A dispute over a manufacturer’s drainage rights into the Manchester Ship Canal has ended at the Supreme Court – Allyson Colby spills the details
We are often told that “businesses need certainty”. So the courts tend to be cautious about applying equitable rules in the world of commerce due to concerns that this would cause uncertainty and – to quote Lady Justice Gloster in UBS v Kommunale Wasserwerke Leipzig GMBH [2017] EWCA Civ 1567 – apply the “standards of the vicarage” to commercial transactions.
Consequently, the litigants had to pursue their case all the way to the Supreme Court in Vauxhall Motors Ltd (formerly General Motors UK Ltd) v Manchester Ship Canal Co [2019] UKSC 46; [2019] PLSCS 202, to establish whether the equitable rules that enable the courts to grant relief against the forfeiture of a proprietary interest in land also apply to the loss of a licence.
History in the making
Vauxhall had been granted a contractual licence to discharge surface water and treated trade effluent from its car assembly plant in Ellesmere Port into the adjoining canal. The right was granted in perpetuity, in return for an annual fee of £50, and the licence had subsisted for more than 50 years. But Vauxhall forgot to pay the annual fee in 2013, and the canal owner terminated the licence. On receipt of the termination notice, Vauxhall tendered the payment due, but the canal owner sought annual payments of more than £300,000 for new drainage rights. So Vauxhall applied for relief from forfeiture instead.
The judge at first instance accepted that relief is available where there are proprietary or possessory rights, and decided that Vauxhall’s rights were so nearly possessory that the equitable jurisdiction was engaged. The Court of Appeal took a different approach. It preferred to stay within the recognised boundaries of the jurisdiction. But it ruled that the rights were, in fact, possessory in nature and that Vauxhall could, and should, be granted relief against the forfeiture of its licence.
On appeal, the canal company tried to persuade the Supreme Court to step back. It claimed relief from forfeiture is available for proprietary – but not possessory – rights over land. It argued that the concept of “possession” has no single clear or settled meaning in relation to land. So the availability of relief against the forfeiture of possessory rights over land would cause confusion and uncertainty in an area of law where certainty commands a premium.
Personalty
Lord Briggs, who delivered the leading judgment, reviewed the law as it has been applied in cases involving personalty and took the view that, if the concept of possessory rights had not caused damaging uncertainty in widely varying commercial contexts – encompassing ships, trademarks, patents, video equipment and shares – there was no obvious reason why it should do so in relation to land. Furthermore, there were powerful reasons why the remedy should accommodate possessory rights over land.
The remedy had been developed in the context of land. So it would be strange if equity’s reach was wider in relation to personalty than it was in relation to land. Indeed, there was no logical or principled reason to distinguish between land and other types of property – and any such distinction would lead to arbitrary results.
Possessory rights
The court gave short shrift to the canal company’s argument that the concept of “possession” has no single clear or settled meaning in relation to land. It embraced Lewison LJ’s definition of “possession” in JA Pye (Oxford) Ltd v Graham [2002] UKHL 30; [2002] 28 EG 129, which combines an “intention to possess” with “factual possession”, describing the test as “a practical and workable concept which, although necessarily fact based, involves no inherent uncertainty”.
So the question was: were the rights granted to Vauxhall possessory or not? The Supreme Court noted that Vauxhall had built, operated and maintained the infrastructure, and that it had been granted a high degree of control and almost exclusive possession of it in perpetuity. Consequently, on the facts of this case, the rights did fall within the possessory class of rights in respect of which the court has jurisdiction to grant relief.
So far, but no further
The court rejected Vauxhall’s suggestion that the equitable jurisdiction to grant relief should be extended to all rights to use property (whether real or personal) so long as the right to terminate secures the payment of money or the performance of other obligations. It considered that this would undermine the certainty and coherence of the law. Lady Arden delivered a concurring judgment – however, in her view, the key question is not how rights are categorised, but whether the circumstances are such that equity should grant relief. And she chose not to express a view on Vauxhall’s argument that relief from forfeiture should extend to all rights to use property.
The members of the court agreed that many licences will grant rights that fall short of possession and that Vauxhall’s licence was a “very unusual one”. It conferred rights that were more extensive than an easement (which is susceptible to relief from forfeiture) and was prevented from being a lease only because it was perpetual. But the court stopped short of imposing a rule that possessory rights must be indefinite to qualify for relief, referring to a suggestion in The Scaptrade (Scandinavian Trading Tanker Co AB v Flota Petrolera Ecuatoriana) [1983] 2 AC 694 that it might be possible to grant relief from forfeiture in the case of a charter by demise of a ship, even though charters are typically shorter than a vessel’s life.
So the point remains open – and is likely to crop up in future cases.
Allyson Colby is a property law consultant
