Relief from forfeiture may be granted to those with a possessory and/or a proprietary interest in the land, the Supreme Court has ruled.
Kate Andrews recaps the decision in Manchester Ship Canal Co Ltd v Vauxhall Motors Ltd (formerly General Motors UK Ltd)  UKSC 46.
Manchester Ship Canal Co Ltd (MSCC) was the owner of the Manchester Shipping Canal, as well as neighbouring land. Located to the south west of the canal, near to Ellesmere Port, was a large plot of land previously used for military purposes before being acquired in 1961 by the respondent company, Vauxhall Motors Ltd (Vauxhall). Vauxhall developed the plot into a substantial vehicle-manufacturing plant.
In 1962, after the manufacturing plant had been built, Vauxhall entered into a contract with MSCC (the licence) permitting Vauxhall to construct a drainage system on MSCC’s land for the purposes of discharging surface water and “treated industrial effluent” into the canal. Under the terms of the licence, Vauxhall was also granted the right to maintain, alter and renew the pipes and any other apparatus incidental to that purpose. In consideration, Vauxhall was required to pay £50 per year.
Possessory rights are ones which fall just short of ownership or a proprietary interest
In October 2013, Vauxhall failed to make payment of £50, prompting MSCC to issue a first reminder notice pursuant to clause 5 of the licence. This clause allowed MSCC to terminate the licence if payment was not made within 28 days. Vauxhall failed to make the payment, leading MSCC to serve a notice terminating the licence in March 2014.
Vauxhall immediately made an offer to pay the outstanding amount, however, this proposal was rejected. Vauxhall attempted to discuss the possibility of a new licence with MSCC, but these negotiations were unsuccessful.
Vauxhall applied to the High Court for relief from forfeiture (raising the alternative argument that it had the independent right to discharge surface water as a successor to the original landowner, whose rights were protected under 19th-century legislation relating to the construction of a canal). Relief from forfeiture is an equitable discretionary remedy, and the question is whether equity should step in to assist Vauxhall in this instance.
The trial judge decided that he had the jurisdiction to grant relief from forfeiture in this case. It was held that, although Vauxhall’s right to discharge the water and industrial waste into the canal did not completely amount to a proprietary or possessory interest, it was “as close as possible”. For that reason, His Honour Judge Behrens QC granted relief from forfeiture, reinstating the licence on the condition the arrears were cleared and costs were paid.
Court of Appeal decision
MSCC appealed, arguing that the court’s discretion to grant relief from forfeiture only applied to contracts which granted possessory or propriety rights. As a licence does not confer proprietary rights, the question posed to the Court of Appeal was whether the licence in this case granted possessory rights.
In its judgment, the Court of Appeal reminded itself of the fact possession consists of two key elements:
- factual possession, and
- intention to possess.
The Court of Appeal said the licence gave Vauxhall the right to construct, as well as maintain, alter and renew the piping and drainage system located on MSCC’s land. Upon construction, the piping and drainage system became a fixture, so the question was whether Vauxhall had a sufficient degree of control.
Lord Justice Lewison was of the belief that the licence did not reserve any rights for MSCC to use or maintain the drainage system once constructed, other than if Vauxhall were to default. The court was satisfied that these rights showed a sufficient degree of physical control by Vauxhall over the property as well as the clear intention that Vauxhall would be the only entity to use it. Therefore, the Court of Appeal upheld the decision of the High Court.
Supreme Court decision
MSCC appealed to the Supreme Court, arguing that relief from forfeiture is only available in relation to proprietary rights and therefore Vauxhall’s contractual rights under the terms of the licence were not enough. The court rejected this submission and reiterated that equitable relief is available for forfeiture of both possessory and proprietary rights. Lord Briggs explained how possessory rights are ones which fall just short of ownership or a proprietary interest.
The question was whether such rights could extend to land. The Supreme Court noted that equitable relief is available for forfeiture of possessory rights in the context of personal property (that is, chattels), and so there was no reason why it cannot apply to land too – indeed, it should do so in order to avoid arbitrary results.
These cases show relief from forfeiture can be granted, even in a situation where only a licence is in operation. If a “tenant” can show it has a possessory right to land, and the agreement upon which that possession is granted is terminated in a way which is akin to forfeiture, the tenant would be entitled to apply to the court for relief from forfeiture.
Whilst this may appear to be an extension of the application for the right to relief from forfeiture – and therefore of concern to landlords who have previously considered they will be protecting their position by granting licences rather than tenancies – it ought to be borne in mind that a ”tenant” will need to show that it is entitled to relief from forfeiture on the other usual grounds, as well as proving that it has a possessory interest in the land.