The Supreme Court has recently handed down judgment in the case of The Manchester Ship Canal Company Ltd v Vauxhall Motors Ltd. The judgment provided some clarity on the law of relief from forfeiture of a contract.
Spoiler alert – the judgment confirmed that relief from forfeiture could be granted in cases where a possessory right to land exists but where no proprietary right exists; extending the doctrine of relief from forfeiture to licences to possess land.
In the 1960s, Manchester Ship Canal Company Ltd (MSSC) granted Vauxhall a licence to construct a system of pipes across MSCC’s land for the purpose of drainage from Vauxhall’s nearby manufacturing site into the Manchester Ship Canal. Vauxhall paid an annual fee of £50 to MSCC in return for these rights, which were granted ‘in perpetuity’ (“the Licence”).
The Licence contained a clause which allowed MSCC to serve notice terminating the Licence if Vauxhall did not pay its annual rent within 28 days of demand. This clause was the equivalent of a standard forfeiture clause which may be found in any lease.
For several decades Vauxhall paid the Licence annual fee and enjoyed the rights conveyed to it under the Licence. However, as a result of an administrative error, in 2014, Vauxhall failed to pay its annual Licence fee within 28 days of demand. In accordance with the Licence, MSCC served notice on Vauxhall terminating the Licence. In order to secure its position, Vauxhall was faced with having to negotiate a new licence, but at a contemporaneous market rate (hundreds of thousands of pounds per annum, in comparison to the annual £50 it had paid since the 1960s). Negotiations between the parties were unsuccessful and in March 2015 Vauxhall applied to the court seeking relief from forfeiture. The question was whether the court had the ability to grant relief where the right in question is a simple right to possession granted by a licence (and not a proprietary right granted by a lease).
In the first instance, the High Court granted relief from forfeiture, meaning that Vauxhall’s 1960s Licence was essentially reinstated as if it had never been terminated (Vauxhall had to pay the arrears and some costs). On MSCC’s appeal, the Court of Appeal upheld the High Court’s decision.
MSCC sought and obtained permission to put the case before the Supreme Court, which was asked to determine whether the court was able to grant relief on the facts of this case. In particular, the Supreme Court was asked to consider MSCC’s argument that when relief from forfeiture related to land, the courts can only grant relief to a party who has proprietary rights. If MSCC were correct, Vauxhall’s possessory rights under the Licence would not be sufficient and Vauxhall would not be entitled to seek relief from forfeiture.
Proprietary rights (property rights) are legal or equitable rights over real property, which may be tangible or intangible. By comparison, a possessory right/interest in land, is the right to occupy and/or exercise control over a particular piece of land but not a right in the land itself. The distinction may seem technical but it is important.
The Courts had previously determined that relief can apply to forfeiture of possessory rights of personal property, for example chattels. However, in this case the Supreme Court had to determine whether this extended to a possessory interest in land.
The Supreme Court found that there was no reason to distinguish between rights over land and rights over other forms of property, and determined that there was no good reason to not use the concept of possessory rights in relation to rights over land.
The Supreme Court found that the Licence granted by MSCC to Vauxhall, had granted possessory rights. It had provided Vauxhall with almost exclusive possession of MSCC’s land, and control over it in perpetuity. Therefore the Supreme Court was of the view that it followed that Vauxhall was entitled to seek relief from forfeiture of those rights.
The Supreme Court unanimously dismissed MSCC’s appeal, upholding the High Court and Court of Appeal decisions.
What can we learn from this case?
In her concurring judgment, Lady Arden provided some interesting commentary on her approach to the question, stating that:
“the primary question that has to be resolved in relation to the doctrine of relief from forfeiture outside leases of land and mortgages is not what relationships to property it covers but whether the circumstances in which it is sought to be invoked are those in which equity would grant relief”.
The Supreme Court’s decision in MSCC v Vauxhall provides some welcome clarity as to the approach which will be taken when considering the loss of a possessory right in land, by establishing that this will be the same as when considering possessory rights in personal property.
It is possible that the Supreme Court judgment will have an impact on existing licences of land, in the event that a licensor seeks to forfeit a licence containing a similar ‘forfeiture like’ termination clause. Going forward, parties will be well served to take the decision into account when granting new licences – ensuring that it contains a termination clause which does not amount to a traditional forfeiture clause, but instead provides the licensor with the ability to terminate the licence without risk of the licensee successfully seeking relief from forfeiture.
The facts of the MSCC v Vauxhall case also serve as a timely reminder to ensure that a licence provides the parties with the ability to review the licence fee, to ensure that that this can be brought in line with market rates.
Hugh James has a dedicated team of experts with experience in dealing with property related disputes. If you require assistance or advice, please get in touch using the contact form and we would be happy to discuss your options.