Licence – Relief from forfeiture – Discretion – Appellant purporting to terminate respondent’s right to discharge surface water into canal – Respondent seeking relief from forfeiture – Whether court having power to grant relief – Whether negotiations for new right preventing respondent from claiming relief from forfeiture – Whether court should exercise discretion to refuse relief – Appeal dismissed
In 1962, the appellant granted the respondent the right to discharge surface water from its plant into the Manchester Ship Canal, which it owned, through a spillway. The respondent’s main manufacturing plant at Ellesmere Port adjoined the appellant’s land and drained through it to the canal. The document granting the right was described as a licence and the right was granted in perpetuity; it required the respondent to pay an annual sum of £50 and contained provisions which entitled the appellant to terminate the right if the £50 was not paid.
When the respondent failed to pay a sum due, the appellant validly terminated the right pursuant to clause 5 of the licence. Although the respondent subsequently offered to pay the overdue sum, the appellant refused to accept it. The parties then entered into negotiations for the grant of a temporary new right but the appellant sought a substantially increased annual sum. The negotiations reached an advanced stage but before a contract was concluded, the respondent decided to take external legal advice and issued proceedings seeking, among other things, relief from forfeiture. The appellant contended that there was no power to grant relief from forfeiture; or, if there was, the respondent was estopped from claiming relief because of the negotiations which gave rise to an estoppel by representation and/or by convention. Accordingly, as a matter of discretion, this was not an appropriate case for relief.
The judge granted the respondent’s application on the basis that, assuming the right of passage of water through the appellant’s land did not amount to a possessory right, it was about as close to a possessory right as it was possible to imagine: [2016] EWHC 2960 (Ch); [2016] PLSCS 331. The appellant appealed, contending that the judge had no jurisdiction to grant relief as the equitable jurisdiction to grant relief against forfeiture only applied to contracts conferring proprietary or possessory rights, and the licence conferred neither right.
Held: The appeal was dismissed.
(1) The licence cast upon the respondent the responsibility for the physical construction of the infrastructure and the sole primary responsibility for its maintenance and repair. It did not reserve to the appellant rights to use the infrastructure or (except in case of default by the respondent) to carry out works to it. Those rights over the physical property, coupled with its physical characteristics and the clear intention that the respondent would be the only entity able to use and maintain it, amounted to a sufficient degree of physical custody and control of the infrastructure (although 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 was commonly enjoyed. The respondent plainly intended to exercise those rights (and fulfil those responsibilities) on its own behalf and for its own benefit. The combination of those elements meant that the rights granted by the licence were possessory in nature and thus opened the way to the exercise of the equitable jurisdiction to grant relief against forfeiture. In order to engage the jurisdiction to grant relief, the right of termination must have been intended to secure the payment of money or the performance of other obligations. In the present case, the rights granted were rights “in perpetuity subject to the rent or annual sum hereinafter made payable and the covenants on the part of [the respondent] and the conditions hereinafter contained”. Payment of the annual sum and performance of the covenants were the substratum on which the grant depended. Clause 5 was exercisable only if there was a default in performance by the respondent. It was the sanction for non-performance; and it was applicable whether the breach of obligation in question was serious or trivial. Its form of drafting mirrored that of a forfeiture clause in a lease, save only that it inserted the stage of a preliminary notice. But that additional stage, at least in the case of a breach other than non-payment of the annual sum, did no more than replicate in contractual form the provisions of section 146 of the Law of Property Act 1925 which applied to all leases. Therefore, the judge had jurisdiction to grant relief against forfeiture: Newcastle-Under-Lyme Corporation v Wolstanton Ltd [1947] Ch 427, BICC plc v Burndy Corporation [1985] Ch 232 and Çukurova Finance International Ltd v Alfa Telecom Turkey Ltd (Nos 3 to 5) [2016] AC 923 applied.
(2) In granting relief against forfeiture, the judge was making a discretionary decision. It was only possible to interfere with his decision if he was wrong in principle. The general approach of a court of equity, where the default in question was a failure to pay, was to grant relief on terms that the defaulter paid what was due plus the costs of the other party. In the context of landlord and tenant, from which the analogy derived, the initiative rested on the landlord either to begin proceedings for possession or to re-enter physically. A defence of laches could arise, but that would only apply where the delay had caused prejudice. The judge found no such prejudice in this case. Moreover, the judge was entitled to take into account, as he did, the windfall that would accrue to the appellant if relief against forfeiture were to be refused. It could not be said that the judge’s exercise of his discretion was wrong.
Katharine Holland QC and Galina Ward (instructed by Hill Dickinson LLP) appeared for the appellant; William Norris QC, Simon Edwards and Daniel Stedman Jones (instructed by Duane Morris) appeared for the respondent.
Eileen O’Grady, barrister
