p r e s e r v i n g t h e s p a w n i n g beds, b u t w o u l d s i m p l y
place B r i t i s h subjects u n d e r a d i s a b i l i t y w h i c h d i d n o t e x t e n d t o foreigners - i n o t h e r
words, create i n f a v o u r o f foreigners a m o n o p o l y o f t r a w l f i s h i n g i n t h e M o r a y F i r t h .
I t h i n k i t was a just o b s e r v a t i o n o f t h e Solicitor-General t h a t , i f l e g i s l a t i o n o f t h i s
nature had

b e e n proposed, a n d

t h e w o r d s inserted w h i c h

t h e D e a n o f Faculty

m a i n t a i n e d were i m p l i e d , i t w o u l d never have been s u b m i t t e d by a responsible


minister, or have received t h e a p p r o v a l o f Parliament.
The v i e w w h i c h I have expressed is s t r e n g t h e n e d b y a c o n s i d e r a t i o n o f t h e area,
w i t h i n w h i c h t h e o p e r a t i o n o f t h e bye-law is c o n f i n e d . The stretch o f water k n o w n
as t h e M o r a y F i r t h , a n d d e f i n e d by t h e bye-law, is u n d o u b t e d l y g e o g r a p h i c a l l y inter
fauces

terrae; a n d t h e r e are m a n y e x a m p l e s o f States asserting exclusive j u r i s d i c t i o n

w i t h i n such areas, a n d o f such assertion b e i n g acquiesced i n b y o t h e r n a t i o n s . I n


these circumstances I t h i n k t h e Act, u n d e r t h e a u t h o r i t y o f w h i c h t h e bye-law i n
q u e s t i o n was passed, m u s t be treated as an assertion by t h e B r i t i s h P a r l i a m e n t o f t h e i r
r i g h t t o regulate t h e f i s h i n g i n t h i s area, a n d t o treat i t as w i t h i n t h e t e r r i t o r y over
w h i c h t h e j u r i s d i c t i o n o f t h e Scottish C o u r t s extends. The r i g h t so c l a i m e d m a y
may

or

n o t be c o n c e d e d b y o t h e r Powers, b u t t h a t is a m a t t e r w i t h w h i c h t h i s C o u r t has

n o concern. We

were t o l d t h a t t h e result o f u p h o l d i n g t h e c o n v i c t i o n w o u l d be t o

p r o v o k e reprisals by o t h e r powers. I f so, t h a t is a m a t t e r f o r t h e Foreign Office. But i t


is d i f f i c u l t t o suppose t h a t f o r e i g n n a t i o n s s h o u l d o b j e c t t o a r e g u l a t i o n designed f o r
the

p r o t e c t i o n o f fisheries i n w h i c h t h e y a l l share, a n d w h i c h confers n o exclusive

privileges o n B r i t i s h subjects. ...

143

O w n e r s h i p , l i c e n s i n g a n d sources of law

IRC

v Collco Dealings Ltd [1960] C h

592

Viscount Simmonds:
...My

Lords, t h e a r g u m e n t i n f a v o u r o f t h e a p p e a l was

ingenuity, but, i n my

o p i n i o n , i t was

n o t l a c k i n g i n v i g o u r or

n o t w e l l founded. The w o r d s of t h e relevant

s u b s e c t i o n are v e r y clear. T h e s i n g l e q u e s t i o n is w h e t h e r t h e a p p e l l a n t c o m p a n y is "a


p e r s o n e n t i t l e d u n d e r a n y e n a c t m e n t t o a n e x e m p t i o n f r o m i n c o m e tax...". A t least
i t c l a i m s t o be

so e n t i t l e d i n t h e p r e s e n t case: t h a t is t h e f o u n d a t i o n o f these

p r o c e e d i n g s . But i t is said i n t h e f i r s t place t h a t i t is n o t e n t i t l e d u n d e r a n e n a c t m e n t


but under an

agreement ( w h i c h the appellant company, t o add

weight

t o the

a r g u m e n t , prefers t o call a t r e a t y ) . But t h i s c o n t e n t i o n c a n n o t be accepted.


c o m p a n y has

no

rights under any

The

a g r e e m e n t . I t s r i g h t s arise u n d e r t h e Act of

P a r l i a m e n t w h i c h c o n f i r m s t h e a g r e e m e n t a n d gives i t t h e f o r c e o f law. ...


It h a d

been urged

t h a t t h e g e n e r a l w o r d s o f t h e s u b s e c t i o n s h o u l d be

so

c o n s t r u e d as n o t t o h a v e t h e effect o f i m p o s i n g o r a p p e a r i n g t o i m p o s e t h e w i l l of
P a r l i a m e n t u p o n persons n o t w i t h i n i t s j u r i s d i c t i o n . T h i s a r g u m e n t , w h i c h
i n f l u e n c e d t h e special c o m m i s s i o n e r s , was
s o m e w h a t s i m i l a r a r g u m e n t was,

not

had

a d v a n c e d b e f o r e t h i s House. A

h o w e v e r , pressed u p o n y o u r L o r d s h i p s a n d

was

p e r h a p s m o r e s t r o n g l y t h a n a n y o t h e r r e l i e d o n b y t h e a p p e l l a n t c o m p a n y . I t was t o
the

effect t h a t t o a p p l y s e c t i o n 4(2) t o t h e a p p e l l a n t c o m p a n y w o u l d create a breach

of t h e 1926 a n d f o l l o w i n g a g r e e m e n t s , a n d w o u l d be i n c o n s i s t e n t w i t h t h e c o m i t y
of

nations and

t h e e s t a b l i s h e d rules o f i n t e r n a t i o n a l law: t h e s u b s e c t i o n must,

a c c o r d i n g l y , be so c o n s t r u e d as t o a v o i d t h i s result.
My

Lords, t h e l a n g u a g e t h a t I h a v e u s e d is t a k e n f r o m a passage at p. 148 o f the

10th e d i t i o n of " M a x w e l l o n t h e I n t e r p r e t a t i o n of Statutes" w h i c h

e n d s w i t h the

sentence: "But i f t h e s t a t u t e is u n a m b i g u o u s , its p r o v i s i o n s m u s t be f o l l o w e d e v e n i f


t h e y are c o n t r a r y t o i n t e r n a t i o n a l law." ... I t is said t h a t t h e p l a i n w o r d s o f t h e statute
are t o be d i s r e g a r d e d a n d these w o r d s a r b i t r a r i l y i n s e r t e d i n o r d e r t o observe the
c o m i t y o f n a t i o n s a n d t h e e s t a b l i s h e d rules o f i n t e r n a t i o n a l law. I a m
which

o f these h i g h - s o u n d i n g

n o t sure u p o n

phrases t h e a p p e l l a n t c o m p a n y c h i e f l y relies. But I

w o u l d a n s w e r t h a t n e i t h e r c o m i t y n o r r u l e o f i n t e r n a t i o n a l l a w c a n be i n v o k e d t o
p r e v e n t a s o v e r e i g n state f r o m t a k i n g w h a t steps i t t h i n k s f i t t o p r o t e c t i t s o w n
r e v e n u e l a w s f r o m gross abuse, or t o save its o w n

citizens f r o m u n j u s t d i s c r i m i n a t i o n

i n f a v o u r o f f o r e i g n e r s . To d e m a n d t h a t t h e p l a i n w o r d s o f t h e s t a t u t e s h o u l d

be

d i s r e g a r d e d i n o r d e r t o d o t h a t v e r y t h i n g is a n e x t r a v a g a n c e t o w h i c h t h i s H o u s e w i l l
not,

I h o p e , g i v e ear.
I am

w e l l a w a r e t h a t t h e r e are cases - m a n y w e r e c i t e d t o y o u r L o r d s h i p s - i n

w h i c h t h e p r i n c i p l e s t a t e d i n M a x w e l l has b e e n a p p l i e d , t h o u g h less o f t e n , I t h i n k ,
u p o n a n a p p e a l t o c o m i t y o f n a t i o n s t h a n t o rules o f i n t e r n a t i o n a l law. B u t e a c h case
m u s t be j u d g e d i n its o w n
the

c o n t e x t , a n d I k n o w o f n o case i n w h i c h at t h e same t i m e

w o r d s o f a s t a t u t e w e r e u n a m b i g u o u s l y clear a n d

u p o n grounds which

i t was

sought to vary t h e m

c o u l d n o t be j u s t i f i e d b y b r o a d c o n s i d e r a t i o n s o f j u s t i c e or

e x p e d i e n c y , n o r c o u l d be s u p p o s e d t o c o m m e n d t h e m s e l v e s t o t h a t s o v e r e i g n p o w e r
w h o s e c i t i z e n s r e l i e d o n t h e m . ...

is

144

Marc H a m m e r s o n

L o r d M o r t o n of H e n r y t o n :
... C o u n s e l f o r t h e c o m p a n y , however, s u b m i t t e d t h a t section 4(2) o f t h e A c t o f
1955'

55

s h o u l d be g i v e n a n a r r o w c o n s t r u c t i o n , because o t h e r w i s e it w o u l d i n f r i n g e

the c o m i t y

o f n a t i o n s b y u n i l a t e r a l l y d e p r i v i n g I r i s h residents o f t h e benefits

c o n f e r r e d o n t h e m b y t h e agreements a n d c o n f i r m e d b y statute. T h e y i n v i t e d y o u r
Lordships t o h o l d e i t h e r (a) t h a t t h e w o r d s "person e n t i t l e d " i n t h e subsection m e a n
a person w h o is e n t i t l e d solely a n d e x c l u s i v e l y u n d e r a n e n a c t m e n t , a n d d o n o t
e x t e n d t o i n c l u d e a p e r s o n w h o is e n t i t l e d u n d e r a n agreement w i t h a f o r e i g n state
b y v i r t u e of its i n c o r p o r a t i o n i n t h e m u n i c i p a l law of E n g l a n d b y a n English statute,
or (b) t h a t t h e w o r d s "any e n a c t m e n t " m e a n "any e n a c t m e n t s t a n d i n g a l o n e a n d n o t
b e i n g p a r t o f a r e c i p r o c a l a r r a n g e m e n t w i t h a f o r e i g n state." I n s u p p o r t of t h e second
c o n s t r u c t i o n t h e y p o i n t e d o u t t h a t t h e w o r d s such as "any" o r " a l l " o r "every" have
been g i v e n a n a r r o w m e a n i n g i n m a n y cases, some o f w h i c h were c i t e d t o y o u r
Lordships.
M y Lords, I a m u n a b l e t o give e i t h e r of t h e suggested m e a n i n g s t o t h e very p l a i n
w o r d s o f s e c t i o n 4(2) o f t h e Act o f 1955. I accept t h e s t a t e m e n t i n M a x w e l l o n t h e
I n t e r p r e t a t i o n o f Statutes, 1 0 t h ed., at p. 149 - " I f t h e statute is u n a m b i g u o u s its
p r o v i s i o n s m u s t be f o l l o w e d . " I c a n see n o a m b i g u i t y i n section 4(2), a n d I d o n o t
t h i n k t h a t its p r o v i s i o n s give rise t o a n y breach of i n t e r n a t i o n a l c o m i t y . B o t h parties
t o t h e agreements recognised t h a t t h e y m i g h t at a n y m o m e n t be b r o u g h t t o a n e n d
by t h e legislature of e i t h e r c o u n t r y r e v o k i n g t h e s t a t u t o r y c o n f i r m a t i o n thereof; see
clause 8 o f t h e a g r e e m e n t o f 1926, already q u o t e d . ...

Lord Reid:
... T h e m o s t t h a t c a n be said is t h a t , unless a l i m i t a t i o n is i m p l i e d , t h e subsection
enacts s o m e t h i n g i n c o n s i s t e n t w i t h t h e p r o v i s i o n s of a treaty, a n d e v e n t h a t is h a r d l y
accurate. It appears t o me t h a t there is b y n o m e a n s so s t r o n g a p r e s u m p t i o n against
Parliament h a v i n g d o n e t h a t .
A l t h o u g h t h e i n f r i n g e m e n t o f a t r e a t y m a y cause loss t o i n d i v i d u a l s , t h e o n l y
person p r o p e r l y e n t i t l e d t o c o m p l a i n o f such i n f r i n g e m e n t is t h e o t h e r p a r t y t o t h e
treaty. N o d o u b t if t h a t o t h e r p a r t y is aggrieved t h e i n f r i n g e m e n t is a breach of t h e
c o m i t y of n a t i o n s , a n d there is a p r e s u m p t i o n t h a t Parliament d i d n o t i n t e n d t o act
c o n t r a r y t o t h e c o m i t y o f n a t i o n s . B u t I d o n o t t h i n k t h a t t h e r e is necessarily a
p r e s u m p t i o n t h a t every i n f r i n g e m e n t of a treaty is a b r e a c h o f t h e c o m i t y o f n a t i o n s .
After a treaty has been m a d e circumstances m a y alter a n d i t m a y be reasonable t o
take u n i l a t e r a l a c t i o n i n t h e e x p e c t a t i o n t h a t t h e o t h e r p a r t y t o t h e t r e a t y w i l l n o t
object. Indeed, t h e o t h e r p a r t y m a y h a v e been c o n s u l t e d

a n d have raised n o

o b j e c t i o n . We d o n o t k n o w w h a t h a p p e n e d i n t h i s case. ...

Lord Radcliffe:
... T h e o n l y o n e o f t h e appellant's c o n t e n t i o n s t h a t appeared t o me t o have a n y
p l a u s i b i l i t y was t h a t w h i c h s o u g h t t o restrict t h e a p p a r e n t range o f s e c t i o n 4(2) o f
t h e Finance (No. 2) Act, 1955, b y t h e a r g u m e n t t h a t , if a p p l i e d t o persons e n j o y i n g

155

Finance (No 2) Act 1955.

145

Ownership, licensing and sources of law

exemption as being resident i n Eire but not also i n the United Kingdom, it would
contradict the provisions of the inter-governmental agreements about

double

taxation between the two countries. It is no doubt true that statutory words
apparently unlimited i n scope may be given a restricted field of application if there
is admissible ground for importing such a restriction: and the consideration that, if
not construed i n some unlimited sense, they w o u l d amount to a breach of
international law is well recognised as such a ground. But a supposed i n t e n t i o n not
to depart from observance of the comity of nations is a m u c h vaguer criterion by
which to determine the range of a statute; and when the departure consists i n no
more than a provision inconsistent w i t h an inter-governmental agreement about
taxation, which by its o w n terms is subordinated to the approval of the respective
legislatures of the countries concerned and persists only so long as its terms are
maintained i n force by those legislatures, I t h i n k that there is no useful aid at all to
be obtained from this principle of interpretation. The principle depends wholly on
the supposition of a particular intention i n the legislature, and I do not t h i n k that in
the case before us there is any reason to make the supposition w h i c h is suggested.
[Lord Guest's judgment has been omitted.]
IRC v Lucbor Dealings Ltd [1960] 2 WLR 848
Lord Evershed MR:
... It is plain enough so far that what the English Parliament d i d i n 1952 was to say
that the terms of the agreement of 1926, as stated i n Part I of Schedule 18, should be
incorporated i n the English law as part of the Income Tax Act, 1952, and so should
take effect and be effective i n English law. It is clear and must not be forgotten ...
that if an Irish citizen desires to take advantage of the benefit w h i c h the agreement
of 1926 intended that he should enjoy, he must be able to invoke for that purpose
some provision of the English law

and his right i n England to enjoy the benefit,

to be able to have this exemption (which means to be able to recover income tax)
depends upon and depends exclusively upon the section w h i c h I have read.
... [I]t must be quite clear, first of all, that it is competent to the legislature of the
United Kingdom to impose income tax i n respect of profits or gains which arise i n
the jurisdiction, and that competence is i n no way qualified because the profits and
gains may be enjoyed by someone who is himself not so resident. If, therefore,
Parliament decides that tax at a certain rate should be levied i n respect of that class
of property, or, alternatively, decides that i n certain cases persons w h o

might

otherwise suffer the tax should be entitled to exemption, i t cannot be said that
Parliament is trying to exert a jurisdiction over foreigners i n the sense that i t is trying
to legislate outside the proper jurisdiction of the English Parliament. I venture to
emphasise that the fact that a person who has a statutory right to an exemption i n
respect of income tax, a statutory right to recover, may be a foreigner, is of itself quite
irrelevant, and does n o t appear to me t o involve any question of comity or
international law. ...
... [W]hat Mr Foster called "treaties" were these agreements of w h i c h the

146

Marc H a m m e r s o n

agreement o f 1926 is t h e r e l e v a n t one, a n d o n t h e face o f t h a t agreement, its effect


a n d c o n t i n u e d effect depended, a n d was expressed t o depend, u p o n c o n f i r m a t i o n b y
t h e legislatures o f t h e t w o c o u n t r i e s , so t h a t t h e agreement itself c o n t e m p l a t e d o n its
face t h a t e i t h e r side m i g h t at some t i m e , if t h e y t h o u g h t f i t , b y t h e exercise o f t h e i r
sovereign legislative p o w e r p u t a n e n d t o i t . Secondly ... so far as t h e I r i s h company's
r i g h t s i n t h i s case are concerned, t h e y m u s t d e p e n d u p o n some p r o v i s i o n g i v i n g
effect t o t h e m i n a n E n g l i s h statute w h i c h necessarily m u s t be subject t o review a n d
m o d i f i c a t i o n b y later legislative enactments. ...

Harman LJ:
... T h e I r i s h resident w h o wishes t o o b t a i n e x e m p t i o n f r o m t a x arising u p o n a
d i v i d e n d payable i n t h i s c o u n t r y m u s t go t o t h e E n g l i s h P a r l i a m e n t t o o b t a i n i t .
W h a t Parliament has g i v e n Parliament m a y take away, a n d t h a t it has d o n e t o t h e
l i m i t e d e x t e n t w h i c h t h e Act o f 1955 proposes i n a l i m i t e d class o f cases, a n d i n order
t o stop a n abuse. I t w o u l d be a s t o n i s h i n g i f t h a t abuse, n o l o n g e r available t o a
person resident i n England, c o u l d still be p e r p e t r a t e d b y those resident i n t h e I r i s h
Republic. O f course, i f P a r l i a m e n t h a d chosen t o say t h a t s h o u l d be so, it c o u l d d o
so, b u t it is v e r y u n l i k e l y t h a t it d i d i n t e n d t o d o so, and, i n m y view, it has p u t a
stop t o it i n t h e p l a i n e s t t e r m s w h i c h a p p l y n o less t o t h e stranger t h a n t o t h e c i t i z e n
of t h i s c o u n t r y .

D Law of the continental shelf


President Truman's Proclamations on US Policy Concerning Natural Resources
of t h e Subsoil a n d Seabed of t h e C o n t i n e n t a l

Shelf

September 28, 1945


Policy of the United States with Respect to the Natural Resources of the Subsoil and Sea
Bed of the Continental Shelf
WHEREAS t h e G o v e r n m e n t o f t h e U n i t e d States o f America, aware o f t h e l o n g
range w o r l d - w i d e need f o r n e w sources o f p e t r o l e u m a n d o t h e r minerals, h o l d s t h e
v i e w t h a t efforts t o discover a n d m a k e available n e w supplies o f these

resources

s h o u l d be encouraged; a n d
WHEREAS its c o m p e t e n t experts are o f t h e o p i n i o n t h a t such resources u n d e r l i e
m a n y parts o f t h e c o n t i n e n t a l shelf o f f t h e coasts o f t h e U n i t e d States o f America,
a n d t h a t w i t h m o d e r n t e c h n o l o g i c a l progress t h e i r u t i l i z a t i o n is already practicable
or w i l l b e c o m e so at a n early date; a n d
WHEREAS recognized j u r i s d i c t i o n over these resources is r e q u i r e d i n t h e interest
of t h e i r

conservation

a n d prudent

utilization

when

a n d as d e v e l o p m e n t is

undertaken; a n d
WHEREAS it is t h e v i e w o f t h e G o v e r n m e n t o f t h e U n i t e d States t h a t t h e exercise
o f j u r i s d i c t i o n over t h e n a t u r a l resources o f t h e subsoil a n d sea b e d o f t h e c o n t i n e n t a l
shelf b y t h e c o n t i g u o u s n a t i o n is reasonable
measures t o u t i l i z e

o r conserve these

a n d just, since t h e effectiveness o f

resources

would

be c o n t i n g e n t

upon

c o o p e r a t i o n a n d p r o t e c t i o n f r o m t h e shore, since t h e c o n t i n e n t a l shelf m a y be

147

Ownership, licensing and sources of law

regarded as an extension of the land-mass of the coastal nation and thus naturally
a p p u r t e n a n t t o i t , since these resources f r e q u e n t l y f o r m a s e a w a r d e x t e n s i o n o f a p o o l
or d e p o s i t l y i n g w i t h i n t h e t e r r i t o r y , a n d since s e l f - p r o t e c t i o n c o m p e l s t h e coastal
n a t i o n t o keep close w a l e o v e r a c t i v i t i e s o f f i t s shores w h i c h are o f t h e n a t u r e
necessary f o r u t i l i z a t i o n o f these resources;
Now, t h e r e f o r e , I , H a r r y S. T r u m a n , President o f t h e U n i t e d States o f A m e r i c a , d o
h e r e b y p r o c l a i m t h e f o l l o w i n g p o l i c y o f t h e U n i t e d States o f A m e r i c a w i t h respect t o
t h e n a t u r a l resources o f t h e s u b s o i l a n d sea b e d o f t h e c o n t i n e n t a l shelf.
H a v i n g c o n c e r n f o r t h e u r g e n c y o f c o n s e r v i n g a n d p r u d e n t l y u t i l i z i n g its n a t u r a l
resources, t h e G o v e r n m e n t o f t h e U n i t e d States regards t h e n a t u r a l resources o f the
s u b s o i l a n d sea b e d o f t h e c o n t i n e n t a l shelf b e n e a t h t h e h i g h seas b u t c o n t i g u o u s t o
t h e coasts o f t h e U n i t e d States as a p p e r t a i n i n g t o t h e U n i t e d States, subject t o its
j u r i s d i c t i o n a n d c o n t r o l . I n cases w h e r e t h e c o n t i n e n t a l shelf e x t e n d s t o t h e shores
of another

State, o r is shared

determined

by the United

with

an adjacent

State, t h e b o u n d a r y s h a l l be

States a n d t h e State c o n c e r n e d

i n accordance

with

e q u i t a b l e p r i n c i p l e s . T h e c h a r a c t e r as h i g h seas o f t h e w a t e r s a b o v e t h e c o n t i n e n t a l
shelf a n d t h e r i g h t t o t h e i r free a n d u n i m p e d e d n a v i g a t i o n are i n n o w a y thus
affected.

Convention on the Continental

Shelf 1958

Article 1
For t h e p u r p o s e o f these articles, t h e t e r m " c o n t i n e n t a l s h e l f " is used as r e f e r r i n g (a)
t o t h e seabed a n d s u b s o i l o f t h e s u b m a r i n e area a d j a c e n t t o t h e coast b u t o u t s i d e the
area o f t h e t e r r i t o r i a l sea, t o a d e p t h o f 2 0 0 m e t r e s or, b e y o n d t h a t l i m i t , t o w h e r e the
d e p t h o f t h e s u p e r j a c e n t waters a d m i t s o f t h e e x p l o i t a t i o n o f t h e n a t u r a l resources of
t h e said areas; (b) t o t h e seabed a n d s u b s o i l o f s i m i l a r s u b m a r i n e areas a d j a c e n t t o
t h e coasts o f islands.

Article 2
1.

T h e coastal State exercises o v e r t h e c o n t i n e n t a l s h e l f s o v e r e i g n r i g h t s f o r t h e purpose

2.

T h e r i g h t s r e f e r r e d t o i n p a r a g r a p h 1 o f t h i s a r t i c l e are e x c l u s i v e i n t h e sense t h a t i f

o f e x p l o r i n g i t a n d e x p l o i t i n g i t s n a t u r a l resources.

t h e coastal

State does n o t e x p l o r e t h e c o n t i n e n t a l s h e l f o r e x p l o i t i t s n a t u r a l

resources, n o o n e m a y u n d e r t a k e these a c t i v i t i e s , o r m a k e a c l a i m t o t h e c o n t i n e n t a l
shelf, w i t h o u t t h e express c o n s e n t o f t h e coastal State.
3.

T h e r i g h t o f t h e coastal State o v e r t h e c o n t i n e n t a l s h e l f d o n o t d e p e n d o n t h e

4.

T h e n a t u r a l resources r e f e r r e d t o i n these articles c o n s i s t o f t h e m i n e r a l a n d o t h e r

o c c u p a t i o n , e f f e c t i v e o r n o t i o n a l , o r o n a n y express p r o c l a m a t i o n .

n o n - l i v i n g resources

o f t h e seabed a n d s u b s o i l t o g e t h e r w i t h

living

organisms

b e l o n g i n g t o sedentary species, t h a t is t o say, o r g a n i s m s w h i c h , a t t h e h a r v e s t a b l e


stage, e i t h e r are i m m o b i l e o n o r u n d e r t h e seabed o r are u n a b l e t o m o v e e x c e p t i n
c o n s t a n t p h y s i c a l c o n t a c t w i t h t h e seabed o r t h e subsoil.

148

Marc H a m m e r s o n

Article 3
T h e r i g h t s o f t h e coastal State over t h e c o n t i n e n t a l shelf d o n o t affect t h e legal status
of t h e superjacent waters as h i g h seas, or t h a t o f t h e airspace above those waters.

Article 4
Subject t o its r i g h t t o take reasonable measures f o r t h e e x p l o r a t i o n o f t h e c o n t i n e n t a l
shelf a n d t h e e x p l o i t a t i o n o f its n a t u r a l resources, t h e coastal State m a y n o t i m p e d e
t h e l a y i n g or m a i n t e n a n c e o f s u b m a r i n e cables or p i p e l i n e s o n t h e c o n t i n e n t a l shelf.

Article 5
1.

The e x p l o r a t i o n o f t h e c o n t i n e n t a l shelf a n d t h e e x p l o i t a t i o n o f its n a t u r a l resources


m u s t n o t result i n a n y u n j u s t i f i a b l e interference w i t h n a v i g a t i o n , f i s h i n g or t h e
conservation

o f t h e l i v i n g resources o f t h e sea, n o r result i n a n y interference w i t h

fundamental oceanographic or other

scientific

research carried o u t w i t h t h e

intention of open publication.


2.

Subject t o t h e p r o v i s i o n s o f paragraphs 1 a n d 6 o f t h i s article, t h e coastal State is


e n t i t l e d t o c o n s t r u c t a n d m a i n t a i n o r operate o n t h e c o n t i n e n t a l shelf i n s t a l l a t i o n s
and

o t h e r devices necessary f o r its e x p l o r a t i o n a n d t h e e x p l o i t a t i o n o f its n a t u r a l

resources, a n d t o establish safety zones a r o u n d such i n s t a l l a t i o n s a n d devices a n d t o


take i n those zones measures necessary f o r t h e i r p r o t e c t i o n .
3.

The safety zones referred t o i n paragraph 2 o f t h i s article m a y e x t e n d t o a distance o f


500 metres a r o u n d t h e i n s t a l l a t i o n s a n d o t h e r devices w h i c h have been

erected,

measured f r o m each p o i n t o f t h e i r outer edge. Ships o f all n a t i o n a l i t i e s m u s t respect


these safety zones.
4.

Such i n s t a l l a t i o n s a n d devices, t h o u g h u n d e r t h e j u r i s d i c t i o n o f t h e coastal State, d o


n o t possess t h e status o f islands. T h e y have n o t e r r i t o r i a l sea o f t h e i r o w n , a n d t h e i r
presence does n o t affect t h e d e l i m i t a t i o n o f t h e t e r r i t o r i a l sea o f t h e coastal State.

5.

Due

n o t i c e m u s t be g i v e n o f t h e c o n s t r u c t i o n

o f a n y such i n s t a l l a t i o n s , a n d

p e r m a n e n t means f o r g i v i n g w a r n i n g o f t h e i r presence m u s t be m a i n t a i n e d . A n y
i n s t a l l a t i o n s w h i c h are a b a n d o n e d or disused m u s t be e n t i r e l y r e m o v e d .
6.

N e i t h e r t h e i n s t a l l a t i o n s o r devices, n o r t h e safety zones a r o u n d t h e m , m a y


established w h e r e i n t e r f e r e n c e m a y

be

be caused t o t h e use o f recognized sea lanes

essential t o i n t e r n a t i o n a l n a v i g a t i o n .
7.

T h e coastal State is o b l i g e d t o undertake, i n t h e safety zones, all a p p r o p r i a t e measures

8.

T h e c o n s e n t o f t h e coastal State s h a l l be o b t a i n e d i n respect o f a n y research

for t h e p r o t e c t i o n o f t h e l i v i n g resources o f t h e sea f r o m h a r m f u l agents.

c o n c e r n i n g t h e c o n t i n e n t a l shelf a n d u n d e r t a k e n there. Nevertheless, t h e coastal


State s h a l l n o t n o r m a l l y w i t h h o l d

its c o n s e n t i f t h e request is s u b m i t t e d b y a

q u a l i f i e d i n s t i t u t i o n w i t h a v i e w t o p u r e l y s c i e n t i f i c research i n t o t h e physical o r
b i o l o g i c a l characteristics o f t h e c o n t i n e n t a l shelf, subject t o t h e p r o v i s o t h a t t h e
coastal State s h a l l have t h e r i g h t , i f i t so desires, t o p a r t i c i p a t e or t o be represented i n
t h e research, a n d t h a t i n a n y e v e n t t h e results s h a l l be p u b l i s h e d .

Article 6
1.

W h e r e t h e same c o n t i n e n t a l shelf is adjacent t o t h e territories o f t w o or m o r e States

149

O w n e r s h i p , l i c e n s i n g a n d sources o f l a w

w h o s e coasts are opposite each other, t h e b o u n d a r y o f t h e c o n t i n e n t a l

shelf

a p p e r t a i n i n g t o such States shall be d e t e r m i n e d b y agreement b e t w e e n t h e m . I n the


absence o f agreement, a n d unless a n o t h e r b o u n d a r y l i n e is j u s t i f i e d b y special
circumstances, t h e b o u n d a r y l i n e is t h e m e d i a n l i n e , every p o i n t o f w h i c h is
e q u i d i s t a n t f r o m t h e nearest p o i n t s o f t h e baselines f r o m w h i c h t h e b r e a d t h o f the
t e r r i t o r i a l sea o f each State is measured.
2.

W h e r e t h e same c o n t i n e n t a l shelf is adjacent t o t h e t e r r i t o r i e s o f t w o adjacent States,


the

b o u n d a r y o f t h e c o n t i n e n t a l shelf shall be d e t e r m i n e d b y a g r e e m e n t between

t h e m . I n t h e absence o f agreement, a n d unless a n o t h e r b o u n d a r y l i n e is j u s t i f i e d by


special circumstances, t h e b o u n d a r y shall be d e t e r m i n e d

b y application of the

p r i n c i p l e o f equidistance f r o m t h e nearest p o i n t s o f t h e baselines f r o m w h i c h the


b r e a d t h o f t h e t e r r i t o r i a l sea o f each State is measured.
3.

I n d e l i m i t i n g t h e b o u n d a r i e s o f t h e c o n t i n e n t a l shelf, a n y lines w h i c h are d r a w n i n


accordance w i t h t h e p r i n c i p l e s set o u t i n paragraphs 1 a n d 2 o f t h i s article s h o u l d be
d e f i n e d w i t h reference t o charts a n d geographical features as t h e y exist at a particular
date, a n d reference s h o u l d be m a d e t o f i x e d p e r m a n e n t i d e n t i f i a b l e p o i n t s o n t h e
land.

Article 7
The p r o v i s i o n s o f these articles shall n o t p r e j u d i c e t h e r i g h t o f t h e coastal State t o
e x p l o i t t h e subsoil b y means o f t u n n e l l i n g irrespective o f t h e d e p t h o f water above
the subsoil. ...

Continental Shelf Act 1964


1. Exploration and exploitation of continental shelf
(1)

A n y r i g h t s exercisable b y t h e U n i t e d K i n g d o m o u t s i d e t e r r i t o r i a l waters w i t h respect


to t h e sea b e d a n d s u b s o i l a n d t h e i r n a t u r a l resources, except so far as t h e y are
exercisable i n r e l a t i o n t o coal, are hereby vested i n Her M a j e s t y ...

(6)

T h e general d u t y o f t h e Secretary o f State o f securing t h e effective a n d co-ordinated


d e v e l o p m e n t o f such resources i n Great B r i t a i n as are m e n t i o n e d i n s e c t i o n 1(1) o f
the M i n i s t r y o f Fuel a n d Power Act 1945 shall e x t e n d t o a n y s u c h resources outside
Great B r i t a i n w i t h respect t o w h i c h t h e said r i g h t s are exercisable.

(7)

Her M a j e s t y m a y f r o m t i m e t o t i m e b y Order i n C o u n c i l designate a n y area as a n area


w i t h i n w h i c h t h e r i g h t s m e n t i o n e d i n subsection (1) o f t h i s s e c t i o n are exercisable,
a n d a n y area so designated is i n t h i s A c t referred t o as a d e s i g n a t e d area; a n d t h e
p o w e r t o m a k e Orders u n d e r t h i s subsection shall i n c l u d e p o w e r t o revoke Orders for
the p u r p o s e o f c o n s o l i d a t i n g t h e m .

(8)

I n t h i s s e c t i o n " c o a l " has t h e same m e a n i n g as i n t h e C o a l I n d u s t r y N a t i o n a l i s a t i o n


Act 1946 ...

4. Safety of navigation
(1)

Part I o f t h e Coast P r o t e c t i o n Act 1949 ( w h i c h requires t h e c o n s e n t o f t h e Board o f


Trade t o t h e c a r r y i n g o u t o f c e r t a i n w o r k s o n t h e sea shore i f o b s t r u c t i o n o r danger
to n a v i g a t i o n is l i k e l y t o result) except s e c t i o n 3 4 ( l ) ( b ) ( w h i c h restricts t h e deposit

150

Marc Hammerson

of materials) shall a p p l y i n r e l a t i o n t o a n y part o f t h e sea b e d i n a designated area as


it applies i n r e l a t i o n t o t h e sea shore; a n d section 46 o f t h a t Act (local i n q u i r i e s ) shall
e x t e n d t o a n y m a t t e r arising u n d e r t h i s section.
(2)

A n y p e r s o n g u i l t y o f a n offence u n d e r t h e said Part I I as a p p l i e d b y t h i s section shall


be liable, o n s u m m a r y c o n v i c t i o n t o a f i n e n o t exceeding t h e prescribed sum, a n d o n
c o n v i c t i o n o n i n d i c t m e n t t o a f i n e ...

8. Submarine cables and pipe-lines


(1)

Section 3 ( p u n i s h m e n t for d a m a g i n g cables) of t h e S u b m a r i n e Telegraph Act 1885 a n d


Article I V a n d paragraph 1 o f A r t i c l e V I I ( l i a b i l i t y t o p a y c o m p e n s a t i o n for damage t o
cables a n d for loss o f gear sacrificed t o a v o i d such damage) o f t h e C o n v e n t i o n set o u t
i n t h e Schedule t o t h a t Act ( w h i c h b y v i r t u e of section 2 t h e r e o f has t h e force o f law)
shall a p p l y i n r e l a t i o n t o all s u b m a r i n e cables u n d e r t h e h i g h seas ( a n d n o t o n l y t o
those t o w h i c h t h a t C o n v e n t i o n applies) a n d t o pipe-lines u n d e r t h e h i g h seas; a n d
t h e said section 3 shall be c o n s t r u e d as referring t o t e l e p h o n i c as w e l l as telegraphic
c o m m u n i c a t i o n , and, i n r e l a t i o n t o ... power cables a n d t o pipe-lines, as i f t h e w o r d s
f r o m " i n such m a n n e r " t o t h e e n d o f subsection (1) were o m i t t e d .

(1A)

I t is hereby declared t h a t t h e reference i n subsection (1) o f t h i s section t o s u b m a r i n e


cables a n d pipe-lines u n d e r t h e h i g h seas i n c l u d e s a reference t o s u b m a r i n e cables
a n d pipe-lines u n d e r t h e t e r r i t o r i a l sea adjacent t o t h e U n i t e d K i n g d o m or u n d e r
waters i n a n area designated u n d e r section 1(7) o f t h i s Act.

11. Prosecution of offences, etc.


(1)

Proceedings for a n y offence u n d e r a n o t h e r A c t as a p p l i e d b y or u n d e r t h i s Act m a y


be taken, a n d t h e offence m a y f o r a l l i n c i d e n t a l purposes be t r e a t e d as h a v i n g been
c o m m i t t e d , i n a n y place i n t h e U n i t e d K i n g d o m .

(2)

W h e r e a b o d y c o r p o r a t e is g u i l t y o f such a n offence a n d t h e offence is p r o v e d t o have


been c o m m i t t e d w i t h t h e c o n s e n t o r c o n n i v a n c e of, or t o be a t t r i b u t a b l e t o a n y
neglect o n t h e p a r t of, a n y director, manager, secretary or o t h e r similar officer o f t h e
b o d y corporate or a n y person w h o was p u r p o r t i n g t o act i n a n y such capacity he, as
w e l l as t h e b o d y corporate, shall be g u i l t y o f t h e offence a n d shall be liable t o be
proceeded against a n d p u n i s h e d accordingly.
I n t h i s subsection, " d i r e c t o r " i n r e l a t i o n t o a b o d y c o r p o r a t e established f o r t h e
purpose o f c a r r y i n g o n u n d e r n a t i o n a l o w n e r s h i p a n y i n d u s t r y or part o f a n i n d u s t r y
or u n d e r t a k i n g , b e i n g a b o d y c o r p o r a t e w h o s e affairs are m a n a g e d b y its members,
means a m e m b e r o f t h a t b o d y corporate.

11 A. Interpretation
I n t h i s A c t " i n s t a l l a t i o n " i n c l u d e s a n y f l o a t i n g s t r u c t u r e or device m a i n t a i n e d o n a
s t a t i o n b y w h a t e v e r means....

151

O w n e r s h i p , l i c e n s i n g a n d sources o f l a w

U n i t e d N a t i o n s C o n v e n t i o n o n t h e L a w o f t h e S e a 1982
The State Parties to this Convention,
Prompted b y t h e desire t o settle, i n a s p i r i t o f m u t u a l u n d e r s t a n d i n g a n d c o o p e r a t i o n ,
a l l issues r e l a t i n g t o t h e l a w o f t h e sea a n d aware o f t h e h i s t o r i c s i g n i f i c a n c e o f t h i s
C o n v e n t i o n as a n i m p o r t a n t c o n t r i b u t i o n t o t h e m a i n t e n a n c e o f peace, j u s t i c e a n d
progress f o r a l l peoples o f t h e w o r l d ,
Noting t h a t d e v e l o p m e n t s since t h e U n i t e d N a t i o n s C o n f e r e n c e s o n t h e L a w o f
t h e Sea h e l d a t G e n e v a i n 1 9 5 8 a n d 1 9 6 0 h a v e a c c e n t u a t e d t h e n e e d f o r a n e w a n d
g e n e r a l l y acceptable C o n v e n t i o n o n t h e l a w o f t h e sea ...
Desiring b y t h i s C o n v e n t i o n t o d e v e l o p t h e p r i n c i p l e s e m b o d i e d i n r e s o l u t i o n
2 7 4 9 ( X X V ) o f 17 D e c e m b e r 1 9 7 0 i n w h i c h t h e G e n e r a l A s s e m b l y o f t h e U n i t e d
N a t i o n s s o l e m n l y d e c l a r e d inter alia t h a t t h e area o f t h e seabed a n d o c e a n f l o o r a n d
t h e s u b s o i l t h e r e o f , b e y o n d t h e l i m i t s o f n a t i o n a l j u r i s d i c t i o n , as w e l l as its resources,
are t h e c o m m o n h e r i t a g e o f m a n k i n d , t h e e x p l o r a t i o n a n d e x p l o i t a t i o n o f w h i c h
s h a l l be c a r r i e d o u t f o r t h e b e n e f i t o f m a n k i n d as a w h o l e , i r r e s p e c t i v e o f t h e
g e o g r a p h i c a l l o c a t i o n o f States ...
Affirming t h a t m a t t e r s n o t r e g u l a t e d b y t h i s C o n v e n t i o n c o n t i n u e t o be g o v e r n e d
b y t h e rules a n d p r i n c i p l e s o f g e n e r a l i n t e r n a t i o n a l law,
Have agreed as f o l l o w s :

I. For the purposes of this Convention: ...


(5)

(a) " d u m p i n g " means:


(i) a n y d e l i b e r a t e d i s p o s a l o f wastes o r o t h e r m a t t e r

from

vessels, aircraft,

p l a t f o r m s o r o t h e r m a n - m a d e s t r u c t u r e s a t sea;
(ii) a n y d e l i b e r a t e d i s p o s a l o f vessels, a i r c r a f t , p l a t f o r m s o r o t h e r man-made
s t r u c t u r e s at sea;
(5)

( b ) " d u m p i n g " does n o t i n c l u d e :


(i) t h e d i s p o s a l o f wastes o r o t h e r m a t t e r i n c i d e n t a l t o , o r d e r i v e d f r o m t h e
normal

operations

o f vessels, a i r c r a f t ,

platforms

or other

man-made

s t r u c t u r e s at sea a n d t h e i r e q u i p m e n t , o t h e r t h a n wastes o r o t h e r m a t t e r
t r a n s p o r t e d b y o r t o vessels, aircraft, p l a t f o r m s o r o t h e r m a n - m a d e structures
at sea, o p e r a t i n g f o r t h e p u r p o s e o f d i s p o s a l o f s u c h m a t t e r o r d e r i v e d f r o m
the treatment

o f s u c h wastes o r o t h e r m a t t e r

o n s u c h vessels, aircraft,

p l a t f o r m s o r structures;
(ii) p l a c e m e n t o f m a t t e r f o r a p u r p o s e o t h e r t h a n t h e m e r e d i s p o s a l thereof,
p r o v i d e d t h a t s u c h p l a c e m e n t is n o t c o n t r a r y t o t h e a i m s o f t h i s

Convention.

