Court of Appeal clarifies right to relief from forfeiture

In its judgment, the Court of Appeal clarified the court's right to grant relief from forfeiture as being limited to cases where the party had either 'real' property rights, or 'proprietary' rights'; or 'possessory' rights. The trial judge had gone beyond the established boundaries of the case law when he found that relief could also be granted in exceptional cases where the party's rights went beyond purely contractual rights, and were "close to possessory", he said.

However, the Court of Appeal went on to confirm that Vauxhall's rights under the licence agreement were in fact possessory in nature, meaning that relief from forfeiture was an available remedy to the judge. He had therefore not been wrong to grant the relief, it ruled.

Relief from forfeiture is an equitable remedy available to the courts, and most commonly associated with the forfeiture of leases. The Court of Appeal's judgment, however, "reminds us that this remedy can also be granted in respect of other types of contract, in this case a licence to discharge surface water and effluent to the Manchester Ship Canal", said property disputes expert Michael Smith of Pinsent Masons, the law firm behind Out-Law.com.

"For relief from forfeiture to be available, the contract must confer proprietary or possessory rights," he said. "It was not disputed that the licence granted no proprietary rights. The Court of Appeal found, however, that the rights granted over the physical infrastructure were sufficient to demonstrate a possessory right. Vauxhall had the requisite custody and control of the drainage infrastructure and an intention to exercise that control on its own behalf, and that was enough to grant a possessory right and so open the door to relief being granted."

"This case underlines again the potential for relief to be granted in connection with other types of contract. Whilst the first instance decision to grant relief was upheld on appeal, Lord Justice Lewison made clear that he considered that the first instance judge 'ought to have kept within the established boundaries' and that there must be possessory or proprietary rights for relief to be available. There is no jurisdiction to grant relief in cases where rights are only 'close to possessory'. It remains to be seen if the canal company seek to appeal, although the logic of the Court of Appeal's decision looks difficult to challenge," he said.

Vauxhall owns a substantial manufacturing plant at Ellesmere Port, close to Manchester Ship Canal. In 1962, the Manchester Ship Canal Company (MSCC) granted Vauxhall, or General Motors UK as it was then, the right to discharge surface water and trade effluent into the canal through a drainage system it had constructed on MSCC's land. The licence was granted in perpetuity, in exchange for an annual payment of £50. MSCC had the right to terminate the licence if the payment was not made.

In 2013, Vauxhall failed to make the £50 payment. MSCC first issued a reminder notice and then, when the payment still was not made, terminated the licence. Vauxhall applied to the court for relief against forfeiture, and also made an alternative argument that it had an independent right to discharge surface water as a successor to the original landowner, whose rights were protected by the 19th century legislation authorising construction of the canal. MSCC valued the discharge rights at between £300,000 and £440,000 a year.

The trial judge decided that he had jurisdiction to grant relief against forfeiture. He then exercised his discretion to grant the relief sought. MSCC appealed, arguing that discretion to grant relief against forfeiture only applies to contracts which confer proprietary or possessory rights. A licence does not confer proprietary rights. The Court of Appeal therefore had to decide whether the licence granted possessory rights.

In its judgment, the Court of Appeal considered that the legal concept of possession consisted of two distinct elements: a sufficient degree of physical custody and control, or 'factual possession'; and the 'intention to possess' that custody and control on one's own behalf and for one's own benefit. The Court of Appeal noted that the licence gave Vauxhall rights to "construct" the pipes it required on the land and later to "maintain repair alter renew and use" that infrastructure.

"Thus the licence cast upon Vauxhall the responsibility for the physical construction of the infrastructure and the sole primary responsibility for its maintenance and repair," said Lord Justice Lewison, giving the unanimous judgment of the court. "It did not reserve to MSCC any rights to use the infrastructure or (except in case of default by Vauxhall) to carry out works to it."

"Those rights over the physical property, coupled with its physical characteristics and the clear intention that Vauxhall would be the only entity able to use and maintain it, amount, in my judgment, to a sufficient degree of physical custody and control of the infrastructure ... having regard to the nature of the property and the manner in which property of that character is commonly enjoyed. Vauxhall plainly intended to exercise those rights (and fulfil those responsibilities) on its own behalf and for its own benefit," he said.

That being the case, the Court of Appeal was only entitled to interfere with the judge's use of his discretion to grant the remedy if the judge had been "wrong in principle". It found that this was not the case.

The Court of Appeal was therefore not required to deal with Vauxhall's alternative claim to statutory discharge rights. Had it done so, however, it would have ruled against Vauxhall.