The Court of Appeal yesterday said that General Motors can continue to discharge water from its Ellesmere Port plant into the Manchester Ship Canal for just £50 a year, even though the original contract allowing this was terminated for breach.
The ruling backs a lower court judgment in the case (General Motors UK v Manchester Ship Canal Company), a technically complicated and potentially controversial case about “relief from forfeiture” that is of importance to practitioners.
The case, which “bristles with points of law” according to an earlier ruling, is about the circumstances in which licence contracts can be equitably resurrected after being terminated for breach.
Specifically, it relates to a licence granted in 1962 by the Manchester Ship Canal Company to General Motors (GM), allowing it drainage rights into the canal.
The licence, which was of great use to GM’s Vauxhall plant in Ellesmere Port, came at the cost of just £50 a year. However, GM stopped paying it in 2013 and the Manchester Ship Canal Company terminated the licence in 2014.
The case ended with a High Court ruling in 2017 in which Behrens J granted GM “release from forfeiture”, something that surprised some properly lawyers, who had assumed that it was a legal mechanism restricted mainly to leases and contracts granting proprietary interests.
This meant that the GM, by then known as Vauxhall, could continue to exercise the rights granted under the original license, and discharge surface water and trade effluent into the canal for £50 a year, even though the market rate is between £300,000 and £440,000.
The parties challenged the ruling, and a three-judge panel at the Court of Appeal heard the case last month.
In their ruling yesterday the judges said that, due to the circumstances of this particular case, the lower court judge was entitled to resurrect the contract and allow the car plant to continue to discharge water at the original charge of £50 a year.
The case is being watched closely by property lawyers because of the “potentially far-reaching and unexpected issue” that the lower court judgment raised, said Matthew Bonye, head of real estate dispute resolution at law firm Herbert Smith Freehills.
“The lower court ruling blurred what was thought to be an important distinction between leases and licences: the finality of a termination,” Bonye said. “Property owners enter into licences partly to avoid the complications of relief that can apply to almost every lease where it is forfeited.”
However, while the Court of Appeal backed GM, the judges “helpfully clear and detailed analysis” won’t give property lawyers too many sleepless nights.
“Despite upholding the original decision, the judgment makes it clear that most licences granted for use of premises should not be subject to a right of relief from forfeiture by the licensee,” Bonye said. “Property owners who grant licences will be relieved by that.”
“An entitlement to claim relief may however be available after termination for breach of a licence to use infrastructure such as pipes or machinery assembled on land,” he said.
“This would occur if the licensee has been given sufficient rights to control the infrastructure, maintain it, and have custody over it so that their rights have tipped over into being possessory in nature.”
“We were left, after the first instance decision, with a tantalising proposition, namely that a licence agreement could be subject to relief where the rights granted were not actually “possessory” but “as close to possessory as it is possible to imagine.
“The Court of Appeal has clarified matters, by determining that the rights granted in this very particular case actually were possessory, because the licence governed the licensee’s right to install, use and control pipes and mechanical infrastructure. This, therefore, pulled the law back from going over into unknown territory where land licences might be subject to relief.”
However, Bonye said, not everything has been resolved. There is still a question as to where exactly the line is between licences of infrastructure, where relief may now be available, and licences purely of land, where it is not, he said.
“It will also be interesting to see whether the Supreme Court will be minded to grant permission to hear the matter, if the licensor decides to press on with a further appeal.”
Vauxhall Motors Ltd (formerly General Motors UK Ltd) v Manchester Ship Canal Company Ltd
Court of Appeal (Lewison LJ, Floyd LJ, Richards LJ) 17 May 2018
William Norris QC, instructed by Duane Morris for the claimant.
Katharine Holland QC, instructed by Hill Dickinson LLP, for the defendant.