Article 2

Legal status of the territorial sea, of the air space over the territorial sea and of its bed an
subsoil
1.

T h e s o v e r e i g n t y o f a coastal State extends, b e y o n d i t s l a n d t e r r i t o r y a n d i n t e r n a l


waters a n d , i n t h e case o f a n a r c h i p e l a g i c State, its a r c h i p e l a g i c waters, t o a n a d j a c e n t
b e l t o f sea, d e s c r i b e d as t h e t e r r i t o r i a l sea.

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Marc H a m m e r s o n

2.

T h i s s o v e r e i g n t y extends t o t h e air space over t h e t e r r i t o r i a l sea as w e l l as t o its bed

3.

The s o v e r e i g n t y over t h e t e r r i t o r i a l sea is exercised subject t o t h i s C o n v e n t i o n a n d t o

a n d subsoil.

o t h e r rules o f i n t e r n a t i o n a l law.

Article 3

Breadth of the territorial sea


Every State has t h e r i g h t t o establish the b r e a d t h o f its t e r r i t o r i a l sea u p t o a l i m i t n o t
exceeding 12 n a u t i c a l miles, measured f r o m baselines d e t e r m i n e d i n accordance w i t h
this

Convention.

Article 76

Definition of the continental


1.

The

shelf

c o n t i n e n t a l shelf o f a coastal State comprises t h e seabed a n d

s u b m a r i n e areas t h a t e x t e n d

b e y o n d its t e r r i t o r i a l

subsoil o f the

sea t h r o u g h o u t

the natural

p r o l o n g a t i o n o f its l a n d t e r r i t o r y t o t h e o u t e r edge o f t h e c o n t i n e n t a l m a r g i n , or t o
a distance o f 200 n a u t i c a l m i l e s f r o m t h e baselines f r o m w h i c h t h e b r e a d t h o f t h e
t e r r i t o r i a l sea is measured w h e r e t h e o u t e r edge o f t h e c o n t i n e n t a l m a r g i n does n o t
e x t e n d u p t o t h a t distance.
2.

The c o n t i n e n t a l shelf o f a coastal State shall n o t e x t e n d b e y o n d t h e l i m i t s p r o v i d e d

3.

The c o n t i n e n t a l m a r g i n comprises t h e submerged p r o l o n g a t i o n o f t h e l a n d mass o f

for i n paragraphs 4 t o 6.

t h e coastal State, a n d consists o f t h e seabed a n d subsoil o f t h e shelf, t h e slope a n d


t h e rise. I t does n o t i n c l u d e t h e deep ocean f l o o r w i t h its oceanic ridges or t h e subsoil
thereof.
4

(a) For t h e p u r p o s e o f t h i s C o n v e n t i o n ,

t h e coastal State shall establish t h e outer

edge o f t h e c o n t i n e n t a l m a r g i n wherever t h e m a r g i n extends b e y o n d

200

n a u t i c a l miles f r o m t h e baselines f r o m w h i c h t h e b r e a d t h o f t h e t e r r i t o r i a l sea is


measured, b y either:
(i) a l i n e d e l i n e a t e d i n accordance w i t h paragraph

7 by

reference t o t h e

o u t e r m o s t f i x e d p o i n t s at each o f w h i c h t h e thickness o f s e d i m e n t a r y

rocks

is at least 1 per c e n t o f t h e shortest distance f r o m such p o i n t t o t h e f o o t o f


t h e c o n t i n e n t a l slope; or
(ii) a l i n e d e l i n e a t e i n accordance w i t h paragraph 7 by reference t o f i x e d p o i n t s
n o t m o r e t h a n 60 n a u t i c a l m i l e s f r o m t h e f o o t o f t h e c o n t i n e n t a l slope.
(b) I n t h e absence o f e v i d e n c e t o t h e contrary, t h e f o o t o f t h e c o n t i n e n t a l slope shall
be d e t e r m i n e d as t h e p o i n t o f m a x i m u m change i n t h e g r a d i e n t at its base.
5.

The f i x e d p o i n t s c o m p r i s i n g t h e l i n e o f t h e o u t e r l i m i t s o f t h e c o n t i n e n t a l shelf o n
t h e seabed, d r a w n i n accordance w i t h p a r a g r a p h 4(a)(i) a n d
exceed 350

nautical miles f r o m

t h e baselines f r o m

( i i ) , e i t h e r shall n o t

w h i c h the breadth

of the

t e r r i t o r i a l sea is m e a s u r e d or s h a l l n o t exceed 100 n a u t i c a l m i l e s f r o m t h e 2,500


m e t r e i s o b a t h , w h i c h is a l i n e c o n n e c t i n g t h e d e p t h o f 2,500 metres.
6.

N o t w i t h s t a n d i n g t h e p r o v i s i o n s o f p a r a g r a p h 5, o n s u b m a r i n e ridges, t h e o u t e r l i m i t
of t h e c o n t i n e n t a l shelf shall n o t exceed 350 n a u t i c a l miles f r o m t h e baselines f r o m
w h i c h t h e b r e a d t h o f t h e t e r r i t o r i a l sea is measured. T h i s p a r a g r a p h does n o t a p p l y

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O w n e r s h i p , l i c e n s i n g a n d sources o f law

to submarine elevations that are natural components of the continental margin,


such as its plateaux, rises, caps, banks a n d spurs.
7.

The

coastal State shall delineate t h e outer l i m i t s of its c o n t i n e n t a l shelf, w h e r e t h a t

shelf extends b e y o n d 200 n a u t i c a l m i l e s f r o m t h e baselines f r o m w h i c h t h e b r e a d t h


of t h e t e r r i t o r i a l sea is measured, b y s t r a i g h t lines n o t e x c e e d i n g 60 n a u t i c a l miles i n
l e n g t h , c o n n e c t i n g f i x e d p o i n t s , d e f i n e d b y c o o r d i n a t e s of l a t i t u d e a n d l o n g i t u d e . ...

Article 77
Rights of the coastal State over the continental

shelf

1.

The coastal State exercises over t h e c o n t i n e n t a l shelf sovereign r i g h t s f o r t h e purpose

2.

The r i g h t s referred t o i n paragraph 1 are exclusive i n t h e sense t h a t i f t h e coastal State

of e x p l o r i n g i t and e x p l o r i n g its n a t u r a l resources.

does n o t e x p l o r e t h e c o n t i n e n t a l shelf or e x p l o i t its n a t u r a l resources, no one

may

u n d e r t a k e these activities w i t h o u t t h e express c o n s e n t of t h e coastal State.


3.

The

r i g h t s of t h e coastal State over t h e

c o n t i n e n t a l shelf do

not

depend

on

o c c u p a t i o n , effective or n o t i o n a l , or o n any express p r o c l a m a t i o n .


4.

The

n a t u r a l resources referred t o i n t h i s Part consist of t h e m i n e r a l a n d other non-

l i v i n g resources of t h e seabed and subsoil together w i t h l i v i n g o r g a n i s m s b e l o n g i n g


to sedentary species, t h a t is t o say, o r g a n i s m s w h i c h , at t h e harvestable stage, either
are i m m o b i l e o n

or u n d e r t h e seabed or are u n a b l e t o m o v e except i n constant

p h y s i c a l contact w i t h t h e seabed or t h e subsoil.

Article 78
Legal status of the superjacent

waters

and

air space and

the rights and

freedoms

of other

States
1.

The r i g h t s of t h e coastal State over t h e c o n t i n e n t a l shelf do n o t affect t h e legal status

2.

The

of t h e superjacent waters or of t h e air space above those waters.


exercise of t h e r i g h t s of t h e coastal State over t h e c o n t i n e n t a l shelf m u s t n o t

i n f r i n g e or result i n any u n j u s t i f i a b l e interference w i t h n a v i g a t i o n a n d o t h e r rights


and freedoms of o t h e r States as p r o v i d e d for i n t h i s C o n v e n t i o n .

Article 79
Submarine

cables and pipelines on the continental

shelf

1.

A l l States are e n t i t l e d t o lay s u b m a r i n e cables a n d p i p e l i n e s o n t h e c o n t i n e n t a l shelf,

2.

Subject t o its r i g h t t o take reasonable measures for t h e e x p l o r a t i o n of t h e c o n t i n e n t a l

i n accordance w i t h t h e p r o v i s i o n s of t h i s article.

shelf, t h e e x p l o i t a t i o n o f its n a t u r a l resources a n d

the prevention, reduction

c o n t r o l of p o l l u t i o n f r o m t h e pipelines, t h e coastal State may

and

not impede the laying

or m a i n t e n a n c e of such cables or pipelines.


3.

The

d e l i n e a t i o n of t h e course for t h e l a y i n g o f such p i p e l i n e s o n t h e c o n t i n e n t a l

shelf is subject t o t h e c o n s e n t of t h e coastal State.


4.

N o t h i n g i n t h i s Part affects t h e r i g h t of t h e coastal State t o establish c o n d i t i o n s for


cables or pipelines e n t e r i n g its t e r r i t o r y or t e r r i t o r i a l sea, or its j u r i s d i c t i o n over cables
and

pipelines constructed

or

used i n c o n n e c t i o n

with

the

exploration

o f its

c o n t i n e n t a l shelf or e x p l o i t a t i o n of its resources or t h e o p e r a t i o n s o f a r t i f i c i a l islands,

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Marc H a m m e r s o n

i n s t a l l a t i o n s a n d structures u n d e r its j u r i s d i c t i o n .
5.

W h e n l a y i n g s u b m a r i n e cables or pipelines, States shall have d u e regards t o cables o r


pipelines already i n p o s i t i o n . I n particular, possibilities o f r e p a i r i n g e x i s t i n g cables o r
p i p e l i n e s shall n o t be p r e j u d i c e d . ...

Article 81

Drilling on the continental

shelf

The coastal State shall have t h e exclusive r i g h t t o a u t h o r i z e a n d regulate d r i l l i n g


o n the c o n t i n e n t a l shelf f o r all purposes.

Article 112

Right to lay submarine

cables and pipelines

1.

A l l States are e n t i t l e d t o lay s u b m a r i n e cables a n d p i p e l i n e s o n t h e b e d o f t h e h i g h

2.

A r t i c l e 79, paragraph 5, applies t o such cables a n d pipelines.

seas b e y o n d t h e c o n t i n e n t a l shelf.

Article 113

Breaking or injury of a submarine

cable or pipelines

Every State shall a d o p t t h e laws a n d r e g u l a t i o n s necessary t o p r o v i d e t h a t t h e


b r e a k i n g or i n j u r y b y a s h i p f l y i n g its flag or b y a person subject t o its j u r i s d i c t i o n o f
a s u b m a r i n e cable

beneath

the high

seas d o n e w i l f u l l y

or t h r o u g h

culpable

negligence, i n such a m a n n e r as t o be liable t o i n t e r r u p t or o b s t r u c t telegraphic


communications, a n d similarly the breaking or i n j u r y of a submarine pipeline or
h i g h - v o l t a g e p o w e r cable, shall be a p u n i s h a b l e offence. T h i s p r o v i s i o n shall a p p l y
also t o c o n d u c t c a l c u l a t e d o r l i k e l y t o result i n such b r e a k i n g o r i n j u r y . However, i t
shall n o t a p p l y t o a n y break or i n j u r y caused b y persons w h o acted m e r e l y w i t h t h e
l e g i t i m a t e o b j e c t o f saving t h e i r lives or t h e i r ships, after h a v i n g t a k e n all necessary
p r e c a u t i o n s t o a v o i d such break or i n j u r y .

Article 114

Breaking or injury by owners of a submarine


pipeline

cable or pipeline of another submarine

cable or

Every State shall a d o p t t h e laws a n d r e g u l a t i o n s necessary t o p r o v i d e t h a t , i f


persons subject t o its j u r i s d i c t i o n w h o are t h e o w n e r s o f a s u b m a r i n e cable o r
p i p e l i n e b e n e a t h t h e h i g h seas, i n l a y i n g or r e p a i r i n g t h a t cable o r p i p e l i n e , cause a
break or i n j u r y t o a n o t h e r cable or p i p e l i n e , t h e y shall bear t h e cost o f t h e repairs.

Article 115

Indemnity

for loss incurred in avoiding injury to a submarine

cable or pipeline

Every State shall a d o p t t h e laws a n d r e g u l a t i o n s necessary t o ensure t h a t t h e


o w n e r s o f ships w h o c a n p r o v e t h a t t h e y have sacrificed a n anchor, a net o r a n y
o t h e r f i s h i n g gear, i n order t o a v o i d i n j u r i n g a s u b m a r i n e cable or p i p e l i n e , shall be
i n d e m n i f i e d b y t h e o w n e r o f t h e cable o r p i p e l i n e , p r o v i d e d t h a t t h e o w n e r o f t h e
s h i p has t a k e n all reasonable p r e c a u t i o n a r y measures beforehand.

155

Ownership, licensing and sources of law

Article 192
General

obligation

States h a v e t h e o b l i g a t i o n t o p r o t e c t a n d preserve t h e m a r i n e

environment.

Article 193
Sovereign

right of States to exploit their natural

resources

States h a v e t h e s o v e r e i g n r i g h t t o e x p l o i t t h e i r n a t u r a l resources p u r s u a n t t o t h e i r
e n v i r o n m e n t a l policies a n d i n a c c o r d a n c e w i t h t h e i r d u t y t o p r o t e c t a n d preserve the
marine

environment.

Article 194
Measures
1.

to prevent, reduce and control pollution of the marine

environment

States s h a l l take, i n d i v i d u a l l y o r j o i n t l y as a p p r o p r i a t e , a l l measures c o n s i s t e n t w i t h


this Convention

t h a t are necessary t o p r e v e n t , reduce a n d c o n t r o l p o l l u t i o n o f the

marine environment

f r o m a n y source, u s i n g f o r t h i s p u r p o s e t h e best practicable

m e a n s at t h e i r d i s p o s a l a n d i n a c c o r d a n c e w i t h t h e i r c a p a b i l i t i e s , a n d t h e y shall
endeavour t o h a r m o n i z e their policies i n this c o n n e c t i o n .
2.

States s h a l l

take

a l l measures necessary t o ensure t h a t

activities under

their

j u r i s d i c t i o n o r c o n t r o l are so c o n d u c t e d as n o t t o cause d a m a g e b y p o l l u t i o n t o other


States a n d t h e i r e n v i r o n m e n t , a n d t h a t p o l l u t i o n a r i s i n g f r o m i n c i d e n t s o r activities
u n d e r t h e i r j u r i s d i c t i o n o r c o n t r o l does n o t spread b e y o n d t h e areas w h e r e t h e y
exercise s o v e r e i g n r i g h t s i n a c c o r d a n c e w i t h t h i s C o n v e n t i o n .
3.

T h e measures t a k e n p u r s u a n t t o t h i s Part s h a l l deal w i t h a l l sources o f p o l l u t i o n o f


t h e m a r i n e e n v i r o n m e n t . These measures s h a l l i n c l u d e , inter alia, t h o s e designed t o
m i n i m i z e t o t h e f u l l e s t possible e x t e n t :
(a) t h e release o f t o x i c , h a r m f u l o r n o x i o u s substances, especially those
are persistent, f r o m land-based

which

sources, f r o m o r t h r o u g h t h e a t m o s p h e r e o r

by dumping;
(b) p o l l u t i o n f r o m vessels, i n p a r t i c u l a r measures f o r p r e v e n t i n g a c c i d e n t s a n d
d e a l i n g w i t h emergencies, e n s u r i n g t h e safety o f o p e r a t i o n s at sea, p r e v e n t i n g
intentional

and unintentional

discharges,

and regulating

t h e design,

c o n s t r u c t i o n , e q u i p m e n t , o p e r a t i o n a n d m a n n i n g o f vessels;
(c) p o l l u t i o n f r o m i n s t a l l a t i o n s a n d devices used i n e x p l o r a t i o n o r e x p l o i t a t i o n
o f t h e n a t u r a l resources o f t h e seabed a n d subsoil, i n p a r t i c u l a r measures for
p r e v e n t i n g a c c i d e n t s a n d d e a l i n g w i t h emergencies, e n s u r i n g t h e safety o f
o p e r a t i o n s at sea, a n d r e g u l a t i n g t h e design, c o n s t r u c t i o n , e q u i p m e n t ,
o p e r a t i o n a n d m a n n i n g o f s u c h i n s t a l l a t i o n s o r devices;
(d) p o l l u t i o n

from

environment,

o t h e r i n s t a l l a t i o n s a n d devices o p e r a t i n g i n t h e m a r i n e

i n p a r t i c u l a r measures f o r p r e v e n t i n g a c c i d e n t s a n d d e a l i n g

w i t h emergencies, e n s u r i n g t h e safety o f o p e r a t i o n s at sea, a n d r e g u l a t i n g t h e


design,

construction, equipment,

operation

and

manning

o f such

i n s t a l l a t i o n s o r devices.
4.

I n taking

measures t o p r e v e n t ,

environment,

reduce

States s h a l l r e f r a i n f r o m

or control

pollution

of the marine

unjustifiable interference w i t h

activities

c a r r i e d o u t b y o t h e r States i n t h e exercise o f t h e i r r i g h t s a n d i n p u r s u a n c e o f t h e i r

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Marc H a m m e r s o n

duties i n c o n f o r m i t y w i t h t h i s C o n v e n t i o n .
5.

T h e measures t a k e n i n accordance w i t h t h i s Part shall i n c l u d e those necessary t o


p r o t e c t a n d preserve rare o r fragile ecosystems as w e l l as t h e h a b i t a t o f depleted,
t h r e a t e n e d or e n d a n g e r e d species a n d o t h e r f o r m s o f m a r i n e life.

Summary of North Sea Continental Shelf cases (judgment of 20 February 1969)


T h e C o u r t delivered j u d g m e n t , b y 11 votes t o 6, i n t h e N o r t h Sea C o n t i n e n t a l Shelf
cases.
T h e d i s p u t e ... related t o t h e d e l i m i t a t i o n o f t h e c o n t i n e n t a l shelf b e t w e e n t h e
Federal Republic o f G e r m a n y a n d D e n m a r k o n t h e o n e h a n d , a n d b e t w e e n t h e
Federal Republic o f G e r m a n y a n d t h e N e t h e r l a n d s o n t h e other. T h e Parties asked t h e
C o u r t t o state t h e p r i n c i p l e s a n d rules o f i n t e r n a t i o n a l l a w applicable, a n d u n d e r t o o k
thereafter t o carry o u t t h e d e l i m i t a t i o n s o n t h a t basis.
T h e C o u r t rejected t h e c o n t e n t i o n o f D e n m a r k a n d t h e N e t h e r l a n d s t o t h e effect
t h a t t h e d e l i m i t a t i o n s i n q u e s t i o n h a d t o be carried o u t i n accordance w i t h t h e
p r i n c i p l e o f e q u i d i s t a n c e as d e f i n e d i n A r t i c l e 6 o f t h e 1958 Geneva C o n v e n t i o n o n
the C o n t i n e n t a l Shelf, h o l d i n g :

t h a t t h e Federal Republic, w h i c h h a d n o t r a t i f i e d t h e C o n v e n t i o n , was n o t


legally b o u n d b y t h e p r o v i s i o n s o f A r t i c l e 6;

t h a t t h e e q u i d i s t a n c e p r i n c i p l e was n o t a necessary consequence o f t h e


general c o n c e p t o f c o n t i n e n t a l shelf rights, a n d was n o t a rule o f c u s t o m a r y
i n t e r n a t i o n a l law.

The Court also rejected the contentions of the Federal Republic in so far as these
sought acceptance o f t h e p r i n c i p l e o f a n a p p o r t i o n m e n t o f t h e c o n t i n e n t a l shelf i n t o
just a n d e q u i t a b l e shares. It h e l d t h a t each Party h a d an o r i g i n a l r i g h t t o those areas
of t h e c o n t i n e n t a l shelf w h i c h c o n s t i t u t e d t h e n a t u r a l p r o l o n g a t i o n o f its l a n d
t e r r i t o r y i n t o a n d u n d e r t h e sea. It was n o t a q u e s t i o n o f a p p o r t i o n i n g or s h a r i n g o u t
those areas, b u t o f d e l i m i t i n g t h e m .
The Court f o u n d that the boundary

lines i n q u e s t i o n were t o be d r a w n b y

agreement b e t w e e n t h e Parties a n d i n accordance w i t h e q u i t a b l e p r i n c i p l e s , a n d i t


i n d i c a t e d c e r t a i n factors t o be t a k e n i n t o c o n s i d e r a t i o n f o r t h a t purpose. It was n o w
for t h e Parties t o n e g o t i a t e o n t h e basis o f such principles, as t h e y have agreed t o do.

The Facts and the Contentions of the Parties (paras. 1-17 of the Judgment)
T h e t w o Special A g r e e m e n t s h a d asked t h e C o u r t t o declare t h e p r i n c i p l e s a n d rules
o f i n t e r n a t i o n a l l a w a p p l i c a b l e t o t h e d e l i m i t a t i o n as b e t w e e n t h e Parties o f t h e areas
o f t h e N o r t h Sea c o n t i n e n t a l shelf a p p e r t a i n i n g t o each o f t h e m b e y o n d t h e partial
b o u n d a r i e s i n t h e i m m e d i a t e v i c i n i t y o f t h e coast already d e t e r m i n e d b e t w e e n t h e
Federal Republic a n d t h e N e t h e r l a n d s ... a n d b e t w e e n t h e Federal Republic a n d
D e n m a r k . ...
T h e waters o f t h e N o r t h Sea were shallow, t h e w h o l e seabed, except f o r t h e
N o r w e g i a n T r o u g h , c o n s i s t i n g o f c o n t i n e n t a l shelf at a d e p t h o f less t h a n 200 metres.
M o s t o f it h a d already been d e l i m i t e d b e t w e e n t h e coastal States concerned. T h e
Federal Republic a n d D e n m a r k a n d t h e N e t h e r l a n d s , respectively, had, however,

157

Ownership, licensing and sources of law

b e e n u n a b l e t o agree o n t h e p r o l o n g a t i o n o f t h e p a r t i a l b o u n d a r i e s r e f e r r e d t o above,
m a i n l y because D e n m a r k a n d t h e N e t h e r l a n d s h a d w i s h e d t h i s p r o l o n g a t i o n t o be
e f f e c t e d o n t h e basis o f t h e e q u i d i s t a n c e p r i n c i p l e , w h e r e a s t h e F e d e r a l R e p u b l i c

had

c o n s i d e r e d t h a t i t w o u l d u n d u l y c u r t a i l w h a t t h e Federal R e p u b l i c b e l i e v e d s h o u l d be
its p r o p e r share o f c o n t i n e n t a l s h e l f area, o n

t h e basis o f p r o p o r t i o n a l i t y t o t h e

l e n g t h o f its N o r t h Sea c o a s t l i n e . N e i t h e r o f t h e b o u n d a r i e s i n q u e s t i o n w o u l d

by

i t s e l f p r o d u c e t h i s effect, b u t o n l y b o t h o f t h e m t o g e t h e r - a n e l e m e n t r e g a r d e d b y
Denmark and

the Netherlands

as i r r e l e v a n t t o w h a t t h e y v i e w e d

as b e i n g

two

separate d e l i m i t a t i o n s , t o be c a r r i e d o u t w i t h o u t r e f e r e n c e t o t h e o t h e r .
A b o u n d a r y based o n t h e e q u i d i s t a n c e p r i n c i p l e , i.e., a n " e q u i d i s t a n c e l i n e " , left
t o e a c h o f t h e Parties c o n c e r n e d a l l t h o s e p o r t i o n s o f t h e c o n t i n e n t a l s h e l f t h a t were
n e a r e r t o a p o i n t o n its o w n

coast t h a n t h e y w e r e t o a n y p o i n t o n t h e coast o f t h e

o t h e r Party. I n t h e case o f a c o n c a v e o r r e c e s s i n g coast s u c h as t h a t o f t h e Federal


R e p u b l i c o n t h e N o r t h Sea, t h e e f f e c t o f t h e e q u i d i s t a n c e m e t h o d was t o p u l l t h e l i n e
of the b o u n d a r y inwards, i n the direction of the concavity. Consequently, where two
equidistance lines were drawn, they w o u l d ,

i f t h e c u r v a t u r e were

pronounced,

i n e v i t a b l y m e e t at a r e l a t i v e l y s h o r t d i s t a n c e f r o m t h e coast, t h u s " c u t t i n g o f f " t h e


c o a s t a l State f r o m t h e area o f t h e c o n t i n e n t a l s h e l f o u t s i d e . I n c o n t r a s t , t h e effect o f
c o n v e x o r o u t w a r d l y c u r v i n g coasts, s u c h as were, t o a m o d e r a t e e x t e n t , t h o s e o f
D e n m a r k a n d t h e N e t h e r l a n d s , was t o cause t h e e q u i d i s t a n c e l i n e s t o leave t h e coasts
o n d i v e r g e n t courses, t h u s h a v i n g a w i d e n i n g t e n d e n c y o n t h e area o f c o n t i n e n t a l
s h e l f o f f t h a t coast.
It had been contended o n behalf of D e n m a r k and t h e Netherlands that the whole
m a t t e r was

g o v e r n e d by a m a n d a t o r y rule o f law w h i c h , r e f l e c t i n g t h e language of

A r t i c l e 6 o f t h e G e n e v a C o n v e n t i o n o n t h e C o n t i n e n t a l S h e l f o f 29 A p r i l 1958,
d e s i g n a t e d b y t h e m as t h e " e q u i d i s t a n c e - s p e c i a l c i r c u m s t a n c e s " r u l e . T h a t r u l e
t o t h e e f f e c t t h a t i n t h e absence o f a g r e e m e n t b y t h e p a r t i e s t o e m p l o y
method,

all continental

shelf boundaries

had

t o be

drawn

by

was
was

another

means of

an

e q u i d i s t a n c e l i n e u n l e s s " s p e c i a l c i r c u m s t a n c e s " w e r e r e c o g n i z e d t o exist. A c c o r d i n g


t o D e n m a r k a n d t h e N e t h e r l a n d s , t h e c o n f i g u r a t i o n o f t h e G e r m a n N o r t h Sea coast
d i d n o t o f i t s e l f c o n s t i t u t e , f o r e i t h e r o f t h e t w o b o u n d a r y l i n e s c o n c e r n e d , a special
circumstance.
T h e Federal R e p u b l i c , f o r its p a r t , h a d c o n t e n d e d

t h a t t h e c o r r e c t r u l e , at a n y rate

i n s u c h c i r c u m s t a n c e s as t h o s e o f t h e N o r t h Sea, was o n e a c c o r d i n g t o w h i c h e a c h o f
t h e States c o n c e r n e d

should have a "just and

e q u i t a b l e share" of t h e available

c o n t i n e n t a l shelf, i n p r o p o r t i o n t o t h e l e n g t h o f i t s sea-frontage. I t h a d
contended

t h a t i n a sea s h a p e d as is t h e N o r t h Sea, e a c h o f t h e States c o n c e r n e d

also
was

e n t i t l e d t o a c o n t i n e n t a l s h e l f area e x t e n d i n g u p t o t h e c e n t r a l p o i n t o f t h a t sea, or
at least e x t e n d i n g t o its m e d i a n l i n e . A l t e r n a t i v e l y , t h e Federal R e p u b l i c h a d

claimed

t h a t i f t h e e q u i d i s t a n c e m e t h o d w e r e h e l d t o be a p p l i c a b l e , t h e c o n f i g u r a t i o n o f t h e
G e r m a n N o r t h Sea

coast c o n s t i t u t e d a s p e c i a l c i r c u m s t a n c e

s u c h as t o j u s t i f y a

d e p a r t u r e f r o m t h a t m e t h o d o f d e l i m i t a t i o n i n t h i s p a r t i c u l a r case.

The Apportionment Theory Rejected (paras. 18-20 of the Judgment)


The

158

Court

felt unable

t o accept, i n t h e p a r t i c u l a r f o r m

i t had

taken, the

first

Marc H a m m e r s o n

c o n t e n t i o n p u t f o r w a r d o n b e h a l f o f the Federal Republic. Its task was t o d e l i m i t , n o t


t o a p p o r t i o n t h e areas concerned. The process o f d e l i m i t a t i o n i n v o l v e d e s t a b l i s h i n g
t h e boundaries o f an area already, i n p r i n c i p l e , a p p e r t a i n i n g t o t h e coastal State a n d
n o t t h e d e t e r m i n a t i o n de

n o v o o f such an area. The

d o c t r i n e o f t h e just

and

e q u i t a b l e share was w h o l l y at variance w i t h t h e m o s t f u n d a m e n t a l o f all t h e rules o f


law r e l a t i n g t o t h e c o n t i n e n t a l shelf, namely, t h a t t h e r i g h t s o f t h e coastal State i n
respect o f t h e area o f c o n t i n e n t a l shelf c o n s t i t u t i n g a n a t u r a l p r o l o n g a t i o n o f its l a n d
t e r r i t o r y u n d e r t h e sea existed ipso facto a n d a b initio, b y v i r t u e o f its s o v e r e i g n t y over
t h e l a n d . T h a t r i g h t was i n h e r e n t . I n order t o exercise i t , n o special legal acts h a d t o
be performed. I t f o l l o w e d t h a t t h e n o t i o n o f a p p o r t i o n i n g an as yet u n d e l i m i t e d area
considered as a w h o l e ( w h i c h u n d e r l a y t h e d o c t r i n e o f t h e just a n d e q u i t a b l e share)
was i n c o n s i s t e n t w i t h t h e basic c o n c e p t o f c o n t i n e n t a l shelf e n t i t l e m e n t .

Non-Applicability of Article 6 of the 1958 Continental Shelf Convention (paras.

21-36 of the Judgment)


The C o u r t t h e n t u r n e d t o t h e q u e s t i o n w h e t h e r i n d e l i m i t i n g those areas t h e Federal
Republic was u n d e r a legal o b l i g a t i o n t o accept t h e a p p l i c a t i o n o f t h e equidistance
p r i n c i p l e . W h i l e i t was p r o b a b l y true t h a t n o o t h e r m e t h o d of d e l i m i t a t i o n h a d t h e
same c o m b i n a t i o n

o f practical c o n v e n i e n c e a n d

certainty of application,

those

factors d i d n o t suffice o f themselves t o c o n v e r t w h a t was a m e t h o d i n t o a rule o f law.


Such a m e t h o d w o u l d have t o d r a w its legal force f r o m o t h e r factors t h a n t h e
existence o f those advantages.
The first q u e s t i o n t o be considered was w h e t h e r t h e 1958 Geneva C o n v e n t i o n o n
t h e C o n t i n e n t a l Shelf was b i n d i n g f o r all t h e Parties i n t h e case. U n d e r t h e f o r m a l
p r o v i s i o n s o f t h e C o n v e n t i o n , i t was i n force f o r a n y i n d i v i d u a l State t h a t h a d signed
i t w i t h i n t h e t i m e - l i m i t p r o v i d e d , o n l y i f t h a t State h a d also subsequently r a t i f i e d i t .
Denmark and

the Netherlands

h a d b o t h signed a n d r a t i f i e d t h e C o n v e n t i o n

and

were parties t o i t , b u t t h e Federal Republic, a l t h o u g h one o f t h e signatories o f t h e


C o n v e n t i o n , h a d never r a t i f i e d i t , a n d was c o n s e q u e n t l y n o t a party. I t was
on

behalf of D e n m a r k

and

the

Netherlands

C o n v e n t i o n c o u l d n o t , as such, be b i n d i n g o n

that

admitted

i n t h e circumstances

the

t h e Federal Republic. But i t was

c o n t e n d e d t h a t t h e r e g i m e o f A r t i c l e 6 o f t h e C o n v e n t i o n h a d become b i n d i n g o n
t h e Federal Republic, because, by conduct, b y p u b l i c statements a n d

proclamations,

a n d i n o t h e r ways, t h e Republic h a d assumed t h e o b l i g a t i o n s o f t h e

Convention.

I t was clear t h a t o n l y a v e r y d e f i n i t e , v e r y consistent course o f c o n d u c t o n t h e


p a r t o f a State i n t h e s i t u a t i o n o f t h e Federal Republic c o u l d j u s t i f y u p h o l d i n g those
c o n t e n t i o n s . W h e n a n u m b e r o f States d r e w u p a c o n v e n t i o n specifically p r o v i d i n g
for a p a r t i c u l a r m e t h o d b y w h i c h t h e i n t e n t i o n t o become b o u n d by t h e regime o f
t h e c o n v e n t i o n was t o be m a n i f e s t e d , i t was n o t l i g h t l y t o be p r e s u m e d t h a t a State
w h i c h had

n o t carried o u t those f o r m a l i t i e s h a d

nevertheless s o m e h o w become

b o u n d i n a n o t h e r way. F u r t h e r m o r e , h a d t h e Federal Republic r a t i f i e d t h e Geneva


C o n v e n t i o n , i t c o u l d have entered a r e s e r v a t i o n t o A r t i c l e 6, by reason o f t h e f a c u l t y
to do so c o n f e r r e d b y A r t i c l e 12 o f t h e

Convention.

O n l y t h e existence o f a s i t u a t i o n o f estoppel c o u l d l e n d substance t o t h e


c o n t e n t i o n o f D e n m a r k a n d t h e N e t h e r l a n d s - i.e., i f t h e Federal Republic were

now

159

O w n e r s h i p , l i c e n s i n g a n d sources of law

p r e c l u d e d f r o m d e n y i n g t h e a p p l i c a b i l i t y o f t h e c o n v e n t i o n a l r e g i m e , b y reason o f
past c o n d u c t , d e c l a r a t i o n s , etc., w h i c h n o t o n l y c l e a r l y a n d c o n s i s t e n t l y e v i n c e d
acceptance o f t h a t regime, b u t also h a d caused D e n m a r k o r t h e N e t h e r l a n d s , i n
r e l i a n c e o n such c o n d u c t , d e t r i m e n t a l l y t o c h a n g e p o s i t i o n o r suffer s o m e p r e j u d i c e .
O f t h i s t h e r e was n o evidence. A c c o r d i n g l y , A r t i c l e 6 o f t h e G e n e v a C o n v e n t i o n

was

n o t , as such, a p p l i c a b l e t o t h e d e l i m i t a t i o n s i n v o l v e d i n t h e p r e s e n t p r o c e e d i n g s .

The Equidistance Principle Not Inherent in the Basic Doctrine of the Continental
Shelf (paras. 3 7 - 5 9 o f t h e J u d g m e n t )
I t h a d b e e n m a i n t a i n e d b y D e n m a r k a n d t h e N e t h e r l a n d s t h a t t h e Federal Republic
was

i n a n y event, a n d q u i t e a p a r t f r o m t h e G e n e v a C o n v e n t i o n , b o u n d t o accept

d e l i m i t a t i o n o n an e q u i d i s t a n c e basis, since t h e use o f t h a t m e t h o d was a rule of


general or customary

international

law, a u t o m a t i c a l l y

binding

on

t h e Federal

Republic.
One

a r g u m e n t a d v a n c e d b y t h e m i n s u p p o r t o f t h i s c o n t e n t i o n , w h i c h m i g h t be

t e r m e d t h e a priori a r g u m e n t , s t a r t e d f r o m t h e p o s i t i o n t h a t t h e r i g h t s o f t h e coastal
State t o i t s c o n t i n e n t a l shelf areas w e r e based o n

its sovereignty over the land

d o m a i n , o f w h i c h t h e shelf area was t h e n a t u r a l p r o l o n g a t i o n u n d e r t h e sea. F r o m


t h i s n o t i o n o f a p p u r t e n a n c e was d e r i v e d t h e view, w h i c h t h e C o u r t accepted, t h a t
t h e coastal State's r i g h t s e x i s t e d ipso facto a n d a b initio. D e n m a r k a n d t h e N e t h e r l a n d s
c l a i m e d t h a t t h e test o f a p p u r t e n a n c e

m u s t be " p r o x i m i t y " : a l l t h o s e parts o f t h e

shelf b e i n g c o n s i d e r e d as a p p u r t e n a n t t o a p a r t i c u l a r coastal State w h i c h were closer


t o it t h a n t h e y w e r e t o a n y p o i n t o n t h e coast o f a n o t h e r State. Hence, d e l i m i t a t i o n
had

t o be e f f e c t e d b y a m e t h o d w h i c h w o u l d

leave t o e a c h o n e

c o n c e r n e d a l l t h o s e areas t h a t w e r e nearest t o its o w n

o f t h e States

coast. As o n l y a n e q u i d i s t a n c e

l i n e w o u l d d o t h i s , o n l y such a l i n e c o u l d be v a l i d , i t was

contended.

T h i s v i e w h a d m u c h force; t h e greater p a r t o f a State's c o n t i n e n t a l shelf areas


w o u l d n o r m a l l y i n fact be nearer t o its coasts t h a n t o a n y o t h e r . B u t t h e real issue
was w h e t h e r i t f o l l o w e d t h a t e v e r y p a r t o f t h e area c o n c e r n e d m u s t be p l a c e d i n t h a t
way. T h e C o u r t d i d n o t c o n s i d e r t h i s t o f o l l o w f r o m t h e n o t i o n o f p r o x i m i t y , w h i c h
was a s o m e w h a t f l u i d one. M o r e f u n d a m e n t a l was t h e c o n c e p t o f t h e c o n t i n e n t a l
shelf as b e i n g t h e n a t u r a l p r o l o n g a t i o n o f t h e l a n d d o m a i n . E v e n i f p r o x i m i t y m i g h t
a f f o r d o n e o f t h e tests t o be a p p l i e d , a n d an i m p o r t a n t o n e i n t h e r i g h t c o n d i t i o n s ,
i t m i g h t n o t necessarily be t h e o n l y , n o r i n a l l c i r c u m s t a n c e s t h e m o s t a p p r o p r i a t e ,
one. S u b m a r i n e areas d i d n o t a p p e r t a i n t o t h e coastal State m e r e l y because t h e y were
n e a r i t , n o r d i d t h e i r a p p u r t e n a n c e d e p e n d o n a n y c e r t a i n t y o f d e l i m i t a t i o n as t o
t h e i r b o u n d a r i e s . W h a t c o n f e r r e d t h e ipso jure t i t l e was t h e fact t h a t t h e s u b m a r i n e
areas c o n c e r n e d m i g h t be d e e m e d t o be a c t u a l l y p a r t o f its t e r r i t o r y i n t h e sense t h a t
t h e y w e r e a p r o l o n g a t i o n o f its l a n d t e r r i t o r y u n d e r t h e sea. E q u i d i s t a n c e clearly
c o u l d n o t be i d e n t i f i e d w i t h t h e n o t i o n o f n a t u r a l p r o l o n g a t i o n , s i n c e t h e use o f t h e
equidistance

method

would

frequently

cause

areas

which

were

the

natural

p r o l o n g a t i o n o f t h e t e r r i t o r y o f o n e State t o be a t t r i b u t e d t o a n o t h e r . Hence, t h e
n o t i o n o f e q u i d i s t a n c e was

n o t a n inescapable a priori

a c c o m p a n i m e n t o f basic

c o n t i n e n t a l shelf d o c t r i n e .
A r e v i e w o f t h e genesis o f t h e e q u i d i s t a n c e m e t h o d o f d e l i m i t a t i o n c o n f i r m e d t h e

160

Marc Hammerson

f o r e g o i n g c o n c l u s i o n . T h e " T r u m a n P r o c l a m a t i o n " issued b y t h e G o v e r n m e n t o f t h e


U n i t e d States o n 28 September 1945 c o u l d be regarded as a s t a r t i n g p o i n t o f t h e
p o s i t i v e l a w o n t h e subject, a n d t h e c h i e f d o c t r i n e it e n u n c i a t e d , t h a t t h e coastal
State h a d a n o r i g i n a l , n a t u r a l a n d exclusive r i g h t t o t h e c o n t i n e n t a l shelf o f f its
shores, h a d c o m e t o p r e v a i l over all others a n d was n o w reflected i n t h e 1958 Geneva
C o n v e n t i o n . W i t h regard t o t h e d e l i m i t a t i o n o f boundaries b e t w e e n t h e c o n t i n e n t a l
shelves o f adjacent States, t h e T r u m a n P r o c l a m a t i o n h a d stated t h a t such boundaries
"shall be d e t e r m i n e d

b y t h e U n i t e d States a n d t h e State c o n c e r n e d i n accordance

w i t h e q u i t a b l e p r i n c i p l e s " . These t w o concepts, o f d e l i m i t a t i o n b y m u t u a l agreement


and

d e l i m i t a t i o n i n accordance w i t h e q u i t a b l e principles, h a d u n d e r l a i n a l l t h e

subsequent h i s t o r y o f t h e subject. It h a d been largely o n t h e r e c o m m e n d a t i o n o f a


c o m m i t t e e o f experts t h a t t h e p r i n c i p l e o f e q u i d i s t a n c e f o r t h e d e l i m i t a t i o n o f
c o n t i n e n t a l shelf b o u n d a r i e s h a d been accepted b y t h e U n i t e d N a t i o n s I n t e r n a t i o n a l
Law C o m m i s s i o n i n t h e t e x t i t h a d l a i d before t h e Geneva C o n f e r e n c e o f 1958 o n
t h e Law o f t h e Sea w h i c h h a d a d o p t e d t h e C o n t i n e n t a l Shelf C o n v e n t i o n . I t c o u l d
l e g i t i m a t e l y be assumed t h a t t h e experts h a d been actuated b y c o n s i d e r a t i o n s n o t o f
legal t h e o r y b u t o f p r a c t i c a l c o n v e n i e n c e a n d cartography. Moreover, t h e article
adopted b y the C o m m i s s i o n h a d given p r i o r i t y t o d e l i m i t a t i o n by agreement a n d
had c o n t a i n e d a n e x c e p t i o n i n f a v o u r o f "special circumstances".
T h e C o u r t c o n s e q u e n t l y considered t h a t D e n m a r k a n d t h e N e t h e r l a n d s i n v e r t e d
t h e t r u e order o f t h i n g s a n d t h a t , f a r f r o m

a n equidistance rule h a v i n g

been

generated b y a n antecedent p r i n c i p l e o f p r o x i m i t y i n h e r e n t i n t h e w h o l e c o n c e p t o f
c o n t i n e n t a l shelf a p p u r t e n a n c e , t h e latter was rather a r a t i o n a l i z a t i o n o f t h e f o r m e r

The Equidistance Principle Not a Rule of Customary International Law (paras.


