The UK Supreme Court in The Manchester Ship Canal Company Limited v Vauxhall Motors Limited [2019] UKSC 46 has unanimously rejected the argument that, in the context of land, equitable relief is only available for forfeiture of property rights, as opposed to a right to possession under a contract (such as via a licence to discharge or extract).

Vauxhall Motors Ltd (Vauxhall) operated a large plant on the banks of the Manchester Ship Canal. Vauxhall built the plant in the early 1960s and entered into a contract (Licence) with the Manchester Ship Canal Company (MSCC). The Licence permitted Vauxhall to build various pipes across MSCC’s land (Spillway) and drain surface water and treated industrial effluent into the Canal. Vauxhall agreed to pay £50 per year to MSCC in exchange for these rights. Clause 5 of the Licence allowed MSCC to terminate the Licence if (among other things) Vauxhall did not pay its annual rent within 28 days of a demand. Vauxhall was inadvertently late in making a payment, and MSCC served a termination notice. The effect was that Vauxhall would have to negotiate a new licence at a significantly higher rate per year (expected to be in the hundreds of thousands of pounds). The Court granted relief from forfeiture, effectively reinstating the Licence on the condition that Vauxhall paid its arrears and certain other costs.

The decision aligns with the treatment of forfeiture elsewhere. Relief from forfeiture is an equitable remedy, developed by common law rather than a specific statute. A number of historic cases had already established that relief from forfeiture may be granted by the court in respect of chattels and other personal property, provided that the party seeking relief had proprietary or possessory rights in the relevant items. This decision brings land-related cases in line with those authorities.

Key takeaways from the decision on a practical level are to:

  • Avoid drafting licence termination clauses that are overly similar to a traditional forfeiture clause
  • Include a way to review any licence fee, particularly for renewable, long-term or perpetual licences. For example, Vauxhall only had to make an annual payment of £50, and this was unable to be reviewed on the terms of the licence
  • Avoid granting any possessory or proprietary rights if possible (potentially even for short-term licences, given Lord Briggs JSC’s comments at [51] of the decision). For example, Vauxhall gained virtually exclusive possession of the licensed Spillway and a high degree of control over it in perpetuity. As a result, Vauxhall was entitled to ask the court for relief from forfeiture of those rights.

See the Court's decision here.