Relief from forfeiture available for breach of a licence

In Manchester Ship Canal Co Ltd v Vauxhall Motors Ltd [2018] EWCA Civ 1100 the Court of Appeal recently held that relief from forfeiture was available in respect of a licence to discharge surface water and trade effluent into a canal, which had been terminated for non-payment of the licence fee. The case usefully highlights that relief from forfeiture can extend beyond landlord and tenant situations.

Background

In this case a licence was granted in perpetuity in 1962 by Manchester Ship Canal Co Ltd (MSCC) to Vauxhall for an annual fee of £50, permitting Vauxhall to discharge surface water and trade effluent into the Manchester Ship Canal. In 2013 Vauxhall did not pay the £50, despite a warning notice being given by MSCC. This led to termination of the licence in March 2014. Vauxhall then immediately offered to pay, but this was rejected.

Negotiations commenced for a new licence but the value of the right to discharge surface water and effluent was now estimated at between £300,000 and £440,000 per annum. Vauxhall therefore sought relief from forfeiture in respect of the licence which allowed them to exercise the rights for £50 per annum.

The issue

The High Court granted relief from forfeiture and MSCC appealed this decision on the grounds:

• the court did not have jurisdiction to grant relief from forfeiture, and
• the application for relief was made too late.

The outcome

The Court of Appeal determined that relief from forfeiture was limited to those cases where possessory or proprietary rights are created. It held that Vauxhall did not have proprietary rights in this case because its interest was a licence which did not create rights of ownership. However, the Court of Appeal found that the licence "considered as a whole" gave Vauxhall possessory rights. The judgment noted:

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.

It was further held that "it is not necessary that the possessory rights be rights in land in order to attract the jurisdiction to grant relief against forfeiture. Possessory rights in the infrastructure, or even in the airspace enclosed by the infrastructure would, in my judgment, be enough."

The court found that Vauxhall had responsibility for the physical construction of the infrastructure that provided the drainage system and sole primary responsibility for its maintenance and repair. Although the infrastructure became part of MSCC’s land once installed, the court held that Vauxhall’s rights over the property together with its physical characteristics and the clear intention at the time of grant that Vauxhall would be the only entity able to use and maintain it, were sufficient to be possessory in nature. The Court of Appeal held that the fact Vauxhall had later granted others the right to discharge water through the pipes did not in this case stop Vauxhall having possession (it not being suggested any of the other parties having a right to discharge had possessory rights).

The Court of Appeal noted that the second condition that must be satisfied for relief from forfeiture to be granted is that the right of termination must have been intended to secure the payment of money or the performance of other obligations and in this case it was clear it was.

The final point that the court considered in relation to the application for relief from forfeiture was whether the High Court had been wrong to grant relief because there was a delay of in Vauxhall making the application (almost a year from termination). The Court of Appeal found that the judge had correctly exercised their discretion; Vauxhall had continued to exercise its rights during the period in question and the delay had not caused any prejudice. The Court of Appeal further found that the judge was entitled to take into account the windfall that would accrue to MSCC if relief was not granted.

Comment

While relief from forfeiture being granted in relation to contracts other than leases is a rare occurrence, the decision nevertheless provides a useful example of such relief being available. Following a recent line of forfeiture cases involving leases, that fact that MSCC were seeking to benefit from a huge hike in licence fee and gain a windfall was clearly a factor which drove the Court to exercise their discretion in granting relief.