60-82 o f t h e J u d g m e n t )
The q u e s t i o n r e m a i n e d w h e t h e r t h r o u g h p o s i t i v e l a w processes t h e equidistance
p r i n c i p l e m u s t n o w be regarded as a rule o f c u s t o m a r y i n t e r n a t i o n a l law.
Rejecting

the contentions

of Denmark

a n d t h e Netherlands,

t h e Court

considered t h a t t h e p r i n c i p l e o f equidistance, as it f i g u r e d i n A r t i c l e 6 o f t h e Geneva


Convention,

h a d n o t been p r o p o s e d b y t h e I n t e r n a t i o n a l Law C o m m i s s i o n as a n

e m e r g i n g rule o f c u s t o m a r y i n t e r n a t i o n a l law. T h i s A r t i c l e c o u l d n o t be said t o have


reflected o r crystallized such a rule. T h i s was c o n f i r m e d b y t h e fact t h a t a n y State
m i g h t m a k e reservations i n respect o f A r t i c l e 6, u n l i k e Articles 1, 2 a n d 3, o n s i g n i n g ,
r a t i f y i n g o r acceding
Convention,

although

t o the Convention.

W h i l e certain o t h e r p r o v i s i o n s o f t h e

r e l a t i n g t o matters t h a t l a y w i t h i n t h e f i e l d o f received

c u s t o m a r y law, were also n o t e x c l u d e d

f r o m t h e f a c u l t y o f reservation, t h e y a l l

related t o rules o f general m a r i t i m e l a w v e r y c o n s i d e r a b l y a n t e d a t i n g t h e C o n v e n t i o n


w h i c h were o n l y i n c i d e n t a l t o c o n t i n e n t a l shelf r i g h t s as such, a n d h a d been
m e n t i o n e d i n t h e C o n v e n t i o n s i m p l y t o ensure t h a t t h e y were n o t p r e j u d i c e d b y t h e
exercise o f c o n t i n e n t a l shelf rights. A r t i c l e 6, however, related d i r e c t l y t o c o n t i n e n t a l
shelf r i g h t s as such, a n d since it was n o t e x c l u d e d f r o m t h e f a c u l t y o f reservation, i t
was a l e g i t i m a t e i n f e r e n c e t h a t it was n o t considered t o reflect e m e r g e n t c u s t o m a r y
law.
I t h a d been argued o n b e h a l f o f D e n m a r k a n d t h e N e t h e r l a n d s t h a t even if at t h e

161

O w n e r s h i p , l i c e n s i n g a n d sources of law

date o f t h e G e n e v a C o n v e n t i o n n o r u l e o f c u s t o m a r y i n t e r n a t i o n a l l a w e x i s t e d i n
favour o f the equidistance principle, such a rule h a d nevertheless c o m e i n t o being
since t h e C o n v e n t i o n , p a r t l y because o f i t s o w n i m p a c t , a n d p a r t l y o n t h e basis o f
s u b s e q u e n t State practice. I n o r d e r f o r t h i s process t o o c c u r i t was necessary t h a t
A r t i c l e 6 o f t h e C o n v e n t i o n s h o u l d , a t a l l e v e n t s p o t e n t i a l l y , be o f a n o r m - c r e a t i n g
character. A r t i c l e 6 was so f r a m e d , h o w e v e r , as t o p u t t h e o b l i g a t i o n t o m a k e use o f
the

equidistance m e t h o d

after a p r i m a r y

obligation

t o effect d e l i m i t a t i o n

by

a g r e e m e n t . F u r t h e r m o r e , t h e p a r t p l a y e d b y t h e n o t i o n o f special c i r c u m s t a n c e s i n
r e l a t i o n t o t h e p r i n c i p l e o f e q u i d i s t a n c e , t h e c o n t r o v e r s i e s as t o t h e exact m e a n i n g
and

scope o f t h a t n o t i o n , a n d t h e f a c u l t y o f m a k i n g r e s e r v a t i o n s t o A r t i c l e 6 m u s t all

raise d o u b t s as t o t h e p o t e n t i a l l y n o r m - c r e a t i n g c h a r a c t e r o f t h a t A r t i c l e .
Furthermore, w h i l e a very widespread a n d representative participation i n a
c o n v e n t i o n m i g h t s h o w t h a t a c o n v e n t i o n a l r u l e h a d b e c o m e a g e n e r a l rule o f
i n t e r n a t i o n a l law, i n t h e p r e s e n t case t h e n u m b e r o f r a t i f i c a t i o n s a n d accessions so
far was h a r d l y s u f f i c i e n t . As regards t h e t i m e e l e m e n t , a l t h o u g h t h e passage o f o n l y
a s h o r t p e r i o d o f t i m e was n o t necessarily a b a r t o t h e f o r m a t i o n o f a n e w rule of
customary

international

law on

t h e basis o f w h a t

c o n v e n t i o n a l r u l e , i t was i n d i s p e n s a b l e t h a t
including

was

State p r a c t i c e

originally a

purely

during that

period,

t h a t o f States w h o s e interests w e r e s p e c i a l l y affected, s h o u l d h a v e been

b o t h e x t e n s i v e a n d v i r t u a l l y u n i f o r m i n t h e sense o f t h e p r o v i s i o n

i n v o k e d and

s h o u l d h a v e o c c u r r e d i n s u c h a w a y as t o s h o w a g e n e r a l r e c o g n i t i o n

t h a t a rule o f

l a w was i n v o l v e d . S o m e 15 cases h a d b e e n c i t e d i n w h i c h t h e States c o n c e r n e d had


agreed t o d r a w o r h a d d r a w n t h e b o u n d a r i e s c o n c e r n e d a c c o r d i n g t o t h e p r i n c i p l e of
e q u i d i s t a n c e , b u t t h e r e was n o e v i d e n c e t h a t t h e y h a d so a c t e d because t h e y h a d felt
l e g a l l y c o m p e l l e d t o d r a w t h e m i n t h a t w a y b y r e a s o n o f a r u l e o f c u s t o m a r y law. The
cases c i t e d w e r e i n c o n c l u s i v e a n d i n s u f f i c i e n t e v i d e n c e o f a s e t t l e d practice.
T h e C o u r t c o n s e q u e n t l y c o n c l u d e d t h a t t h e G e n e v a C o n v e n t i o n was n o t i n its
o r i g i n s o r i n c e p t i o n d e c l a r a t o r y o f a m a n d a t o r y r u l e o f c u s t o m a r y i n t e r n a t i o n a l law
e n j o i n i n g t h e use o f t h e e q u i d i s t a n c e p r i n c i p l e , i t s s u b s e q u e n t effect h a d n o t been
c o n s t i t u t i v e o f s u c h a r u l e , a n d State p r a c t i c e u p t o d a t e h a d e q u a l l y b e e n i n s u f f i c i e n t
for t h e purpose.

The Principles and Rules of Law Applicable (paras. 83-101 of the Judgment)
T h e legal s i t u a t i o n w a s t h a t t h e Parties w e r e u n d e r n o o b l i g a t i o n

t o apply the

e q u i d i s t a n c e p r i n c i p l e e i t h e r u n d e r t h e 1958 C o n v e n t i o n o r as a r u l e o f general or
c u s t o m a r y i n t e r n a t i o n a l law. I t c o n s e q u e n t l y b e c a m e u n n e c e s s a r y f o r t h e C o u r t t o
consider

whether

or n o t t h e configuration

of the German

North

Sea coast

c o n s t i t u t e d a "special c i r c u m s t a n c e " . I t r e m a i n e d f o r t h e C o u r t , h o w e v e r , t o i n d i c a t e
t o t h e Parties t h e p r i n c i p l e s a n d rules o f l a w i n t h e l i g h t o f w h i c h d e l i m i t a t i o n was
t o be effected.
T h e basic p r i n c i p l e s i n t h e m a t t e r o f d e l i m i t a t i o n , d e r i v i n g f r o m t h e T r u m a n
P r o c l a m a t i o n , w e r e t h a t i t m u s t be t h e o b j e c t o f a g r e e m e n t b e t w e e n t h e States
c o n c e r n e d a n d t h a t s u c h a g r e e m e n t m u s t be a r r i v e d a t i n a c c o r d a n c e w i t h e q u i t a b l e
p r i n c i p l e s . T h e Parties w e r e u n d e r a n o b l i g a t i o n t o e n t e r i n t o n e g o t i a t i o n s w i t h a
v i e w t o a r r i v i n g at a n a g r e e m e n t a n d n o t m e r e l y t o g o t h r o u g h a f o r m a l process o f

162

Marc H a m m e r s o n

n e g o t i a t i o n as a sort of p r i o r c o n d i t i o n f o r t h e a u t o m a t i c a p p l i c a t i o n o f a c e r t a i n
m e t h o d of d e l i m i t a t i o n i n t h e absence of agreement; t h e y were so t o c o n d u c t
themselves t h a t t h e n e g o t i a t i o n s were m e a n i n g f u l , w h i c h w o u l d n o t be t h e case
w h e n one

o f t h e m insisted u p o n its o w n

m o d i f i c a t i o n of i t . T h i s o b l i g a t i o n was

position without

contemplating

any

m e r e l y a special a p p l i c a t i o n of a p r i n c i p l e

u n d e r l y i n g a l l i n t e r n a t i o n a l relations, w h i c h was

m o r e o v e r r e c o g n i z e d i n A r t i c l e 33

of t h e Charter of t h e U n i t e d N a t i o n s as one

of t h e m e t h o d s f o r t h e

peaceful

settlement of i n t e r n a t i o n a l disputes.
The

Parties were u n d e r an o b l i g a t i o n t o act i n such a way

case, a n d

that i n the particular

t a k i n g a l l t h e circumstances i n t o account, equitable

p r i n c i p l e s were

applied. There was n o q u e s t i o n of t h e Court's decision b e i n g ex aequo

et bono.

I t was

precisely a rule of law t h a t called for t h e a p p l i c a t i o n of equitable p r i n c i p l e s , and i n


such cases as t h e present ones t h e equidistance
to

inequity. Other

methods

existed

combination, according to the

and

m e t h o d c o u l d u n q u e s t i o n a b l y lead
might

areas i n v o l v e d .

be

employed, alone

Although

the

Parties

or

in

intended

themselves t o a p p l y t h e p r i n c i p l e s a n d rules laid d o w n by t h e C o u r t some i n d i c a t i o n


was called for of t h e possible ways i n w h i c h t h e y m i g h t a p p l y t h e m .
For a l l t h e f o r e g o i n g reasons, t h e C o u r t f o u n d i n each case t h a t t h e use of t h e
equidistance m e t h o d of d e l i m i t a t i o n was n o t o b l i g a t o r y as b e t w e e n t h e Parties; t h a t
no

o t h e r single m e t h o d o f d e l i m i t a t i o n was

i n a l l circumstances o b l i g a t o r y ; t h a t

d e l i m i t a t i o n was t o be effected by agreement i n accordance w i t h equitable p r i n c i p l e s


and t a k i n g a c c o u n t o f a l l relevant circumstances, i n such a way

as t o leave as m u c h

as possible t o each Party a l l those parts o f t h e c o n t i n e n t a l shelf t h a t c o n s t i t u t e d a


natural prolongation
prolongation

of i t s l a n d t e r r i t o r y , w i t h o u t e n c r o a c h m e n t o n

of t h e l a n d

produced overlapping

t e r r i t o r y of t h e other; a n d

the natural

t h a t , i f such d e l i m i t a t i o n

areas, t h e y were t o be d i v i d e d b e t w e e n t h e Parties i n agreed

p r o p o r t i o n s , or, f a i l i n g agreement, equally, unless t h e y decided o n a regime of j o i n t


j u r i s d i c t i o n , user, or e x p l o i t a t i o n .
I n t h e course of n e g o t i a t i o n s , t h e factors t o be t a k e n i n t o a c c o u n t were t o
include: t h e general c o n f i g u r a t i o n of t h e coasts of t h e Parties, as w e l l as t h e presence
of any

special or u n u s u a l features; so far as k n o w n or r e a d i l y ascertainable,

the

physical and geological structure and n a t u r a l resources o f t h e c o n t i n e n t a l shelf areas


i n v o l v e d , t h e e l e m e n t of a reasonable degree o f p r o p o r t i o n a l i t y b e t w e e n t h e e x t e n t
of t h e c o n t i n e n t a l shelf areas a p p e r t a i n i n g t o each State a n d t h e l e n g t h o f its coast
measured i n t h e general d i r e c t i o n of t h e coastline, t a k i n g i n t o a c c o u n t t h e effects,
actual or prospective,

of any

o t h e r c o n t i n e n t a l shelf d e l i m i t a t i o n s i n t h e same

region.

The Queen v The Secretary of State for Trade and Industry, ex p


Greenpeace [1999] WL

1048293

Kay J:
... The

case is c o n c e r n e d w i t h an area i n t h e N o r t h East A t l a n t i c w h i c h has b e c o m e

k n o w n as t h e A t l a n t i c Frontier. I n b r o a d t e r m s i t lies t o t h e N o r t h a n d t h e West of


t h e Hebrides, O r k n e y a n d

Shetland. The

Secretary of State has t h e p o w e r t o g r a n t

163

O w n e r s h i p , l i c e n s i n g a n d sources of l a w

licences t o c o m p a n i e s w h o w i s h t o search a n d b o r e f o r o i l i n t h e area. L i c e n s i n g takes


p l a c e t h r o u g h a series o f " r o u n d s " w h i c h c o m m e n c e d s o m e t i m e a g o a n d w h i c h i t is
i n t e n d e d s h o u l d c o n t i n u e i n t h e years t o c o m e . Licences are g e n e r a l l y g r a n t e d i n

respect o f " t r a n c h e s " , e a c h t r a n c h e r e l a t i n g t o a n u m b e r o f " b l o c k s " . A l i c e n c e is


g r a n t e d f o r d i f f e r e n t stages. T h e f i r s t stage i n v o l v e s e x p l o r a t i o n w h i c h is a process o f
a p p r a i s a l o f t h e b l o c k s i n q u e s t i o n . I t i n v o l v e s s e i s m i c t e s t i n g o f t h e seabed and,
w h e r e a p p r o p r i a t e , t h e d r i l l i n g o f e x p l o r a t o r y w e l l s . T h e s e c o n d stage i n v o l v e s
e x t r a c t i o n . T h e l i c e n c e s r e q u i r e t h e l i c e n s e e t o o b t a i n t h e c o n s e n t o f t h e Secretary o f
State b e f o r e p r o c e e d i n g f r o m t h e f i r s t stage t o t h e s e c o n d stage.
O n 7 A p r i l 1 9 9 7 t h e Secretary o f State g r a n t e d l i c e n c e s i n t h e S e v e n t e e n t h Round.
G r e e n p e a c e a p p l i e d f o r leave t o m o v e f o r j u d i c i a l r e v i e w o f t h a t d e c i s i o n b u t were

r e f u s e d leave b y L a w s J o n 14 O c t o b e r 1 9 9 7 b y r e a s o n o f delay. (Regina v Secretary of

State for Trade and Industry, ex parte Greenpeace [ 1 9 8 8 ] E n v LR 4 1 5 ) . I s h a l l a d o p t t h


l a n g u a g e o f c o u n s e l a n d refer t o t h a t case as G r e e n p e a c e 1. I n D e c e m b e r 1998 t h e
Secretary o f State g r a n t e d l i c e n c e s i n t h e E i g h t e e n t h R o u n d a n d a f e w o t h e r licences
h a v e b e e n g r a n t e d " o u t o f r o u n d " , w i t h o u t f u r t h e r c h a l l e n g e b y Greenpeace. ...

The basis of the present application


I n a n u t s h e l l Greenpeace's c h a l l e n g e m a y b e d e s c r i b e d as f o l l o w s . T h e areas t o be
licensed i n t h e N i n e t e e n t h

Round lie outside t h e twelve mile limit

of United

K i n g d o m T e r r i t o r i a l w a t e r s b u t w i t h i n t h e area o f t h e U n i t e d K i n g d o m C o n t i n e n t a l
S h e l f (UKCS). C o u n c i l D i r e c t i v e 92/43/EEC o n t h e c o n s e r v a t i o n o f n a t u r a l h a b i t a t s
a n d o f w i l d f a u n a a n d flora ( t h e H a b i t a t s D i r e c t i v e ) w h i c h w a s i s s u e d o n 2 1 M a y
1992

o b l i g e d M e m b e r States t o legislate. T h e d o m e s t i c l e g i s l a t i o n w h i c h ensued, i n

particular t h e Conservation

( N a t i o n a l H a b i t a t s etc.) R e g u l a t i o n s 1994, is expressly

s t a t e d t o a p p l y o n l y u p t o t h e t w e l v e m i l e l i m i t . T h e Secretary o f State c o n t e n d s t h a t
t h e R e g u l a t i o n s are a p r o p e r i m p l e m e n t a t i o n o f t h e H a b i t a t s D i r e c t i v e w h i c h d i d n o t
i m p o s e o b l i g a t i o n s b e y o n d t h e t w e l v e m i l e l i m i t . A c c o r d i n g l y , h e does n o t consider
the

Regulations o r t h e Habitats Directive i n t h e course o f his licensing f u n c t i o n ,

although

h e does h a v e d u e r e g a r d t o v a r i o u s o t h e r e n v i r o n m e n t a l

obligations.

G r e e n p e a c e c o n t e n d s t h a t t h e Secretary o f State has f a l l e n i n t o f u n d a m e n t a l

legal

error i n t h a t t h e Habitats Directive, p r o p e r l y construed, r e q u i r e d t h e domestic


l e g i s l a t i o n w h i c h i m p l e m e n t e d i t t o e x t e n d t o t h e U K C S a n d t h e w a t e r s above; t h a t
t h e Secretary o f State is o b l i g e d t o c a r r y o u t h i s l i c e n s i n g f u n c t i o n i n a c c o r d a n c e w i t h
t h e H a b i t a t s D i r e c t i v e ; a n d t h a t , o n t h a t basis, h e has p a r t i c u l a r r e s p o n s i b i l i t i e s i n t h e

N i n e t e e n t h R o u n d t o w a r d s cetaceans (whales, p o r p o i s e s a n d d o l p h i n s ) a n d lophelia

pertusa. T h e r e are m a n y s u b s t a n t i v e issues i n t h e case b u t at t h e f o r e f r o n t o f t h e m all


is t h e issue as t o t h e t e r r i t o r i a l scope o f t h e H a b i t a t s D i r e c t i v e .

The Legal context: international, European and domestic


The

United Kingdom, the Member

States o f t h e E u r o p e a n C o m m u n i t y a n d t h e

C o m m u n i t y i t s e l f are a l l p a r t i e s t o t h e U n i t e d N a t i o n s C o n v e n t i o n o n t h e L a w o f t h e
Sea ( U N C L O S ) .
[Kay J c i t e d a r t i c l e s 2(1), 2(2) a n d 3 o f U N C L O S 1 9 8 2 - see pages 1 5 2 a n d 153
U N C L O S also recognises t w o f u r t h e r c o n c e p t s , n a m e l y t h e e x c l u s i v e e c o n o m i c

164

Marc Hammerson

z o n e (EEZ) a n d t h e c o n t i n e n t a l shelf. T h e EEZ is


"an area beyond and adjacent to the territorial sea, subject to the specific legal regime
established in this Part, under which the rights and jurisdiction of the coastal State and
the rights and freedoms of other States are governed by the relevant provisions of this
Convention." (Article 55)
I n a n EEZ t h e coastal State has, inter alia.
"sovereign rights for the purpose of exploring and exploiting, conserving and managing
the natural resources, whether living or non-living, of the waters superjacent to the
seabed and of the seabed and its subsoil ..."
a n d j u r i s d i c t i o n w i t h regard t o " t h e p r o t e c t i o n a n d p r e s e r v a t i o n o f t h e m a r i n e
environment"
The

(Article 56.1).

c o n t i n e n t a l shelf o f a coastal State comprises: [Kay J c i t e d article 76(1) o f

U N C L O S 1982 - see page 153


The

coastal State exercises over t h e c o n t i n e n t a l shelf "sovereign r i g h t s f o r t h e

purpose o f e x p l o r i n g i t a n d e x p l o i t i n g its n a t u r a l resources" (Article 77.1).


So far as t h e U n i t e d K i n g d o m is concerned, i t has n o t f o r m a l l y declared a n EEZ
b u t i t has declared a 2 0 0 n a u t i c a l m i l e s exclusive fishery zone (EFZ) p u r s u a n t t o
section 1(1) o f t h e Fishery L i m i t s A c t 1976. Also, as regards t h e c o n t i n e n t a l shelf, b y
section 1(1) o f t h e C o n t i n e n t a l Shelf A c t 1964, a n y r i g h t s exercisable outside
t e r r i t o r i a l waters w i t h respect t o t h e seabed a n d subsoil a n d t h e i r n a t u r a l resources
(except i n r e l a t i o n t o coal) are vested i n t h e C r o w n . Section 1(7) enables areas o f t h e
c o n t i n e n t a l shelf t o be prescribed b y Order i n C o u n c i l

f o r t h e purposes o f

e x p l o i t a t i o n a n d t h i s has o c c u r r e d o r w i l l occur i n r e l a t i o n t o those areas w h i c h are


to

be subject t o t h e N i n e t e e n t h

R o u n d . T h u s i t is c o m m o n g r o u n d t h a t t h e

N i n e t e e n t h R o u n d is c o n c e r n e d w i t h areas outside t h e U K t e r r i t o r i a l sea b u t w i t h i n


the UKCS a n d its EFZ, a n d i n respect o f w h i c h t h e U K exercises sovereign rights. ...
The G o v e r n m e n t o f t h e U n i t e d K i n g d o m s o u g h t t o transpose t h e

requirements

of t h e H a b i t a t s D i r e c t i v e i n t o d o m e s t i c l a w i n t h e C o n s e r v a t i o n ( N a t u r a l Habitats
etc.) Regulations 1994 ("the 1994 Regulations") w h i c h came i n t o force o n 30 October
1994. T h e i r scope e x t e n d s t o a n y "European m a r i n e site", i.e.
"a E u r o p e a n site w h i c h consists of, o r so far as i t consists of, m a r i n e areas"
a n d " m a r i n e area" is d e f i n e d as
"any l a n d covered ( c o n t i n u o u s l y o r i n t e r m i t t e n t l y ) b y t i d a l waters o r a n y part o f
t h e sea i n o r adjacent t o Great B r i t a i n u p t o t h e seaward l i m i t o f t e r r i t o r i a l waters."
R e g u l a t i o n 2(1)).
I n o t h e r words, u p t o t w e l v e n a u t i c a l miles.

The issues
Does t h e g e o g r a p h i c a l reach o f Articles 4 a n d 12 o f t h e H a b i t a t s D i r e c t i v e e x t e n d
b e y o n d a M e m b e r State's l a n d , i n t e r n a l a n d t e r r i t o r i a l waters, t o a p p l y t o areas over
which a Member

State exercises sovereign rights, viz. t h e c o n t i n e n t a l shelf a n d

superjacent waters?
If so, d o those p r o v i s i o n s o f t h e H a b i t a t s D i r e c t i v e a p p l y t o t h e area o f t h e UKCS
w h i c h t h e Secretary o f State i n t e n d s t o offer f o r o i l e x p l o r a t i o n i n t h e N i n e t e e n t h
R o u n d ? ...

165

O w n e r s h i p , l i c e n s i n g a n d sources of l a w

7.

Has t h e G o v e r n m e n t c o r r e c t l y t r a n s p o s e d
p r o t e c t e d species w i t h i n a n y w a t e r s

the requirements

over w h i c h

o f A r t i c l e 12 t o t h e

i t has s o v e r e i g n t y o r exercises

sovereign rights?

Issue 1: The geographical scope of the Habitats Directive


W h a t is m e a n t b y " t h e E u r o p e a n t e r r i t o r y o f t h e M e m b e r States" i n A r t i c l e 2.1 o f t h e
H a b i t a t s D i r e c t i v e ? T h e w o r d s are n o t t h e s u b j e c t o f express

definition

i n the

D i r e c t i v e . As a m a t t e r o f h i s t o r y , w h e n t h e C o m m i s s i o n f i r s t p u t f o r w a r d t h e t e x t o f
a p r o p o s e d D i r e c t i v e , t h e w o r d s w e r e " t h e E u r o p e a n t e r r i t o r y o f t h e M e m b e r States,
including maritime areas under the sovereignty or jurisdiction of the Member

States",

t h e a d d i t i o n a l w o r d s w e r e o m i t t e d f r o m t h e f i n a l v e r s i o n . I t is suggested o n b e h a l f o f
t h e Secretary o f State a n d t h e O i l C o m p a n i e s t h a t t h i s i l l u s t r a t e s a n i n t e n t i o n o n t h e
p a r t o f t h e C o u n c i l t o l i m i t t h e D i r e c t i v e t o l a n d a n d t h e t e r r i t o r i a l sea, w h i l s t t h e
case f o r G r e e n p e a c e is t h a t t h e o m i s s i o n w a s f o r t h e p u r p o s e o f b r i n g i n g t h e H a b i t a t s
Directive i n line w i t h

t h e earlier D i r e c t i v e o n t h e C o n s e r v a t i o n

of Wild

Birds

(79/409/EEC), A r t i c l e 1 o f w h i c h uses t h e s a m e w o r d i n g as A r t i c l e 2.1 o f t h e H a b i t a t s


Directive. Indeed

t h e EC

treaty

itself applies i t s p r o v i s i o n s t o " t h e European

t e r r i t o r i e s f o r w h o s e e x t e r n a l r e l a t i o n s a M e m b e r State is r e s p o n s i b l e " ( A r t i c l e
2 9 9 ( 4 ) ) , w i t h o u t f u r t h e r d e f i n i t i o n o f " E u r o p e a n t e r r i t o r i e s " . M r P l e m i n g seeks t o
attach significance t o this f o r m u l a t i o n a n d submits

t h a t i t is n o t r e s t r i c t e d t o

" s o v e r e i g n t y " i n t h e s t r i c t sense a n d t h a t C o m m u n i t y L a w m u s t a p p l y t o a c t i v i t i e s i n

a n d o v e r areas s u c h as t h e C o n t i n e n t a l S h e l f because o t h e r w i s e t h e y w o u l d be, i n


C o m m u n i t y L a w t e r m s , "lawless zones". I n t h i s r e g a r d , h e refers t o Halsbury's Laws
of England, 4 t h e d i t i o n , v o l u m e 5 1 , p a r a g r a p h
Community

1-53:

law should apply to areas such as the continental shelf and the contiguou

zone which, although not 'territory' in the strict sense of the term, are, under the

of international law, subject to the limited jurisdiction of the coastal state. There

national control, particularly relevant to the exploration and exploitation of o


mineral wealth, must be exercised subject to Community rules.
C l e a r l y these s u b m i s s i o n s
purposive

o n b e h a l f o f G r e e n p e a c e are i n t e n d e d t o reflect t h e

or teleological approach t o c o n s t r u c t i o n w i t h

familiar and which

which

we

are a l l n o w

r e q u i r e n o c i t a t i o n o f a u t h o r i t y a t t h i s stage. T h e y are also a

prelude t o e i g h t headings or p r o p o s i t i o n s w h i c h , M r P l e m i n g submits, all p o i n t t o


t h e g e o g r a p h i c a l scope f o r w h i c h G r e e n p e a c e c o n t e n d s . I t is t o t h e m t h a t I n o w t u r n .

(2) "The very nature of things"


T h i s h e a d i n g o v e r l a p s w i t h t h e p r e v i o u s one. I t is p o i n t e d o u t t h a t i n t h e c o n t e x t o f
f i s h e r i e s , t h e c o n t e x t i t s e l f has g e n e r a t e d a w i d e r r a t h e r t h a n a n a r r o w e r g e o g r a p h i c a l
scope. I n Ofpcier van Justitie v Kramer

[ 1 9 7 6 ] ECR

1279, 1308, t h e C o u r t o f Justi

said:
... although Article 5 of Regulation 2141/70

is applicable only to a geographicall

limited fishing area, it none the less follows from Article 102 of the Act of Acces
from Article 1 of the said Regulations a n d m o r e o v e r f r o m t h e v e r y n a t u r e o f t h i n
that the ride-making authority of the Community

166

r a t i o n e m a t e r i a e also extends - in

Marc Hammerson

so far as the Member


fishing on the high

States have

similar authority

under

public

international

law - to

seas.

T h u s , t o t h e e x t e n t t h a t a M e m b e r State has c o m p e t e n c e i n r e l a t i o n t o t h e
c o n t i n e n t a l shelf, so does t h e C o m m u n i t y . ... M r P l e m i n g s u b m i t s t h a t , u p o n t h e
same basis, i t is " i n t h e v e r y n a t u r e o f t h i n g s " t h a t e n v i r o n m e n t a l p r o t e c t i o n laws,
especially i n r e l a t i o n t o cetaceans, s h o u l d also a p p l y t o " m a r i t i m e w a t e r s c o m i n g
w i t h i n the j u r i s d i c t i o n " of the U n i t e d K i n g d o m .
He f u r t h e r relies u p o n a s t a t e m e n t o f p r i n c i p l e I n K a p t e y n a n d V e r l o r e n v a n
T h e m a a t , Introduction
It should

to the Law of the European

not be deduced

to territory falling under


The sphere
exercises

... that the sphere


the sovereignty

of application
sovereign

international

Communities,
of application

(i.e. complete

can stretch beyond

rights

such

(i.e. a functionally

economic

jurisdiction)

is restricted

of a Member

State.

territory in so far as a Member


limited

law, e.g. in relation to the continental

the future exclusive

3 r d e d i t i o n , 1 9 9 8 p. 92:
of the EC Treaty

jurisdiction)

State

under

shelf fishing zones

general

and perhaps

in

zones.

O n b e h a l f o f t h e Secretary o f State, M i s s S h a r p s t o n Q C

does n o t d i s p u t e t h e

p r i n c i p l e b u t r a t h e r i t s a p p l i c a t i o n t o t h e H a b i t a t s D i r e c t i v e . ... [ H o w e v e r i n ] m y
j u d g m e n t , M r P l e m i n g has c o r r e c t l y i d e n t i f i e d a p r i n c i p l e r e l a t i n g t o " t h e v e r y n a t u r e
of t h i n g s " . T h e issue is its a p p l i c a t i o n t o t h e H a b i t a t s D i r e c t i v e .

Practice under Community Law, as applied by the United Kingdom


M r Pleming's n e x t s u b m i s s i o n is t h a t , since t h e Kramer

case a n d Commission

v Ireland,

t h e C o m m u n i t y has r o u t i n e l y a p p l i e d m a n y o f i t s laws t o a c t i v i t i e s c a r r i e d o u t i n
areas b e y o n d t e r r i t o r i a l waters, i n c l u d i n g laws r e l a t i n g t o o i l e x p l o r a t i o n a c t i v i t i e s o n
t h e c o n t i n e n t a l shelf, t h e c o n t r o l o f p o l l u t i o n a n d t h e assessment o f e n v i r o n m e n t a l
impacts

arising

from

oil-related

activities.

I n turn,

the United

Kingdom

has

t r a n s p o s e d these C o m m u n i t y rules i n t o d o m e s t i c l a w a n d has a p p l i e d t h e m b e y o n d


t e r r i t o r i a l waters. ...
D i r e c t i v e 94/22/EC " o n t h e c o n d i t i o n s f o r g r a n t i n g a n d u s i n g a u t h o r i s a t i o n s f o r
the

protection,

exploration

and production

of hydrocarbons"

relates

tothe

" t e r r i t o r y " o f M e m b e r States (e.g. i n A r t i c l e 2.1) b u t t h i s c l e a r l y m e a n s " t e r r i t o r y " i n


a w i d e sense. I n d e e d , i n t h e P r e a m b l e reference is m a d e t o M e m b e r States h a v i n g
"sovereignty

a n d s o v e r e i g n r i g h t s over hydrocarbon

resources o n t h e i r t e r r i t o r i e s . "

I t is c o m m o n g r o u n d t h a t t h e D i r e c t i v e applies t o t h e exercise o f s o v e r e i g n r i g h t s
i n r e l a t i o n t o t h e UKCS. I n t e r e s t i n g l y , A r t i c l e 6(2) a l l o w s M e m b e r States t o i m p o s e
c o n d i t i o n s u p o n a u t h o r i s a t i o n s f o r t h e " p r o t e c t i o n o f t h e e n v i r o n m e n t ... [ a n d ]
p r o t e c t i o n o f b i o l o g i c a l resources". I n t h e p r e s e n t case Ms. H a r d i n g , t h e d e p o n e n t o n
b e h a l f o f t h e Secretary o f State, says:
Given

the specific subject-matter

context

would

go beyond

of the Directive, it is highly likely that 'territory' in this

territorial waters.

Otherwise,

the Directive

would

have

very

little purpose.
She

a n d M i s s S h a r p s t o n c o n t e n d t h a t t h a t does n o t h e l p i n a n s w e r i n g t h e

q u e s t i o n as t o t h e g e o g r a p h i c a l scope o f t h e H a b i t a t s D i r e c t i v e . O n t h e c o n t r a r y ,
s u b m i t s M r P l e m i n g , w h o l i k e n s t h e c o n t e x t t o c o n s e r v a t i o n o f a species i n i t s
natural

range.

Directive

94/22

was

transposed

into

domestic

law by the

167

u w n e r s n i p , l i c e n s i n g a n a sources or law

Hydrocarbons Licensing Directive Regulations

1995 w h i c h expressly refer t o t h e

UKCS.
The

parties a d o p t s i m i l a r respective p o s i t i o n s i n r e l a t i o n t o C o u n c i l D i r e c t i v e

95/21/EC w h i c h c o n c e r n s s h i p p i n g a n d w o r k i n g c o n d i t i o n s o n s h i p s a n d e x t e n d s t o
" o f f s h o r e i n s t a l l a t i o n s " , i.e. f i x e d o r floating p l a t f o r m s o p e r a t i n g " o n o r over t h e
c o n t i n e n t a l shelf o f a M e m b e r State" ( A r t i c l e 2).
D i r e c t i v e 90/531/EEC c o n c e r n s p u b l i c p r o c u r e m e n t p r o c e d u r e s i n t h e water,
energy, t r a n s p o r t a n d t e l e c o m m u n i c a t i o n s

sectors. I t refers ( A r t i c l e 2.2(b)) t o " t h e

e x p l o i t a t i o n o f a geographical area" b u t does n o t use t h e w o r d " t e r r i t o r y " . T h e


Secretary o f State accepts t h a t i t s a p p l i c a t i o n e x t e n d s t o areas w h e r e t h e U n i t e d
K i n g d o m exercises s o v e r e i g n r i g h t s o u t s i d e t e r r i t o r i a l waters. M r P l e m i n g

submits

t h a t t h i s is, a t least b y i n f e r e n c e , a n a d o p t i o n o f t h e c o n c e p t o f " t h e European


t e r r i t o r y o f t h e M e m b e r States t o w h i c h t h e Treaty a p p l i e s " . ...

(4) The Community's signature and ratification of UNCLOS


W h e n t h e c o m m u n i t y s i g n e d U N C L O S o n 7 D e c e m b e r 1984, i t m a d e a D e c l a r a t i o n
i n t h e f o l l o w i n g terms:

Furthermore, with regard to rules and regulations for the protection and preservati
the marine environment, the Member

States have transferred to the Community

competences as formulated in provisions adopted by the Community

and as reflected b

its participation in certain international agreements.


Relevant i n t e r n a t i o n a l a g r e e m e n t s h a v e c o m e i n t o b e i n g b o t h before a n d after
U N C L O S . T h e y n o w i n c l u d e [ t h e OSPAR C o n v e n t i o n ] . M r P l e m i n g observes that
each o f these a g r e e m e n t s addresses t h e same s u b j e c t - m a t t e r as t h e H a b i t a t s Directive
a n d each applies b e y o n d t e r r i t o r i a l waters.
I n M a r c h 1998 t h e C o m m u n i t y d e p o s i t e d its i n s t r u m e n t o f f o r m a l c o n f i r m a t i o n
of U N C L O S . I t d e c l a r e d t h a t U N C L O S

shall apply, with regard to the competences transferred to the European Community, t
t h e t e r r i t o r i e s i n w h i c h t h e Treaty e s t a b l i s h i n g t h e E u r o p e a n C o m m u n i t y is
a p p l i e d and under the conditions laid down in that Treaty, in particular Article
thereof.
The

instrument

goes o n t o d i s t i n g u i s h

between

matters

for which the

C o m m u n i t y has e x c l u s i v e c o m p e t e n c e a n d m a t t e r s i n respect o f w h i c h i t shares


c o m p e t e n c e w i t h t h e M e m b e r States. T h e m a t t e r s o f e x c l u s i v e c o m p e t e n c e i n c l u d e
" c o n s e r v a t i o n a n d m a n a g e m e n t o f sea f i s h i n g resources". So far as t h e p r e v e n t i o n of
m a r i n e p o l l u t i o n is c o n c e r n e d ,
the Community

has exclusive competence only to the extent that such provisions of th

Convention or legal instrument adopted in implementation thereof affect common rule


established by the Community

...

A n A p p e n d i x lists r e l e v a n t C o m m u n i t y acts. I t i n c l u d e s a list o f C o m m u n i t y acts


" w h i c h refer t o m a t t e r s g o v e r n e d b y t h e C o n v e n t i o n a n d t h e A g r e e m e n t " . O n e o f
t h o s e l i s t e d i n r e l a t i o n t o t h a t p a r t o f U N C L O S w h i c h refers t o t h e p r e v e n t i o n o f
m a r i n e p o l l u t i o n is t h e H a b i t a t s D i r e c t i v e .
M r P l e m i n g s u b m i t s t h a t t h e use o f t h e w o r d " t e r r i t o r i e s " i n t h i s c o n t e x t m u s t
e x t e n d t o m a r i t i m e areas o v e r w h i c h M e m b e r States exercise j u r i s d i c t i o n o r sovereign

168

V
Marc Hammerson

rights. Indeed, the Community is expressly stated to have competence (exclusive or


shared) i n r e l a t i o n t o EEZs. T h e Habitats D i r e c t i v e is expressly stated t o be relevant
to t h e p r e v e n t i o n o f m a r i n e p o l l u t i o n a n d t h e part o f U N C L O S r e l a t i n g t o t h a t
establishes o b l i g a t i o n s i n respect o f activities carried
territorial

waters.

Moreover, t h e e n v i r o n m e n t a l

outwithin

impact

and beyond

assessment

Directive

(85/33 7/EEC) is also expressly stated t o be relevant t o t h e p r e v e n t i o n o f m a r i n e


p o l l u t i o n and, as I have related, t h a t D i r e c t i v e is a p p l i e d b y t h e U n i t e d

Kingdom

b e y o n d t e r r i t o r i a l waters. I t is t h e r e f o r e s u b m i t t e d t h a t t h i s n e t w o r k o f i n t e r n a t i o n a l
i n s t r u m e n t s a l l p o i n t s t o t h e H a b i t a t s D i r e c t i v e a p p l y i n g t o t h e c o n t i n e n t a l shelf a n d
superjacent waters. I f t h a t h a d n o t been t h e i n t e n t i o n , s u b m i t s M r Pleming, t h e
c o n t r a r y i n t e n t i o n w o u l d have been expressed.

(5) United Kingdom legislation extending beyond territorial waters


I have already referred t o a n e x a m p l e o f t h e U n i t e d K i n g d o m l e g i s l a t i n g b e y o n d
territorial

waters

i n t h e D i r e c t i v e - d r i v e n sphere

of environmental

impact

assessments. M r P l e m i n g also relies o n o t h e r instances. ... Similarly, t h e M e r c h a n t


Shipping

(Oil Pollution

Regulations

Preparedness, Response a n d C o o p e r a t i o n

Convention)

1998 a p p l y t o , inter alia, o f f s h o r e i n s t a l l a t i o n s " i n U n i t e d

Kingdom

waters a n d i n a n y area designated u n d e r t h e C o n t i n e n t a l Shelf Act 1964". ...

(8) International obligations


I have already referred t o i n t e r n a t i o n a l treaty o b l i g a t i o n s w h i c h are b i n d i n g u p o n
the C o m m u n i t y and/or t h e U n i t e d K i n g d o m

a n d w h i c h impose

environmental

duties i n areas b e y o n d t e r r i t o r i a l waters, i n c l u d i n g U N C L O S ... a n d OSPAR. I t is


s u b m i t t e d o n b e h a l f o f Greenpeace t h a t all t h i s a m o u n t s t o a s i g n i f i c a n t v o l u m e o f
international obligation w h i c h commits the C o m m u n i t y and the United
to e n v i r o n m e n t a l

Kingdom

c o n t r o l b e y o n d t e r r i t o r i a l waters a n d t h a t i t is a p p r o p r i a t e t o

construe t h e H a b i t a t s D i r e c t i v e c o n s i s t e n t l y w i t h i t . Reliance is placed o n Commission


v Belgium [1993] 1 C M L R 365, 397, i n w h i c h t h e C o u r t o f Justice appears t o have
t a k e n c o m f o r t f r o m t h e fact t h a t its i n t e r p r e t a t i o n o f C o m m u n i t y l a w i n r e l a t i o n t o
t h e m o v e m e n t o f hazardous waste was c o n s i s t e n t w i t h t h e p r o v i s i o n s o f t h e Basle
C o n v e n t i o n o f 1989, t o w h i c h t h e C o m m u n i t y is a party.
Miss S h a r p s t o n s u b m i t s that, i n t h i s c o n t e x t , i n t e r n a t i o n a l o b l i g a t i o n s are n o t all
one way. ...

