Wynne-Finch: Court of Appeal rules mudstone not a mineral

Since I wrote Who owns minerals? looking at case law around the ownership of minerals separate from the surface and its impact on the use and development of the surface, there have been two new judgments in the Court of Appeal and High Court, respectively.

Both were firmly based on the principles in earlier cases but developed them further.

There have also been some interesting developments in the title insurance market, which help surface developers manage risk when confronted with third-party mineral ownership at their sites.

Meanwhile the respondent, Natural Resources for Wales, the surface owner, had been extracting mudstone for years and using it to create forest tracks in its forestry estate. The crux of the matter was – did mudstone count as a mineral?

If so, the surface owner would have been committing a trespass and the mineral owner could seek an injunction from the court preventing further trespass or seek damages on what is called a 'hypothetical negotiation' basis.

In other words, a settlement reached between the parties acting reasonably for the grant of any necessary rights to avoid trespass. This would be a form of ransom payment for the right to extract and disturb the minerals, not a payment based on the value of the minerals.

The High Court confirmed Mrs Justice Falk's original decision in Wynne-Finch v Natural Resources Body for Wales [2020] EWHC 1924 (Ch) that there was no trespass. Mudstone was not a mineral where mineral ownership was retained pursuant to exceptions where the surface was sold, or by an inclosure act where minerals were excepted from the surface. 

In addition, title acquired by individuals by adverse possession of the waste land of the manor included the minerals within it. Therefore, the respondent's digging and making use of the mudstone did not constitute a trespass on the mineral owner's property by the surface owner.

The Court of Appeal judgment, like the previous High Court decision, is wide ranging and carefully considered. There are two aspects that I would specifically highlight. 

"The first is that part of the claim involved a freehold exception of mineral ownership in terms including: 'All mines beds and quarries of coal and ironstone and all other metals stone and minerals'".

The judgment in the 1982 High Court case Earl of Lonsdale v Attorney General [1982] 1 WLR 887 included a review of the previous case law on the meaning of the expressions 'mines and minerals', and confirmed the position that there is no single test, but rather a series of tests and pointers. 

In Wynne-Finch the Court of Appeal considered these tests and pointers in the context of the terms used in the mineral exception above, and the wider law on interpretation. In his leading judgment Henderson LJ stated: 'it would … be surprising if the word 'stone' were to stand out in the present case, as if stranded on an island of literal interpretation, surround as it is by words of such notoriously indeterminate meaning as 'mines' and 'minerals'. 

Substances referred to in minerals exceptions are subject to the same principles of interpretation as the general expressions 'mines' and 'minerals'. Mudstone may be a form of stone, but this 'commercially valueless' substance was not included in the mineral owner's title and belonged to the surface owner.

The judge heard the evidence of two expert mineral surveyors. Applying the same principles as in the Wynne-Finch judgment and referring specifically to the usefulness of that judgment in applying the tests and pointers in the Lonsdale judgment, the judge determined that metallic salts, potash and rock salt were included in the expression 'other metals', as they were sources of metallic elements. 

For surveyors giving expert evidence it is also worth noting the judge commented that both experts strayed beyond giving evidence as specialists in mining history, geology and the use of particular substances and that it is not their job to give an opinion on the interpretation of legal documents. To the extent they give such opinions, their evidence is inadmissible.

It must be remembered that Wynne-Finch and Drummond were decided on specific exceptions and the facts of each case. However, lawyers and surveyors now have clear guidance from the courts that substances referred to in mineral exceptions are subject to the same principles of interpretation as apply to general words such as 'mines' and 'minerals'.

The mineral owner argued that pursuant to this case freehold minerals excepted in an inclosure award are not subject to the usual principles of interpretation of mineral rights, but include all substances below the surface. In a comprehensive judgment, the three Court of Appeal judges rejected this and held that the usual principles should apply.

It seems the courts are reluctant to depart from the tests and pointers set out in Lonsdale and developed in subsequent cases, perhaps taking the view that this area of law is quite complex and uncertain enough already. 

This insurance is usually written on the basis that no proactive steps are permitted. The insured and the insurer wait and see if the identified risk gives rise to any threat or action by a third-party and deal with appropriately if it does.

For sites where third-party mineral rights are apparent from the registered title, in most cases risks are still insurable. However, where the mineral owner is identified and possibly has registered their own mineral title, insurance is increasingly problematic – even if interference with, or trespass to, mineral ownership by surface development is unlikely.

In these circumstances, it may be possible to consider agreed conduct insurance. This is a relatively new product originally aimed at rights of light issues in city centre developments. 

It provides the insured with similar cover to wait-and-see insurance, but unlike wait-and-see policies the insured and the insurer will agree specific proactive steps or conduct. Instructing a broker who understands the market is vital, and it is likely that specialist legal and surveyors' reports will be required. 

The agreed steps or conduct may include approaching and negotiating with a mineral owner or openly challenging their claims that development will interfere with their mineral rights. 

The result is that a development that would otherwise be prevented or stalled can go ahead with the developer's and funder's financial risks covered and managed by the policy.

An effect of the availability of agreed conduct insurance policies is that where previously if a mineral owner were approached by a developer, they could be fairly certain the developer was not backed by insurance, as such an approach would not be permitted by wait-and-see insurance. 

With agreed conduct insurance that is no longer the case. It remains to be seen how this might affect the dynamics of potential litigation and settlement negations.