Is relief from forfeiture available for a licence?

The Supreme Court recently held that relief from forfeiture was available in respect of a valuable perpetual licence to discharge surface water and trade effluent into a canal, which had been terminated for non-payment of the licence fee. Although the Court noted that relief would not be available for every property licence, the case usefully highlights that in relation to land relief from forfeiture can extend beyond landlord and tenant situations.

What happened?

The licensor Manchester Ship Canal Company (MSCC) had terminated Vauxhall Motors' (Vauxhall) licence for non-payment of the licence fee. Under the forfeited licence, the fee to discharge the surface water and trade effluent was £50 per annum. If relief was not granted and a new licence was required, the fee was estimated to be in excess of £300,000. So it was clear why the parties were in dispute and Vauxhall was seeking relief.

The question for the Supreme Court...

For relief from forfeiture to be granted one condition is that the right of termination must have been intended to secure the payment of money or the performance of other obligations and this was clearly satisfied in this matter. The question for the Supreme Court concerned the second condition, which was whether the rights which Vauxhall had lost were sufficient to engage the jurisdiction to grant relief.

Whilst there is no question relief from forfeiture is available for a lease which creates a proprietary interest in land, MSCC's position was that relief from forfeiture had 'traditionally been assumed' not to apply to contractual licences which create lesser rights. The Supreme Court therefore dealt with technical arguments as to whether, in relation to a licence over land the equitable remedy of relief from forfeiture was available.

The focus, given the nature of the rights granted by this particular licence (which gave Vauxhall a right over MSCC's land to discharge surface water and trade effluent into the canal and to construct, maintain and access the infrastructure needed to do this), was on whether relief would apply to possessory as well as proprietary rights. The Supreme Court noted that case law pointed to a recognition that a purely possessory right is something falling short of ownership, or a proprietary interest. In considering the concept of possessory rights the Supreme Court referenced the approach applied by the Court of Appeal in this matter:

There are two elements to the concept of possession: (1) a sufficient degree of physical custody and control (factual possession); (2) an intention to exercise such custody and control on one's own behalf and for one's own benefit (intention to possess). What amounts to a sufficient degree of physical custody and control will depend on the nature of the relevant subject matter and the manner in which that subject matter is commonly enjoyed.

The outcome

Some key points from the judgment which held Vauxhall was entitled to relief from forfeiture in relation to its licence:

• Relief from forfeiture can be given where the rights in land are possessory only. It was noted that as it was now settled that equitable relief may apply to forfeiture of possessory rights in relation to a wide range of chattels and other forms of personal property, it would be 'strange' if equity's reach was wider in relation to those than over rights in relation to land. This was particularly so as equitable relief from forfeiture can trace its origins back to rights in relation to land. The focus should be on the nature of the right rather than the property over which it is exercised.

• The Supreme Court upheld the Court of Appeal's finding that the rights granted under the licence were possessory noting 'Vauxhall built, operated and maintained that infrastructure, and had exclusive perpetual use of it'. However, the judge also commented that many licences may still grant rights which fall short of possession and that the licence granted in this case was a very unusual one: '[i]t by no means follows from a conclusion that the rights conferred by this Licence are within equity's jurisdiction to relieve from forfeiture, that licences in relation to land will fall generally within that same boundary'. It was the possessory nature of the right which was key in this case (indeed the Court noted the nature of rights under the licence were closer to those usually found in an easement or a lease).

• The scope for equitable intervention should be by way of reasonably clear boundaries. These should be identified by way of reference to a principled understanding of the nature and purpose of the relevant equity, rather than be merely arbitrary. The 'slavish adoption' of a rule that in relation to land nothing other than a proprietary interest will do would not satisfy this approach. Adopting similar reasoning the Supreme Court also rejected Vauxhall's argument that relief from forfeiture should apply to any right to use property.

• Cases in relation to possessory rights not related to land suggest that in order to qualify for relief from forfeiture the possessory right should be one which is indefinite. The Supreme Court raised the possibility that relief from forfeiture may apply to possessory rights which are not perpetual rights. However, as the licence in this case was perpetual the Supreme Court did not have to decide this point.

The Manchester Ship Canal Company Ltd v Vauxhall Motors Ltd [2019] UKSC 46