Conclusion on geographical scope


M y task is t o c o n c e n t r a t e o n t h e t e x t o f t h e Habitats Directive, b r i n g i n g t o i t where
necessary t h e p u r p o s i v e o r t e l e o l o g i c a l a p p r o a c h t o w h i c h I have referred. I n m y
j u d g m e n t t h e w i d e r scope c o n t e n d e d f o r b y Greenpeace is correct. I t seems t o me
t h a t a D i r e c t i v e w h i c h i n c l u d e s i n its aims t h e p r o t e c t i o n o f inter alia, lophelia pertusa
a n d cetaceans w i l l o n l y achieve those aims, o n a p u r p o s i v e c o n s t r u c t i o n , i f i t extends
b e y o n d t e r r i t o r i a l waters. A l t h o u g h m u c h o f t h e c o n c e r n o f t h e D i r e c t i v e a n d some
of its language c a n p r o p e r l y be described as "land-based", i t also deals specifically
w i t h some h a b i t a t s a n d species w h i c h are sea-based and, t o a large e x t e n t , f l o u r i s h
b e y o n d t e r r i t o r i a l waters. Also, I derive some assistance f r o m t h e a u t h o r i t i e s t o w h i c h

169

Ownership, licensing and sources of law

M r Pleming referred under the heading "the very nature of things" b u t little from

Addison v Denholm Skip Management (UK) Ltd, for reasons I have already stated. I n
addition, I find

support f o r m y conclusion i n t h e submissions

about the

environmental impact assessment directives and, to a lesser extent, some of the other
C o m m u n i t y measures to w h i c h reference was made. Indeed, I consider that the
balance of the Community, international a n d domestic materials t o w h i c h I have
referred militates substantially i n favour of the wider construction of geographical
scope. I am here referring particularly to the submission made by M r Pleming under
(3), (4), (5) and (8) above. I have considered the post-Directive statements of
Government Ministers and the Commission. They give an insight i n t o what various
people thought at the time w h e n the statements were made b u t they are of little
value i n the task I have t o perform. Likewise the drafting history. I do not pretend
that, overall, the indications are all one way. They are not. However, I have no doubt
that the more important aids t o construction substantially favour the wider
geographical scope.
Issue 2: The Habitats Directive and the Nineteenth Round
The second issue identified by M r Pleming is n o t really an issue at all. Clearly if the
Habitats Directive, properly construed, has the wider geographical scope and applies
to all areas over w h i c h Member States exercise sovereign rights, including the UKCS
and superjacent waters, its application extends to the area of the Nineteenth Round.
The Secretary of State does not contend otherwise and, apart f r o m their position on
direct effect ... neither do the O i l Companies.
Issue 6: Article 12 of the Habitats Directive
In m y judgment there is great force i n the submissions of Miss Sharpston and Mr
Ouseley i n relation t o Regulation 40(3). I do n o t consider i t t o be an unlawful
derogation f r o m the requirements of Article 12 and, accordingly, I do n o t find the
transposition t o be deficient as regards territorial waters.
It follows from all that I have said i n relation to Article 12 that I am deciding the
construction points i n favour of the Secretary of State (and the O i l Companies) and
against Greenpeace.
(2) Other measures
The conclusions to w h i c h I have come about the construction of Article 12 preclude
the necessity of m y dealing i n detail w i t h some other submissions w h i c h were made
about cetaceans. However, I record i n passing that submissions were made o n behalf
of the Secretary of State and the O i l Companies about "other measures" w h i c h exist
and w h i c h provide a significant amount of protection to cetaceans b o t h i n territorial

waters and i n the waters above the UKCS. Reference was made to, inter alia, t
licensing system itself and the conditions w h i c h are included i n licences; national
legislation, n o t o n l y i n relation t o whaling b u t i n c l u d i n g t h e Prevention of Oil
Pollution Act 1971, the Food and Environmental Protection Act 1985, a n d various
Regulations concerning

merchant s h i p p i n g a n d o i l p o l l u t i o n ;

international

obligations arising under, for example OSPAR a n d ASCOBANS; environmental

170

Marc H a m m e r s o n

i m p a c t assessments carried o u t pursuant t o t h e O f f s h o r e P e t r o l e u m P r o d u c t i o n a n d


Pipelines

(Assessment o f E n v i r o n m e n t a l

Effects)

Regulations

1999

which

i m p l e m e n t e d t h e E n v i r o n m e n t a l I m p a c t Assessment Directive; t h e J N C C guidelines;


a n d t h e co-operative practices w h i c h exist b e t w e e n t h e G o v e r n m e n t a n d t h e O i l
Companies.
It is justifiable t o observe t h a t all t h i s p r o v i d e s a s i g n i f i c a n t a m o u n t o f c o n t r o l
a n d p r o t e c t i o n . However, i f I h a d h e l d t h a t Greenpeace were correct as regards t h e
c o n s t r u c t i o n o f A r t i c l e 12, it w o u l d n o t have been o p e n t o t h e Secretary o f State a n d
t h e O i l C o m p a n i e s t o argue t h a t t h e e x i s t i n g measures a n d practices operate i n effect
as a n i m p l e m e n t a t i o n o f A r t i c l e 12 (so c o n s t r u e d ) o r its e q u i v a l e n t . ...

Conclusions
It f o l l o w s f r o m w h a t I have said t h a t I g r a n t p e r m i s s i o n t o a p p l y f o r j u d i c i a l review.
To t h e e x t e n t t h a t I have i n d i c a t e d , I f i n d t h a t t h e challenge succeeds. As t o relief, I
propose t o m a k e d e c l a r a t i o n i n t h e f o r m o f t h e first o n e sought, n a m e l y a d e c l a r a t i o n
t h a t t h e Habitats D i r e c t i v e applies t o t h e UKCS a n d t o t h e superjacent waters u p t o
a l i m i t o f 2 0 0 n a u t i c a l m i l e s f r o m t h e baseline f r o m w h i c h t h e t e r r i t o r i a l sea is
measured.

171

2. Joint operating agreements

P a r t A: C o m m e n t a r y

2.1 Introduction: a comparison to other corporate forms'

2.1.1 The upstream oil and gas industry is not unique in using joint ventures to allow two
or m o r e u n c o n n e c t e d parties t o cooperate w i t h each other i n p u r s u i t of a collective
enterprise. 'Joint venture'

is a c o m m o n t e r m w i t h b o t h legal a n d c o m m e r c i a l

currency. However, i t is n o t one, because of the a m o u n t of g r o u n d t h a t t h e phrase


covers, t h a t is (or is capable of being) subject t o a n exhaustive j u d i c i a l d e f i n i t i o n .

2.1.2 Because of present-day practice of conducting business through limited liability


vehicles, c o m m o n p l a c e reference t o a j o i n t v e n t u r e is t y p i c a l l y t o its i n c o r p o r a t e d
f o r m - t h e j o i n t v e n t u r e c o m p a n y (JVCo). T h e t e r m w i l l (unless a c o n t r a r y i n d i c a t i o n
is p r o v i d e d ) give rise t o a n a s s u m p t i o n of a c o m p a n y set u p b y several u n c o n n e c t e d
members, i n c o n t e m p l a t i o n o f a c o m m o n enterprise, f o r m e d b y t h e transfer o f
e x i s t i n g assets ( o f t e n i n c l u d i n g m a n a g e m e n t resources) c o n t r i b u t e d b y its founders.
However, despite t h i s f a m i l i a r usage, ' j o i n t venture' m a y a d d i t i o n a l l y refer t o an
unincorporated

business ( n o t b e i n g a p a r t n e r s h i p ) i n w h i c h t w o o r m o r e persons

allocate expenses a n d share p r o d u c t i o n or p r o f i t i n pursuit of such enterprise. This


latter t y p e o f u n i n c o r p o r a t e d

structure is c o m m o n l y f o u n d i n t h e o i l a n d gas

industry.

2.1.3 The co-judgment of Mason, Brennan and Deane JJ in United Dominions Corporation
Limited

v Brian

Proprietary

Limited

provides a rare j u d i c i a l d e s c r i p t i o n o f j o i n t

ventures. I n t h a t case, t h e a r r a n g e m e n t u n d e r c o n s i d e r a t i o n was labelled b y t h e


parties as a j o i n t venture. T h e court, however, i n disregard of t h e party-chosen label,
h e l d i t t o be a p a r t n e r s h i p . I n reaching t h i s c o n c l u s i o n , the justices stated that:
The term 'joint venture' is not a technical one with a settled common
a matter of ordinary
a particular
with

a view

language,

trading, commercial,
to mutual

it connotes
mining

profit, with

each

an association

of persons

law meaning.

or other financial undertaking


participant

usually

As

for the purposes of


or

endeavour

(but not necessarily)

D u e t o t h e l a c k o f E n g l i s h c a s e l a w o n a n u m b e r o f i m p o r t a n t areas, t h i s c h a p t e r cites c a s e s f r o m d i f f e r e n t
j u r i s d i c t i o n s . T h e s e a r e i n t e n d e d t o d e m o n s t r a t e c e r t a i n legal i s s u e s a n d h o w t h e y h a v e b e e n d e c i d e d

e l s e w h e r e , r a t h e r t h a n b e i n g a n a s s u m p t i o n t h a t t h e s a m e p o s i t i o n w i l l b e a d o p t e d b y E n g l i s h law.
( 1 9 8 4 - 1 9 8 5 ) 1 5 7 C L R 1. S e e p a g e s 2 0 5 t o 2 1 2 .

173

j o i n t o p e r a t i n g agreements

contributing money, property or skill. Such a joint venture (or, under Scots' l

'adventure') will often be a partnership. The term is, however, apposite to refer to

undertaking or activity carried out through a medium other than a partnership: such

a company, a trust, an agency or joint ownership. The borderline between what ca


properly be described as a 'joint venture' and what should more properly be seen as

more than a simple contractual relationship may on occasion be blurred. Thus, whe

one party contributes only money or other property, it may sometimes be difficult

determine whether a relationship is a joint venture in which both parties are entitle

a share of profits or a simple contract of loan or a lease under which the interest or r

payable to the party providing the money or property is determined by reference to the

profits made by the other. One would need a more confined and precise notion of wha

constitutes a 'joint venture' than that which the term bears as a matter of ordinar

language before it could be said by way of general proposition that the relationshi
between joint venturers is necessarily a fiduciary one: but cf per C a r d o z o CJ, M e i n h a
v S a l m o n (1928) 2 4 9 NY 458, at p 462.

A. Rationale for joint ventures


2.1.4

J o i n t v e n t u r e s are used i n a range o f d i f f e r e n t industries. T h e n a t u r a l resources


3

e x t r a c t i v e sector stands out, however, b y t h e r e g u l a r i t y i n w h i c h j o i n t ventures are


adopted

as t h e s t a n d a r d

business m o d e l .

I t is p r o b a b l y

more

noteworthy

( p a r t i c u l a r l y f o r higher-cost o f f s h o r e projects, less so o n s h o r e ) w h e n t h i s structure is


5

avoided. A r a n d o m s a m p l e o f U K licences a w a r d e d i n early l i c e n s i n g r o u n d s shows


an average o f f i v e JOA parties o n each licence. T h e m a x i m u m f r o m t h e survey was
13. O u t s i d e t h e U n i t e d K i n g d o m , JOAs are a c o m m o n v e h i c l e i n t h e u p s t r e a m o i l and
gas i n d u s t r y , irrespective o f w h e t h e r t h e concession p u r s u a n t t o w h i c h it is created is
a licence, lease o r PSC.

2.1.5

T h e f u r t h e r away f r o m shore t h a t e x p l o r a t i o n a n d p r o d u c t i o n
the

a c t i v i t y takes place,

riskier a n d m o r e expensive t h a t p e t r o l e u m e x t r a c t i o n is l i k e l y t o be - and

t h e r e f o r e t h e m o r e p r o b a b l e t h a t parties w i l l use a j o i n t v e n t u r e s t r u c t u r e i n order to


spread costs a n d risks.' A t a n early stage, w h e n e x p e n d i t u r e is at i t s highest a n d
e x p l o r a t i o n risks exist, a p a r t y is w i l l i n g t o share e q u i t y interests p r i n c i p a l l y because
o f t h e r e s u l t i n g r e d u c t i o n i n costs a n d risks. E x p l o r a t i o n a c t i v i t y is i n t r i n s i c a l l y b o t h
e x t r e m e l y expensive a n d u n c e r t a i n . Costs are even h i g h e r offshore. T h e deeper t h e
w a t e r i n w h i c h a c t i v i t y takes place, t h e m o r e expensive t h e p r o j e c t is l i k e l y t o be. A
deepwater d r i l l i n g rig, at t h e t o p o f t h e market, c a n c o m m a n d d a y rates i n excess of
$500,000. I t is n o t u n u s u a l f o r o f f s h o r e e x p l o r a t i o n t o cost h u n d r e d s o f m i l l i o n s of

3
4

I n a d d i t i o n t o upstream o i l a n d gas, JOAs are also widely used i n m i n i n g p r o d u c t i o n projects.


Joint venture structures, similar to e x p l o r a t i o n and p r o d u c t i o n JOAs, are also c o m m o n l y used to govern
upstream pipeline ownership a n d operatorship.
e x p l o r a t i o n a n d production,
operation

A l t h o u g h this chapter is l i m i t e d t o JOAs relating to

m a n y of t h e legal issues covered w i l l be relevant t o t h e construction,

a n d capacity usage of a pipeline o w n e d by an u n i n c o r p o r a t e d j o i n t venture. The issues

discussed may also apply t o the u n i t operating provisions of u n i t i s a t i o n agreements (see Chapter 3) - to
5
6

the extent that parties f o r m i n g the u n i t rely o n the operatorship of o n e party.


This i n f o r m a t i o n was taken f r o m the list of licensees o n the government's website: www.og.decc.gov.uk.
I n a d d i t i o n , because of increased transportation costs, a natural gas project is likely t o be m o r e expensive
t h a n an equivalent o i l development.

174

dollars. M u l t i p l e parties o n a licence spread these expenses m o r e t h i n l y . A JOA is t h e


c o n t r a c t u a l m e t h o d of a c h i e v i n g t h i s a m o n g t h e licensees.

2.1.6 It is this combination of exploration risk and expense that encourages JOAs in the
upstream o i l a n d gas industry. Additionally, i n jurisdictions r e q u i r i n g state p a r t i c i p a t i o n
i n p e t r o l e u m production,

a j o i n t venture arrangement allows the host g o v e r n m e n t t o

benefit f r o m the f i n a n c i a l resources a n d expertise of IOCs w h i l e ensuring t h a t its


- as o n e of t h e j o i n t v e n t u r e parties - receives a share of

NOC

production.

2.1.7 JOA parties accept joint and several liability in their relationships with government,"
and m a y also contract o n t h e same basis w i t h t h i r d parties. H a v i n g d i l u t e d e q u i t y i n
order t o spread costs, a JOA party paradoxically remains p o t e n t i a l l y liable for t h e
e n t i r e t y of the j o i n t venture's liability. As a n antidote, a JOA contains cross-indemnities
a m o n g the parties a l l o c a t i n g l i a b i l i t y i n p r o p o r t i o n to p a r t i c i p a t i n g interests." But this
is n o t a n absolute safeguard. If a o n e party defaults o n its p a y m e n t obligations under
the JOA, t h e n the u l t i m a t e sanction is forfeiture of its p a r t i c i p a t i n g interests. Unless a
replacement j o i n t v e n t u r e r is f o u n d , t h e forfeited e q u i t y is re-allocated a m o n g t h e
r e m a i n i n g non-defaulting

parties. This o u t c o m e runs contrary t o the JOA's purpose

t h a t expenses are shared a m o n g m u l t i p l e parties t o reduce risks a n d expenses. The


result o f forfeiture is t h a t there is o n e less j o i n t venturer - a n d the r e m a i n i n g parties
are each responsible for a larger share o f project costs t h a n i n i t i a l l y contemplated.
Furthermore, forfeiture o f p a r t i c i p a t i n g interests affects i n t e r n a l governance o n l y - i t
does n o t e x t i n g u i s h t h i r d - p a r t y liability. If l i a b i l i t y is j o i n t a n d several, t h e n the n o n d e f a u l t i n g JOA parties r e m a i n liable for t h e o b l i g a t i o n i n its entirety. I f t h e debt is
successfully enforced against the non-defaulting parties, t h e n the p r i n c i p a l purpose o f
the JOA - t o allocate costs according to e c o n o m i c interests - has failed.

B. Rationale for unincorporated joint ventures


2.1.8

I n addition

t o its use o f j o i n t ventures, t h e n a t u r a l

resources i n d u s t r y c a n

f u r t h e r m o r e c l a i m d i s t i n c t i o n i n t h e r e g u l a r i t y t h a t u n i n c o r p o r a t e d j o i n t ventures
(rather

than

incorporated

c o m p a n i e s ) are formed.'" I f u p s t r e a m

industry

practice

j o i n t v e n t u r e c o m p a n i e s instead of JOAs, m u c h o f t h e discussion

f o l l o w s w o u l d be r e d u n d a n t . Instead, t h i s chapter w o u l d focus o n

used
that

non-sector-specific

p r i n c i p l e s o f c o m p a n y l a w (eg, p r o v i s i o n s o f shareholders' agreements, directors'


duties a n d m i n o r i t y shareholder rights), rather t h a n terms o f JOAs a n d extrac o n t r a c t u a l o b l i g a t i o n s such as t h e law of f i d u c i a r y r e l a t i o n s h i p s a n d agency. It is t h e
industry's avoidance o f JVCos t h a t requires a n analysis b e y o n d t h e p r i n c i p l e s o f
c o m p a n y law.

7
8
9
10

See section 1.4.


See Chapter 1.
Equity i n JOAs is divided i n t o participating interests, otherwise k n o w n as w o r k i n g interests.
This is c o m m o n practice, rather t h a n an absolute rule. For an example of an incorporated o i l and gas
j o i n t venture, see General Asphalt Co Ltd v Anglo Saxon Petroleum Co Ltd (1931) 39 LILRep 148 (King's
Bench); (1931) 40 LILRep 1 (Court of Appeal); (1932) 42 LILRep 85 (House of Lords). Britannia Operator
Limited (a JVCo formed by Chevron a n d Conoco to operate the Britannia field) provides a rare modernday UKCS exception to this rule, partly explained by the fact that Britannia is a unitised field.

175

j u n u u p d a t i n g agieeiiieius

2.1.9 Outside the upstream industry, general commercial practice commonly relies on
JYCos t o c o n d u c t enterprises pursued j o i n t l y b y u n c o n n e c t e d parties. Typically, a
n e w l y created c o m p a n y is established t h r o u g h w h i c h j o i n t v e n t u r e parties exercise
c o n t r o l a n d m a n a g e m e n t b y the corporate m e c h a n i c s o f shareholder a n d directorlevel votes. These powers a l l o w t h e a p p o i n t m e n t o f executive m a n a g e m e n t , w h i c h
in

turn

c o n t r o l s JVCo

o n a day-to-day basis. U p s t r e a m

practice o f a v o i d i n g

i n c o r p o r a t e d JVCos is a s i g n i f i c a n t departure f r o m general c o m m e r c e w h i c h , i n other


industries, is far m o r e l i k e l y t o use a J V C o o r p a r t n e r s h i p .

2.1.10 Yet the overriding point is that JOAs, JVCos and partnerships are different vehicles
t h a t achieve b r o a d l y similar ends. Since these latter t w o legal structures are more
f a m i l i a r t o business people a n d t h e i r lawyers, a n analysis o f t h e similarities and
differences b e t w e e n JOAs a n d JVCos a n d JOAs a n d p a r t n e r s h i p s provides an
i n t r o d u c t i o n t o a JOA's legal a n d c o n t r a c t u a l characteristics. T h e r e m a i n d e r of this
section 2.1 provides a basic c o n t r a c t u a l a n d legal d e s c r i p t i o n u s i n g t h i s comparative
analysis. F o l l o w i n g this, we analyse i n m o r e detail t w o legal issues created b y this
c o n t r a c t u a l structure.

C. Similarities between JOAs and JVCos


2.1.11 T h e f o r m o f u n i n c o r p o r a t e d p e t r o l e u m j o i n t v e n t u r e is c o m m o n l y k n o w n b y the
c o n t r a c t t h a t establishes i t - t h e j o i n t o p e r a t i n g agreement (JOA)." Unusually, the
structure is n a m e d after t h e agreement c r e a t i n g i t , rather t h a n vice versa. Reference
i n t h i s chapter t o 'JOA' is therefore t o either t h e agreement o r t h e structure i t creates
(as t h e c o n t e x t requires). As a n agreement, i t sets o u t t h e terms pursuant t o w h i c h
parties explore, p r o d u c e a n d d e v e l o p p e t r o l e u m a n d d e c o m m i s s i o n infrastructure, i n
each case i n c o m p l i a n c e w i t h j o i n t a n d several licence o b l i g a t i o n s . I t covers many
issues that, were i t n o t f o r i n d u s t r y practice o f u s i n g a n u n i n c o r p o r a t e d structure,
would

otherwise

be i n c l u d e d

i n a JVCo's c o n s t i t u t i o n a l

documents. On

f u n d a m e n t a l c o m m e r c i a l , rather t h a n legal, analysis t h e r e are m a n y

similarities

b e t w e e n a J V C o a n d a JOA. Some o f these are listed below:

T e r m i n o l o g y o f o w n e r s h i p a n d t i t l e d o c u m e n t a t i o n - e q u i t y i n JVCo is
divided

i n t o shares f r o m

represented

t i m e t o t i m e i n issue. These shares may be

b y share certificates - a l t h o u g h

t h e certificates themselves

c o n s t i t u t e prima facie evidence o f t i t l e , rather t h a n t i t l e itself.


issuance

o f shares, t h e shareholder's

12

U p o n the

n a m e is e n t e r e d i n t h e company's

register" a n d i t t h e n derives rights i n reliance o n t h e C o m p a n i e s A c t 2006


a n d t h e company's c o n s t i t u t i o n a l d o c u m e n t s .

11

Several different standard forms of JOA exist a n d if one is adopted t h e n t h e precedent used w i l l be
influenced by the jurisdiction i n w h i c h exploration and p r o d u c t i o n activity takes place. Standard forms
include those sponsored by the American Association of Professional Landmen, t h e Association of
International Petroleum Negotiators, the Canadian Association of Petroleum L a n d m e n a n d O i l & Gas
UK. A comparison of different terms is included i n /OAs: A Practical Guide. The question of whether a
party' had complied w i t h an obligation t o execute a JOA materially i n the f o r m produced by the United
K i n g d o m Offshore Operators' Association was an issue i n Venture North Sea Gas Ltd v Nuon Exploration &

12
13

176

Production UK Ltd [2010] EWHC 204.


Companies Act 2006, Section 768.
Companies Act 2006, Section 113.

14

A J O A calls t h e d i v i s i o n o f e q u i t y p a r t i c i p a t i n g i n t e r e s t s . J O A parties
d e r i v e t h e i r r i g h t s u n d e r a n 'interest clause' i n t h e JOA, w h i c h states t h a t
r i g h t s i n t h e licence, j o i n t p r o p e r t y , j o i n t p e t r o l e u m a n d a n y o t h e r r i g h t s o r
l i a b i l i t i e s are b o r n e (as at t h e date o f t h e J O A ) i n t h e p r o p o r t i o n s specified.
T h e r e is n o s t a t u t e c o m p a r a b l e t o t h e C o m p a n i e s A c t 2 0 0 6 o n w h i c h a J O A
p a r t y m a y r e l y i n o r d e r t o d e r i v e a d d i t i o n a l r i g h t s . A J O A is a c r e a t i o n o f
c o n t r a c t a n d i t is t h e a g r e e m e n t itself, t o g e t h e r w i t h g e n e r a l p r i n c i p l e s o f
c o n t r a c t l a w a n d (as w e s h a l l see) e q u i t a b l e d o c t r i n e s r e l a t i n g t o f i d u c i a r y
r e l a t i o n s h i p s , o n w h i c h t h e J O A parties m u s t d e p e n d .

Among

IOCs, J O A

equity

typically

provides

i n f l u e n c e - s i m i l a r t o shares, a J O A
interests d e t e r m i n e s

its v o t i n g

party's

power

proportionate

governance

percentage o f p a r t i c i p a t i n g

- as w e l l

as i t s e n t i t l e m e n t t o

p r o d u c t i o n a n d l i a b i l i t y f o r costs. For a J O A (as is also t h e case g e n e r a l l y f o r


a J V C o ) , p a r t i c i p a t i n g interests, v o t i n g powers, r i g h t s a n d l i a b i l i t i e s are
generally commensurate.
A c a r r i e d i n t e r e s t m a y p r o v i d e a v a r i a t i o n , b u t n o t necessarily a n absolute
exception,

t o this rule.

15

A c a r r i e d i n t e r e s t t y p i c a l l y is e f f e c t i v e d u r i n g a

c e r t a i n p e r i o d o n l y ( o f t e n t h e e x p l o r a t i o n phase). D u r i n g t h i s p e r i o d o n e o r
m o r e parties ( o f t e n i n c l u d i n g t h e operator

or farmee under a farm-out

a g r e e m e n t ) ( t h e c a r r y i n g p a r t y ) pays t h e costs o f t h e a c t i v i t i e s - t h a t is,


carries t h e o t h e r

party

(often an NOC

or farmor). The carrying

party

s o m e t i m e s s u b s e q u e n t l y recovers these a m o u n t s o u t o f p r o d u c t i o n .
Outside UK a n d UKCS practice, a n N O C

m a y g e n e r a l l y exercise

greater

g o v e r n a n c e i n f l u e n c e m e r e l y because i t is t h e g o v e r n m e n t v e h i c l e w h i c h has
been licensed sovereign rights over p e t r o l e u m .

Voting

m a j o r i t i e s - f o r JVCo, basic

s h a r e h o l d e r decisions

require a 5 0 %

m a j o r i t y ' " a n d c e r t a i n f u n d a m e n t a l m a t t e r s n e e d t h e a p p r o v a l o f n o t less


than

7 5 % o f m e m b e r s . " T y p i c a l l y f o r JVCos, t h i s g e n e r a l p r i n c i p l e o f

c o m p a n y l a w is s u p p l e m e n t e d b y a s h a r e h o l d e r s ' a g r e e m e n t p r o v i d i n g t h a t
c e r t a i n decisions c o n t r a c t u a l l y r e q u i r e s p e c i f i e d m a j o r i t i e s .
L i k e a s h a r e h o l d e r s ' a g r e e m e n t , a J O A 'passmark' is also n e g o t i a t e d o n a
case-by-case basis a n d c a n be v a r i e d

according t o t h e importance of a

p a r t i c u l a r d e c i s i o n . R e l i n q u i s h m e n t o f t h e licence, d i s m i s s a l o f t h e

operator

a n d s u r r e n d e r o f acreage, f o r e x a m p l e , are subjects o n w h i c h u n a n i m i t y


be

may

required.'* B o t h s h a r e h o l d e r a g r e e m e n t s a n d JOAs c a n b e as basic o r

d e t a i l e d o n v o t i n g m a j o r i t i e s as t h e p a r t i e s r e q u i r e .

14
15

G o v e r n i n g b o a r d - m a n a g e m e n t o v e r s i g h t o f J V C o is t h e r e s p o n s i b i l i t y o f a

A difference exists, however, insofar as shares are certificated, but p a r t i c i p a t i n g interests are not.
Carried interests are drafted i n d i f f e r e n t ways. I n t h e i r simplest f o r m , the carried p a r t y m a y n o t be
required t o repay carried costs. Typically, t h e c a r r y i n g p a r t y takes e x p l o r a t i o n risk. Therefore, i f there is
n o or i n s u f f i c i e n t c o m m e r c i a l discovery, t h e n costs are b o r n e b y t h e c a r r y i n g party. These provisions
c o u l d therefore be considered exceptions t o the p r i n c i p l e t h a t t h e p a y m e n t of costs is c o m m e n s u r a t e

16
17
18

w i t h t h e a l l o c a t i o n of equity.
C o m p a n i e s Act 2006, Section 282.
C o m p a n i e s Act 2006, Section 283.
I n t h e case o f dismissal of the operator, e x c l u d i n g the affected party.

177

j o i n t operating agreements

board

o f directors,

appointed

i n accordance

with

JVCo's a r t i c l e s o f

a s s o c i a t i o n , as s u p p l e m e n t e d b y a s h a r e h o l d e r s ' a g r e e m e n t .
T h e J O A creates a n o p e r a t i n g c o m m i t t e e ( O p C o m ) ( s o m e t i m e s c a l l e d a
m a n a g e m e n t c o m m i t t e e ) o n w h i c h e a c h J O A p a r t y (regardless o f size o f its
p a r t i c i p a t i n g i n t e r e s t ) w i l l be r e p r e s e n t e d b y a t least o n e a p p o i n t e e . T h e
technical

work

of the OpCom

is o f t e n

undertaken

b y specialist

sub-

c o m m i t t e e s i n t h e s a m e w a y as a b o a r d o f d i r e c t o r s m a y d e l e g a t e d e c i s i o n s t o
s m a l l e r groups.'''

C o m p r e h e n s i v e u p s t r e a m c o v e r a g e - l i k e a J V C o , t h e J O A is created a n d
continues

(subject

t o a t e r m i n a t i o n event

being

triggered)

o n an

i n d e t e r m i n a t e basis. " I t s p r o v i s i o n s c o v e r t h e a n t i c i p a t e d l i f e c y c l e o f the


enterprise:

exploration,
2

decommissioning. '

appraisal,

development,

production

and

T r a n s f e r s o f p a r t i c i p a t i n g i n t e r e s t s , c h a n g e o f operator,

f o r f e i t u r e o f l i c e n c e i n t e r e s t s , i n s o l v e n c y a n d o t h e r t r a n s f o r m a t i o n a l events
are l i k e l y t o o c c u r d u r i n g t h e l i f e o f a p r o d u c i n g o i l a n d gas f i e l d . Like a
s h a r e h o l d e r s ' a g r e e m e n t , these e v e n t u a l i t i e s are p r o v i d e d f o r i n t h e JOA.
J O A s a n d s h a r e h o l d e r a g r e e m e n t s are m u l t i - g e n e r a t i o n a l agreements.

Single p u r p o s e - J V C o s are t y p i c a l l y entered i n t o t o p e r f o r m


limited

a single or

purpose.

S i m i l a r l y , a J O A is u s u a l l y e n t e r e d i n t o i n r e l a t i o n t o o n e l i c e n c e only.
Any

22

c o o p e r a t i v e a r r a n g e m e n t a m o n g p a r t i e s t o c o v e r m o r e t h a n o n e licence

w o u l d b e t h e s u b j e c t o f a separate area o f m u t u a l i n t e r e s t a g r e e m e n t , w h i c h
provides a collaborative framework i n w h i c h
relation

t o a specified

area.

25

Drafting

t h e p a r t i e s w i l l cooperate i n

a multi-licence

JOA

creates

c o m p l i c a t i o n s - p a r t i c u l a r l y i f o n e p a r t y w i s h e s t o sell o r w i t h d r a w
some, b u t n o t a l l , o f t h e l i c e n c e s w h i c h

are s u b j e c t t o t h e J O A - a n d

therefore not favoured i n countries p r o m o t i n g industry plurality.

19

Fairness

between

shareholders, JOA

parties - t h e

from
are

21

Companies

A c t 2006

For c e r t a i n decisions, such as b o a r d n o m i n a t i o n s , directors' r e m u n e r a t i o n a n d a u d i t i n g (principles A5,


B2

a n d D3, respectively, o f t h e C o m b i n e d Code Principles o f G o o d G o v e r n a n c e a n d Code of Best

Practice), listed c o m p a n i e s i n t h e U n i t e d K i n g d o m are e n c o u r a g e d t o f o r m sub-committees i n order to


20

p r o m o t e g o o d c o r p o r a t e governance.
T h e U K O i l a n d Gas JOA (2002 ed) is expressed t o c o n t i n u e b e y o n d t h e l i f e o f a f i e l d . T h i s change was
m a d e t o p r o v i d e f o r residual l i a b i l i t y arising f r o m p o t e n t i a l h a r m t o s h i p p i n g caused b y partial

21

d e c o m m i s s i o n i n g ( a l l o w a b l e u n d e r a n OSPAR d e r o g a t i o n ) .
Practice o n d e c o m m i s s i o n i n g has c h a n g e d i n recent years. H i s t o r i c a l l y , d e c o m m i s s i o n i n g

provisions

were agreed as t h e reservoir a p p r o a c h e d d e p l e t i o n . However, m o d e r n practice n o w t y p i c a l l y includes


detailed provisions o n decommissioning
an a n c i l l a r y d o c u m e n t t o t h e JOA,

i n t h e JOA or d e c o m m i s s i o n i n g

cost p r o v i s i o n s deed, w h i c h is

or b o t h . T h e s i g n i f i c a n t p o i n t is t h a t , w h e t h e r these p r o v i s i o n s are

agreed a t a n early o r late stage o f t h e life o f a licence, d e c o m m i s s i o n i n g


22

is u n d e r t a k e n

as part of

p e t r o l e u m o p e r a t i o n s u n d e r t h e JOA.
T h i s is t h e general p o s i t i o n i n t h e U n i t e d K i n g d o m , w h i c h p r o m o t e s a diverse o w n e r s h i p base. I n other
c o u n t r i e s , w h e r e t h e i n d u s t r y is d o m i n a t e d b y a g r o u p of c o m p a n i e s a c t i n g i n a w i d e r c o n s o r t i u m there
may

be one JOA c o v e r i n g several licence interests. T h i s has h i s t o r i c a l l y b e e n t h e case f o r o n s h o r e blocks

23

i n Nigeria.
Because these agreements can be a n t i - c o m p e t i t i v e a n d a restraint of trade, t h e i r legal i m p l i c a t i o n s i n the

24

breach t h e d o c t r i n e of f r e e d o m o f trade?" (CEPM1. u n p u b l i s h e d paper, u n d a t e d ) .


U n i t i s a t i o n agreements, a c o m m o n i n d u s t r y c o n t r a c t r e l a t i n g t o t h e o p e r a t o r s h i p o f m u l t i p l e licences

relevant j u r i s d i c t i o n need t o be considered carefully. See D i k e O, "Do area o f m u t u a l interest agreements

(where a f i e l d straddles t w o o r m o r e licence areas), m i g h t be c o n s i d e r e d a n e x c e p t i o n . Even so t h e y exist


178

alongside, rather t h a n i n place of, a JOA. These agreements discussed i n C h a p t e r 3.

requires d i r e c t o r s t o p r o m o t e t h e success o f t h e c o m p a n y f o r t h e b e n e f i t o f
the

m e m b e r s as a w h o l e a n d i n d o i n g so t h e y m u s t h a v e r e g a r d t o t h e n e e d

t o act f a i r l y b e t w e e n m e m b e r s o f JVCo." A m i n o r i t y s h a r e h o l d e r m a y

seek

r e l i e f i f t h e company's affairs are b e i n g , h a v e b e e n or are p r o p o s e d t o be


conducted

i n a m a n n e r t h a t is u n f a i r l y p r e j u d i c i a l t o t h e interests o f t h e

m e m b e r s i n g e n e r a l or s o m e p a r t o f t h e members.

26

T h i s is analogous,

a l t h o u g h n o t i d e n t i c a l , t o an operator's f i d u c i a r y d u t i e s (discussed i n s e c t i o n
2.2) t o w a r d s n o n - o p e r a t o r s . O n c e a f i d u c i a r y d u t y has b e e n f o u n d t o exist, i t
is

absolute. M o t i v a t i o n and

state

of m i n d

are

not

relevant to

the

e s t a b l i s h m e n t o f a f i d u c i a r y r e l a t i o n s h i p or t h e c o n s e q u e n c e s o f its breach.

Miscellaneous

governance

provisions- both

a JOA

and

shareholders'

a g r e e m e n t are l i k e l y t o c o n t a i n l e n g t h y p r o v i s i o n s r e l a t i n g t o t h e scope o f t h e
v e n t u r e , c o n d u c t o f meetings, cost c o n t r o l , a c c o u n t i n g , d e f a u l t a n d transfer o f
interests. O n

t h i s last issue, b o t h J V C o shareholders a n d JOA

parties w a n t t o

c o n t r o l w h i c h o u t s i d e r s are s u b s e q u e n t l y a l l o w e d t o j o i n t h e j o i n t v e n t u r e .

27

D. Differences between JOA and JVCo

P r o d u c t i o n , n o t p r o f i t s - a JOA's c o m m e r c i a l
n o t p r o f i t . JOA

p u r p o s e is t o share p r o d u c t i o n ,

parties l i f t t h e i r p r o d u c t i o n e n t i t l e m e n t separately a n d

their entitlement on their own

a c c o u n t . Each JOA

sell

p a r t y is k e e n t o ensure t h a t

its t a x status r e m a i n s separate f r o m t h e j o i n t v e n t u r e a n d

t h e absence o f

s h a r i n g p r o f i t s assists i n t h i s analysis.
T h e o p p o s i t e is t r u e for JVCo, w h i c h a i m s t o t u r n p r o d u c t i o n i n t o p r o f i t ,
which

are t h e n d i s t r i b u t e d t o s h a r e h o l d e r s b y

( w i t h o u t any tax friction) the commercial

cash d i v i d e n d . A l t h o u g h

result m a y

vary o n l y slightly, this

d i f f e r e n c e has f u n d a m e n t a l legal i m p l i c a t i o n s . D i s t r i b u t i o n o f p r o f i t is o n e o f
the

f e w w a y s t h a t , i n t h e o r d i n a r y course o f business, a s h a r e h o l d e r

can

realise v a l u e f r o m its J V C o i n v e s t m e n t .

R e c a p i t a l i s a t i o n o f p r o f i t s , cash calls - after i n i t i a l c a p i t a l i s a t i o n JVCo, i f


successful, s h o u l d be able t o rely o n self-generated f u n d i n g .
The

a i m o f a JOA,

o n t h e o t h e r h a n d , is t o p r o d u c e p e t r o l e u m , r a t h e r

t h a n p r o f i t s f o r its p a r t i c i p a t o r s . JOA
t h e JOA

parties w i l l t h e r e f o r e be r e q u i r e d t o f u n d

o n a r e g u l a r basis f r o m cash calls.

Joint marketing - this point follows on

from, and

part explains, the

two

p a r a g r a p h s above. P a r t l y because o f adverse c o m p e t i t i o n l a w consequences,


t h e JOA

w i l l n o t c o n t e m p l a t e j o i n t m a r k e t i n g o f p r o d u c t i o n . N o r w i l l t h e JOA

p r o v i d e f o r a n y c o n c e r t e d d o w n s t r e a m m a r k e t i n g a c t i v i t i e s b y t h e parties.
E v e n w h e r e j o i n t m a r k e t i n g m i g h t be a d v a n t a g e o u s (eg, w h e n parties e n t e r
i n t o p a r a l l e l o f f t a k e a g r e e m e n t s w i t h a c o m m o n b u y e r o f n a t u r a l gas), i t is

25
26
27

C o m p a n i e s Act 2006, Section 1 7 2 ( l ) ( f ) .


C o m p a n i e s Act 2006, Section 994.
For JOAs ( u n l i k e o t h e r c o m m e r c i a l JVCos), g o v e r n m e n t takes an interest i n t h i s c o m m e r c i a l issue using
its r i g h t t o approve a pre-emption clause i n t h e JOA

(pursuant t o m o d e l clause 40(5)) - see paragraph

2.3. I n o t h e r industries, t h i s p o i n t is considered a matter of commercial

agreement t o be left t o

c o n t r a c t i n g parties.

179

j o i n t operating agreements

n o t t h e purpose o f a JOA t o sell c o l l e c t i v e p r o d u c t i o n

a n d t h e n distribute

resulting p r o f i t s t o JOA parties. T i m i n g also influences this. T h e J O A is l i k e l y t o


be executed early before t h e e x p l o r a t i o n phase of t h e project. T h e contractual
p r o v i s i o n s required i n r e l a t i o n t o m a r k e t i n g a n d t r a n s p o r t a t i o n , o n t h e other
h a n d , w i l l be apparent o n l y after t h e e x p l o r a t i o n phase has b e e n completed.
M a x i m i s a t i o n , a n d t h e n e v e n t u a l d i s t r i b u t i o n , o f p r o f i t s is, i n contrast,
t h e u l t i m a t e p u r p o s e of JVCo.

N o n - c o m p e t e - because J V C o

is u s u a l l y

created

t o pursue

a discrete

enterprise, rather t h a n as a v e h i c l e used f o r i n d e f i n i t e c o m m e r c i a l ends,


shareholders ( a n d t h e i r c o r p o r a t e groups) w i l l o f t e n agree n o t t o compete
against J V C o w h i l e r e m a i n i n g a s h a r e h o l d e r a n d f o r a p e r i o d thereafter.
A s i m i l a r c o m m i t m e n t w o u l d g e n e r a l l y n o t be a p p r o p r i a t e f o r o i l a n d gas
2

i n d u s t r y p a r t i c i p a n t s . * A JOA p a r t y is l i k e l y t o h a v e interests i n other


licences. O i l is a f u n g i b l e a n d easily t r a n s p o r t a b l e c o m m o d i t y a n d other
p r o d u c t i o n interests, w h e r e v e r i n t h e w o r l d , m a y t h u s p o t e n t i a l l y compete
w i t h t h e JOA. T h e same m a y apply, b u t t o a lesser ( a l t h o u g h

increasing)

e x t e n t , f o r n a t u r a l gas t h a t c a n be l i q u e f i e d i n t o LNG.

