In General Motors UK Limited v. The Manchester Ship Canal Company Limited 2016 EWHC 2960 (Ch) the High Court granted relief from forfeiture to a mere licensee, thereby reinstating a licence that had otherwise been validly terminated for non-payment of the licence fee. The grant of relief from forfeiture has historically been restricted to cases involving proprietary or possessory rights so this decision is one of note to both licensors and licensees

Background

In 1962 The Manchester Ship Canal Company Limited (MSC) granted General Motors UK Limited (GM) a licence, in perpetuity, to discharge surface water from GM's main manufacturing plant at Ellesmere Port into the Manchester Ship Canal. The licence reserved an annual fee of £50 and a right for MSC to terminate in the event of non-payment.

GM failed to make the 2013 payment of the licence fee and, after some correspondence, MSC terminated the licence on 10 March 2014. The parties subsequently tried to negotiate a new licence but without success. It was clear that MSC was seeking a significantly increased licence fee, in the region of £450,000, for any new arrangement.

Following advice from external counsel, GM brought a claim seeking (among other things) relief from forfeiture (i.e. for the court to exercise its equitable jurisdiction to reinstate the licence although it had been validly terminated).

Jurisdiction to grant relief from forfeiture

Case law has established that relief from forfeiture is generally limited to contracts which involve the transfer of proprietary or possessory rights, rather than cases involving purely contractual rights. As such the first task of the court was to determine what kind of rights had been granted.

On the facts, the court held that the 1962 document created a licence and did not create a proprietary right, such as an easement. This was notwithstanding the fact that it was expressed to be for the benefit of successors in title. As a professionally drafted document the court felt, following the judgment in IDC v. Clark1, that the use of the word "licence" was "of considerable importance" and ultimately persuasive in this case.

In the absence of any proprietary rights, the court considered whether any possessory rights had been granted. GM argued there were possessory rights given its exclusive use of the spillway for over 50 years. The court commented that "assuming, without deciding, that the right of passage of water through the spillway does not amount to a possessory right, it comes about as close to a possessory right as it is possible to imagine".

Following that assumption, and the court's view that the primary purpose of the termination clause was to secure compliance with the covenants in the licence, the final question was whether the court had jurisdiction to grant relief from forfeiture in respect of a contract that created neither proprietary nor possessory rights. The court came to the conclusion that it did have such jurisdiction and therefore granted relief, reinstating the licence with the annual fee of £50.

This case raises two interesting points:

  • In cases of ambiguity the use of the word "licence" can prove persuasive This case demonstrates that when distinguishing a licence from an easement the choice of words can be persuasive. In cases of ambiguity, where the document has been professionally drafted, the use of the label "licence" can place the burden of proof on the other party to show that what has been created is an easement. In contrast, when distinguishing a licence from a lease the language used bears little significance as the court focuses more on substance than form.
  • The court's jurisdiction to grant relief from forfeiture is not limited to contracts creating proprietary or possessory rights Prior to this decision there were no authorities confirming that the court's equitable jurisdiction to grant relief from forfeiture extended to mere licences. As such, this case appears to break new ground. However, it is clear from the judgment that it was only with "some hesitation" that the court found in favour of GM and there is a good chance that this could go to appeal. In this case the following appeared to weigh in GM's favour:
    • the rights granted were as close as is possible to being possessory rights;
    • the licence had been granted in perpetuity;
    • the court did not feel that there were commercial policy reasons for not granting relief; and
    • as relief is an equitable jurisdiction, there is no statute that prescribes that it can only be granted where there are possessory or proprietary rights. Generally the jurisdiction is limited to those cases but there may be exceptional circumstances in which it is appropriate to grant relief in the absence of such rights.