Allyson Colby updates a dispute over a manufacturer’s drainage rights into the Manchester Ship Canal
Key point
A licensee may be entitled to relief from forfeiture if a licence confers possessory rights and includes a right to forfeit to secure the payment of money or the performance of other obligations
From the earliest times, courts of equity have granted relief against the forfeiture of property in a variety of cases. But The Scaptrade (Scandinavian Trading Tanker Co AB v Flota Petrolera Ecuatoriana [1983] 2 AC 694) put paid to the “beguiling heresy” that the court’s jurisdiction was unlimited. Practical considerations – and, not least, the need for certainty in business transactions – prompted the court to explain that its jurisdiction to grant relief is limited to cases involving the forfeiture of proprietary or possessory rights, and does not apply where rights are purely contractual in nature.
The remedy is available if a tenant has a lease of land. But, in The Scaptrade, Lord Templeman stated that the jurisdiction does not extend to “mere contractual licences”. So a recent High Court decision, granting relief from the forfeiture of a licence, caused quite a stir. The Court of Appeal has now reviewed the decision in Vauxhall Motors Ltd (formerly General Motors Ltd) v Manchester Ship Canal Co Ltd [2018] EWCA Civ 1100; [2018] PLSCS 93.
Licence to spill
The licence in question granted Vauxhall rights to construct and use a spillway to enable it to discharge surface water from its car assembly plant in Ellesmere Port into the adjoining canal. The construction of the drainage system was a substantial undertaking, costing around £90,000 back in 1962, and the rights were granted in perpetuity. But the licence was terminable for non-payment of the annual licence fee, in the sum of £50, and in the case of any other default.
Owing to an oversight, Vauxhall failed to pay the amount due in October 2013, despite being requested and then reminded to pay – which led to the termination of the licence. On receipt of the termination notice, Vauxhall offered to pay the arrears, but the canal owner refused to accept payment. During the negotiations that followed, the canal owner sought up to £440,000 pa for the grant of fresh drainage rights, causing Vauxhall to ask the court to resurrect the licence by granting relief from forfeiture instead.
Jurisdiction
The High Court accepted that Vauxhall had a licence ([2016] EWHC 2960 (Ch); [2016] PLSCS 331). Even so, the judge decided that he could grant relief from forfeiture because the restriction of the jurisdiction to grant relief to proprietary and possessory rights was not statutory and the right to pass water through the spillway came “as close to a possessory right as it is possible to imagine”.
The Court of Appeal ruled that the judge was wrong about the breadth of the court’s jurisdiction. Relief against forfeiture is confined to cases where a claimant has proprietary or possessory rights and the court must keep within the established boundaries. This was, indeed, a blow.
But it was not fatal. The court went on to decide that the licensee had been granted possessory rights. Therefore, the court did have jurisdiction, and there was nothing wrong with the judge’s decision to exercise his discretion to grant relief from forfeiture.
Possessory rights
Lewison LJ, who spoke for the court, accepted that Vauxhall did not have proprietary rights. Applying Melluish (Inspector of Taxes) v BMI (No 3) Ltd [1995] 4 All ER 453, the infrastructure had become part of the canal owner’s land. However, the fact that Vauxhall did not have a proprietary interest did not mean that it did not have possessory rights.
Furthermore, relief against forfeiture is not confined to cases involving real property. Therefore, possessory rights need not affect land in order to engage the jurisdiction. Possessory rights in the infrastructure, or even in the airspace enclosed by the infrastructure, would suffice.
Lewison LJ explained that the concept of possession involves two elements: 1) a sufficient degree of physical custody and control (factual possession); and 2) an intention to exercise such custody and control for one’s own benefit (intention to possess). His Lordship added that the first limb is to be judged by reference to the subject matter and the way in which it is usually enjoyed. The second limb is to be objectively ascertained in the light of the actions of the would-be possessor: JA Pye (Oxford) Ltd v Graham [2002] UKHL 30.
Vauxhall was responsible for the construction, maintenance and use of the infrastructure. It controlled physical access from the landward side and, although it had granted others rights of use, no one else had any possessory rights over the infrastructure.
The canal owner was not entitled to interfere (although it had a right to step in if the spillway fell into disrepair, and had agreed not to interfere unreasonably with its maintenance and operation). Therefore, construing the licence as a whole, Vauxhall had factual possession of, and an intention to possess, the infrastructure. It followed that its rights were possessory in nature, which opened the door to an application for relief.
Further condition
One further condition needed to be satisfied in order to engage the jurisdiction to grant relief. Shiloh Spinners Ltd v Harding [1973] EGD 284 confirmed that, for relief to be granted, the right to forfeit must have been inserted to secure the payment of money or the performance of other obligations.
Lewison LJ had no doubts on this score. The forfeiture clause was exercisable if Vauxhall was in default. It was the sanction for non-performance and the drafting mirrored a forfeiture clause in a lease.
Therefore, the court did have jurisdiction to relieve Vauxhall from forfeiture and the trial judge’s decision to grant relief was upheld, thereby depriving the canal owner of a substantial windfall.
Allyson Colby is a property law consultant