Directors' duties, f r e e d o m o f O p C o m

members - the

parties' n o m i n a t e d

d i r e c t o r s m a y be able t o pass o r b l o c k decisions t a b l e d at directors' meetings


(which,

absent o f c o n t r a c t u a l a r r a n g e m e n t s , r e q u i r e a s i m p l e m a j o r i t y ) .

D i r e c t o r s o w e duties, i n c l u d i n g a d u t y t o p r o m o t e t h e success o f J V C o for the


benefit

o f a l l shareholders, t o J V C o

rather t h a n

t o their

appointing

shareholder. '
O p C o m m e m b e r s o w e n o s i m i l a r duties t o t h e j o i n t v e n t u r e . T h e y need
c o n s i d e r t h e interests of t h e i r a p p o i n t e r o n l y .

F i d u c i a r y duties - t h e f i d u c i a r y duties are o w e d b y d i r e c t o r s t o t h e c o m p a n y


as a w h o l e (ie, as a single legal e n t i t y ) . Directors' d u t i e s are n o w c o d i f i e d i n
t h e 2 0 0 6 act, Section

172. F i d u c i a r y d u t i e s o f t h e o p e r a t o r w i l l be o w e d t o

each n o n - o p e r a t o r i n d i v i d u a l l y . T h e fact t h a t d u t i e s o w e d t o d i f f e r e n t nonoperators m a y c o n f l i c t w i l l n o t relieve t h e o p e r a t o r o f its d u t y t o serve each


t o t h e s t a n d a r d of a f i d u c i a r y . A d i r e c t o r is a f i d u c i a r y w i t h duties t o a u n i t a r y
b e n e f i c i a r y ; whereas t h e operator is a f i d u c i a r y t o several.

G o v e r n a n c e - J V C o - general p r i n c i p l e s - t h e u n d e r l y i n g

r a t i o n a l e for all

levels o f J V C o d e c i s i o n m a k i n g is t h a t each s h a r e h o l d e r has s o m e i n p u t i n t o


t h e p o l i c i e s o f JVCo. W h e t h e r its i n f l u e n c e is s u f f i c i e n t t o pass o r veto
decisions w i l l d e p e n d o n t h e i n d i v i d u a l shareholder's percentage o f shares, its
r e p r e s e n t a t i o n o n t h e b o a r d o f directors, i t s i n f o r m a l i n f l u e n c e at executive
level a n d t h e p r i v a t e a r r a n g e m e n t s agreed a m o n g t h e parties ( s u p p l e m e n t i n g

28

Most JOAs are silent o n this p o i n t . However, the Canadian Association o f Petroleum L a n d m e n JOA
recognises that, outside the JOA,

the parties compete w i t h each other. It states: "Each Party acknowledges

that the Parties are engaged i n the o i l a n d gas business. Each Party is free t o c o n d u c t its business i n such
m a n n e r as it, i n its sole discretion, sees f i t , even i f i t is (or m a y be) i n c o m p e t i t i o n w i t h p o t e n t i a l Joint
Operations. N o t h i n g i n this Agreement restricts a Party f r o m m a k i n g elections o r decisions i n w h a t it
perceives t o be its o w n interest, e c o n o m i c or otherwise." (Source: Roberts P, "Fault lines i n the joint
29

180

operating agreement: fiduciary duties" (2006) IELR 218).


Companies Act 2006, Sections 170(1) et seq.

iviarc

ndiinuerson

p r i n c i p l e s o f c o m p a n y law). Irrespective o f w h e t h e r its v o t i n g p o w e r or


i n f l u e n c e is s u f f i c i e n t t o pass or b l o c k a decision, the general p r i n c i p l e is t h a t
a c t i o n can be t a k e n o n l y after each shareholder or its d i r e c t o r has, w i t h due
process, exercised its board, shareholder or executive control."'

G o v e r n a n c e - JOA - general principles - i n terms o f i n f l u e n c e over decisions,


a JOA

starts at t h e o t h e r e n d o f t h e governance spectrum. There is, f o r

u p s t r e a m projects, c o m m e r c i a l rationale against a m u l t i - p a r t y spread o f


m a n a g e m e n t c o n t r o l . I t is considered

t h a t several parties exercising t h i s

f u n c t i o n p r o d u c e a c u m b e r s o m e decision-making

structure - a n d o n e n o t

suited t o u p s t r e a m e x p l o r a t i o n a n d p r o d u c t i o n . " I n o t h e r words, i t is


i m p r a c t i c a l f o r all JOA parties t o exercise p a r t - m a n a g e m e n t o f operations.

Governance - q u a l i f i c a t i o n s t o b o t h - however, just as i t is w r o n g t o make


generalisations a b o u t each shareholder h a v i n g p r o p o r t i o n a t e i n f l u e n c e i n t h e
decision m a k i n g o f a JVCo, so it is unwise t o m a k e a u t o m a t i c assumptions
about non-operators' role i n JOA management. T h e balance o f p o w e r between
operator a n d non-operators is at t h e centre o f JOA negotiations. Practice varies
d e p e n d i n g o n geological c o n d i t i o n s , " j u r i s d i c t i o n o f o p e r a t i o n s " and, m o s t
crucially, the b a r g a i n i n g s t r e n g t h o f the proposed operator. T h e d e v e l o p m e n t
of a standard UKCS JOA was a p r o d u c t o f all these factors. It i n i t i a l l y relied o n
previous US experience b u t t h e n q u i c k l y developed i n t o its o w n f o r m . T h e
m o v e away f r o m US precedent was due, i n part, t o the h i g h costs of N o r t h Sea
projects (compared t o US o n s h o r e p r o d u c t i o n ) a n d the d o m i n a n t i n f l u e n c e at
the t i m e o f the British N a t i o n a l O i l C o r p o r a t i o n .

P e r s o n n e l - J V C o shareholders

may

allocate a m o n g

their nominees the

executive f u n c t i o n s o f JVCo, so t h a t (for example) the c h i e f executive, c h i e f


o p e r a t i n g officer a n d c h i e f f i n a n c i a l officer are each the pre-agreed

appointee

of o n e o f t h e shareholders (sometimes o n a r o t a t i n g basis).


It is a p r i n c i p l e o f JOAs t h a t it is i m p r a c t i c a l for o p e r a t i o n a l r e s p o n s i b i l i t y
t o be shared a m o n g t h e parties. It is considered m o r e e f f i c i e n t f o r one p a r t y
(the operator) t o u n d e r t a k e t h i s f u n c t i o n o n b e h a l f o f itself a n d t h e o t h e r
parties (non-operators). T h i s p o i n t is a subset or i l l u s t r a t i o n o f t h e paragraph
above - b u t r e l a t i n g t o personnel rather t h a n governance.

Legal o w n e r s h i p o f JVCo, beneficial o w n e r s h i p o f operator - because a JOA


does n o t establish a n y n e w legal personality, t h e operator w i l l h o l d assets as
' j o i n t p r o p e r t y ' b e n e f i c i a l l y o n b e h a l f o f t h e o t h e r parties. T h e operator w i l l
also enter i n t o contracts i n its o w n name, b u t o n behalf o f t h e JOA.

30

W h e t h e r t h e m a t t e r is a s h a r e h o l d e r o r d i r e c t o r d e c i s i o n w i l l d e p e n d o n c o m p a n y l a w a n d J V C o ' s

31

constitutional documents.
Increasingly, operators e m p l o y oil services c o m p a n i e s (rather t h a n their o w n employees) to perform
e x p l o r a t i o n a n d p r o d u c t i o n a c t i v i t i e s . W h e n t h i s is t h e case, it is h a r d e r to j u s t i f y t h e J O A m o d e l b a s e d

32

o n t h e b e n e f i t s o f a s i n g l e c o m p a n y c h a i n of a u t h o r i t y .
O n s h o r e a n d s h a l l o w w a t e r d e v e l o p m e n t s are l i k e l y to b e t e c h n i c a l l y easier a n d less e x p e n s i v e . I n t h e s e

33

b e n i g n e n v i r o n m e n t s J O A p a r t i e s m a y a g r e e t h a t m i n i m a l o v e r s i g h t of t h e o p e r a t o r is r e q u i r e d .
J O A s i n t h e U n i t e d States t e n d t o b e m o r e p r o - o p e r a t o r t h a n , for e x a m p l e , t h e s t a n d a r d

UKCS

e q u i v a l e n t . S i n c e t h e U S f o r m of J O A w a s d e v e l o p e d for o n s h o r e p r o d u c t i o n , t h i s m a y b e a n e x a m p l e of
the previous c o m m e n t that technologically simpler d e v e l o p m e n t s impose fewer restrictions o n
operators.
18 I

Joint o p e r a t i n g agreements

JVCo, o n t h e o t h e r h a n d , w i l l o w n
enter i n t o c o n t r a c t s , i n its o w n

p r o p e r t y legally and beneficially, and

n a m e a n d also f o r its sole b e n e f i c i a l interests.

U n i t a r y legal e n t i t y , a m o r p h o u s s t r u c t u r e - because J V C o is a u n i t a r y legal


e n t i t y , o n c e a n a f f i r m a t i v e d e c i s i o n is t a k e n , a d i s s e n t i n g s h a r e h o l d e r has no
m e c h a n i s m f o r n o t p a r t i c i p a t i n g i n t h a t d e c i s i o n . Each s h a r e h o l d e r

will

i n d i r e c t l y b e n e f i t (or lose) as a result o f t h e c o r p o r a t e a c t i v i t y . JVCo, as a


u n i t a r y e n t i t y , carries o u t t h e a p p r o v e d a c t i o n .
A JOA,

o n t h e o t h e r h a n d , as a n u n i n c o r p o r a t e d e n t i t y , p r o v i d e s a more

amorphous and

therefore flexible structure. The

separate legal p e r s o n a l i t y . I t c a n
p e r s o n a l i t y or agency o f t h e JOA

JOA

act o n l y , as we

itself does n o t have

s h a l l see, t h r o u g h

the

parties ( t y p i c a l l y , t h e o p e r a t o r as agent).

Because o f t h e i r f l e x i b i l i t y , JOAs m a y

p r o v i d e f o r o n e o r m o r e o f t h e parties

t o w i t h d r a w f r o m a d e c i s i o n . H a v i n g v o t e d against a p r o p o s e d d e v e l o p m e n t ,
a

dissenting party may

legitimately

not

participate

i n or

fund

the

d i s a p p r o v e d d e v e l o p m e n t . T h i s c a n a p p l y b o t h w h e n t h e m a j o r i t y blocks the
m i n o r i t y ' s w i s h e s (sole risk) a n d w h e n t h e m a j o r i t y proposes a c t i o n t o w h i c h
the

m i n o r i t y o b j e c t s ( n o n - c o n s e n t ) . These o p t - o u t s are n o r m a l l y unavailable

for d e c i s i o n s r e q u i r e d t o m e e t l i c e n c e o b l i g a t i o n s . However, o n c e t h e work


p r o g r a m m e has b e e n c o m p l e t e d , t h e y are p a r t i c u l a r l y u s e f u l f o r s m a l l

JOA

parties c o n c e r n e d a b o u t t h e i r a b i l i t y t o f u n d cash calls. T h e c h a n g i n g profile


of t h e UKCS has b e e n n o t e d i n t h e preface. These n e w

e n t r a n t s , particularly

w h e n v e n t u r i n g w i t h a n o i l major, w i l l be c o n c e r n e d a b o u t t h e i r a b i l i t y to
match

spending.

B o t h sole risk a n d

m i t i g a t i o n - they do

n o n - c o n s e n t are f o r m s o f dispute

n o t resolve t h e disagreement,

b u t rather allow

JOA

parties t o co-exist p e n d i n g a p r a c t i c a l d e t e r m i n a t i o n o f w h e t h e r e x p l o r a t i o n
4

or d e v e l o p m e n t a c t i v i t y is c o m m e r c i a l l y prudent.' S u c h t e c h n i q u e s are n o t
5

a v a i l a b l e t o a single legal e n t i t y s u c h as a JVCo.' Sole risk a n d non-consent


p r o v i s i o n s are, i n reality, m o r e discussed t h a n used. A l t h o u g h rarely relied on
i n practice, t h e y i l l u s t r a t e t h e p o s s i b i l i t y o f s e p a r a t i n g t h e interests o f JOA
parties f o r p a r t i c u l a r d e v e l o p m e n t s . I n c e r t a i n c i r c u m s t a n c e s , therefore, JOAs
may

d e p a r t f r o m t h e g o v e r n a n c e p r i n c i p l e o f r u l e b y a pre-agreed m a j o r i t y .

Societal c o n c e r n s - t h e 2 0 0 6 act r e q u i r e s d i r e c t o r s t o consider, a m o n g other


t h i n g s , employees, suppliers, customers, c o m m u n i t y , e n v i r o n m e n t

and

r e p u t a t i o n . ' These m a t t e r s n e e d t o be c o n s i d e r e d at a c o r p o r a t e , r a t h e r t h a n
JOA,

level. T h a t is t h e s t a t u t o r y o b l i g a t i o n . I n p r a c t i c e , these m a t t e r s w i l l be

i m p l e m e n t e d at a JOA

level.

34

A t w h i c h p o i n t a n o n - p a r t i c i p a t i n g JOA

35

p u n i t i v e cost.
Even if a shareholder agreement c o u l d be drafted a l l o w i n g f o r divergence of e c o n o m i c interests various

party has the o p t i o n t o b u y back i n t o t h e d e v e l o p m e n t at a

m a n d a t o r y laws deter shareholder n o n - p a r t i c i p a t i o n as a viable o p t i o n f o r a company. A director even


if a p p o i n t e d by a n o n - p a r t i c i p a t i n g shareholder, w o u l d c o n t i n u e t o owe

duties t o p r o m o t e the best

interests of JVCo (despite his a p p o i n t i n g shareholder n o t c o n s i d e r i n g t h a t the decision is i n JVCo's best


interest). Furthermore, the insolvency risk that a side venture c o u l d b a n k r u p t JVCo i n its e n t i r e t y makes
t h i s arrangement d i f f i c u l t t o structure (particularly w i t h o u t strong, and c r e d i t w o r t h y , parent c o m p a n y
i n d e m n i t i e s ) . A JOA
36
182

is able t o ring-fence a project supported by less t h a n all the parties. A JVCo w o u l d

be unable t o achieve the same outcome.


C o m p a n i e s Act 2006, Section 172.

Marc H a m m e r s o n

E.

Similarities between JOAs a n d partnerships

2.1.12 Likewise, t h e r e are some basic s i m i l a r i t i e s b e t w e e n a JOA a n d p a r t n e r s h i p ( a l t h o u g h


t h e parties, f o r t a x reasons, ensure t h a t a p a r t n e r s h i p is n o t c r e a t e d
expressly m a k e t h i s s t a t e m e n t i n t h e JOA).

37

and often

However, i f a p a r t n e r s h i p i n fact exists,


5

t h e n c o u r t s w i l l n o t k o w t o w t o t h e p a r t y - g i v e n label. " Instead, t h e y w i l l f o r m a v i e w


based o n t h e a g r e e m e n t a n d c o n d u c t o f t h e p a r t i e s . " A s t a t e m e n t o f t h e parties'
intentions

will

be r e l i e d

upon

only

i f u n c e r t a i n t y exists a b o u t t h e t y p e o f
4

r e l a t i o n s h i p w h i c h t h e parties have created. "


2.1.13 Some s i m i l a r i t i e s b e t w e e n JOAs a n d p a r t n e r s h i p s are listed below:

Creation

o f c o n t r a c t , n o t statute - like a p a r t n e r s h i p , a JOA

is created

p u r s u a n t t o t h e parties e x e c u t i n g a c o n t r a c t - r a t h e r t h a n e s t a b l i s h i n g , o r
r e c o n s t i t u t i n g , a c o m p a n y r e l y i n g o n s t a t u t o r y procedures. T h e l a w r e l a t i n g
to

unincorporated

j o i n t ventures

has n o t b e e n - n o r is i t l i k e l y t o be -

c o d i f i e d i n t o statute. C o m m o n l a w applies. P a r t n e r s h i p l a w has b e e n p a r t l y


c o d i f i e d b y t h e P a r t n e r s h i p Act 1890, b u t also relies h e a v i l y o n c o m m o n law.

U n c e r t i f i c a t e d e q u i t y - e q u i t y i n b o t h JOAs a n d p a r t n e r s h i p s is u n c e r t i f i c a t e d .
C r o s s - i n d e m n i t i e s - t h e JOA parties' j o i n t a n d several l i a b i l i t y t o g o v e r n m e n t
- i n o t h e r words, l i a b i l i t y w h i c h , i f i t chose t o d o so, is capable o f b e i n g
enforced

i n i t s e n t i r e t y against o n e JOA

party only - forms one of the

p r i n c i p a l reasons w h y parties n e e d a n a g r e e m e n t a l l o c a t i n g l i a b i l i t i e s o n a
several basis a m o n g themselves. J o i n t a n d several l i a b i l i t y is a f u n d a m e n t a l
4

p r i n c i p l e o f t h e licence. ' For o t h e r creditors, t h e legal n a t u r e o f t h e l i a b i l i t y


w i l l d e p e n d o n each c o n t r a c t a n d t h e c o n t r a c t u a l capacity i n t o w h i c h i t is
entered. Each JOA party's o b l i g a t i o n s u n d e r a JOA ( i n o t h e r words, t h e i r
o b l i g a t i o n s a m o n g t h e m s e l v e s ) are, i n c o n t r a s t , i n d e p e n d e n t .
Likewise, partners o w e j o i n t liabilities f o r t h e debts a n d o b l i g a t i o n s of t h e
partnership.

43

B o t h JOA

parties a n d partners are h e l d harmless b y cross-

i n d e m n i t i e s p u r s u a n t t o w h i c h t h e i n d e m n i t o r agrees t o i n d e m n i f y for l i a b i l i t y
43

i n excess o f t h e indemnitee's percentage o f equity. If a p r o j e c t is u n d e r t a k e n


by less t h a n all o f t h e parties, t h e n a n o n - p a r t i c i p a t i n g p a r t y w i l l need t o be
f u l l y i n d e m n i f i e d b y t h e p a r t i c i p a t i n g parties (as i f i t were a t h i r d p a r t y i n
r e l a t i o n t o t h e project). T h e JOA is a n i m p o r t a n t d o c u m e n t i n a l l o c a t i n g t h e
parties' liabilities i n c u r r e d i n excess of t h e p a r t i c i p a t i n g interest percentages.

37

A JOA's d i s t r i b u t i o n of p r o d u c t i o n , n o t profit, assists i n this analysis. The sharing of profits is one of the
f u n d a m e n t a l features o f a partnership a n d therefore a central difference between a JOA

and a

38

partnership.
For a rejection o f a description o f a j o i n t venture, see Coastal Plains Development Corp v Micrea, Inc 572

39
40

SW 2 d 285 (Texas Supreme Court).


Adam v Newbigging (1888) 13 AppCas 308; Weiner v Harris (1910) 1 KB 285.
See paragraph 26 o f Spree Engineering & Testing Limited v O'Rourke Civil & Structural Engineering Lim

41
42
43

[1999] E W H C QB 272.
M o d e l clause 1(2) - see page 88.
Partnership Act 1890, Section 9.
This is designed t o m i l i t a t e against j o i n t a n d several l i a b i l i t y t o t h i r d parties. This is the case provided
t h a t n o JOA party defaults o n its i n d e m n i t y t o the other JOA parties. If a JOA party does default, the JOA
is likely t o c o n t a i n a p r o v i s i o n stating t h a t the JOA parties are liable ( i n t h e participating interest
p r o p o r t i o n s ) for an expelled d e f a u l t i n g party's liabilities. Despite t h e parties' i n d e p e n d e n t liabilities
c o n t a i n e d i n a JOA, t h i s p r o v i s i o n can f u n d a m e n t a l l y alter the position.

183

J o i n t operating agreements

N o gain, n o loss - t h e operator takes o n its r e s p o n s i b i l i t y f o r t h e c o n t r o l and


prestige t h a t i t offers - r a t h e r t h a n f o r any

f i n a n c i a l g a i n . O t h e r t h a n as a

result of some h i g h s t a n d a r d of m i s c o n d u c t , t h e o p e r a t o r ( i n i t s capacity as


operator, r a t h e r t h a n JOA

p a r t y ) is h e l d harmless b y

is because such a h i g h s t a n d a r d

t h e JOA

parties. I t

o f m i s c o n d u c t is r e q u i r e d t o a t t a c h

any

l i a b i l i t y t o t h e o p e r a t o r t h a t n o n - o p e r a t o r s are k e e n t o i m p o s e checks and


balances. S i m i l a r n o gain, n o loss p r i n c i p l e s are a p p l i c a b l e t o m a n a g e m e n t
responsibilities undertaken i n a m o d e r n professional partnership.

44

Owner-management - b o t h operator and

m a n a g e m e n t o f p a r t n e r s h i p s are

g e n e r a l l y elected f r o m t h e ranks o f JOA

parties a n d

p o s i t i o n s are h e l d
partnership.

45

subject t o r e t a i n i n g an

p a r t n e r s h i p , and

e q u i t y stake

i n t h e JOA

the
or

A l t h o u g h a g e n e r a l i s a t i o n , b o t h p o s i t i o n s are t o some extent

( w h e t h e r u n d e r c o n t r a c t or i n r e a l i t y ) p a r t l y d e p e n d e n t o n

r e t a i n i n g the

c o n f i d e n c e o f t h e o t h e r owners.

Self-interest o f shareholders, JOA

parties - votes o f J V C o shareholders

proprietary rights w h i c h may

exercised

be

are

n o t o n l y i n a self-interested
4

m a n n e r , b u t e v e n against t h e interests of t h e company. * Likewise, i t is


suggested t h a t JOA

parties h a v e n o r e s t r i c t i o n s over h o w

votes at O p C o m . JOA

t h e y exercise their

parties ( i n t h e i r c a p a c i t y as a p a r t y ) m a y

owe

fiduciary

duties t o each other. H o w e v e r ( u s i n g t h e a n a l o g y o f a shareholder's freedom


i n t h e exercise o f its votes), it is suggested t h a t , t o t h e e x t e n t t h a t it can be
stated t h a t a f i d u c i a r y r e l a t i o n s h i p exists b e t w e e n parties ( i n t h e i r capacities
as parties), t h e n t h e scope o f f i d u c i a r y d u t i e s w o u l d n o t e x t e n d t o t h e casting
o f votes.

M i s c e l l a n e o u s g o v e r n a n c e p r o v i s i o n s - m a n y o f t h e m i s c e l l a n e o u s issues
p r e v i o u s l y referred t o i n p a r a g r a p h 2.1.11 (scope o f t h e v e n t u r e , c o n d u c t of
meetings, cost c o n t r o l , a c c o u n t i n g ,

default and

c o m m o n features o f b o t h JOAs a n d

p a r t n e r s h i p agreements. The

t r a n s f e r of interests) are
previous

c o m m e n t a b o u t t h e c o m m e r c i a l parties' c o n t r o l o v e r a s s i g n m e n t of equity
interest (and, i n r e l a t i o n t o a JOA

o n l y , t h e g o v e r n m e n t ' s c o n c e r n s a b o u t the

same) also applies here.

F. Differences between JOA and partnerships


2.1.14 As seen above, JOAs a n d p a r t n e r s h i p s have several features i n c o m m o n . However, a
JOA

is n o t considered i n c o m m e r c i a l p r a c t i c e t o be a p a r t n e r s h i p a n d t h e parties w i l l

- f o r t a x reasons - be eager t o ensure t h a t a p a r t n e r s h i p is n o t created. The central


d i s t i n c t i o n b e t w e e n a JOA

44

and

p a r t n e r s h i p lies i n t h e u l t i m a t e o u t c o m e of each

I n terms of collective management participation, t r a d i t i o n a l partnership structures ( e x e m p l i f i e d by the


Partnership Act 1890, Section 24, w h i c h states t h a t subject to any express or i m p l i e d agreement t o the
contrary, "every partner may
s i m i l a r i t y w i t h a JOA.

take part i n the management of t h e business") p o i n t away f r o m

the rule. I n m o d e r n practice, there are thus similarities between the delegation of powers by JOA
45

any

However, i n m o d e r n and larger partnerships the exception is relied o n m o r e than


parties

t o the operator and the delegation by partners t o management.


However, it is n o t a requirement of m o d e l clause 24 that the operator has an e q u i t y interest and

the

m o d e l clause is drafted widely e n o u g h for approval of a contractor a c t i n g o n a c o m m e r c i a l (rather t h a n


46
184

equity) basis (see page 102).


See North-West Transportation v Beatty (1887) 12 AppCas 589.

marc n a u u n e r s o i i

structure: a JOA

shares p r o d u c t i o n , whereas a p a r t n e r s h i p shares p r o f i t . A l t h o u g h

there is l i t t l e j u d i c i a l a u t h o r i t y o n t h e p o i n t i n t h e U n i t e d K i n g d o m , legislation
p o i n t s t o t h i s d i s t i n c t i o n b e i n g recognised. The

Partnership Act 1890

states that:

Partnership is the relation which subsists between persons carrying on business in


common with a view to profit."
In determining whether a partnership does or does not exist, regard shall be had to the
following rules:
(1) Joint tenancy, tenancy in common,

joint property, common

property, or part

ownership does not of itself create a partnership as to anything so held or owned,


whether the tenants or owners do or do not share any profits made
thereof.

by the use

(2) The sharing of gross returns does not of itself create a partnership, whether the
persons sharing such returns have or have not a joint or common

right or interest in

any property from which or from the use of which the returns are derived.
(3) The receipt by a person of a share of the profits of a business is prima facie evidence
that he is a partner in the business, but the receipt of such a share, or of a

payment

contingent on or varying with the profits of a business, does not of itself make

him

a partner in the business. "


2.1.15 The distinction between the sharing of profits and production was recognised
( a l t h o u g h n o t i n t h e c o n t e x t of t h e Partnership Act 1890) i n the speech of D a w s o n J
i n t h e A u s t r a l i a n case of United Dominions

v Brian, '' i n w h i c h he stated:

Perhaps, in this country/ the important distinction between a partnership and a joint
venture is, for practical purposes, the distinction between an association of persons who
engage in a common

undertaking for profit and an association of those who do so in

order to generate a product to be shared among


kind are common

the participants. Enterprises of the latter

enough in the exploration for and exploitation of mineral resources

and the feature which is most likely to distinguish them from partnerships is the sharing
of product rather than profit.
G.

Overview of JOA

2.1.16 The

legal issues

purpose of t h i s section 2.1 is t o use a c o m p a r a t i v e analysis t o i n t r o d u c e some

general legal and


considers t w o

c o n t r a c t u a l features of a JOA.

The

r e m a i n d e r of t h i s chapter

legal issues w h i c h are subject t o s i g n i f i c a n t j u d i c i a l or academic

discussion:

the

nature

of e x t r a - c o n t r a c t u a l

duties

owed

among

the

parties

(and

p a r t i c u l a r l y b e t w e e n operator and non-operator); and

47
48
49
SO

p r e - e m p t i o n rights over a JOA

party's p a r t i c i p a t i n g interests.

Partnership Act 1890, Section 1.


Partnership Act 1890, Section 2.
(1984-1985) 157 CLR 1. See pages 205 t o 212.
A reference, probably, to the number of m i n i n g joint ventures in Australia.

185

Joint operating

2.2

agreements

Fiduciary duties

A. Operatorship - and points of friction


2.2.1

Before analysing

t h e extra-contractual duties o w e d

a m o n g JOA parties, i t is

w o r t h w h i l e b r i e f l y i n t r o d u c i n g the discussion p o i n t s l i k e l y t o arise i n n e g o t i a t i n g a


JOA

a n d p o i n t s of disagreement t h a t m a y occur d u r i n g its t e r m . T h e licence sets out

t h e o b l i g a t i o n s of t h e licensee (despite u s i n g t h e singular, t y p i c a l l y consisting of


m u l t i p l e parties o n a j o i n t a n d several basis) i n r e l a t i o n t o g o v e r n m e n t . Other than
high-level c o m m e r c i a l p r o v i s i o n s (eg, f i n a n c i a l terms), t h e licence is u n l i k e l y to be
negotiated.

51

T h e JOA sets o u t t h e r i g h t s a n d o b l i g a t i o n s o f those parties among

themselves - a n d i n particular, t h e o b l i g a t i o n s o f t h e operator

towards non-

operators. Despite t h e a v a i l a b i l i t y o f several standard forms, t h e JOA is likely, i n


c o n t r a s t t o t h e licence, t o be h e a v i l y negotiated.

2.2.2 The party that from time to time exercises the executive function is known as the
operator. Because of t h a t party's perceived c o m m i t m e n t t o t h e project, this is often
52

(but

n o t necessarily) t h e p a r t y w i t h t h e largest p a r t i c i p a t i n g interest. T h e operator

is c h o s e n b y JOA parties, subject t o g o v e r n m e n t approval,

55

w h i c h w i l l n o t allow

m o r e t h a n one e n t i t y t o u n d e r t a k e t h i s role. A l t h o u g h n o t c o m m o n , there is n o t h i n g


(subject t o g o v e r n m e n t consent) p r e v e n t i n g JOA parties f r o m f o r m i n g a JVCo for this
purpose or for t h e operator t o be a n i n d e p e n d e n t service p r o v i d e r ( w i t h n o interest
54

i n t h e licence). The battle lines between operator a n d non-operators are d r a w n early


i n JOA n e g o t i a t i o n s - possibly b y t h e t i m e t h e licence b i d has been submitted.
C o n t e n t i o u s issues are l i k e l y t o i n c l u d e t h e f o l l o w i n g :

A b i l i t y of t h e O p C o m t o oversee operations - t h i s is achieved b y specifying


t h e types of issues t h a t m u s t be p u t before a n O p C o m v o t e a n d the passmark
specified. For example, t h e operator w i l l require O p C o m approval t o engage
in

l i t i g a t i o n above, w h i l s t t h e operator

retains d i s c r e t i o n t o engage i n

l i t i g a t i o n below, a c e r t a i n m o n e t a r y t h r e s h o l d .

Budget - t h e setting of an a n n u a l budget provides h i g h - l e v e l c o n t r o l over the


aggregate a n n u a l spend. Financial constraints can also be achieved by setting
l i m i t s of d e e m e d a u t o m a t i c a p p r o v e d e x p e n d i t u r e ( a n d t h e r e q u i r e m e n t that,
if exceeded, t h e operator m u s t seek a n a u t h o r i s a t i o n for e x p e n d i t u r e (AFE)).

Removal o f operator - as a n u l t i m a t e s a n c t i o n , t h e parties w i l l

negotiate

p r o v i s i o n s a l l o w i n g f o r the r e m o v a l of t h e operator ( w h i c h , u n t i l removal or


resignation, t y p i c a l l y w i l l serve f o r a n i n d e t e r m i n a t e p e r i o d ) . D e p e n d i n g o n

51

D e s p i t e t h e f a c t t h a t t h e 1 9 9 8 act, S e c t i o n 5(3) a l l o w s t h e s e c r e t a r y o f s t a t e d i s c r e t i o n n e g o t i a t i n g the

52

t e r m s of t h e l i c e n c e .
A l t h o u g h t h e p o i n t is n o t r e l e v a n t to t h e U n i t e d K i n g d o m o r U K C S , t y p i c a l l y a s t a t e - o w n e d n a t i o n a l oil
c o m p a n y w i l l n o t act as o p e r a t o r d e s p i t e h o l d i n g t h e largest p a r t i c i p a t i n g i n t e r e s t . A s n o t e d i n C h a p t e r
I , o n e of t h e a d v a n t a g e s (less s o t o d a y t h a n p r e v i o u s l y ) o f a l l o w i n g I O C s to e x p l o i t d o m e s t i c p e t r o l e u m
r e s e r v e s is t h e i r t e c h n o l o g i c a l e x p e r t i s e a n d resources. A n N O C e x p l o i t i n g its o w n r e s e r v e s ( w h i l e s h a r i n g
p r o d u c t i o n w i t h f o r e i g n c o m p a n i e s ) defeats t h i s b e n e f i t . H o w e v e r , i n s o m e j u r i s d i c t i o n s , a n N O C will

53
54

take o v e r o p e r a t i o n s d u r i n g t h e ( s i m p l e r ) p r o d u c t i o n p h a s e i n o r d e r to c o n t r o l o u t p u t
U n l i k e s o m e o t h e r c o u n t r i e s w h e r e t h e o p e r a t o r is s e l e c t e d b y g o v e r n m e n t .
W e h a v e a l s o s e e n t h a t v e r y o c c a s i o n a l l y t h e o p e r a t o r m a y b e a J V C o e s t a b l i s h e d b y t h e J O A p a r t i e s (see
f o o t n o t e 10).

186

ividiL

nainmeisoii

the outcome of JOA negotiations, this termination right may be exercised


e i t h e r u p o n t h e operator's d e f a u l t ( i n c l u d i n g i n s o l v e n c y events) o r w i t h o u t
cause. N o n - o p e r a t o r s m a y resist a r e q u i r e m e n t t o d e m o n s t r a t e cause before
r e m o v i n g t h e operator. Lack o f c o n f i d e n c e , t h e y w i l l argue, s h o u l d be
s u f f i c i e n t . T h e o p e r a t o r w i l l w a n t a h i g h , e v e n u n a n i m o u s , passmark ( n o t
i n c l u d i n g t h e operator's v o t e ) . A n y c h a n g e o f operator, w h e t h e r m a n d a t o r y
or o t h e r w i s e u n d e r t h e JOA, w i l l r e q u i r e g o v e r n m e n t a p p r o v a l p u r s u a n t t o
m o d e l clause 24.

Operator's

55

l i a b i l i t y t o non-operators

f o r losses a n d l i a b i l i t i e s - t h e general

rule is t h a t t h e o p e r a t o r acts o n a n o loss, n o g a i n basis. T h e r e is t y p i c a l l y a n


e x c e p t i o n f o r w i l f u l m i s c o n d u c t , as such t e r m is d e f i n e d i n t h e JOA. I n t h e
absence o f a p a r t y - d e f i n e d t e r m i t has b e e n h e l d t o m e a n " d e l i b e r a t e l y d o i n g
something

which

is w r o n g

knowing

i t t o be w r o n g

i n d i f f e r e n c e as t o w h e t h e r i t is w r o n g o r n o t " .

56

o r w i t h reckless

T h e r e is also s o m e t i m e s (less

c o m m o n i n t h e U n i t e d K i n g d o m t h a n i n o t h e r j u r i s d i c t i o n s because o f
E n g l i s h law's h i s t o r i c d i s l i k e o f t h i s t e r m ) a n e x c e p t i o n f o r gross negligence.
T h i s is a r e l a t i v e l y n e w c o n c e p t t o E n g l i s h l a w o f t o r t (its d i s t i n c t i o n w i t h
57

m e r e negligence h a v i n g b e e n j u d i c i a l l y d o u b t e d f o r a n u m b e r o f y e a r s ) a n d
s h o u l d n o t be r e l i e d o n ( w i t h o u t a c c e p t i n g a level o f u n c e r t a i n t y ) w i t h o u t a
contractual

definition.

5 8

H o w e v e r t h e parties p r o v i d e

c o n s e q u e n t i a l loss is i n v a r i a b l y e x c l u d e d .

f o r these

issues,

59

2.2.3 At the heart of the first issue (and other points of disagreement between operators
and

non-operators)

is t h e desire o f t h e o p e r a t o r t o m a n a g e t h e p r o j e c t u s i n g its

u n f e t t e r e d c o m m e r c i a l j u d g e m e n t . That, after a l l , is o n e o f t h e p r i n c i p a l reasons f o r


u s i n g t h i s c o n t r a c t u a l structure. T h i s is set against t h e non-operators'

legitimate

r e q u i r e m e n t t o c o n t r o l h o w t h e i r f u n d s are spent a n d assets u t i l i s e d . T h e costs o f


p e t r o l e u m d e v e l o p m e n t s ( p a r t i c u l a r l y o f f s h o r e ) are considerable a n d non-operators
(not

least i f t h e JOA parties lack h o m o g e n e i t y i n t h e i r i n d u s t r y b a c k g r o u n d s o r t h e

d e p t h o f t h e i r f i n a n c i a l resources) are u n d e r s t a n d a b l y r e l u c t a n t t o subject themselves


t o t h e d e m a n d s o f a n u n c o n s t r a i n e d operator. T h e O p C o m p r o v i d e s

non-operators

w i t h a c h e c k a n d balance. But since a JOA is a l m o s t e n t i r e l y t h e c r e a t i o n o f c o n t r a c t ,


t h e s t r e n g t h o f t h e O p C o m d e p e n d s o n t h e d r a f t i n g o f t h e agreement.

2.2.4 It is not, however, the purpose of this chapter to provide a commercial analysis on
6

p o i n t s t h a t arise d u r i n g a JOA n e g o t i a t i o n . " These issues do, however, p r o v i d e some

55
56
57
58
59

See page 102.


Porter v Magill [2002] AC 357.
See Hinter v Dibber (1842) 2 QB 646 a n d Pentecost v London District Auditor (1951] 2 KB 759.
See Hellespont Ardent [1997] 2 Lloyd's Rep 547 for an English law d e f i n i t i o n of gross negligence.
As a result of the decision i n British Sugar pic v NEI Power Projects Ltd (1998) 14 ConstLJ 565 c a u t i o n needs
to be exercised w h e n d r a f t i n g a consequential loss exclusion clause. Financial loss c a n n o t a u t o m a t i c a l l y
be assumed t o fall w i t h i n t h e m e a n i n g o f 'consequential loss'. For t h e exclusion of l i a b i l i t y t o be
effective, each head o f loss must be clearly specified. T h e Association of I n t e r n a t i o n a l

Petroleum

Negotiators' m o d e l JOA (2002), for example, defines consequential loss as: reservoir or f o r m a t i o n
damage, i n a b i l i t y t o produce, use or dispose of hydrocarbons; loss or deferment o f income; p u n i t i v e
damages; or direct damages or losses w h e t h e r or not similar t o the foregoing.

187

Joint operating agreements

background of likely disputes that may arise in relation to the first topic to be
considered: fiduciary duties. In a jurisdiction, such as the United Kingdom, that lacks
any general principle of good faith in commercial relationships, fiduciary duties
represent one of the few obligations (outside of the express terms of the JOA)

61

which

apply to the operator.


B. No implied duty of good faith under English law
2.2.5

English courts will not, as a matter of course, impose any implied duty of good faith
or

fair

dealing

into

arrangements

agreed

among

commercial

parties.

Notwithstanding the foreign language, caveat emptor is a common legal principle


62

widely understood among business people. In one of the leading cases on this
subject, Lord Justice Bingham (as he then was), i n the opening two paragraphs of his
judgment, summarised the position of courts on a pervasive principle of good faith
under contract law as follows:
In marry civil law systems, and perhaps in most legal systems outside the common law
world, the law of obligations recognises and enforces an overriding principle that in
making and carrying out contracts parties should act in good faith. This does not simply
mean that they should not deceive each other, a principle which any legal system must
recognise; its effect is perhaps most aptly conveyed by such metaphorical

colloquialisms

as 'playing fair', 'coming clean' or 'putting one's cards face upwards on the table'. It is
in essence a principle of fair and open dealing. In such a forum it might, I think, be held
on the facts of this case that the plaintiffs were under a duty in all fairness to draw the
defendants' attention specifically to the high price payable if the transparencies were not
returned in time and, when the 14 days had expired, to point out to the defendants the
high cost of continued failure to return them.
English law has, characteristically, committed itself to no such overriding principle
but has developed piecemeal

solutions

in response to demonstrated

problems of

unfairness. Many examples could be given. Thus equity has intervened to strike down
unconscionable

bargains. Parliament

has stepped in to regulate the imposition of

exemption clauses and the form of certain hire-purchase agreements. The common law
also has made its contribution, by holding that certain classes of contract require the
utmost good faith, by treating as irrecoverable what purport to be agreed estimates of
63

damage but are in truth a disguised penalty for breach, and in many other ways.

60

O n this subject, see ]OAs: A Practical Guide.

61

"[T]he essence of a fiduciary relationship is that it creates obligations of a different character from those

62
63

deriving from the contract itself" (per Lord Mustill Re Goldcorp Exchange Ltd [1995] 1 A C 74 at 98)
Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd 11988] 1 All ER 348, per Bingham LJ at 35
Compare this statement of English law with 1 - 3 0 4 of the US Uniform Commercial Code which states"Every contract or duty within [the Uniform Commercial Code| imposes an obligation of good faith in
its performance and enforcement." This general principle of good faith in commercial arrangements is
reflected in the American Association of Professional Landmen model JOA, which expressly recognises
the obligation of JOA parties to act in good faith. The Association of Petroleum Negotiators' and UK Oil
& Gas model JOAs, in contrast, are silent on this point. The Canadian Association of Professional
Landmen's model JOA disclaims trust and fiduciary duties, but without prejudice to the general duty of
good faith. (Source: Roberts P, "Fault lines in the joint operating agreement: fiduciary duties" (2008) [ELK
218.)

188

Marc i l a m m e r s o n

C.

