The stakes were high in The Manchester Ship Canal Company Limited v Vauxhall Motors Limited (formerly General UK Motors Limited) [2018] EWCA Civ 1100 where a landowner stood to gain in excess of £300,000 a year if the court decided that a licensee had no right to relief from forfeiture in respect of a surface water discharge licence.

Although critical of its reasoning, the Court of Appeal agreed with the High Court and concluded that the licensee had a right to relief from forfeiture, effectively reinstating its existing licence for which only a £50 annual fee was payable.

Facts

In 1962 the Manchester Ship Canal Company (“MSCC”) granted a licence (the “Licence”) to Vauxhall for the discharge of surface water and trade effluent from its plant at Ellesmere Port into the Manchester Ship Canal.

The Licence was granted in perpetuity in consideration of a payment of £50 per year, with no provision for any increase. It included a right for MSCC to terminate where the annual fee was in arrears subject to giving prior written notice to Vauxhall.

Vauxhall failed to pay the £50 annual fee which was due on 12 October 2013. After giving written notice, MSCC terminated the Licence on 10 March 2014. Vauxhall’s immediate offer to pay the outstanding fee was not accepted. The parties then entered into negotiations for a new licence and, although terms were agreed by mid-2014 on a subject to contract basis, a fresh licence was not completed. In January 2015 Vauxhall put MSCC on notice that they intended to apply to the court for relief from forfeiture and went on to make the application in March 2015.

By the time the appeal was heard in April 2018 the evidence was that the value of the right to discharge water and trade effluent into the canal was in the region of £300,000 to £440,000 per year.

High Court decision

His Honour Judge Behrens decided that he had jurisdiction to grant relief against forfeiture and exercised his discretion in favour of such relief. He came to this conclusion assuming (without deciding) that the right of passage of water granted in the Licence is “about as close to a possessory right as it is possible to imagine”.

The Court of Appeal’s decision

MSCC’s appeal was based on an argument that the court did not have jurisdiction to grant relief from forfeiture. Even if it did, the application for relief was made too late.

Did the court have jurisdiction to grant relief from forfeiture?

Giving judgment, Lord Justice Lewison held that relief from forfeiture is available only where possessory or proprietary rights are granted. He disagreed with the approach adopted by the judge in that:

  • He had focused on the question whether the right of passage of water was possessory when he should have considered whether the Licence, considered as a whole, granted possessory rights
  • By apparently extending the boundaries of the jurisdiction to rights which were “close to possessory“, he was diverging from a substantial body of precedent

It was therefore necessary for the Court of Appeal to decide if the Licence granted Vauxhall proprietary or possessory rights.

It was accepted by both parties that the Licence did not create proprietary rights.

Lord Justice Lewison went on to identify the two elements of the concept of possession as factual possession (a sufficient degree of physical custody and control) and intention to possess (intention to exercise custody and control on one’s own behalf and for one’s own benefit).

He also stated that possessory rights need not be rights in land in order to support a right to relief from forfeiture and can include, for example, rights in infrastructure, or the airspace enclosed by infrastructure.

In this case, the terms of the Licence were such that possessory rights were granted. The Licence gave Vauxhall sole responsibility for the construction, maintenance and repair of the infrastructure. MSCC did not reserve any rights to use the infrastructure or to carry out works to it, unless Vauxhall were in default of its own obligations.

Taking those rights into account, the physical characteristics of the property and the intention that only Vauxhall would be entitled to use and maintain it, there was a sufficient degree of physical custody and control of the infrastructure (but not of the soil in which it was placed) having regard to the nature of the property and the manner in which property of that character is normally enjoyed.

It was also clear that Vauxhall intended to exercise its rights and fulfil its responsibilities on its own behalf and for its own benefit.

The conclusion that Vauxhall had possessory rights was not enough on its own to support a decision to grant relief from forfeiture. It was in addition necessary that MSCC’s right to forfeit was intended to secure the payment of money or the performance of other obligations. This was clearly the case because the rights granted in the Licence were subject to the annual fee being paid and performance of the covenants contained in it. The termination right exercised by MSCC was available only if Vauxhall was in default.

Should the court have granted relief from forfeiture?

The Court of Appeal could not interfere with the Judge’s decision unless he was wrong in principle and he had not made such an error.

There was no time limit by which Vauxhall was required to make an application for relief. Delay was a factor which could be taken into account but only where the delay had caused prejudice, which was not the case. Vauxhall did not issue proceedings promptly but MSCC could have made its own application to the court at any time after service of the termination notice and/or chosen to peaceably re-enter.

The Judge was also entitled to take into account the windfall which would benefit MSCC if relief from forfeiture was refused.

Comment

The case is a useful reminder that the right to relief from forfeiture is not necessarily limited to tenants.

Where commercially possible, it is advisable to include flexible “no-fault” termination provisions in licences, so that the licensor may end the contract without fear that the right to forfeit may be available to the licensee.

If — as is likely — it is also necessary to include provisions in a licence permitting termination for breach, the licensor should bear in mind that the licensee may have a right to relief, depending on the subject matter of the contract and all the circumstances.