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Relief from forfeiture requires proprietary or possessory rights

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18th June 2018

First published in LexisPSL on 5 June 2018.

Property Disputes analysis: Robert Bowker, barrister at Tanfield Chambers, examines a Court of Appeal ruling that, although the judge at first instance had been wrong to decide that jurisdiction to grant relief against forfeiture was not confined to cases where a claimant had proprietary or possessory rights, the respondent licensee in this case did have possessory rights. This meant the judge did have jurisdiction, and there had been nothing wrong in the way he had exercised his discretion to grant the respondent relief from forfeiture.

Manchester Ship Canal Company Ltd v Vauxhall Motors Ltd (formerly General Motors UK Ltd) [2018] EWCA Civ 1100

What are the practical implications of the judgment?

Firstly, those drafting contractual licences may wish to consider avoiding granting any rights which are possessory in nature, since the licensee would have the right to obtain relief against forfeiture. This leads to three further considerations:

• the draughtsperson will need to pay attention to the allocation of responsibility for the construction of the relevant infrastructure, responsibility for its maintenance and repair, and the nature and extent of the licensor’s rights to intervene
• it may be advisable to include in the licence a mechanism for increasing the licence fee, for example a mechanism based on valuation
• the trigger events and the manner of operation of the proviso for re-entry will need to be considered, for example whether it is operable to secure the payment of money or the performance of other obligations, whether it replicates the wording of conventional forfeiture clauses in leases, and whether it includes an equivalent notification procedure along the lines of section 146 of the Law of Property Act 1925

Secondly, those advising the licensor may wish to consider with their client its actions when a breach occurs, and in particular the promptness of it re-entering or commencing proceedings.

Thirdly, those advising the licensee may wish to consider acting promptly to apply to obtain relief against forfeiture and be able to explain and justify in detail any delay, if necessary on a day-by-day basis.

What was the background?

The case concerns the respondent’s right by licence to discharge water and trade effluence into the appellant’s canal.

The licence was granted on 12 October 1962 for a fee of £50 per annum, in perpetuity. On 12 October 2013, the respondent missed making a payment. In consequence, on 10 March 2014, the appellant forfeited the licence.

After a period of negotiation for a new licence, during which time the respondent continued to exercise its rights under the terminated licence, it issued proceedings for relief against forfeiture.

The claim came on for trial before HHJ Behrens. The judge granted relief from forfeiture and rejected the appellant’s contentions that he had no jurisdiction to do so because the licence did not confer any proprietary or possessory right, that relief ought not to be granted owing to the delay in applying, and that if relief were granted, it ought to be on terms that a modern licence fee would be paid (which, by the time the case was heard by the Court of Appeal, had been identified as being between £300,000 and £440,000 per annum).

What did the court decide?

First, the Court of Appeal confirmed that the equitable right to relief from forfeiture arises only in cases where the party applying for relief has a proprietary or possessory interest in the relevant subject matter. The court held that the High Court had been wrong to depart from a considerable body of precedent and to extend this jurisdiction to grant relief in respect of rights which were ‘close to possessory’.

Second, the court determined that the licence in this case did not confer a proprietary interest (which was accepted by the respondent).

Third, the court did, however, conclude that the licence conferred on the respondent a possessory interest. This conclusion turned on the application of the essential facts of the case-the rights over the physical property and its physical characteristics-as applied to the well-known, two-fold test for establishing a possessory interest:

• factual possession
• intention to possess

The court considered in detail the rights and liabilities arising under the licence, most notably the respondent’s responsibility for the physical construction of the infrastructure and its sole primary responsibility for its maintenance and repair, and the appellant’s having not reserved any step-in rights other than in cases of default by the respondent.

Fourth, having concluded that the trial judge had jurisdiction to grant relief against forfeiture, the court declined to interfere in his exercise of discretion in favour of granting relief. There was no basis for imposing a time limit on applications for relief by analogy to the six-month period imposed by section 210 of the Common Law Procedure Act 1985 because, as the court noted, that section only applied where a landlord had physically re-entered or recovered judgment against his tenant. Although laches was a possible line of defence, it would only arise in circumstances where prejudice had arisen, which it had not here.

And finally, the court noted the judge’s entitlement to take into account the potential windfall to the appellant. That recognises the recent line of cases which place proportionality and windfall at the forefront of the courts’ consideration of relief against forfeiture (see Freifeld v West Kensington Court Ltd [2015] EWCA Civ 806, [2015] All ER (D) 37 (Aug) and Pineport Ltd v Grangeglen Ltd [2016] EWHC 1318 (Ch).

Interviewed by Robert Matthews. The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

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