Establishment

2.2.6

G i v e n t h e lack o f a n y such o v e r r i d i n g p r i n c i p l e , t h i s section considers w h e t h e r a


1

o f f i d u c i a r y relationships - general l a w

JOA " is w i t h i n t h e class o f contracts referred t o b y B i n g h a m LJ as r e q u i r i n g u t m o s t


g o o d f a i t h . Despite t h e i m p o r t a n c e of t h i s issue t o the o i l a n d gas i n d u s t r y , there is
a lack o f English case l a w o n t h i s p o i n t . Instead, the chapter includes n o n - i n d u s t r y specific a n d non-UK cases. These set o u t t h e available precedents s h o u l d t h e issue o f
f i d u c i a r y duties o f a n operator ( i f any) be decided b y a B r i t i s h c o u r t o r t r i b u n a l .
However, n o t least because o f t h e d i f f e r e n t l a w o f various j u r i s d i c t i o n s , i t produces
an u n c e r t a i n o u t c o m e w h i c h is unsatisfactory i n r e l a t i o n t o such a key p o i n t .

2.2.7 As alluded to in the judgment of Bingham LJ, the law has held a certain category of
r e l a t i o n s h i p s t o be of a f i d u c i a r y nature ( i n o t h e r words, o n e r e q u i r i n g u t m o s t g o o d
faith).

Recognised

examples

of where

these

extrinsic

d u t i e s exist

include

arrangements b e t w e e n agent a n d p r i n c i p a l , d i r e c t o r a n d company, trustee a n d


beneficiary, a n d a m o n g partners. These categories o f f i d u c i a r y r e l a t i o n s h i p s are n o t
exhaustive a n d t h e courts have refused t o close t h e recognised categories of f i d u c i a r y
relationships.

6S

I f t h i s issue i n r e l a t i o n t o a p e t r o l e u m

operator were l i t i g a t e d , i t

w o u l d be o p e n t o a c o u r t t o h o l d t h a t t h e n a t u r e of a n operator's duties u n d e r a JOA


was a n a d d i t i o n a l recognised category. This was t h e v i e w of t h e m i n o r i t y i n t h e N e w
Zealand Supreme C o u r t i n Chirnside

v Fay, w h i c h h e l d t h a t j o i n t venturers o w e d each


6

o t h e r f i d u c i a r y duties o f loyalty.'' O n t h e basis t h a t j o i n t ventures are ' i n h e r e n t l y


fiduciary', t h e m i n o r i t y was able t o c o m e t o t h i s v i e w 'directly'.

2.2.8 That the operator acts on a no loss, no gain basis will not assist any argument that
lack o f p r o f i t

obviates

f i d u c i a r y o b l i g a t i o n s . Trustees owe

f i d u c i a r y duties t o

beneficiaries a n d guardians owe f i d u c i a r y duties t o t h e i r wards. I n n e i t h e r case does


c o n s i d e r a t i o n necessarily pass. Fiduciary r e l a t i o n s h i p s are t h e c r e a t i o n of equity, n o t
contract. N e i t h e r c o n s i d e r a t i o n n o r p r o f i t is necessary.

2.2.9 Since the point has not been decided, the questions that need to be addressed are
w h e t h e r English law w o u l d consider t h a t the r e l a t i o n s h i p between operator a n d n o n operators t o be f i d u c i a r y a n d w h a t criteria the courts w i l l use t o d e t e r m i n e w h e t h e r
a f i d u c i a r y r e l a t i o n s h i p exists. There are several bases o n w h i c h t h e courts have h e l d
t h a t a f i d u c i a r y r e l a t i o n s h i p is created.

64

U s i n g t h e r e a s o n i n g i n United Dominions

Corporation Limited v Brian Pty Limited (see p a g e s 2 0 5 t o 2 1 2 ) , it

is l i k e l y t h a t t h e a n a l y s i s o f f i d u c i a r y d u t i e s i m p l i e d i n a J O A w i l l a p p l y e q u a l l y t o a p r e - J O A a g r e e m e n t
o r a r r a n g e m e n t (eg, a j o i n t b i d d i n g a g r e e m e n t ) t h a t is e n t e r e d i n t o i n a n t i c i p a t i o n o f a J O A b e i n g
e x e c u t e d . T h e j o i n t b i d d i n g a g r e e m e n t o f t e n a c t s as a n i n t e r i m a r r a n g e m e n t a m o n g t h e p a r t i e s p r i o r t o
the e x e c u t i o n of a JOA. T h e delay i n signing a J O A w a s a factor w h i c h led to the issues u n d e r dispute i n
Venture North Sea Gas Limited

v Nuon Exploration

& Production

UK Limited

[2010] E W H C 204 ( C o m m )

w h e r e t h e b i d d i n g agreement w a s signed o n M a y 13 2 0 0 8 a n d the J O A w a s n o t executed until D e c e m b e r


14 2 0 0 9 .
65

English v Dedham

66

[ 2 0 0 6 ] N Z S C 68. A c a s e r e l a t i n g t o j o i n t v e n t u r e s o u t s i d e t h e o i l a n d gas i n d u s t r y .

Vale Properties Ltd [ 1 9 7 8 ] 1 W L R 9 3 a t 1 1 0 .

189

Joint operating agreements

(a)

Canadian test: an obligation to act for the benefit of another with discretionary p

2.2.10 A C a n a d i a n Supreme C o u r t case

67

has suggested t h a t a f i d u c i a r y r e l a t i o n s h i p

will

arise:

where

by statute, agreement,

or perhaps

unilateral undertaking,

one party has an

obligation to act for the benefit of another, and that obligation carries with it a
discretionary

power.

2.2.11 A similar test was formulated in Frame v Smith, which held that relationships with
f i d u c i a r y o b l i g a t i o n s t e n d t o possess t h r e e characteristics:

(1) The fiduciary has scope for the exercise of some discretion or power. (2) The fiduciary
can unilaterally exercise that power or discretion so as to affect the beneficiary's legal or
practical interests. (3) The beneficiary is peculiarly vulnerable to or at the mercy of the
fiduciary holding the discretion or power.
(b) New Zealand test: recognised categories and trust and confidence
6

2.2.12 A recent N e w Z e a l a n d Supreme C o u r t case ' d e m o n s t r a t e s t h e d i f f i c u l t y i n devising a


f o r m u l a t i o n t o d e t e r m i n e w h e n a f i d u c i a r y r e l a t i o n s h i p exists. O n t h i s p o i n t the court
was d i v i d e d three t o t w o . T h e j o i n t j u d g m e n t o f B l a n c h a r d a n d T i p p i n g JJ (with
w h o m , o n t h i s p o i n t , G a u l t J agreed) stated t h a t t h e r e are t w o circumstances i n which
a fiduciary

relationship

m a y arise. T h e first are those relationships w h i c h are

i n h e r e n t l y f i d u c i a r y (eg, solicitor a n d client, trustee a n d beneficiary, p r i n c i p a l and


agent, a n d d o c t o r a n d p a t i e n t ) . T h e j o i n t j u d g m e n t c o n t i n u e d : "There is a strong case
for s a y i n g t h a t m o s t j o i n t v e n t u r e r e l a t i o n s h i p s c a n p r o p e r l y be regarded as inherently
f i d u c i a r y because o f t h e a n a l o g y w i t h p a r t n e r s h i p . "

2.2.13 The second category depends not on the inherent nature of the relationship, but
u p o n e x a m i n a t i o n of w h e t h e r its p a r t i c u l a r characteristics j u s t i f y i t b e i n g categorised
as f i d u c i a r y . H a v i n g n o t e d t h a t n o single f o r m u l a o r test has received universal
acceptance, t h e j o i n t j u d g m e n t c o n t i n u e d :

It is clear from

the authorities that relationships which

are inherently fiduciary all

possess the feature which justifies the imposition of fiduciary duties in a case which falls
outside the traditional categories; all fiduciary relationships, whether
particular, are marked

inherent or

by the entitlement ... of one party to place trust and confidence

in the other. That party is entitled to rely on the other party not to act in a way which
is contrary to the first party's interests.
2.2.14 The minority on this point (Elias CJ, with whom Keith J agreed) came to the same
c o n c l u s i o n m o r e d i r e c t l y b y f i n d i n g t h a t w h e r e parties j o i n t o g e t h e r i n a venture
w i t h a v i e w t o s h a r i n g profits, t h e i r r e l a t i o n s h i p is i n h e r e n t l y f i d u c i a r y w i t h i n t h e
scope of t h e v e n t u r e . Elias CJ h e l d t h a t :

Where

67
68
69

190

parties join together in a venture with a view to sharing profit obtained, their

Guerin v R [1984] 2 SCR 335 per Dickson J.


[1987] 1 SCR 99 (Supreme Court of Canada).
Chirnside v Fay [2006[ NZSC 68.

IVIdlL

ndiniiieisun

relationship is inherently fiduciary within the scope of the venture and


continues. The label 'joint venture' m a y sometimes

while it

be used to describe what are in fact

separate businesses operating at arm's length with profits taken separately and directly
by the participants instead of being retained by the venture itself (as is c o m m o n in
mineral exploration ...). The fact that the parties m a y have expected to settle their
arrangements

later more formally through a corporate structure (as they had done in

their earlier joint venture), or through

a partnership agreement,

character of the relationship already established and


(c)

English law test: recognised categories and

2.2.15 As

u n d e r New

Zealand law,

does not alter the

underway.
trust and confidence

i t is clear t h a t there are

a n u m b e r of recognised

r e l a t i o n s h i p s t h a t English law w i l l consider to be of an i n h e r e n t l y f i d u c i a r y nature


(including

those listed

i n paragraph

relationships are n o t c l o s e d

70

and

2.2.12). But

f i d u c i a r y duties may

the

categories of

fiduciary

s t i l l arise i n p a r t i c u l a r cases

despite the r e l a t i o n s h i p n o t f a l l i n g w i t h i n a recognised category. I n order t o preserve


f l e x i b i l i t y , courts are, however, r e l u c t a n t t o p r o v i d e a d e f i n i t i o n of 'fiduciary'.
Despite the term's pervasiveness, few
scope exist. The
Building

clear j u d i c i a l e x p l a n a t i o n s of the concept's

clearest statement of recent law


7

Society v Mothew, '

a fiduciary is someone

is c o n t a i n e d i n Bristol &

West

i n w h i c h M i l l e t t LJ stated t h a t :

who

has undertaken

particular matter in circumstances

which

to act for or on behalf of another in a


give rise to a relationship of trust and

confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty. The


principal is entitled to the single-minded

loyalty of his fiduciary. This core liability has

several facets. A fiduciary must act in good faith; he must not make

a profit out of his

trust; he must not place himself in a position where his duty and his interest m a y
conflict; he m a y not act for his o w n benefit or for the benefit of a third person

without

the informed consent of the principal. This is not intended to be an exhaustive list, but
it is sufficient to indicate the nature of fiduciary obligations. They are the defining
characteristics of the fiduciary ... he is not subject to fiduciary obligations because he is
a fiduciary; it is because he is subject to them that he is a fiduciary.
D.

2.2Ad

F u r t h e r issues

[T]o say that a m a n is a fiduciary only begins an analysis; it gives direction to further
inquiry. To w h o m is he a fiduciary? W h a t obligations does he owe as a fiduciary? In
what

respect has

consequences

he failed to discharge

those obligations?

And

what

are the

72

of his deviation from his duty?

2.2.17 If a f i n d i n g of a f i d u c i a r y r e l a t i o n s h i p exists, i t adds a f u r t h e r layer of o b l i g a t i o n s t o


parties' c o m m e r c i a l arrangements. It w i l l n o t be possible for parties t o l o o k t o the
express terms of the JOA

i n order t o d e t e r m i n e t h e i r rights and liabilities. T h e y must

consider legal p r i n c i p l e s g o v e r n i n g f i d u c i a r y relationships. Some of the types of

70
71
72

English v D e d h a m Vale Properties Ltd [1978] 1 WLR


[1998] 1 Ch 18.
S E C v Chenery
Corp 318 US 80.

93 at

110.

191

J o i n t o p e r a t i n g agreements

applicable fiduciary duties that have previously been held to exist are listed in
section F below. T h e i m p o s i t i o n o f extra-contractual o b l i g a t i o n s , i t m a y be argued,
adds a n u n w e l c o m e set o f detailed a n d c o m p l i c a t e d arrangements. A JOA, the
a r g u m e n t continues, is agreed a m o n g sophisticated c o m m e r c i a l c o m p a n i e s and is
designed t o encourage o n e o f t h e parties t o v o l u n t e e r t o be operator i n the
k n o w l e d g e t h a t i t w i l l be h e l d harmless u n d e r the terms o f t h e JOA. Equity's extrac o n t r a c t u a l p r o t e c t i o n s of the v u l n e r a b l e are unnecessary a n d c a n have the effect of
removing

the hold

harmless

protections

given

t o t h e operator.

Onerous

consequences m a y i n c l u d e t h e i m p o s i t i o n o f a level o f c o m p e n s a t i o n based on a


r e q u i r e m e n t f o r t h e f i d u c i a r y t o a c c o u n t for p r o f i t m a d e (rather t h a n t h e typical
c o n t r a c t u a l p o s i t i o n of damages suffered).

2.2.18 Fiduciary duties also create uncertainty. This is an area of law in which even judges
are w i l l i n g t o a d m i t a lack o f clarity. For example, a person "may be i n a fiduciary
7

p o s i t i o n q u o a d a part of his activities a n d n o t q u o a d o t h e r parts". ' For a n analysis of


JOAs t h i s statement of l a w may, however, assist. T h e a b i l i t y t o act simultaneously in
b o t h f i d u c i a r y a n d n o n - f i d u c i a r y capacities is useful: a n operator m a y be i n a
f i d u c i a r y p o s i t i o n as operator, b u t n o t as a p a r t y t o the JOA. I t w o u l d create an unc o m m e r c i a l o u t c o m e i f the operator, i n its capacity as a JOA party, c o u l d n o t put
aside its f i d u c i a r y responsibilities.

2.2.19 Furthermore, deciding when an operator has breached fiduciary or contractual


o b l i g a t i o n s creates f u r t h e r d i f f i c u l t i e s . The expression 'fiduciary d u t y ' is l i m i t e d to
breaches w h i c h attract legal consequences d i f f e r e n t f r o m those arising f r o m breach
of o t h e r duties. Per M i l l e t t LJ:
Unless

the expression

is so limited

obvious

that not every breach

endorse

the observations

361,

ofSouthin

in practical

utility. In this sense it is

is a breach

of fiduciary duty. I would

J in Girardet v Crease & Co (1987)

11 B C L R

(2d)

362:

'The word

"fiduciary"

is flung

around

solicitors, directors of companies

... Breach

to all breaches

...by entering

into a contract

... a n d so forth is clear. B u t to say that simple

in such a breach

incompetence

n o w as if it applied

a n d so forth. ... T h a t a lawyer

of the special duty [of a fiduciary]


full disclosure
advice

it is lacking

of duty by a fiduciary

of fiduciary
is not

is a perversion
obligation,

of

of duty by

can c o m m i t a breach
with the client
carelessness

without

in giving

words.'

therefore,

connotes

disloyalty

or infidelity.

Mere

enough."

2.2.20 It has been held, therefore, that a director's duty to exercise care and skill is not
related t o a n y p o s i t i o n o f disadvantage o r v u l n e r a b i l i t y o f the c o m p a n y . I t is not,
therefore, a d u t y t h a t stems f r o m the r e q u i r e m e n t s of trust a n d c o n f i d e n c e imposed
on a fiduciary. Despite directors o w i n g f i d u c i a r y duties t o t h e i r companies, the d u t y

73
74

New Zealand Netherlands Society Oranje Inc v Kuys |1973| 2 A l l ER 1222 at 1225.
Also see La Forest J i n Lac Minerals Limited V International Corona Resources Ltd o n this p o i n t at pages 221
and

192

222.

Marc Hammerson

o f skill a n d care is n o t considered t o be a f i d u c i a r y duty.

75

U s i n g the same analogy,

even i f a n operator is d e e m e d t o be a fiduciary, i t is u n l i k e l y t h a t its failure t o c o n d u c t


p e t r o l e u m operations t o a c e r t a i n standard, o b t a i n applicable consent a n d licences,
prepare w o r k p r o g r a m m e s a n d budgets, f o l l o w g o o d a n d p r u d e n t o i l f i e l d practice,
prepare reports a n d s i m i l a r o p e r a t i o n a l matters w i l l , b y itself, be a breach of f i d u c i a r y
o b l i g a t i o n s . JOAs p r o v i d e f o r a h i g h standard o f m i s c o n d u c t before the operator is
liable f o r such matters. I t is suggested t h a t these categories of a c t i o n o r i n a c t i o n fall
within

a category o f 'mere incompetence'. N o t w i t h s t a n d i n g

that

a fiduciary

r e l a t i o n s h i p exists, a n y breach w o u l d call for contractual, rather t h a n fiduciary,


remedies. S o m e t h i n g m o r e f u n d a m e n t a l - d i s l o y a l t y or i n f i d e l i t y - m u s t be present
t o impose f i d u c i a r y duties. There is s u f f i c i e n t scope w i t h i n a JOA f o r a n operator t o
act d i s l o y a l l y or u n f a i t h f u l l y . However, i t is s u b m i t t e d t h a t i n a d e q u a t e l y p e r f o r m i n g ,
or o m i t t i n g t o carry out, everyday o b l i g a t i o n s w i l l attract c o n t r a c t u a l remedies only.

2.2.21 There are further complexities in establishing an operator's extra-contractual


obligations. N o t a l l fiduciaries are u n d e r t h e same duties. W h e r e a c o n t r a c t exists
(and t h i s w i l l i n v a r i a b l y be the case for j o i n t p e t r o l e u m

operations):

76

That contractual and fiduciary relationships may co-exist between the same parties has
never been doubted. Indeed, the existence of a basic contractual relationship has in
many situations provided a foundation for the erection of a fiduciary relationship. In
these situations it is the contractual foundation which is all important because it is the
contract that regulates the basic rights and liabilities of the parties. The fiduciary
relationship, if it is to exist at all, must accommodate
itself to the terms of the contract
so that it is consistent with, and conforms to, them. The fiduciary relationship cannot
be superimposed upon the contract in such a way as to alter the operation which the
contract was intended to have according to its true construction."
2.2.22 Since fiduciary duties are moulded to fit the terms of the relevant contract, it is
i m p o s s i b l e t o say t h a t a l l fiduciaries are u n d e r the same duties t o t h e i r beneficiaries.
As w i t h a l l contracts, applicable terms w i l l be b o t h express a n d i m p l i e d . By w a y o f
example, i f a n agent acts f o r m u l t i p l e clients, t h e courts m a y d e t e r m i n e t h a t t h e
p r i n c i p a l h a d actual o r i m p l i e d k n o w l e d g e o f t h i s fact. There c o u l d be n o i m p l i e d
t e r m t h a t the agent was o b l i g e d t o share c o n f i d e n t i a l i n f o r m a t i o n o b t a i n e d b y a c t i n g
for a n o t h e r p r i n c i p a l . T h e d u t y o f l o y a l t y w o u l d n o t e x t e n d t h a t far. However, i n
o t h e r circumstances w h e r e t h i s c o u l d n o t be i m p l i e d , a n agent m a y be obliged t o
pass o n o r use i n f o r m a t i o n w h i c h i t has o b t a i n e d i n d e p e n d e n t l y .

75

Permanent Building Society v Wheeler (1994) 14 ACSR 109, 157 quoted w i t h approval by M i l l e t t LJ in Bristol

76

& West Building Society v Mothew.


N o t least because o f t h e requirement for model clause 40(5) that these arrangements are approved.
However, fiduciary duties w i l l be created even before t h e appropriate agreement is entered i n t o (see
Gibbs CJ at (page 206) i f parties are negotiating for an agreement which, w h e n executed, w i l l be
considered a fiduciary relationship, 'therefore, an operator w i l l be under the same fiduciary duties at least
f r o m the date of the award of the licence (and possibly even f r o m the date of the agreement of a joint

77

b i d d i n g agreement).
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, 97 per Mason J, quoted w i t h
approval by Lord Browne-Wilkinson i n Kelly v Cooper (1993] AC 205.

193

J o i n t o p e r a t i n g agreements

2.2.23 Similarly, in the context of a JOA, the scope of fiduciary duties may depend on the
terms o f t h e agreement. We

have seen t h a t JOAs vary, t y p i c a l l y d e p e n d i n g o n the

t e c h n i c a l d i f f i c u l t i e s o f t h e project, i n t h e a m o u n t o f d i s c r e t i o n t h a t t h e operator is
granted. W h e n t h i s d i s c r e t i o n is wide, e q u i t y w i l l o c c u p y t h e gap a n d p r o t e c t nonoperators by i m p o s i n g
contemplates

f i d u c i a r y duties. However, i n circumstances

where a

JOA

t h a t each p a r t y exercises its p a r t i c i p a t i n g interest share of influence

over a d e c i s i o n ( t h e p o i n t can be m a d e e v e n m o r e s t r o n g l y i f t h e JOA

parties have

n e g o t i a t e d a passmark w h i c h allows real c o n t r o l ) , t h e n i t is suggested that an


automatic assumption of comprehensive fiduciary duties may

be mistaken. Some

e x a m p l e s are p r o v i d e d below.

JOA
(a) carve-out 1: votes at OpCom
2.2.24 For t h e reasons g i v e n above at p a r a g r a p h 2.1.13 ( i n r e l a t i o n t o non-operators), it is
suggested t h a t t h e exercise o f v o t i n g p o w e r is an

issue i n relation t o which,

a n a l o g o u s t o shareholders, n o f i d u c i a r y duties w i l l be imposed.

(b) JOA carve-out 2: OpCom-approved matters


2.2.25 The f o r e g o i n g c o m m e n t m a y

a p p l y t o issues such as a p p r o v i n g t h e w o r k programme,

e n t e r i n g i n t o c o n t r a c t s w i t h t h i r d parties a n d s e t t l i n g or e n t e r i n g i n t o l i t i g a t i o n w i t h
t h i r d parties. I n these cases, t h e JOA

p r o v i d e s a g o v e r n a n c e m e c h a n i s m t o decide

such issues. I t is u n l i k e l y t h a t t h e i m p l e m e n t a t i o n o f t h e d e c i s i o n itself (provided


t h a t i t is d o n e so p r o p e r l y ) imposes a f i d u c i a r y d u t y o n t h e operator. I n relation to a
d e c i s i o n t o take a c t i o n w h i c h is p u t t o an O p C o m vote, i t is suggested t h a t the courts
will

be

guided

by

t h e g o v e r n a n c e procedures c o n t a i n e d

i n t h e JOA

and

the

i n s t r u c t i o n t h a t t h i s produces f o r t h e o p e r a t o r t o f o l l o w . I n these circumstances, the


operator may

be v i e w e d as b e i n g i n a role s i m i l a r t o an ' i n t r o d u c i n g agent', w i t h no

d i s c r e t i o n over w h a t c o n t r a c t s are entered i n t o or w h a t p r o p e r t y is sold. However,


e v e n i n such a s i t u a t i o n t h e r e l a t i o n s h i p b e t w e e n t h e parties gives rise to an
u n d e r t a k i n g t o act i n t h e best interests o f t h e beneficiaries a n d a c o u r t w o u l d impose
f i d u c i a r y d u t i e s (albeit t o a lesser e x t e n t ) .

78

(c) JOA carve-out 3: inherent conflicts of interest


2.2.26 I n a d d i t i o n t o these circumstances, w h e r e i t may

be argued t h a t t h e operator has

l i t t l e a b i l i t y t o exert i n f l u e n c e over t h e affairs o f t h e non-operators, t h e JOA

will

i n c l u d e areas where, i n certain circumstances, t h e interests o f t h e o p e r a t o r and

non-

operators m a y

be i n h e r e n t l y mis-aligned. Examples i n c l u d e t h e f o l l o w i n g :

If, n o t w i t h s t a n d i n g its n o n - p a r t i c i p a t i o n , an o p e r a t o r is r e q u i r e d t o operate a


n o n - c o n s e n t or sole risk project, t h e n t h i s is a s i t u a t i o n i n w h i c h parties'
interests may

be a l l o w e d t o differ.

W h e r e some, b u t n o t a l l , o f t h e JOA

parties h a v e an e q u i t y interest i n a

p i p e l i n e t a k i n g d e l i v e r y o f o i l or gas, a c o n f l i c t m a y
operator's interests i n t h e p i p e l i n e a n d its d u t i e s as JOA

78

194

An

operator m a y

arise b e t w e e n the
operator.

be a l l o w e d t o enter i n t o agreements w i t h its affiliates or

See Bowsteml & Reynolds on Agency, paragraph 6-034 (19th ed).

Marc Hammerson

enter i n t o global agreements r e l a t i n g t o d i f f e r e n t fields ( i n w h i c h a n o n operator m a y

n o t have a p a r t i c i p a t i n g interest). Non-operator

concerns

r e l a t i n g t o affiliate a n d federal contracts, a n d t h e c o n f l i c t w i t h t h e operator


t h a t these c a n create, are m o r e f u l l y discussed elsewhere."

2.2.27 Each is an issue which is typically provided for in the JOA. As a consequence, courts
w i l l be r e l u c t a n t t o interfere w i t h c o n t r a c t u a l m e c h a n i s m s b y i m p o s i n g f i d u c i a r y
standards. These are areas w h e r e t h e parties recognise t h a t t h e i r interests m a y be
dissimilar and, w h e r e i t is feasible, t h e y p r o v i d e a c o n t r a c t u a l m e c h a n i s m t o address
this. I n these cases i t m a y be argued that, because of t h e terms o f t h e JOA, f i d u c i a r y
duties t o a v o i d c o n f l i c t s o f interest o r self-dealing d o n o t e x t e n d t o these subject
matters. A l t e r n a t i v e l y , there m a y be a n a r g u m e n t t h a t i n f o r m e d consent t o t h e
c o n f l i c t has been g i v e n b y non-operators.

E. Establishment of fiduciary relationship - analysis of the JOA


2.2.28 H a v i n g carved o u t those areas w h e r e t h e c o n t r a c t i m p l i e d l y c o n t e m p l a t e s t h a t a n
operator w i l l act i n accordance w i t h c o n t r a c t u a l , rather t h a n fiduciary, o b l i g a t i o n s ,
we r e t u r n t o t h e central q u e s t i o n : is t h e r e l a t i o n s h i p b e t w e e n operator a n d n o n operators capable o f b e i n g classified as a n ad hoc category o f r e l a t i o n s h i p based o n
trust a n d confidence? Part B o f t h i s chapter cites cases w h e r e j o i n t venturers have
been h e l d t o owe f i d u c i a r y duties t o each other. This, i t is s u b m i t t e d , is a t y p i c a l a l t h o u g h n o t universal - rule. I n t h e c o n t e x t o f a s h i p p i n g j o i n t venture,*" w h e r e a
party's e x i s t i n g business ( i n c o m p e t i t i o n w i t h a j o i n t v e n t u r e ) was k n o w n o f a n d
accepted, i t was h e l d t h a t a p a r t y was p e r m i t t e d t o c o m p e t e against t h e j o i n t v e n t u r e
a n d that, i n those g e o g r a p h i c a l parameters, n o f i d u c i a r y duties c o u l d be i m p l i e d t o
p r e v e n t c o m p e t i t i o n . T h e case is m e n t i o n e d

as a w a r n i n g

about

making any

u n i v e r s a l a s s u m p t i o n s about t h e f i d u c i a r y r e l a t i o n s h i p b e t w e e n operator a n d n o n operators. Since t h e issue has n o t been decided u n d e r English law, t h e r e l a t i o n s h i p
created b y a JOA w i l l fall u n d e r t h e category o f o n e t h a t t h e courts w i l l consider o n
an ad hoc basis t o see whether, o n t h e basis o f t h e i r particular terms, a r e l a t i o n s h i p
of trust a n d c o n f i d e n c e exists. JOAs are n o t w i t h i n a recognised category w h e r e a
f i d u c i a r y r e l a t i o n s h i p c a n be assumed. I n o t h e r c o u n t r i e s (as s h o w n i n t h e split
decision i n Chimside v Fay), case l a w is closer t o p r o v i d i n g a u t o m a t i c r e c o g n i t i o n t o
j o i n t ventures (and, b y e x t e n s i o n , t o JOAs, b e i n g a subset o f j o i n t ventures) as b e i n g
r e l a t i o n s h i p s w h i c h are i n h e r e n t l y fiduciary.

2.2.29 Because of this lack of automaticity, before analysing whether a JOA is a type of
c o n t r a c t g i v i n g rise t o a r e l a t i o n s h i p o f trust a n d c o n f i d e n c e a n d therefore o n e
capable o f b e i n g fiduciary, i t is w o r t h r e p e a t i n g t h a t n o t a l l JOAs give rise t o t h e same
level o f trust a n d c o n f i d e n c e . A l t h o u g h a n a s s u m p t i o n c a n be made t h a t a degree o f
r e s p o n s i b i l i t y is delegated t o t h e operator, there m a y be circumstances w h e r e a
s i g n i f i c a n t a m o u n t o f c o n t r o l rests w i t h

79
80

the OpCom

a n d non-operators. T h e

JOAs: A Practical Guide, sections 8.5 and 8.6.


Global Container Liners Ltd v Bonyad Shipping Co [1998] 1 L1L Rep 528.

195

Joint operating agreements

paragraphs below make a number of assumptions about the terms of a JOA. However,
e a c h d o c u m e n t needs t o be a n a l y s e d i n d i v i d u a l l y (as w e l l as its i m p l e m e n t a t i o n by
t h e parties) i n o r d e r t o d e t e r m i n e w h e t h e r a f i d u c i a r y r e l a t i o n s h i p is created.

2.2.30 Whatever the balance of the power sharing between operators and non-operators,
t h e r e are t w o s u b j e c t areas o f a J O A w h e r e , i t is suggested, i t is d i f f i c u l t t o see h o w
f i d u c i a r y d u t i e s ( h o w e v e r n a r r o w i n scope) c a n be a v o i d e d :

A g e n c y - t h e o p e r a t o r executes c o n t r a c t s o n b e h a l f o f t h e n o n - o p e r a t o r s . The
r e l a t i o n s h i p b e t w e e n a g e n t a n d p r i n c i p a l is a l o n g - e s t a b l i s h e d category of
f i d u c i a r y . T h e e x t e n t t o w h i c h a n o p e r a t o r is able t o e n t e r i n t o c o n t r a c t s o n
b e h a l f o f o t h e r parties, a n d w i t h o u t O p C o m a p p r o v a l , d e p e n d s o n t h e terms
of t h e JOA. H o w e v e r , e v e n i n a J O A f a v o u r a b l e t o n o n - o p e r a t o r s , t h e r e is still
l i k e l y t o be s u f f i c i e n t o p e r a t o r d i s c r e t i o n t o a l l o w a c o n c l u s i o n t h a t fiduciary
d u t i e s exist i n s o m e c i r c u m s t a n c e s . First, a n AFE p u t b e f o r e a n O p C o m vote
is u n l i k e l y t o a t t a c h a f i n a l d r a f t c o n t r a c t . I t is l i k e l y t o b e m o r e general i n
n a t u r e - a n d t h e r e f o r e a l l o w t h e o p e r a t o r t o c o n c l u d e a c o n t r a c t w i t h i n the
a u t h o r i t y g i v e n . F i n a l i s i n g c o n t r a c t u a l d e t a i l s w i l l i n v o l v e t h e o p e r a t o r using
its p o w e r s o f a g e n c y a n d t h e r e b y

altering non-operators'

legal p o s i t i o n

w i t h o u t t h e r e q u i r e m e n t o f r e c o n f i r m a t i o n . O n c e a c o n t r a c t has been signed,


t h e o p e r a t o r w i l l also n e e d t o a d m i n i s t e r i t , as agent, o n b e h a l f o f t h e nonoperators.
I n a d d i t i o n , t h e r e is n o basis i n l a w f o r a s s e r t i n g t h a t just because a
p r i n c i p a l consents to a transaction, this obviates the fiduciary relationship in
its e n t i r e t y (as o p p o s e d t o l i m i t i n g t h e scope o f f i d u c i a r y d u t i e s t h a t may
arise). A n agent's f i d u c i a r y d u t i e s t o its p r i n c i p a l i n c l u d e t h e r e q u i r e m e n t to
be c o n c e r n e d f o r t h e i n t e r e s t s o f its p r i n c i p a l , a v o i d c o n f l i c t s o f interest, keep
a c c o u n t s , n o t t a k e c o m m i s s i o n s etc. These d o n o t f a l l a w a y m e r e l y because
the non-operators approve a transaction.
Lastly, i n c e r t a i n c i r c u m s t a n c e s t h e J O A is l i k e l y t o p r o v i d e t h e operator
w i t h s o m e a m o u n t o f d i s c r e t i o n (eg, i n a n e m e r g e n c y ) t o act w i t h o u t nono p e r a t o r s ' p r i o r a p p r o v a l . T h e exercise o f t h i s u n c h e c k e d p o w e r is i n the
n a t u r e o f a n agency.

J o i n t p r o p e r t y - as a n u n i n c o r p o r a t e d v e h i c l e , a J O A is i n c a p a b l e o f o w n i n g
its o w n p r o p e r t y . O w n e r s h i p
personality

c a n be a c h i e v e d

o f o n e o f t h e parties,

normally

only

through

t h e legal

t h e operator.

I n such

c i r c u m s t a n c e s t h e c o n c l u s i o n t h a t t h e o p e r a t o r h o l d s p r o p e r t y i n its capacity
as

a trustee, a n d t h a t

a fiduciary

relationship

is t h e r e b y

f o r m e d , is

inescapable.

F. What duties are imposed on a fiduciary? '


2.2.31 W h e r e a f i d u c i a r y r e l a t i o n s h i p is f o u n d b e t w e e n o p e r a t o r a n d n o n - o p e r a t o r ,

what

d u t i e s w i l l be i m p o s e d ? T h e f o l l o w i n g is a n o f t e n - q u o t e d j u d i c i a l passage b y C a r d o z o

81

Generally o n t h i s subject, see F i n n P, "Fiduciary o b l i g a t i o n s o f operators a n d co-venturers i n natural


resources j o i n t ventures", AMPLA

196

Yearbook (1984).

Marc H a m m e r s o n

J, t h e A m e r i c a n judge a n d jurist, a b o u t t h e e x t e n t of a fiduciary's duties:


Joint adventurers,

like co-partners, owe to one another, while the enterprise

the duty of the finest loyalty. Many

forms

of conduct

for those acting at arm's length, are forbidden


is held to something

stricter than the morals

the punctilio of an honor


there has developed

to those bound
of the market

a tradition that is unbending

loyalty by the "disintegrating

Fischer, 243 NY 439, 444). Only

any judgment

place. Not honesty

world

alone, but

of behavior. As to this

and inveterate.

Uncompromising

petitioned to undermine

erosion" of particular exceptions

thus has the level of conduct

at a level higher than that trodden

continues,

in a workaday

by fiduciary ties. A trustee

the most sensitive, is then the standard

rigidity has been the attitude of courts of equity when


of undivided

permissible

the rule
(Wendt v

for fiduciaries been

by the crowd. It will not consciously

kept

be lowered by

112

of this court.

2.2.32 Likewise, in English courts it has been held that that the overriding duty of a
f i d u c i a r y is s i n g l e - m i n d e d loyalty. T h i s c a r d i n a l p r i n c i p l e can be b r o k e n d o w n i n t o a
n u m b e r of separate duties. Those relevant t o JOAs are listed below.

(a) Duty of confidence


2.2.33 This d u t y applies i n relation t o i n f o r m a t i o n exchanged b y JOA parties even before the
JOA has been executed - p r o v i d e d that i t is clear that the i n f o r m a t i o n is being disclosed
i n c o n t e m p l a t i o n o f e n t e r i n g i n t o a j o i n t venture. Insofar as i t relates t o c o n f i d e n t i a l
i n f o r m a t i o n passed b y a non-operator t o a n operator, i t m a y apply t o JOA parties
generally (and n o t just a d u t y of a n operator i n favour of non-operators). This d u t y is
particularly relevant i n projects where there is a n asymmetrical a m o u n t of proprietary
information

(eg, seismic

studies)

being

passed

by one party

t o another.

N o t w i t h s t a n d i n g t h e a p p l i c a t i o n o f f i d u c i a r y duties i n this area, i f appropriate, i t is


p r u d e n t f o r c o m m e r c i a l parties t o enter i n t o c o n f i d e n t i a l i t y agreements prior t o t h e
exchange of valuable i n f o r m a t i o n . La Forest J i n Lac v Corona"

specifically stated that

a court s h o u l d n o t d e n y t h e existence o f a fiduciary o b l i g a t i o n s i m p l y because t h e


parties c o u l d have regulated the breach of confidence b y a c o n f i d e n t i a l i t y agreement.

(b) Duty to avoid conflicts of interest


2.2.34 W h e r e a f i d u c i a r y r e l a t i o n s h i p is h e l d t o exist, t h e duties i m p o s e d w i l l i n c l u d e a d u t y
o n t h e operator t o a v o i d b o t h actual a n d p o t e n t i a l c o n f l i c t s o f interest unless there
is i n f o r m e d consent. Therefore, i f t h e operator has a n y f i n a n c i a l interest (outside o f
its p a r t i c i p a t i n g interest i n t h e JOA), i t s h o u l d o b t a i n t h e non-operators' consent
p r i o r t o a c t i n g i n s i t u a t i o n s w h i c h are, or m a y become, i n c o n f l i c t w i t h t h e d u t y o f
l o y a l t y t h a t t h e operator owes t o non-operators.

2.2.35 Furthermore, where the interests of two non-operators conflict with each other, the
o p e r a t o r ( a l t h o u g h w i t h n o interest itself i n t h e m a t t e r ) m u s t desist f r o m acting. A n
o p e r a t o r o f a n o n - c o n s e n t o r sole risk project ( i n w h i c h t h e operator h o l d s n o

82

Meinhard v Salmon (1928) 249 NY 458 (Court of Appeals of New York).

83

See page 229.

197

Joint operating agreements

i n t e r e s t ) s h o u l d n o t i n v o l v e itself i n a d i s p u t e b e t w e e n t w o n o n - o p e r a t o r s .

Without

t h e i r i n f o r m e d c o n s e n t , t h e o p e r a t o r m u s t serve b o t h w i t h e q u a l l o y a l t y .

(c) Duty not to profit from position


2.2.36 T h e o p e r a t o r m u s t n o t p r o f i t at t h e expense o f n o n - o p e r a t o r s . T h i s is t h e w e l l - k n o w n
r u l e i n Keech v Sandford.*' T h i s d u t y was m o r e r e c e n t l y e l a b o r a t e d u p o n i n t h e House
of L o r d s i n Regal (Hastings) Ltd v Gulliver," w h e r e L o r d Russell stated:

The rule of equity which insists on those, who by the use of a fiduciary position ma

a profit, being liable to account for that profit, in no way depends on fraud, or t
absence o f b o n a fides; or upon such questions or considerations as whether the profit

would or should otherwise have gone to the plaintiff, or whether the profiteer was unde
a duty to obtain the source of the profit for the plaintiff, or whether he took a risk

acted as he did for the benefit of the plaintiff, or whether the plaintiff has in fact bee
damaged

or benefited by his action. The liability arises from the mere fact of a pro

having, in the stated circumstances, been made. The profiteer, however honest and wel
intentioned, cannot escape the risk of being called upon to account.

2.2.37 We have seen several times that the operator acts on a no gain, no loss principle. If
t h e operator makes a p r o f i t or gains f r o m

i t s p o s i t i o n as operator, t h i s could

c o n s t i t u t e a b r e a c h o f its d u t y n o t t o p r o f i t f r o m its p o s i t i o n .

(d) Duty of fair dealing


2.2.38 I f t h e o p e r a t o r enters i n t o a n a g r e e m e n t w i t h a n a f f i l i a t e ( w i t h o u t t h e consent of the
O p C o m o r p r i o r a p p r o v a l i n t h e J O A ) o r sells t h e JOA's j o i n t p r o p e r t y t o itself or an
a f f i l i a t e , t h e n t h i s c o u l d be i n b r e a c h o f i t s d u t y t o a v o i d self-dealing. I n such
circumstances

non-operators

m a y be e n t i t l e d t o r e q u i r e t h e o p e r a t o r t o account for

profits. Even i n circumstances

w h e r e a n operator, w i t h p e r m i s s i o n

o f t h e non-

o p e r a t o r s , enters i n t o a n a g r e e m e n t w i t h a n a f f i l i a t e , i t is s u b m i t t e d t h a t pre-contract
disclosure made t o non-operators

needs t o m e e t m o r e s t r i n g e n t standards

than

n o r m a l contractual principles.

2.2.39 As well as a duty to avoid self-dealing, this branch of fiduciary duty also contains a
p r i n c i p l e o f fair d e a l i n g . I f t h e o p e r a t o r purchases a non-operator's
i n t e r e s t s o r vice versa (eg, e x e r c i s i n g a p r e - e m p t i o n ) i n c i r c u m s t a n c e s

participating
w h e r e the

o p e r a t o r was i n possession o f i n f o r m a t i o n i n its c a p a c i t y as o p e r a t o r ( n o t available to


t h e n o n - o p e r a t o r ) , a n d h a d t h e n o n - o p e r a t o r b e e n i n possession o f s u c h i n f o r m a t i o n
i t w o u l d h a v e i n f l u e n c e d t h e p u r c h a s e p r i c e o r t h e d e c i s i o n t o t r a n s a c t , t h e n the
o p e r a t o r m a y be i n b r e a c h o f a d u t y o f fair d e a l i n g . A n y s u c h t r a n s a c t i o n w i l l be
v o i d a b l e unless f u l l a n d p r o p e r d i s c l o s u r e is m a d e b y t h e o p e r a t o r o f a l l matters
w i t h i n its k n o w l e d g e .

84
85

198

(1726) 25 ER 23.
[19421 1 All ER 378 at p 386.

