Cleveland Potash Limited v The Honourable Mrs Ferelith Drummond & Ors

Under the Mines (Working Facilities and Support) Act 1966, compensation for ancillary mining rights is assessed as fair and reasonable between a willing grantor and willing grantee, having regard to the conditions of the grant and all the circumstances. The Act does not generally import compulsory purchase principles or the Pointe Gourde no-scheme rule. A demand for an underground wayleave royalty may nevertheless be unreasonable where it departs from established local and industry practice, is difficult to administer across multiple interests, and is unsupported by reliable comparable evidence. A Certain Rent, free passage and an extraction royalty may provide fair and reasonable compensation. Mineral ownership and working rights reserved by an exception of mines do not, without clear language, confer ownership of the entirety of shafts or other strata.

Cleveland Potash Limited operated Boulby Mine and sought working facilities and ancillary rights to continue extracting offshore polyhalite through existing onshore infrastructure. The application was referred to the High Court under the Mines (Working Facilities and Support) Act 1966 after the parties could not agree lease terms. The principal dispute concerned compensation for leases over mineral interests owned by the first respondent.

The applicant proposed Certain Rent, free passage and an extraction royalty. The respondent proposed an underground wayleave royalty calculated by reference to the value of polyhalite transported through the mine. The court also had to determine whether compulsory purchase principles applied, whether the respondent held a key value in the mine’s operation, and the extent of the respondent’s proprietary interests in the shafts and tunnels.

1. Order and statutory requirements. The court was satisfied that the grant was expedient in the national interest under s.3(1) of the Mines (Working Facilities and Support) Act 1966. The requirements for an order were met. The leases and compensation were to be determined under ss.3, 5 and 8 of the Act, with the final form of lease terms left for negotiation.
2. Compensation principles. Section 8(2) required assessment of what was fair and reasonable between a willing grantor and willing grantee, having regard to the conditions of the grant. The Act did not generally incorporate compulsory purchase principles. Bocardo v Star Energy and another [2010] UKSC 35 concerned the interaction between the 1966 Act and the Petroleum (Production) Act 1934, whose provisions expressly imported compulsory purchase principles. It did not establish a general rule for all 1966 Act cases.
3. Pointe Gourde. If compulsory purchase principles had applied, the Pointe Gourde no-scheme rule would have excluded value attributable solely to the scheme. The respondent did not hold the key to the operation of Boulby Mine. The mine depended on a wider combination of ownerships, leases, infrastructure, shafts, roadways, ventilation and dewatering facilities. The respondent’s interests were one part of that arrangement and did not confer a ransom or exclusive bargaining position.
4. Proprietary interests. The reservation of mines and minerals reserved the relevant mineral strata, associated voids and working rights. It did not give the respondent ownership of the entirety of the shafts or other strata outside the reservation. The respondent’s rights operated alongside the applicant’s freehold and other interests.
5. Valuation. The proposed underground wayleave was unreasonable under s.3(2)(d). The evidence showed no reliable comparable underground wayleave, and the proposed royalty was based on unsupported or outdated assumptions about ownership, access and valuation. The established model at Boulby and Woodsmith was a Certain Rent with free passage and an extraction royalty. That model was fair and reasonable under s.8(2). The court declined to determine an alternative wayleave figure without further expert evidence.
6. Disposition. An order was to be made conferring the necessary rights on the applicant. The grant was to be made by the first respondent, and compensation was payable to her alone. The second and third respondents had no proprietary interests entitling them to compensation.