Marc Hammerson

(e) Duty not to misuse trust property


2.2.40 T h e JOA's j o i n t p r o p e r t y c a n n o t be used b y the operator for activities outside t h e
scope of the JOA. For these purposes, the concept of p r o p e r t y extends t o c o n f i d e n t i a l
i n f o r m a t i o n acquired d u r i n g the course of j o i n t operations.

(f) Duty not to make a secret profit


2.2.41 T h e operator m a y n o t make a secret p r o f i t o u t o f the p e r f o r m a n c e o f its duties as
agent. I t is o b l i g e d t o a c c o u n t t o non-operators for a n y secret p r o f i t s m a d e - w h e t h e r
or n o t non-operators have suffered

damage. A secret p r o f i t c a n be a n y f i n a n c i a l

advantage t h a t accrues as a result o f the operator's exercise o f a u t h o r i t y . T h e C o u r t


of Appeal recently h e l d t h a t i t was better t o ask w h e t h e r the agent is faced w i t h a
c o n f l i c t o f interest, rather t h a n w h e t h e r there is a secret p r o f i t . I t is the c o n f l i c t o f
interest t h a t o u g h t t o b r i n g the agent's conscience i n t o play.*

G. Non-operator duties
2.2.42 T h e q u e s t i o n of w h e t h e r f i d u c i a r y duties exist a m o n g JOA parties ( i n t h e i r capacity
as non-operators or, i n the case of the operator, i n its capacity m e r e l y as a party), a n d
n o t just b e t w e e n operator a n d non-operators, is f u r t h e r d e v e l o p e d i n j u r i s d i c t i o n s
outside the U n i t e d K i n g d o m . I t is clear l a w t h a t shareholders d o n o t o w e f i d u c i a r y
duties t o a JVCo.

87

O n t h e o t h e r h a n d , i t is e q u a l l y clear l a w t h a t partners o w e

f i d u c i a r y duties t o each o t h e r

88

- t h e f i d u c i a r y duties are n o t m e r e l y o w e d b y

m a n a g e m e n t t o partners. A p a r t n e r s h i p m a y be considered similar t o a j o i n t v e n t u r e


even i f (as n o t e d above) p r o b a b l y n o t f a l l i n g w i t h i n the m o d e r n usage of t h a t term.
The

decision i n United

D o m i n i o n s Corporation

v Brian

Pty indicates

that fiduciary

duties exist b e t w e e n j o i n t v e n t u r e parties. D a w s o n J stated:


Although

the relationship

partnership

will be governed

law, the relationship


reposed

between

participants

by the particular

m a y nevertheless

by the participants

in one

in a joint venture

contract

be a fiduciary

which

is not a

rather then extrinsic principles of


one if the necessary

confidence

is

another.

2.2.43 However, since it was held in that case (despite the joint venture label that the parties
chose t o describe t h e i r agreement) t h a t the agreement was a p a r t n e r s h i p , t h i s remark
m u s t be treated as obiter. F u r t h e r m o r e , t h a t case was n o t decided i n the c o n t e x t of a
dispute i n t h e o i l a n d gas (or even n a t u r a l resources) industry. I n Lac v Corona,

a case

t h a t was decided i n t h e n a t u r a l resources i n d u s t r y but n o t i n the c o n t e x t of o n e party


8

a c t i n g as operator, t h e c o u r t (Sopinka, Lamer a n d W i l s o n JJ *) f o u n d t h a t i n t h e


circumstances o f the case a f i d u c i a r y r e l a t i o n s h i p b e t w e e n j o i n t v e n t u r e parties d i d
n o t exist. However, t h e s t r o n g o p i n i o n o f La Forest J t h a t a f i d u c i a r y r e l a t i o n s h i p

86
87
88

tmageview Management Ltd v lack {The Times, February 13 2009).


North-West Transportation Co Ltd v Beatty (1887) 12 AppCas 589.
These have, i n part, been codified i n the Partnership Act 1890, Section 28 (duty t o render accounts),
Section 29 (duty to account for profit) a n d Section 30 (duty not to compete). For some modern cases o n
a partner's fiduciary duties, see Don King Promotions Inc v Warren (No 1) [2000] C h 291, John Taylors (a
firm) v Masons [2001] EWCA C i v 2106 (in w h i c h a partner's fiduciary duties were held to be similar t o

89

the fiduciary duties of a c o m p a n y director) and Cobbetts LLP v Hodge [2009[ EWHC 786.
A l t h o u g h Wilson J held that a fiduciary d u t y d i d arise as a result of the breach of confidence.

199

Joint operating agreements

arose due to confidential information passing between the parties (while expressly
r e j e c t i n g t h e g r o u n d s t h a t a f i d u c i a r y r e l a t i o n s h i p arose because t h e parties were
n e g o t i a t i n g a c o n t r a c t f o r t h e d e v e l o p m e n t o f a m i n e a n d t h e v u l n e r a b i l i t y o f one
p a r t y t o t h e o t h e r party's misuse o f t h a t i n f o r m a t i o n ) i n d i c a t e s t h a t t h e o u t c o m e of
t h i s case t u r n e d o n its facts. N o n e o f t h e j u d g m e n t s c a n b e read as a b l a n k e t rule that
a f i d u c i a r y r e l a t i o n s h i p c a n n o t arise w i t h i n a j o i n t v e n t u r e . I n fact, despite the
outcome,

each

circumstances,

judgment

c a n be

read

as c o n f i r m a t i o n

that,

i n t h e right

f i d u c i a r y d u t i e s c a n arise b e t w e e n j o i n t v e n t u r e r s - a l t h o u g h m u c h

w i l l depend o n the nature of the relationship.

H. Boundaries of fiduciary duties


2.2.44 T h e scope o f t h e f i d u c i a r y d u t i e s is l i m i t e d t o scope o f t h e j o i n t v e n t u r e ( i n the
c o n t e x t o f a JOA, t h e licence area) a n d i t w o u l d be u n n a t u r a l , as w e l l as commercially
i m p r a c t i c a l , t o i m p o s e d u t i e s o n t h e parties b e y o n d t h i s scope (or, i f t h e JOA
contemplates some f o r m

o f j o i n t t r a n s p o r t a t i o n system, b e y o n d t h e appropriate
m

d e l i v e r y p o i n t ) . T h i s is based o n t h e d e c i s i o n o f L i n d l e y LJ i n Ass v Benham,

where it

was h e l d t h a t , e v e n i f a partner's i n v o l v e m e n t i n a separate ( n o n - c o m p e t i n g ) business


was c o n t r a r y t o t h e t e r m s o f a p a r t n e r s h i p deed, i f t h e business d i d n o t compete w i t h
the partnership then

t h e r e was n o r e q u i r e m e n t t o a c c o u n t f o r p r o f i t s (even i f

i n f o r m a t i o n received as a p a r t n e r is used f o r t h e business). I n Birtchnell D i x o n J


similarly

stated t h a t " t h e subject-matter

over w h i c h

t h e f i d u c i a r y obligations"

e x t e n d e d m u s t be " d e t e r m i n e d b y t h e character o f t h e v e n t u r e o r u n d e r s t a n d i n g for


w h i c h t h e r e l a t i o n s h i p b e t w e e n t h e prospective j o i n t v e n t u r e r s existed"."

2.2.45 If a fiduciary relationship is found, a court may hold that the duties apply from the
t i m e t h a t t h e parties e m b a r k o n t h e enterprise. I n t h i s c o n t e x t , a l t h o u g h
d e p e n d s o n t h e circumstances,

much

t h e earliest p o i n t o f a f i d u c i a r y r e l a t i o n s h i p w i l l be

f r o m t h e t i m e t h a t t h e parties b e g i n r e l y i n g o n t h e a c t i o n s o f t h e o t h e r JOA parties.


T h i s m a y be b e f o r e o r after e n t e r i n g i n t o a j o i n t b i d d i n g agreement. T h e argument
t h a t t h e j o i n t b i d d i n g a g r e e m e n t c o n t a i n s f i d u c i a r y o b l i g a t i o n s w i l l be even stronger
i f t h e J O A takes t i m e t o c o n c l u d e a n d , b y d e f a u l t , t h e b i d d i n g agreement is the
parties' o n l y w r i t t e n c o n t r a c t . T h e latest p o i n t t h a t f i d u c i a r y d u t i e s m a y be created
w i l l be f r o m t h e t i m e t h a t t h e l i c e n c e is a w a r d e d t o t h e JOA parties. Provided that
t h e l i c e n c e a w a r d is successful, t h e d u t i e s w i l l c o n t i n u e d u r i n g t h e life o f t h e JOA.
JOAs c a n take s i g n i f i c a n t t i m e t o n e g o t i a t e a n d e x e c u t e a n d , p r o v i d e d

t h a t an

a g r e e m e n t is e v e n t u a l l y c o n c l u d e d , c o u r t s are u n l i k e l y t o h o l d t h a t t h e r e is a hiatus
i n f i d u c i a r y o b l i g a t i o n s p e n d i n g e x e c u t i o n . I n United Dominions Corporation Ltd v
92

Brian Pty Ltd

i t was stated t h a t :

Lt was submitted on behalf of UDC

90
91
92

that no fiduciary relationship existed and no

[1891] 2 C h 244.
(1929) 42 CLR at p 408.
Op. cit. Dawson J's speech at p 750 states t h a t this applies w h e t h e r t h e f i d u c i a r y duties are implied
because o f a j o i n t venture or a partnership. Therefore, t h e p o i n t applies t o j o i n t ventures despite the fact
t h a t t h e judges decided t h i s case o n t h e basis that, n o t w i t h s t a n d i n g t h e party-agreed
arrangement was a partnership.

200

label, the

Marc Hammerson

fiduciary
joint

duties arose between

venture

submission

agreement

the prospective

was actually

involves a general legal proposition

partners

or joint

executed,

it is clearly wrong. A fiduciary

venturers

exist between parties


the consensual
a fiduciary
exist

cannot

that the relationship

be a fiduciary

one until

relationship

that

between

a formal

agreement

can arise and fiduciary

with attendant
partners

or venture

fiduciary

fiduciary

than in the case where mutual

obligations

who have

embarked

before the precise

Indeed, in such circumstances,

most consensual

relationships

between

is

duties can

them. In

upon

particular,

may, and ordinarily


upon

the conduct

terms of any partnership

the mutual confidence

have been expressly

will,
of the

agreement

and trust

are likely to be more readily

rights and obligations

that

prospective

who have not reached, and who may never reach, agreement

prospective

business

have been settled.

some formal

in the joint venture until the

in July 1974. To the extent

terms which are to govern the arrangement

relationship

between

partnership

underlie

participants

executed

which
apparent

defined

in

agreement.''

2.3 Pre-emption rights


A. General
2.3.1

JOA parties in the United Kingdom have historically had two layers of protection at
an asset level to prevent an unwanted newcomer joining their venture by way of
licence interest transfer: by the requirement for their consent to permitted transfers*

and the exercise of rights of pre-emption or first refusal. Change of control


provisions, which trigger certain rights i n favour of other parties in the event of
corporate activity affecting one of the JOA parties, are less common (although
sometimes found) i n JOAs. Such change of control rights are, in contrast, always
available to the minister under model clause 41(3) of the licence.
2.3.2 JOAs typically include provisions stating that continuing parties must consent
(unanimously, not just by a passmark majority) to any new assignee of an existing
JOA party's interests. Often, the right to object will be qualified by a statement that
such consent is not to be unreasonably withheld, and there is a considerable body of
case law (mainly from landlord and tenant disputes) which provides examples of
where refusal of consent will be considered reasonable. In an oil and gas context,
financial means, technical competence and political considerations are likely to be
relevant factors (and in UK JOAs the first two are often expressly provided for). It is
possible that financial concerns may be alleviated by the provision (if available) of
credit support for the assignee's obligations. Permitted transfers to affiliates are
typically exempt from the requirements for approval by continuing parties. However,
in these circumstances the assignor may (notwithstanding the assignment) remain

93

For English judgments on the same point see: Fawcett v Whitehouse

94

Congreve (1828) 4 Russ 562; Bell v Lever Brothers Ltd [1932] A C 161 at p 227.
The term 'permitted transfer' often includes the concept that the transfer must be of an undivided

(1829) 1 Russ & M 132; Hitchens v

interest. This prohibits a party from creating and transferring any sub-set of JOA rights. It does not
prevent a transfer by a JOA party of less than its entire participating interest. This is normally permitted,
subject to a JOA party holding a minimum threshold requirement.

201

Joint o p e r a t i n g agreements

liable for its affiliate's non-performance of the JOA. The second method of avoiding
u n w a n t e d newcomers, w h i c h is discussed i n m o r e detail below, is t h e exercise o f rights
of p r e - e m p t i o n o r first refusal. T h e difference b e t w e e n t h e t w o is essentially one of
t i m i n g . Rights o f first refusal are triggered p r i o r t o a n y t h i r d - p a r t y sale process having
c o m m e n c e d . Pre-emption rights, o n t h e o t h e r h a n d , are exercisable o n c e a third-party
sale agreement has been e n t e r e d i n t o (subject t o a c l o s i n g c o n d i t i o n that the
c o n t i n u i n g JOA parties d o n o t exercise t h e i r p r e - e m p t i o n rights).

2.3.3 The oil and gas industry contains an inherent conflict between government and JOA
parties over t h e transfer o f interests i n p e t r o l e u m agreements.

G o v e r n m e n t is

interested i n m a x i m i s i n g p r o d u c t i o n . T h i s requires a level o f i n v e s t m e n t w h i c h an


e x i s t i n g licensee, u n a b l e t o transfer its interests, m a y be r e l u c t a n t t o make. Far better,
the

g o v e r n m e n t argues, t h a t t h e licence is h e l d b y a w i l l i n g licensee t h a n by one

t r a p p e d i n a p r o j e c t b y a n t i - a s s i g n m e n t p r o v i s i o n s . T h i s v i e w emphasises the role of


a JOA

as a c o n t r a c t a l l o c a t i n g p r o p e r t y r i g h t s - w h i c h

s h o u l d ( t o continue

government's p o s i t i o n ) be freely tradeable.

2.3.4 Oil companies may approach this issue with a different attitude. One view of a JOA
is, as we have seen, t h a t i t is ( f r o m a c o m m e r c i a l , a l t h o u g h n o t legal, analysis) i n the
n a t u r e o f a p a r t n e r s h i p . O n e o f t h e k e y features o f a p a r t n e r s h i p is t h e ability to
c o n t r o l association. JOA parties are r e q u i r e d t o live w i t h t h e consequences of allowing
a n e w c o m e r o n t o t h e licence. Being j o i n t l y a n d severally responsible f o r each other's
l i a b i l i t y , t h e y are u n d e r s t a n d a b l y c a u t i o u s a b o u t t h e i d e n t i t y o f n e w co-venturers.
T h i s i n c l u d e s j o i n t a n d several l i a b i l i t y u n d e r t h e licence a n d t h e risk t h a t one party's
d e f a u l t u n d e r t h e licence has t h e consequence o f m a t e r i a l l y i m p a c t i n g o n all parties.
As w i t h a n y j o i n t v e n t u r e - JOA o r o t h e r w i s e - t h e y feel a l e g i t i m a t e interest i n being
able t o p r e v e n t a proposed transfer. T h i s p o s i t i o n treats t h e JOA as a relational, rather
t h a n proprietary, contract. It is similar t o a p a r t n e r s h i p - o r even a marriage.

95

2.3.5 Rather than involve themselves with this policy issue, courts are concerned with
u p h o l d i n g t h e s a n c t i t y o f c o n t r a c t and, i n t h e o n e recorded case i n this area, have
s h o w n themselves

keen t o make

a pre-emption

clause work. I n Texas Eastern

Corporation (Delaware) v Enterprise Oil pic t h e C o u r t o f Appeal d e m o n s t r a t e d a tendency


to w a n t t o u p h o l d these p r o v i s i o n s . " Over t h e life o f t h e f i e l d , t h e ownership of
d i f f e r e n t sub-areas

d i v e r g e d f r o m t h e licence area as a w h o l e . This made the

i m p l e m e n t a t i o n o f p r e - e m p t i o n p r o v i s i o n s d i f f i c u l t t o operate. However, t h e court


was prepared t o u p h o l d t h e p r e - e m p t i o n p r o v i s i o n s largely b y r e - w r i t i n g their terms.

2.3.6 Like marriages, upstream oil and gas arrangements are generally consensual. DECC
plays a m a t c h - m a k i n g role (backed up, i f required, b y e m p o w e r i n g regulation) to
encourage u n i t i s a t i o n o f blocks w h i c h overlie a c o m m o n reservoir a n d third-party
access t o i n f r a s t r u c t u r e . B u t these are exceptions. A JOA, at least at its i n c e p t i o n , is

95
96

202

The often-quoted analogy used i n Upstream Oil and Gas Agreements, chapter 2.
Unreported. See pages 231 t o 234.

Marc Hammerson

v o l u n t a r y i n terms o f choice o f association. C o n t i n u i n g the c o n j u g a l analogy, pree m p t i o n r i g h t s p r e v e n t a n i n v o l u n t a r y divorce f o l l o w e d b y a s h o t g u n w e d d i n g . I t


gives the parties t h e r i g h t (but n o t the o b l i g a t i o n ) t o t r u m p a sale to a t h i r d p a r t y n o t
t o t h e i r l i k i n g . T h e concerns m a y be t h a t the n e w c o m e r lacks the necessary f i n a n c i a l
means o r ( p a r t i c u l a r l y i f there is a l i k e l i h o o d t h a t the o p e r a t o r s h i p w i l l also transfer)
t e c h n i c a l skills t o execute the w o r k p r o g r a m m e . Anxieties w i l l be accentuated b y its
p o t e n t i a l a s s u m p t i o n (because of its j o i n t a n d several l i a b i l i t y u n d e r the licence) o f
the transferee's

obligations.

2.3.7 Absent of government and industry-wide efforts in this area, the precise rights of pree m p t i o n w i l l d e p e n d o n the terms agreed b y the f o u n d i n g JOA parties. Typically, the
JOA requires

either a n executed a c q u i s i t i o n agreement ( i f signed, subject t o a

c o n d i t i o n precedent t h a t n o JOA p a r t y exercises its r i g h t o f p r e - e m p t i o n w i t h i n a


specified p e r i o d

o f t i m e ) o r p a r t i a l l y agreed c o m m e r c i a l terms. Either way, t h e

prospective b u y e r m a y be left s t a n d i n g at the altar w o n d e r i n g w h e t h e r t h e marriage


w i l l be called off. If p r e - e m p t i o n rights are exercised t h e n the pre-empted a c q u i s i t i o n
7

process is a n e c o n o m i c a l l y wasteful exercise for the pre-empted buyer.' F u r t h e r m o r e ,


the e x e c u t i o n uncertainties faced b y prospective buyers c a n reduce the m a r k e t a b i l i t y
of t h e seller's p a r t i c i p a t i n g interest. A catch-22 therefore

develops: buyers are

deterred f r o m n e g o t i a t i n g a c q u i s i t i o n agreements f o r fear of e x e c u t i o n u n c e r t a i n t y .


As a result, there is a r e d u c t i o n i n p o t e n t i a l buyers a n d therefore less c o m p e t i t i o n for
the asset. T h e m a r k e t a b i l i t y

o f t h e p a r t i c i p a t i n g interest is reduced. F r o m t h e

g o v e r n m e n t perspective, t h e b l o c k r e m a i n s i n t h e h a n d s o f r e l u c t a n t licensees
w h i c h , as studies have s h o w n , are ( c o m p a r e d w i t h a transferee) less i n c e n t i v i s e d t o
invest

i n new exploration

a n d p r o d u c t i o n activity. D i f f i c u l t i e s caused b y pre-

e m p t i o n rights are accentuated w h e n t h e assets f o r m

part o f a m u l t i - l i c e n c e

t r a n s a c t i o n i n w h i c h some JOA r i g h t s are pre-empted a n d others are not. These are


some o f the issues t h a t U K g o v e r n m e n t a n d i n d u s t r y has r e c e n t l y addressed.

B. UK and UKCS practice


2.3.8

Over t h e p r o d u c t i o n life o f a UKCS o i l a n d gas f i e l d ( w h i c h m a y last 25 years o r


more), the l i k e l i h o o d is t h a t t h e o r i g i n a l JOA parties w i l l n o t r e m a i n i n place f o r the
life of the f i e l d . Asset t r a d i n g b e t w e e n o i l c o m p a n i e s has always been a feature of the
UKCS. However, t h e purpose b e h i n d t h i s a c t i v i t y has altered d u r i n g t h e last decade.
There has been a s h i f t i n p r o f i l e of the t y p i c a l e n t r a n t i n the UKCS f r o m h o m o g e n o u s
o i l m a j o r t o a v a r i e t y o f i n d e p e n d e n t , j u n i o r o i l c o m p a n i e s a n d f i n a n c i a l investors.
These n e w entrants are l o o k i n g t o i n h a b i t t h e space created as larger c o m p a n i e s
divest e x i s t i n g assets a n d are n o longer p a r t i c i p a t i n g i n n e w l i c e n s i n g rounds. T h i s
change results f r o m the m a t u r i t y (and therefore m a r g i n a l i t y ) of the UKCS as a n o i l
and

gas p r o v i n c e . B u t i t is also encouraged b y the UK g o v e r n m e n t w h i c h , i n

began a c t i v e l y b r o a d e n i n g t h e investor base i n t h e UKCS.

concern expressed by new entrants

2001,

98

97

This was a c o m m o n

98

www.masterdeed.com/about.cfm.
For further i n f o r m a t i o n o n this issue, see www.og.decc.gov.uk/UKpromote.

t o t h e UKCS t o t h e government; see

203

J o i n t o p e r a t i n g agreements

2.3.9

PILOT," a task force m a d e u p o f g o v e r n m e n t , operators, c o n t r a c t o r s , suppliers, trade


u n i o n s a n d s m a l l a n d medium-sized business, has also i n f l u e n c e d t h i n k i n g i n this
area. I n 2002 a w o r k i n g c o m m i t t e e o f PILOT agreed t h a t p r e - e m p t i o n clauses were a
h i n d r a n c e t o industry's a n d government's stated desire t o encourage n e w a n d diverse
i n v e s t m e n t i n t o t h e UKCS. As a result, i n t h e 2 0 t h o f f s h o r e l i c e n s i n g r o u n d i n 2002
(and

f u t u r e rounds), t h e g o v e r n m e n t a n n o u n c e d

that, other t h a n

circumstances, i t w o u l d n o t a w a r d licences t o parties w i t h p r e - e m p t i o n


t h e i r JOAs. I f such circumstances

i n special
clauses i n

are d e m o n s t r a t e d , t h e n t h e p r e - e m p t i o n

rights

s h o u l d f o l l o w t h e f o r m a t o f t h e Master Deed (discussed b e l o w ) .

2.3.10 The industry did not accept the abolition of pre-emption provisions contained in
JOAs entered i n t o p r i o r t o t h e 2 0 t h l i c e n s i n g r o u n d . However, t h e vast m a j o r i t y of
t h e i n d u s t r y - as m u c h

as 9 9 % - has

n o w entered

i n t o a Master Deed w h i c h

h a r m o n i s e s a n d streamlines e x i s t i n g J O A p r o v i s i o n s i n t h i s area ( i n instances where


a JOA c o n t a i n s e x i s t i n g p r e - e m p t i o n

p r o v i s i o n s ) . Previous p r a c t i c e r e q u i r e d parties

t r a n s f e r r i n g o i l a n d gas licences t o enter i n t o a n u m b e r o f d o c u m e n t s entered into


by a p l e t h o r a o f parties. These i n c l u d e d :

t h e sale a n d purchase agreement b e t w e e n assignor a n d

a deed o f licence a s s i g n m e n t b e t w e e n assignee a n d secretary o f state whereby

assignee;

t h e assignee became a p a r t y t o t h e licence;

n o v a t i o n o f t h e J O A w h e r e b y t h e assignee became a p a r t y t o the JOA


( r e q u i r i n g e x e c u t i o n b y all J O A parties); a n d

p a r t i c u l a r l y i f o p e r a t o r s h i p transferred, n o v a t i o n o f o t h e r p r o j e c t contracts.

Before the secretary of state gave consent, these documents would be reviewed by
g o v e r n m e n t lawyers. T h i s was a process w h i c h , n o t least because o f t h e

non-standard

n a t u r e o f t h e d o c u m e n t a t i o n , c o u l d be t i m e - c o n s u m i n g . The Master Deed attempts to


standardise d o c u m e n t a t i o n ,

reduce p a p e r w o r k a n d d o away w i t h the need for

m u l t i p l e signatures. The Master Deed itself is a n agreement b e t w e e n the secretary of


state, UKCS A d m i n i s t r a t o r L i m i t e d a n d several UKCS licensees. T h e licensees agree
t h a t t h e y w i l l adhere t o a c o m m o n set o f p r e - e m p t i o n p r o v i s i o n s (set o u t i n schedule
2)"

- w h i c h can be i n v o k e d at t h e o p t i o n o f t h e d i s p o s i n g party. (If t h e provisions are

not invoked, then

t h e parties c a n proceed w i t h t h e t r a n s a c t i o n using

another

procedure.) The Master Deed t h e n allows UKCS A d m i n i s t r a t o r L i m i t e d t o execute the


d o c u m e n t s o n b e h a l f o f various c o m m e r c i a l parties ( a l t h o u g h n o t t h e secretary of
state) u n d e r a p o w e r o f attorney, p r o v i d e d t h a t the d o c u m e n t a t i o n is i n agreed form.

2.3.11 Furthermore, since September 2010, the exercise of pre-emption rights requiring the
n o v a t i o n o r a m e n d m e n t o f a JOA n o longer requires i n d i v i d u a l a p p r o v a l under
m o d e l clause 41(5)."" T h i s is subject t o a n u m b e r o f c o n d i t i o n s a n d exceptions,
i n c l u d i n g the following:

99
100
101

204

See www.pilottaskforce.co.uk.
These apply o n l y where the transaction is for cash and w o u l d not apply, for example, t o an asset swap.
Open permission (operating agreements) issued by DECC dated September 21 2010.

Marc Hammerson

W h e r e t h e creation, n o v a t i o n o r a m e n d m e n t o f a JOA is n o t necessary, t h e


a u t o m a t i c a p p r o v a l applies, p r o v i d e d that:

n o t i c e is g i v e n t o DECC w i t h i n t w o weeks;

t h e JOA does n o t assign rights g r a n t e d b y the licence t o a person w h o is


not a party to the licence;

lu:

and

t h e c r e a t i o n , n o v a t i o n o r a m e n d m e n t does n o t create a c o n t r o l l i n g
interest ( d e f i n e d as t h e a b i l i t y t o c o n t r o l t h e matters subject t o t h e JOA
i n accordance w i t h its wishes) w h e r e a c o n t r o l l i n g interest does n o t
already exist.

W h e r e a n o v a t i o n o f t h e JOA is necessary for the i m p l e m e n t a t i o n o f a licence


assignment, t h e a p p r o v a l does n o t a p p l y unless DECC has a p p r o v e d t h e
licence assignment.

W h e r e t h e licence came i n t o force before J u l y 1 2002 a n d c o n t a i n s pree m p t i o n rights, t h e J O A m u s t c o m p l y w i t h t h e s t r e a m l i n e d

pre-emption

arrangements c o n t a i n e d i n t h e Master Deed. W h e r e t h e licence came i n t o


force after J u l y 1 2002, i t c o n t a i n s n o p r e - e m p t i o n

rights.

Part B: Sources
(a) Does an operator owe fiduciary duties?
United Dominions Corporation v Brian Proprietary Limited (1984-1985) 157 CLR 1
Gibbs Cf:
... T h e c r i t i c a l q u e s t i o n i n t h e present case was w h e t h e r t h e a p p e l l a n t , U n i t e d
D o m i n i o n s C o r p o r a t i o n L t d ("U.D.C."), stood i n a f i d u c i a r y r e l a t i o n s h i p t o t h e first
respondent,

B r i a n Pty L t d ("Brian") o n 2 4 O c t o b e r 1973, t h e date o n w h i c h t h e

second respondent, Security Projects L t d ("S.P.L."), gave t o U.D.C. a mortgage w h i c h


c o n t a i n e d t h e " c o l l a t e r a l i z a t i o n clause" - a clause b y w h i c h t h e l a n d was charged
" w i t h all a m o u n t s f r o m t i m e t o t i m e advanced b y the Mortgagee t o t h e M o r t g a g o r
o n a n y a c c o u n t whatsoever o r otherwise o w i n g b y t h e M o r t g a g o r t o t h e Mortgagee
a n d w h e t h e r a d v a n c e d t o t h e M o r t g a g o r solely o r j o i n t l y w i t h a n y o t h e r person a n d
w h e t h e r for m o n e y l e n t o r p a i d o n a c c o u n t o f t h e M o r t g a g o r or for a n y s u m o r sums
a l i a b i l i t y t o p a y w h i c h m a y have been i n c u r r e d b y t h e Mortgagee o n b e h a l f o f t h e
M o r t g a g o r a n d w h e t h e r present f u t u r e o r c o n t i n g e n t T h e

effect o f t h e clause was

to charge t h e l a n d w i t h indebtedness i n c u r r e d b y S.P.L. i n t r a n s a c t i o n s w i t h w h i c h


Brian h a d n o t h i n g w h a t e v e r t o do.
The

agreement b e t w e e n S.P.L., U.D.C, Brian a n d others, w h e n executed o n 23

J u l y 1974, described t h e parties as e n g a g i n g i n a " j o i n t venture", b u t t h a t t e r m was


used i n t h e n o t u n c o m m o n sense o f a p a r t n e r s h i p f o r o n e particular t r a n s a c t i o n , a n d
t h e agreement was p l a i n l y a p a r t n e r s h i p agreement.
I n Lindley on Partnership, 1 5 t h ed. (1984), p. 480, i t is said t h a t t h e " o b l i g a t i o n t o

102

By the nature of pre-emption, w h i c h creates a right to acquire i n favour of an existing J O A party, this
should not be the case.

205

J o i n t o p e r a t i n g agreements

perfect fairness a n d g o o d f a i t h " is n o t c o n f i n e d t o persons w h o a c t u a l l y are partners,


but

"extends t o persons n e g o t i a t i n g f o r a p a r t n e r s h i p , b u t b e t w e e n

p a r t n e r s h i p as yet exists

w h o m no

T h i s statement, w h i c h also appeared i n earlier editions,

is c r i t i c i z e d i n H i g g i n s a n d Fletcher, Law of Partnership

in Australia

and New

Zealand,

4 t h ed. (1981), p. 50, o n t h e g r o u n d t h a t it is n o t s u p p o r t e d b y t h e a u t h o r i t i e s cited.


The d e c i s i o n of L o r d L y n d h u r s t LC i n Fawcett

v Whitehouse

(1829) 1 Russ & M 132

[39 ER 51], is clear a u t h o r i t y f o r t h e p r o p o s i t i o n t h a t a p e r s o n w h o is n e g o t i a t i n g for


h i m s e l f a n d his f u t u r e partners as a n agent f o r t h e i n t e n d e d p a r t n e r s h i p , and who
c l a n d e s t i n e l y receives a n advantage f o r h i m s e l f m u s t a c c o u n t f o r t h a t advantage to
t h e p a r t n e r s h i p w h e n it is f o r m e d . Hichens

v Congreve

(1829) 1 Russ & M 150 [39 ER

58], is a s i m i l a r case. O t h e r a u t h o r i t i e s , c i t e d b y Lindley, c o n c e r n e d promoters of


companies, b u t t h e r e is a n a n a l o g y b e t w e e n t h e p o s i t i o n o f c o m p a n y promoters and
t h a t o f persons w h o i n v i t e others t o j o i n i n a p a r t n e r s h i p . The p r i n c i p l e was stated
g e n e r a l l y i n Directors, etc. of Central

Railway

Co. of Venezuela

v Kisch

(1867) LR 2 HL

99, at p. 113:
It cannot
any

be too frequently

undertaking,

other information
candour

or too strongly impressed

are desirous

of obtaining

on the subject than that which

and honesty

ought

upon

those who, having

the co-operation

to characterize

of persons

they choose

their published

projected

who have no

to convey, that the utmost


statements.

There is a passage in Bell v Lever Bros. Ltd [1932] AC 161, which, although not
c i t e d b y Lindley,

appears t o s u p p o r t h i s p r o p o s i t i o n ; L o r d A t k i n said [1932] AC at p.

227:
Ordinarily
prudent

the failure to disclose a material

contractor

e m p t o r applies outside contracts


law to be contracts of the utmost
not, the contract
partnership

fact which

might

influence the mind

of a

does not give the right to avoid the contract. The principle of caveat

is voidable.

of sale. There
good

Apart

from

and contracts of insurance

are certain contracts expressed by the

faith, where

material

so of an intending

be disclosed; if

are the leading instances. In such cases the duty

does not arise out of contract; the duty of a person proposing


a contract is made,

facts must

special fiduciary relationships, contracts for

an insurance

arises before

partner.

I do not understand this passage to mean that the only remedy for a failure by
an i n t e n d i n g p a r t n e r t o disclose a m a t e r i a l fact is rescission. The passage does suggest
t h a t a n i n t e n d i n g partner, like a partner, owes a d u t y o f t h e u t m o s t g o o d faith.
I t is clear e n o u g h t h a t S.P.L., w h i c h was a c t i n g o n b e h a l f o f B r i a n a n d others i n
e x e c u t i n g t h e mortgage, s t o o d i n a f i d u c i a r y r e l a t i o n s h i p t o Brian. For t h e purpose of
c o n s i d e r i n g w h e t h e r U.D.C. also s t o o d i n a f i d u c i a r y r e l a t i o n s h i p , i t is unnecessary
t o decide w h e t h e r persons n e g o t i a t i n g for a p a r t n e r s h i p always s t a n d i n a fiduciary
r e l a t i o n s h i p ; I have n o d o u b t t h a t t h e y m a y sometimes d o so. T h e parties i n the
present case had, o n 24 O c t o b e r 1973, proceeded b e y o n d

t h e stage o f mere

n e g o t i a t i o n . The s i t u a t i o n was accurately described as f o l l o w s b y Samuels JA i n his


j u d g m e n t i n t h e C o u r t o f A p p e a l [1983] 1 NSWLR 490, at p. 507:
Both
U.D.C.

206

Brian

and U.D.C.

had made

payments

had undertaken
on account

to accept

an interest in each

of its share (as equity participant)

development.
of the cost of

each venture; and Brian had paid its share of the cost of the hotel project. S.P.L. had
embarked upon its duties as manager, and was expending moneys to advance this
business, with the knowledge and approval of both Brian ... and U.D.C. Brian knew that
S.P.L. would mortgage the lands in order to secure the necessary funds from U.D.C; and
assumed by 24 October 1973 that a mortgage had been given to U.D.C. for that
purpose. U.D.C. undoubtedly knew that Brian was involved.

Samuels JA went on to point out that the inference was inescapable that all the
parties regarded t h e e x p e n d i t u r e b e i n g m a d e a n d t h e o t h e r steps b e i n g t a k e n as
consistent w i t h t h e terms o f t h e f o r m a l agreement t h e y i n t e n d e d t o execute, a n d
therefore d o n e i n f u r t h e r a n c e o f t h e j o i n t venture. W h e n t h e mortgage was g i v e n
U.D.C. was f u l l y aware t h a t t h e l a n d registered i n t h e n a m e o f S.P.L. was h e l d i n
circumstances w h i c h

r e q u i r e d S.P.L. t o a c c o u n t t o t h e i n t e n d e d

partners. T h e

evidence shows also t h a t before t h a t t i m e U.D.C. h a d become aware t h a t "a j o i n t


v e n t u r e agreement... i n i d e n t i c a l terms a n d c o n d i t i o n s as t h e B r o o k f i e l d p r o j e c t " was
i n t h e course o f p r e p a r a t i o n - S.P.L., U.D.C. a n d others, n o t i n c l u d i n g Brian, were
parties t o a n agreement m a d e o n 2 8 M a r c h 1973 regarding a s i m i l a r v e n t u r e at
B r o o k f i e l d . T h e B r o o k f i e l d agreement p r o v i d e d

that all moneys

(other

than

c o n t r i b u t i o n s payable u n d e r par. 5) required for t h e purposes o f t h e j o i n t v e n t u r e


w o u l d be b o r r o w e d , " u p o n such terms ... as t h e parties shall u n a n i m o u s l y agree" a n d
t h a t t h e parties a u t h o r i z e d S.P.L. t o execute a n y mortgage " w h i c h t h e parties shall
u n a n i m o u s l y agree s h o u l d

be g i v e n o r [entered i n t o ] i n respect o f t h e [ j o i n t

v e n t u r e ] " . T h e same p r o v i s i o n s appeared i n t h e agreement w h e n i t was executed o n


23 J u l y 1974. U.D.C. was n o t a f i n a n c i e r d e a l i n g at arm's l e n g t h w i t h S.P.L. a n d
e n t i t l e d t o leave i t t o S.P.L. t o disclose t h e terms o f t h e mortgage t o t h e persons,
i n c l u d i n g Brian, for w h o m S.P.L. was a c t i n g , b u t was i n a r e l a t i o n s h i p w i t h those
persons w h i c h , i f n o t o n e o f p a r t n e r s h i p , was o n e b e t w e e n persons w h o , i n t e n d i n g
to become partners, h a d already e m b a r k e d o n the p a r t n e r s h i p venture, of w h i c h t h e
e x e c u t i o n o f t h e mortgage was a n i n c i d e n t . Moreover, U.D.C. k n e w t h a t i t w o u l d be
c o n t r a r y t o t h e u n d e r s t a n d i n g b e t w e e n t h e parties, later t o be elevated i n t o a f o r m a l
agreement, i f S.P.L. were t o grant t h e mortgage o n terms t o w h i c h Brian d i d n o t agree
a n d for purposes u n c o n n e c t e d w i t h t h e j o i n t venture. There was n o reason t o believe
t h a t B r i a n h a d agreed o r w o u l d agree t o the i n c l u s i o n of t h e c o l l a t e r a l i z a t i o n clause,
w h i c h was so o b v i o u s l y adverse t o its interests. A l t h o u g h i t is n o t easy t o a t t e m p t t o
d e f i n e t h e circumstances i n w h i c h a f i d u c i a r y r e l a t i o n s h i p w i l l be f o u n d t o exist (see
t h e discussion i n Hospital Products Ltd v United States Surgical Corporation [1984] 156
CLR at p. 67, ft), there was, i n the circumstances o f t h e present case, a r e l a t i o n s h i p
b e t w e e n U.D.C. a n d Brian based o n t h e same m u t u a l trust a n d confidence, a n d
r e q u i r i n g t h e same g o o d f a i t h a n d fairness, as i f a f o r m a l p a r t n e r s h i p deed h a d been
executed.
O n c e i t is h e l d t h a t U.D.C. was i n a f i d u c i a r y r e l a t i o n s h i p t o Brian, there c a n be
n o d o u b t t h a t U.D.C. was i n breach of its f i d u c i a r y obligations. I t o b t a i n e d f o r itself
an advantage at t h e expense of a n d w i t h o u t t h e k n o w l e d g e o r consent of Brian, a n d
is t h e r e f o r e b o u n d t o a c c o u n t t o Brian for t h e i m p r o p e r advantage w h i c h i t obtained.
I t is n o t t o t h e p o i n t t h a t i t w o u l d have been possible for Brian o r its advisers t o have

207

Joint operating agreements

discovered that the mortgage contained the "collateralization clause" if they had
made the necessary investigations.
Mason, Brennan and Deane JJ:
... I n the present case, i t is apparent that the relationship between the participants
i n the shopping centre venture was a fiduciary one at least f r o m the t i m e when the
formal agreement was executed. Under the agreement, the participants were joint
venturers i n a commercial enterprise w i t h a view t o profit. Profits were t o be shared.
The j o i n t venture property was held u p o n trust. The participants indemnified the
managing participant (S.P.L.) against losses. The policy of the j o i n t enterprise was
u l t i m a t e l y a matter for j o i n t decision. Apart f r o m the absence of any reference i n the
agreement t o "partnership" or "partners", the relationship between the participants
under the agreement exhibited all the indicia of, and p l a i n l y was, a partnership: cf.

Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd (1
131 CLR 321, at pp. 326-327. It is true that U.D.C. came to the joint venture in the
role of prospective financier and, i n so far as borrowings f r o m i t by the S.P.L. group
o n behalf of the partnership were concerned, occupied the role of lender as well as
that of partner. I n so far as the property w h i c h was the subject of the joint venture
was concerned however, the fact that U.D.C. was a lender t o S.P.L. o n behalf of the
partnership d i d n o t absolve i t f r o m the ordinary fiduciary obligations of a partner.
It was submitted o n behalf of U.D.C. that n o fiduciary relationship existed and
no fiduciary duties arose between the prospective participants i n the joint venture
u n t i l the j o i n t venture agreement was actually executed i n July 1974. To the extent
that that submission involves

a general legal proposition

that the relationship

between prospective partners or j o i n t venturers cannot be a fiduciary one until a


f o r m a l agreement is executed i t is clearly wrong. A fiduciary relationship can arise
and fiduciary duties can exist between parties w h o have n o t reached, and who may
never reach, agreement u p o n t h e consensual terms w h i c h are t o govern the
arrangement between them. I n particular, a fiduciary relationship w i t h attendant
fiduciary obligations may, and ordinarily w i l l , exist between prospective partners
w h o have embarked u p o n the conduct of the partnership business or venture before
the precise terms of any partnership agreement have been settled. Indeed, i n such
circumstances, t h e m u t u a l confidence and trust w h i c h underlie most consensual
fiduciary relationships are likely t o be more readily apparent t h a n i n the case where
m u t u a l rights and obligations

have been expressly defined

i n some formal

agreement. Likewise, the relationship between prospective partners or participants in


a proposed partnership

t o carry o u t a single j o i n t undertaking or endeavour will

ordinarily be fiduciary i f the prospective partners have reached an

informal

arrangement t o assume such a relationship and have proceeded t o take steps


involved i n its establishment or implementation.
I n t h e present case, the relationship between U.D.C, Brian and S.P.L. had plainly
assumed a fiduciary character prior t o 24 October 1973 w h e n S.P.L. gave the first of
the mortgages t o U.D.C. By that time, the arrangements between t h e prospective
j o i n t venturers had passed far beyond the stage of mere negotiation. Each had, by
then, agreed t o be, and been accepted as, a participant i n each of t h e proposed joint

208

iviarc n a m m e r s u n

v e n t u r e s , i f b o t h o r e i t h e r o f t h e m w e n t ahead. Each h a d m a d e o r agreed t o m a k e


f i n a n c i a l c o n t r i b u t i o n s t o w a r d s t h e costs o f t h e p r o j e c t or projects i n w h i c h i t or h e
h a d agreed t o p a r t i c i p a t e . S.P.L. was a c t i n g as agent f o r t h e p r o p o s e d j o i n t v e n t u r e r s
i n r e l a t i o n t o t h e e s t a b l i s h m e n t o f each o f t h e j o i n t v e n t u r e s a n d as trustee o f those
f u n d s w i t h w h i c h i t h a d already been e n t r u s t e d . I n so far as B r i a n was c o n c e r n e d , i t
was a f u n d a m e n t a l e l e m e n t o f t h e s u b s t r a t u m o f t h e f i d u c i a r y r e l a t i o n s h i p t h a t t h e n
e x i s t e d t h a t t h e subject l a n d , w h i c h was b e i n g p u r c h a s e d w i t h j o i n t v e n t u r e

funds

for j o i n t v e n t u r e purposes, w o u l d be h e l d a v a i l a b l e t o be d e v o t e d t o a n y e n s u i n g
j o i n t v e n t u r e or j o i n t v e n t u r e s a n d t h a t B r i a n , as a n accepted j o i n t v e n t u r e r w h o h a d
already m a d e f i n a n c i a l c o n t r i b u t i o n t o w a r d s t h e p r o p o s e d h o t e l j o i n t v e n t u r e , was
a n d w o u l d r e m a i n able t o p a r t i c i p a t e i n t h e n e t p r o f i t s i n accordance w i t h its share
i n t h e r e l e v a n t j o i n t v e n t u r e . T o transpose t h e w o r d s o f D i x o n J i n Birtclmell

(1929)

42 CLR, at pp. 4 0 7 - 4 0 8 (23), t h e p a r t i c i p a n t s i n each o f t h e t h e n p r o p o s e d j o i n t


v e n t u r e s w e r e "associated f o r ... a c o m m o n e n d " a n d t h e r e l a t i o n s h i p b e t w e e n t h e m
was "based u p o n a m u t u a l c o n f i d e n c e " t h a t t h e y w o u l d "engage i n [ t h e ] p a r t i c u l a r
... a c t i v i t y o r t r a n s a c t i o n f o r t h e j o i n t a d v a n t a g e o n l y " . I t m a t t e r s n o t , f o r present
purposes, w h e t h e r t h a t r e l a t i o n s h i p is seen as t h a t w h i c h

m a y exist

between

p r o s p e c t i v e p a r t n e r s o r j o i n t v e n t u r e r s before t h e t e r m s o f a n y p a r t n e r s h i p o r j o i n t
v e n t u r e a g r e e m e n t h a v e b e e n settled o r w h e t h e r i t is seen as a l i m i t e d p r e l i m i n a r y
p a r t n e r s h i p or j o i n t v e n t u r e t o i n v e s t i g a t e a n d e x p l o r e t h e p o s s i b i l i t i e s o f a n u l t i m a t e
j o i n t v e n t u r e or ventures. O n e i t h e r a p p r o a c h , i t was a f i d u c i a r y one.
T h a t b e i n g so, t h e p r o p o s e d p a r t i c i p a n t s i n each j o i n t v e n t u r e w e r e u n d e r
f i d u c i a r y o b l i g a t i o n s t o o n e a n o t h e r i n r e l a t i o n t o t h e p r o p o s e d p r o j e c t at t h e t i m e
w h e n t h e first o f t h e m o r t g a g e s was g i v e n

a n d accepted.

participant was under a fiduciary d u t y t o refrain f r o m

I n p a r t i c u l a r , each

pursuing, o b t a i n i n g or

r e t a i n i n g f o r itself o r h i m s e l f a n y c o l l a t e r a l a d v a n t a g e i n r e l a t i o n t o t h e p r o p o s e d
p r o j e c t w i t h o u t t h e k n o w l e d g e a n d i n f o r m e d assent o f t h e o t h e r p a r t i c i p a n t s . "The
s u b j e c t - m a t t e r over w h i c h t h e f i d u c i a r y o b l i g a t i o n s " e x t e n d e d m u s t be " d e t e r m i n e d
by t h e character o f t h e v e n t u r e o r u n d e r t a k i n g f o r w h i c h " t h e r e l a t i o n s h i p b e t w e e n
t h e p r o s p e c t i v e j o i n t v e n t u r e r s existed: per D i x o n J, Birtclmell

(1929) 4 2 CLR at, p.

408, i n a p a r t n e r s h i p c o n t e x t b u t e q u a l l y a p p l i c a b l e here. I t i n c l u d e d t h e l a n d w h i c h
was t h e subject o f t h e p r o p o s e d j o i n t v e n t u r e s a n d w h o s e purchase h a d b e e n f u n d e d
b y m o n e y s c o n t r i b u t e d b y t h e p r o s p e c t i v e p a r t i c i p a n t s o r b o r r o w e d b y S.P.L. f o r t h e
purposes o f t h e p r o p o s e d ventures. By t h a t m o r t g a g e , S.P.L. a n d U.D.C. c o m b i n e d t o
a p p l y t h e p r o p e r t y t h e subject o f t h e p r o p o s e d j o i n t v e n t u r e t o t h e i r o w n c o l l a t e r a l
purposes i n a m a n n e r w h i c h i n v o l v e d t h e o b t a i n i n g o f a c o l l a t e r a l a d v a n t a g e f o r
t h e m s e l v e s a n d w h i c h was, b o t h p o t e n t i a l l y a n d i n t h e event, d e s t r u c t i v e o f t h e
w h o l e i n t e r e s t o f t h e o t h e r j o i n t v e n t u r e r s i n c l u d i n g Brian. I n c o m b i n i n g t o a p p l y
t h e p r o p e r t y t o t h e i r o w n c o l l a t e r a l purposes a n d i n g i v i n g a n d o b t a i n i n g those
c o l l a t e r a l advantages w i t h o u t t h e k n o w l e d g e o r c o n s e n t o f B r i a n , S.P.L. a n d U.D.C.
each acted i n b r e a c h o f its f i d u c i a r y d u t y t o B r i a n .
I n these circumstances, U.D.C. is p r e c l u d e d f r o m r e l y i n g u p o n t h e b e n e f i t o f t h e
b i l l o f m o r t g a g e o f 2 4 O c t o b e r 1 9 7 3 t o secure, against t h e p r o f i t s t o w h i c h B r i a n
w o u l d o t h e r w i s e b e e n t i t l e d , e x t r a n e o u s debts o w i n g b y S.P.L. a n d its associates i n
s o m e o t h e r v e n t u r e . A s i m i l a r p o s i t i o n applies i n r e l a t i o n t o t h e " c o l l a t e r a l i z a t i o n

209

Joint operating agreements

clause" in each of the two subsequent mortgages. It is unnecessary for Brian to assert
a constructive trust of the benefit of those mortgages or of their proceeds. A l l that
Brian need assert against U.D.C. is its entitlement to its share of the surplus proceeds
of sale under the joint venture agreement, to w h i c h b o t h U.D.C. and it were parties.
U.D.C. cannot resist that claim of Brian by relying u p o n the "collateralization clause"
w h i c h i t obtained and retained i n breach of the fiduciary duty w h i c h S.P.L. and it
owed to Brian for the reason that, to the extent of those clauses, the three mortgages
were and are unenforceable by U.D.C. against Brian: cf. Thome v Thome [1893] 3 Ch
196, at pp. 203-204.
Dawson J:
I have had the advantage of reading the reasons for judgment of Mason, Brennan
and Deane JJ and agree w i t h those reasons and w i t h their conclusion that at the time
each of the mortgages was given, United D o m i n i o n s Corporation Ltd ("U.D.C") was
i n the position of a fiduciary as regards Brian Pty L t d ("Brian") and that, as a
consequence, the mortgages were and are unenforceable by U.D.C. against Brian.
The agreement w h i c h was eventually concluded between U.D.C, Brian and the
other participants i n the development project was described as a joint venture. 1
agree that, despite this description, it, and the other joint venture initially proposed,
nevertheless answered the description of a partnership.
W h i l s t the concept of a j o i n t venture is said to be the creation of American courts
(see 46 Am. Jur. (2d.), Joint Ventures, s. 2), it is a term w h i c h is widely used and it is
well k n o w n i n Scottish law where i t is regarded

as a variety of association,

partnership or not, i n w h i c h n o f i r m name is used and the association is confined to


a particular adventure, speculation, course of trade or voyage: Encyclopedia of the Laws
of Scotland (1931), vol. XI, par. 67, p. 32. It is true, however, that the joint venture is
a f o r m of association w h i c h has been put to considerable use i n the United States,
largely because i n that country a corporation may not, generally speaking, join a
partnership. The view is taken there that the officers and directors of a corporation
i n partnership may n o t be able t o carry o u t their responsibilities and that the
corporate assets may be jeopardized i n an ultra vires manner: Williston on Contracts,
3rd ed. (1959), vol. 2, s. 318B, p. 598 et seq.
That view has never been taken here, but i t explains w h y i n the United States a
clear differentiation is made between a joint venture, w h i c h involves a single
business transaction, and a partnership, w h i c h involves general and continuing
business of a particular kind.
Notwithstanding the difference, even i n the United States a joint venture may
comprehend a business to be continued over a considerable period of time and the
distinction between a partnership and a joint venture is not always easy to discern:
46 Am. Jur. (2d), Joint Ventures, s. 4. This is of no present significance, because in the
United States participants i n joint ventures are nevertheless subjected t o fiduciary
duties akin to those of partners: Meinhard v Salmon (1928) 249 NY 458 [164 NE 545].
Although i n this country a partnership is defined i n the Partnership Acts as the
relation w h i c h subsists or exists between persons carrying o n a business i n common
w i t h a view of profit, the requirement that a business should be carried o n provides

210

Marc H a m m e r s o n

n o clear means o f d i s t i n g u i s h i n g a j o i n t v e n t u r e f r o m a p a r t n e r s h i p . There m a y be a


p a r t n e r s h i p f o r a single a d v e n t u r e o r u n d e r t a k i n g , for t h e Acts p r o v i d e t h a t , subject
t o a n y a g r e e m e n t b e t w e e n t h e partners, a p a r t n e r s h i p , i f entered i n t o f o r a single
adventure or undertaking,

is dissolved b y t h e t e r m i n a t i o n o f t h a t a d v e n t u r e o r

u n d e r t a k i n g : see, e.g., Partnership Act 1892 (N.S.W.), s. 32(b).


A single a d v e n t u r e u n d e r o u r l a w m a y o r m a y not, d e p e n d i n g u p o n its scope,
a m o u n t t o t h e c a r r y i n g o n o f a business: Smith v Anderson (1880) 15 C h D 247 at pp.
277-278); In re Griffin; Ex parte Board of Trade (1890) 60 LJ QB

235, at p. 237;

Ballantyne v Raphael (1889) 15 VLR 538. W h i l s t t h e phrase " c a r r y i n g o n a business"


contains

a n e l e m e n t o f c o n t i n u i t y o r r e p e t i t i o n i n contra's" w i t h a n isolated

t r a n s a c t i o n w h i c h is n o t t o be repeated, t h e decision o f t h i s C o u r t i n Canny Gabriel


Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd (1974) 131 CLR

321,

suggests t h a t t h e e m p h a s i s w h i c h w i l l be placed u p o n c o n t i n u i t y m a y n o t be heavy.


C e r t a i n l y each o f t h e enterprises w h i c h were t o be u n d e r t a k e n a n d t h e enterprise
w h i c h was f i n a l l y u n d e r t a k e n i n t h i s case, was t o have a n o p e r a t i o n w h i c h was
s u f f i c i e n t l y e x t e n d e d t o a m o u n t t o t h e c a r r y i n g o n o f a business a n d , since t h e
association was w i t h a v i e w t o p r o f i t , t h e c o n c l u s i o n is w a r r a n t e d t h a t t h e parties
were e i t h e r i n p a r t n e r s h i p o r were n e g o t i a t i n g p a r t n e r s h i p at t h e r e l e v a n t t i m e .
Perhaps i n t h i s c o u n t r y , t h e i m p o r t a n t d i s t i n c t i o n b e t w e e n a p a r t n e r s h i p a n d a
j o i n t v e n t u r e is f o r p r a c t i c a l purposes, t h e d i s t i n c t i o n b e t w e e n a n association o f
persons w h o engage i n a c o m m o n u n d e r t a k i n g f o r p r o f i t a n d a n association of those
w h o d o so i n order t o generate a p r o d u c t t o be shared a m o n g t h e p a r t i c i p a n t s .
Enterprises o f t h e latter k i n d are c o m m o n e n o u g h i n t h e e x p l o r a t i o n f o r a n d
e x p l o i t a t i o n o f m i n e r a l resources a n d t h e feature w h i c h is m o s t l i k e l y t o d i s t i n g u i s h
t h e m f r o m p a r t n e r s h i p s is t h e s h a r i n g o f p r o d u c t rather t h a n p r o f i t . I t is, however,
unnecessary t o pursue t h a t m a t t e r here.
A l t h o u g h t h e r e l a t i o n s h i p b e t w e e n p a r t i c i p a n t s i n a j o i n t v e n t u r e w h i c h is n o t a
partnership

w i l l be g o v e r n e d b y t h e p a r t i c u l a r c o n t r a c t r a t h e r t h a n

p r i n c i p l e s o f law, t h e r e l a t i o n s h i p m a y

nevertheless

extrinsic

be a f i d u c i a r y o n e i f t h e

necessary c o n f i d e n c e is reposed b y t h e p a r t i c i p a n t s i n o n e another. O f course, i n a


p a r t n e r s h i p t h e parties are agents f o r each o t h e r a n d t h i s m a y c o n s t i t u t e a separate
reason f o r t h e f i d u c i a r y character o f a p a r t n e r s h i p . T h e r e m a y be n o such agency
b e t w e e n p a r t i c i p a n t s i n a j o i n t v e n t u r e but, as D i x o n J p o i n t e d o u t i n Birtclmell v
Equity Trustees, Executors & Agency Co Ltd (1929) 4 2 CLR 384, at pp. 407-408, e v e n i n
a p a r t n e r s h i p i t is really t h e m u t u a l c o n f i d e n c e b e t w e e n partners w h i c h imposes
fiduciary

duties

upon

them

a n d t h e same c o n f i d e n c e

may, i n a p p r o p r i a t e

circumstances, be f o u n d t o exist b e t w e e n p a r t i c i p a n t s i n a j o i n t v e n t u r e . T h e o n l y
o t h e r t h i n g w h i c h I w i s h t o a d d is t h a t i n m y v i e w i t is q u i t e clear t h a t a f i d u c i a r y
r e l a t i o n s h i p m a y arise d u r i n g n e g o t i a t i o n s f o r a p a r t n e r s h i p or, f o r t h a t matter, a
j o i n t v e n t u r e , before a n y p a r t n e r s h i p o r j o i n t v e n t u r e agreement has been f i n a l l y
c o n c l u d e d i f t h e parties h a v e acted u p o n t h e p r o p o s e d agreement as t h e y h a d i n t h i s
case. W h i l s t a c o n c l u d e d a g r e e m e n t m a y establish a r e l a t i o n s h i p o f confidence, i t is
nevertheless

t h e r e l a t i o n s h i p itself w h i c h gives rise t o f i d u c i a r y o b l i g a t i o n s . T h a t

r e l a t i o n s h i p m a y arise f r o m t h e circumstances l e a d i n g t o t h e f i n a l a g r e e m e n t as
m u c h as f r o m t h e fact o f f i n a l a g r e e m e n t itself. T h i s is t h e v i e w expressed i n Lindley

211

Joint operating agreements

on Partnership, 1 5 t h ed. (1984), p. 480, a n d i t seems t o m e t h a t as a m a t t e r o f p r i n c i p l e


it m u s t be correct. ...

Lac Minerals Ltd v International Corona Resources Ltd [1989] 2 SCR 574

Sopinka / (dissenting in part):

(1) Did a Fiduciary Relationship Arise between Lac and Corona?


The

c o n s e q u e n c e s a t t e n d a n t o n a f i n d i n g o f a f i d u c i a r y r e l a t i o n s h i p a n d i t s breach

have resulted i n judicial reluctance

t o d o so e x c e p t w h e r e t h e a p p l i c a t i o n o f this

" b l u n t t o o l o f e q u i t y " is r e a l l y necessary. I t is rare t h a t i t is r e q u i r e d i n t h e c o n t e x t of


an

arm's l e n g t h c o m m e r c i a l t r a n s a c t i o n . K e n n e d y J, i n " E q u i t y

i n a Commercial

C o n t e x t , " i n RD. F i n n , ed., Equity and Commercial Relationships, e x p l a i n s w h y , at p. 15:


It would seem that part of the reluctance to find a fiduciary duty within an arm's length
commercial transaction is due to the fact that the parties in that situation have an
adequate opportunity to prescribe their own

mutual

obligations,

and

that the

contractual remedies available to them to obtain compensation for any breach of those
obligations should be sufficient. Although the relief granted in the case of a breach of a

fiduciary duty will be molded by the equity of the particular transaction, an offendin
fiduciary will still be exposed to a variety of available remedies, many
beyond mere compensation for the loss suffered by the person to whom

of which g

the duty was

owed, equity, unlike the ordinary law of contract, having [sic] regard to the gain
obtained by the wrongdoer, and not simply to the need to compensate the injured party.

It was submitted that the departure of the courts below from this salutary rule
has r e s u l t e d i n a p l e t h o r a o f c l a i m s t h a t w o u l d i m p o s e f i d u c i a r y r e l a t i o n s h i p s i n a
c o m m e r c i a l - t y p e s e t t i n g . W r i t i n g i n The Advocates' Society journal, Aug. 1988, C o l i n
L. C a m p b e l l s u p p o r t s t h i s p o i n t o f view. He states at p. 44:
The L a c - C o r o n a decision, together with the decision in S t a n d a r d I n v e s t m e n t s v
C a n a d i a n I m p e r i a l B a n k o f C o m m e r c e determining that a banker could be held to a
fiduciary duty when he revealed information obtained in confidence, has given rise to

a plethora of claims to impose fiduciary obligations where the parties' relationship ha


been formalized by a contract. In addition to the above principles, such obligations
have been imposed on bankers, lawyers, stockbrokers, accountants, and others.

In Hospital Products Ltd v United States Surgical Corp (1984) 55 ALR 417, Dawson J
c o n t i n u e d , at pp. 493-94:

The undesirability of extending fiduciary duties to commercial relationships and the


anomaly of imposing those duties where the parties are at arm's length from one another
was referred to in W e i n b e r g e r v K e n d r i c k (1892) 34 Fed Rules Serv (2d) 450. And in
Barnes v A d d y (1874) 9 Ch App 244 at 251, Lord Selborne LC said: "It is equally

important to maintain the doctrine of trusts which is established in this court, and not
to strain it by unreasonable construction beyond its due and proper limits. There would
be no better mode

of undermining

the sound doctrines of equity than to make

unreasonable and inequitable applications of them.

212

Marc H a m m e r s o n

I n o u r o w n C o u r t , i n Guerin v The Queen, [1984] 2 SCR 335, at p. 384, D i c k s o n J


(as he t h e n was) referred t o a passage f r o m Professor Weinrib's article, "The Fiduciary
Obligation"

(1975), 2 5 U. of T. L.J. 1, at p. 4, w h e r e i n t h e f i d u c i a r y o b l i g a t i o n is

described as " t h e law's b l u n t t o o l " . I n m y

opinion,

equity's b l u n t t o o l m u s t be

reserved f o r s i t u a t i o n s t h a t are t r u l y i n n e e d o f t h e special p r o t e c t i o n t h a t e q u i t y


affords.
W h i l e e q u i t y has refused t o t i e its h a n d s b y d e f i n i n g w i t h p r e c i s i o n w h e n a
f i d u c i a r y r e l a t i o n s h i p w i l l arise, c e r t a i n basic p r i n c i p l e s m u s t be t a k e n i n t o account.
There are some r e l a t i o n s h i p s w h i c h are generally r e c o g n i z e d t o give rise t o f i d u c i a r y
obligations:

director-corporation,

trustee-beneficiary,

solicitor-client,

partners,

principal-agent, a n d t h e like. T h e categories o f r e l a t i o n s h i p s g i v i n g rise t o f i d u c i a r y


duties are n o t closed n o r d o t h e t r a d i t i o n a l r e l a t i o n s h i p s i n v a r i a b l y give rise t o
f i d u c i a r y o b l i g a t i o n . As p o i n t e d o u t b y D i c k s o n J i n Guerin v The Queen, supra, at p.
384:
It is sometimes said that the nature of fiduciary relationships is both established and

exhausted by the standard categories of agent, trustee, partner, director, and the like
do not agree. It is the nature of the relationship, not the specific category of actor
involved that gives rise to the fiduciary duty. The categories offiduciary,like those
negligence, should not be considered closed.
The

n a t u r e o f t h e r e l a t i o n s h i p m a y be such t h a t , n o t w i t h s t a n d i n g t h a t i t is

u s u a l l y a f i d u c i a r y r e l a t i o n s h i p , i n e x c e p t i o n a l circumstances i t is not. See Shepherd,


The Law of Fiduciaries, at pp. 21-22. F u r t h e r m o r e , n o t all o b l i g a t i o n s e x i s t i n g b e t w e e n
t h e parties t o a w e l l - r e c o g n i z e d f i d u c i a r y r e l a t i o n s h i p w i l l be f i d u c i a r y i n nature.
S o u t h i n J, i n Girardet v Crease & Co. (1987), 11 BCLR (2d) 361, observed t h a t t h e
o b l i g a t i o n o f a s o l i c i t o r t o use care a n d s k i l l is t h e same o b l i g a t i o n as t h a t o f a n y
p e r s o n w h o u n d e r t a k e s t o carry o u t a task f o r reward. Failure t o d o so does n o t
necessarily

result i n a b r e a c h o f f i d u c i a r y d u t y b u t s i m p l y a breach o f c o n t r a c t o r

negligence. She issued t h i s s t r o n g caveat against t h e overuse o f c l a i m f o r b r e a c h o f


f i d u c i a r y d u t y (at p. 362):
Counsel for the plaintiff spoke of this case in his opening as one of breach of fiduciary
duty and negligence. It became clear during his opening that no breach offiduciaryduty
is in issue. What is in issue is whether the defendant was negligent in advising on the

settlement of a claim for injuries suffered in an accident. The word "fiduciary" is flung
around now as if it applied to all breaches of duty by solicitors, directors of companies
and so forth. But "fiduciary" comes from the Latin "fiducia" meaning "trust". Thus,
the adjective, "fiduciary" means of or pertaining to a trustee or trusteeship. That
lawyer can commit a breach of the special duty of a trustee, e.g., by stealing his client's

money, by entering into a contract with the client without full disclosure, by sending a

client a bill claiming disbursements never made and so forth is clear. But to say that
simple carelessness in giving advice is such a breach is a perversion of words. The
obligation of a solicitor of care and skill is the same obligation of any person who
undertakes for reward to carry out a task. One would not assert of an engineer or
physician who had given bad advice and from whom

common

sought that he was guilty of a breach of fiduciary duty. Why

law damages were


should it be said of a

solicitor? I make this point because an allegation of breach offiduciaryduty carries

213

Joint operating agreements

with it the stench of dishonest}' if not of deceit, then of constructive fraud. See
N o r t o n v L o r d A s h b u r t o n [1914] AC

932 (HI).

Those who draft pleadings should

be careful of words that carry such a connotation.

When the Court is dealing with one of the traditional relationships, the
characteristics o r criteria f o r a f i d u c i a r y r e l a t i o n s h i p are assumed t o exist. I n special
circumstances, i f t h e y are s h o w n t o be absent, t h e r e l a t i o n s h i p itself w i l l n o t suffice.
Conversely, w h e n c o n f r o n t e d w i t h a r e l a t i o n s h i p t h a t does n o t f a l l w i t h i n o n e of the
t r a d i t i o n a l categories, i t is essential t h a t t h e C o u r t consider: w h a t are t h e essential
ingredients

o f a f i d u c i a r y r e l a t i o n s h i p a n d are t h e y present? W h i l e n o ironclad

f o r m u l a supplies the answer t o t h i s q u e s t i o n , c e r t a i n c o m m o n characteristics are so


f r e q u e n t l y present i n r e l a t i o n s h i p s t h a t h a v e b e e n h e l d t o be f i d u c i a r y t h a t they
serve as a r o u g h a n d ready guide. I agree w i t h t h e e n u m e r a t i o n o f these features
m a d e b y W i l s o n J i n dissent i n Frame v Smith [1987] 2 SCR 99. T h e m a j o r i t y , a l t h o u g h
disagreeing i n t h e result, d i d n o t d i s a p p r o v e o f t h e f o l l o w i n g statement, at pp.
135-36:
A few commentators have attempted to discern an underlying fiduciary principle but,
given the widely divergent contexts emerging from the case law, it is understandable that
they have differed in their analyses ... Yet there are common

features discernible in t

contexts in which fiduciary duties have been found to exist and these common features
do provide a rough and ready guide to whether or not the imposition of a fiduciary
obligation on a new relationship would be appropriate and consistent.

Relationships in which a fiduciary obligation have been imposed seem to possess


t h r e e general characteristics:
(1) T h e f i d u c i a r y has scope f o r the exercise o f some d i s c r e t i o n o r power.
(2) T h e f i d u c i a r y c a n u n i l a t e r a l l y exercise t h a t p o w e r o r d i s c r e t i o n so as t o affect
t h e beneficiary's legal o r p r a c t i c a l interests.
(3) T h e b e n e f i c i a r y is p e c u l i a r l y v u l n e r a b l e t o o r at t h e m e r c y o f t h e fiduciary
h o l d i n g the d i s c r e t i o n o r power.

It is possible for a fiduciary relationship to be found although not all of these


characteristics are present, n o r w i l l t h e presence o f these i n g r e d i e n t s

invariably

i d e n t i f y t h e existence o f a f i d u c i a r y r e l a t i o n s h i p .
The

o n e feature, however, w h i c h

is c o n s i d e r e d t o be i n d i s p e n s a b l e t o t h e

existence o f t h e r e l a t i o n s h i p , a n d w h i c h is m o s t r e l e v a n t

i n t h i s case, is t h a t of

d e p e n d e n c y o r v u l n e r a b i l i t y . I n t h i s regard, I agree w i t h t h e s t a t e m e n t o f Dawson J


i n Hospital Products Ltd v United States Surgical Corp, supra, at p. 488, t h a t :
There is, however, the notion underlying all the cases of fiduciary obligation that

inherent in the nature of the relationship itself is a position of disadvantage or


vulnerability on the part of one of the parties which causes him to place reliance upon

the other and requires the protection of equity acting upon the conscience of that othe

The necessity for this basic ingredient in a fiduciary relationship is underscored


i n Professor Weinrib's s t a t e m e n t , q u o t e d i n Guerin, supra, at p. 3 8 4 t h a t :

214

Marc Hammerson

... the hallmark of a fiduciary relation is that the relative legal positions are such tha
one party is at the mercy of the other's discretion.

To the same effect is the discussion by Professor Ong in "Fiduciaries:


I d e n t i f i c a t i o n a n d Remedies" (1986), 8 U. ofTasm. L. Rev. 311, i n w h i c h he suggests
t h a t t h e e l e m e n t w h i c h gives rise t o a n d is c o m m o n t o a l l f i d u c i a r y r e l a t i o n s h i p s is
the " i m p l i c i t dependency b y t h e beneficiary o n t h e fiduciary". This c o n d i t i o n of
d e p e n d e n c y m o v e s e q u i t y t o subject t h e f i d u c i a r y t o its strict standards o f c o n d u c t .
T w o caveats m u s t be issued. First, t h e presence o f c o n d u c t t h a t incurs t h e censure
of a c o u r t o f e q u i t y i n the c o n t e x t o f a f i d u c i a r y d u t y c a n n o t itself create t h e duty.
I n Tito v Waddell (No. 2) [1977] 3 A l l ER 129, at p. 230, M e g a r r y V-C said:

If there is a fiduciary duty, the equitable rules about self-dealing apply: but self-deal
does not impose the duty. Equity bases its rules about self-dealing upon some pre-

existing fiduciary duty: it is a disregard of this pre-existing duty that subjects the se
dealer to the consequences of the self-dealing rules. I do not think that one can take a

person who is subject to no pre-existing fiduciary duty and then say that because he selfdeals he is thereupon subjected to a fiduciary duty.

Second, applying the same principle, the fact that confidential information is
o b t a i n e d a n d misused c a n n o t itself create a f i d u c i a r y o b l i g a t i o n . N o d o u b t o n e o f the
possible i n c i d e n t s
information

of a fiduciary relationship

is t h e e x c h a n g e o f c o n f i d e n t i a l

a n d r e s t r i c t i o n s o n its use. Where, however, t h e essence o f t h e

c o m p l a i n t is misuse o f c o n f i d e n t i a l i n f o r m a t i o n , the a p p r o p r i a t e cause o f a c t i o n i n


f a v o u r o f t h e p a r t y aggrieved is b r e a c h o f c o n f i d e n c e a n d n o t b r e a c h o f f i d u c i a r y
duty.
I n m y o p i n i o n , b o t h t h e t r i a l judge a n d the C o u r t of A p p e a l erred i n c o m i n g t o
t h e c o n c l u s i o n t h a t a f i d u c i a r y r e l a t i o n s h i p existed b e t w e e n C o r o n a a n d Lac. I n m y
respectful o p i n i o n , b o t h t h e t r i a l judge a n d t h e C o u r t of A p p e a l erred b y n o t g i v i n g
s u f f i c i e n t w e i g h t t o the essential i n g r e d i e n t o f d e p e n d e n c y o r v u l n e r a b i l i t y a n d t o o
m u c h w e i g h t t o o t h e r factors. T h e latter are as f o l l o w s :
(a) t h a t the state of t h e n e g o t i a t i o n s a t t r a c t e d the p r i n c i p l e i n United Dominions
Corp v Brian Pty Ltd (1985), 59 ALJR 676;
(b) t h a t Lac h a d s o u g h t o u t C o r o n a ;
(c) t h a t

t h e geochemical program

constituted

an embarkation

o n a joint

venture;
(d) t h a t C o r o n a h a d d i v u l g e d c o n f i d e n t i a l i n f o r m a t i o n t o Lac;
(e) t h a t a practice i n t h e m i n i n g i n d u s t r y s u p p o r t e d t h e existence of a f i d u c i a r y
relationship;
(f)

t h a t t h e parties were n e g o t i a t i n g t o w a r d s a c o m m o n object.

The United Dominions Case


I n l i g h t o f t h e above,"" t h e c o u r t c o n c l u d e d t h a t t h e parties h a d e m b a r k e d o n a
j o i n t v e n t u r e w h i c h t h e c o u r t f o u n d t o be p l a i n l y a p a r t n e r s h i p . T h e c o u r t f u r t h e r

103

The facts o f United Dominions case were referred to. These are set out i n pages 205 t o 212.

215

J o i n t o p e r a t i n g agreements

f o u n d , at p. 680, t h a t p r i o r t o t h e g r a n t o f t h e first mortgage, t h e "arrangements


b e t w e e n t h e prospective j o i n t venturers h a d passed far b e y o n d t h e stage o f mere
n e g o t i a t i o n " . Clearly, i f t h e d r a f t a g r e e m e n t h a d n o t b e e n signed subsequently, an
agreement s u b s t a n t i a l l y i n accordance w i t h its t e r m s w o u l d have been f o u n d t o exist
b y t h e court. Prior t o its e x e c u t i o n , t h e r e l a t i o n s h i p o f UDC, SPL a n d Brian was that
of a de facto p a r t n e r s h i p o r j o i n t venture. F u r t h e r m o r e , B r i a n e n t r u s t e d SPL w i t h its
f u n d s a n d its interest i n t h e l a n d w i t h t h e f u l l k n o w l e d g e o f UDC.
t h e r e f o r e "at t h e m e r c y o f t h e i r d i s c r e t i o n " . I n t h i s respect

Brian was

t h e case is clearly

d i s t i n g u i s h a b l e f r o m t h e case at bar. T h e t r i a l judge f o u n d t h a t Lac a n d C o r o n a "were


clearly n e g o t i a t i n g t o w a r d s a j o i n t v e n t u r e or some o t h e r business r e l a t i o n s h i p " . The
r e s p o n d e n t h a d pleaded t h a t a p a r t n e r s h i p agreement e x i s t e d b e t w e e n i t a n d the
a p p e l l a n t b u t t h i s c l a i m was a b a n d o n e d . I n t h i s respect, t h e t r i a l judge f o u n d as
follows: "The m o s t t h a t c a n be said is t h a t t h e parties c a m e t o a n i n f o r m a l oral
u n d e r s t a n d i n g as t o h o w each w o u l d c o n d u c t itself i n a n t i c i p a t i o n o f a j o i n t venture
or some o t h e r business arrangement". (Emphasis added.)
The
had

parties here h a d n o t a d v a n c e d b e y o n d t h e n e g o t i a t i o n stage. Indeed, they

n o t as yet i d e n t i f i e d w h a t precisely t h e i r r e l a t i o n s h i p s h o u l d be. Furthermore,

C o r o n a d i d n o t confer o n Lac a n y d i s c r e t i o n a r y p o w e r t o acquire t h e Williams


property. Lac proceeded u n i l a t e r a l l y t o acquire

the property

f o r itself allegedly

m a k i n g use o f c o n f i d e n t i a l i n f o r m a t i o n , a n d t h a t essentially is t h e g r o u n d of
Corona's c o m p l a i n t .
The C o u r t of A p p e a l r e c o g n i z e d t h a t t h i s case d i f f e r e d f r o m t h e United

Dominions

case, supra, at p. 317. I n its o p i n i o n , however, t h e o t h e r factors present i n the case


w h i c h I have e n u m e r a t e d above, (a) t o (f), m a d e u p f o r t h e difference.
I c a n n o t f i n d t h a t factor (b) adds very m u c h t o t h e case i n favour of a f i n d i n g
t h a t a f i d u c i a r y r e l a t i o n s h i p existed. I n every c o m m e r c i a l v e n t u r e , o n e of the parties
approaches t h e other. C o r o n a was seeking a senior m i n i n g c o m p a n y a n d Lac
responded w i t h a n expression o f interest. T h i s is n o t a n indicium

o f a fiduciary

r e l a t i o n s h i p . N o r c a n I accept t h a t f a c t o r (c), t h e a r r a n g e m e n t as t o t h e geochemical


p r o g r a m , was a step i n t h e i m p l e m e n t a t i o n o f a j o i n t venture. T h e t r i a l judge d i d not
so f i n d a n d t h e e v i d e n c e is t o o sketchy t o be able t o relate t h i s a c t i v i t y t o any
proposed

agreement

undetermined. W i t h

between
respect

t h e parties, t h e nature

t o factor (d) as e x p l a i n e d

of which

itself

was

above, t h e supply of

c o n f i d e n t i a l i n f o r m a t i o n is n o t necessarily referable t o a f i d u c i a r y r e l a t i o n s h i p a n d is
t h e r e f o r e at best a n e u t r a l factor. T h e o t h e r t w o factors, (e) a n d (f), require more
extensive

consideration.

The Practice in the Industry


The t r i a l judge c o n c l u d e d as f o l l o w s , at pp. 537-38:
/ conclude,

following

C u n l i f f e - O w e n , supra, that there is a practice in the mining

industry that imposes an obligation when parties are seriously negotiating not to act to
the detriment of each other.

... It is understandable that, in a contract setting, a practice that is notorious and


clearly d e f i n e d a n d relevant t o t h e business u n d e r discussion s h o u l d be i n c o r p o r a t e d

216

Marc H a m m e r s o n

as a t e r m . I t c a n r e a d i l y be i n f e r r e d t h a t t h e parties agreed t o it. I t is a considerable


leap f r o m t h i s p r i n c i p l e t o erect a f i d u c i a r y r e l a t i o n s h i p o n the basis of such a practice.
N o a u t h o r i t y was c i t e d t o the C o u r t t h a t t h i s c o n c e p t c a n s i m p l y be t r a n s p l a n t e d

in

t h i s fashion. I t is s i g n i f i c a n t t h a t t h e t r i a l judge d i d n o t rely o n t h i s evidence i n


f i n d i n g t h a t a f i d u c i a r y o b l i g a t i o n existed (pp. 776-77). Moreover, a c c e p t i n g t h e
e v i d e n c e at face value, i t is m o r e consistent w i t h t h e o b l i g a t i o n o f c o n f i d e n c e . T h e
practice relates t o a d u t y w h i c h arises u p o n t h e exchange of c o n f i d e n t i a l i n f o r m a t i o n .
F u r t h e r m o r e , i n t h e absence o f a n y i l l u s t r a t i o n s o f the o p e r a t i o n o f the practice, we
are left w i t h a n expert's o p i n i o n

o n w h a t is essentially a q u e s t i o n o f l a w - t h e

existence of a f i d u c i a r y duty. T h e practice a m o n g geologists t o act h o n o u r a b l y t o w a r d s


each o t h e r is n o d o u b t a d m i r a b l e a n d a practice t o be fostered, b u t i t s h o u l d n o t be
used t o create a f i d u c i a r y r e l a t i o n s h i p w h e r e o n e does n o t exist.

Common Object
The C o u r t of A p p e a l stressed t h a t t h e parties were n o t s i m p l y n e g o t i a t i n g a n o r d i n a r y
c o m m e r c i a l c o n t r a c t b u t were n e g o t i a t i n g i n f u r t h e r a n c e o f a c o m m o n object. T h i s
f a c t o r does n o t p a r t i c u l a r l y d i s t i n g u i s h

negotiations

i n furtherance

of any

p a r t n e r s h i p o r j o i n t v e n t u r e . A l l such n e g o t i a t i o n s seek t o achieve a c o m m o n object,


n a m e l y t h e a c c o m p l i s h m e n t o f t h e business v e n t u r e f o r w h i c h t h e p a r t n e r s h i p o r
j o i n t v e n t u r e is s o u g h t t o be f o r m e d . I d o n o t see h o w t h i s factor c a n elevate
n e g o t i a t i o n s t o s o m e t h i n g more.

Dependency or Vulnerability
I n m y o p i n i o n , t h i s v i t a l i n g r e d i e n t was v i r t u a l l y l a c k i n g i n t h i s case. Its absence
c a n n o t be replaced b y a n y o f t h e factors m e n t i o n e d above. T h e C o u r t of A p p e a l dealt
w i t h it as f o l l o w s , at pp. 49-50:
It was a case of negotiations between a junior mining company (Corona) whose primary
activities were those of locating, staking and evaluating mining claims and a senior
mining company
practice and

(Lac) whose activities included all of the above together with the

experience of bringing into production and

operating gold mining

properties. It was a case of the senior company seeking out the junior company in order
to obtain information with respect to mining claims already owned by the junior
company and to discuss a joint business venture. Having regard to the practice found to
exist in the industry with respect to the obligation not to act to the detriment of each

other, particularly with respect to confidential information disclosed, it was to be


expected that Corona would divulge confidential information to LAC during the course

of their negotiations. In those circumstances, it is only just and proper that the court find

that there exists a fiduciary relationship with its attendant responsibilities of deali
fairly including, but not limited to, the obligation not to benefit at the expense of the
other from information received by one from the other.

This statement seems to imply that there was a kind of physical or psychological
dependency

here w h i c h

attracted

f i d u c i a r y duty. I l l u s t r a t i o n s o f t h i s t y p e o f

d e p e n d e n c y are n o t d i f f i c u l t t o f i n d . T h e y i n c l u d e

p a r e n t a n d c h i l d , priest a n d

p e n i t e n t a n d t h e like. Clearly, a d e p e n d e n c y o f t h i s t y p e d i d n o t exist here. W h i l e i t

217

Joint operating agreements

is perhaps possible t o h a v e a d e p e n d e n c y of t h i s sort b e t w e e n c o r p o r a t i o n s , that


c a n n o t be so w h e n , as here, we are d e a l i n g w i t h e x p e r i e n c e d m i n i n g p r o m o t e r s
h a v e ready access t o geologists, engineers a n d

lawyers. The

who

fact t h a t t h e y were

a n x i o u s t o m a k e a deal w i t h a senior m i n i n g c o m p a n y surely c a n n o t attract the


special p r o t e c t i o n of equity. I f c o n f i d e n t i a l i n f o r m a t i o n was

disclosed a n d

misused,

t h e r e is a r e m e d y w h i c h falls s h o r t o f c l a s s i f y i n g t h e r e l a t i o n s h i p as fiduciary. In
Frame

v Smith,

supra,

W i l s o n J dealt w i t h t h i s i n d i c i a o f f i d u c i a r y d u t y i n the

f o l l o w i n g language (at pp. 137-38):


77?is vulnerability

arises from

efforts) to prevent

the injurious exercise of the power

grave inadequacy

or absence

the inability of the beneficiary

of other legal or practical remedies

exercise of the discretion or power.


beneficiary
dealings

at the hands

of experienced

length: see, for example,


639

strength

their bargaining
discretion or power

power

bargaining

2.