The Manchester Ship Canal Company Ltd v Vauxhall Motors Ltd (formerly General Motors UK Ltd)


Reference:
[2019] UKSC 46

Date:
23rd October 2019

Court:
Supreme Court

Facts:

Facts

In 1962, the Manchester Ship Canal Company Ltd (“MSCC”) reached agreement with Vauxhall Motors Ltd (“Vauxhall”) in relation to the user of MSCC’s land over which Vauxhall sought a right to discharge surface water and effluent into an adjacent canal. A land exchange dated 12 October 1962 conveyed some, but not all, of the relevant land and Vauxhall acquired the remaining rights by way of perpetual licence conditional upon payment of £50 annual rent and the performance of additional covenants. The licence also granted Vauxhall rights to construct, alter and maintain a spillway upon MSCC’s land to enable discharge of surface water, along with an ancillary right of access.

Clause 5 of the licence contained a forfeiture provision engaged upon non-payment of rent or default in performance of Vauxhall’s non-monetary obligations. Following non-payment, MSCC served a notice to terminate and forfeit the licence under clause 5 thereof. Vauxhall claimed relief from forfeiture which was granted at first instance and affirmed on appeal.

The Supreme Court’s Analysis

The rationale for relief from forfeiture is given succinctly by Lord Wilberforce in Shiloh Spinners Ltd v Harding [1973] AC 691, at 723-724:

“[W]e should reaffirm the right of courts of equity in appropriate and limited cases to relieve against forfeiture for breach of covenant or condition where the primary object of the bargain is to secure a stated result which can effectively be attained when the matter comes before the court, and where the forfeiture provision is added by way of security for the production of that result.”

MSCC submitted that equitable relief from forfeiture concerning land was available only for proprietary interests, so that merely possessory rights including all licences were excluded. The Supreme Court noted that numerous decisions concerning forfeiture of personalty admitted purely possessory rights within the scope of relief. Such rights included patent rights, leases of video editing equipment and a contractual power to appropriate shares charged by way of equitable mortgage, amongst others.

The question for the Court was whether this settled extension to possessory rights in the context of personalty was to be applied to possessory rights over land. The Court unanimously determined that such an extension was warranted. Licences of varying character, including for residence and those akin to easements but absent the requisite degree of exclusive user, are now susceptible to relief from forfeiture. However, practitioners should exercise caution in light of Lord Brigg’s observation that the licence under consideration was “very unusual” because it granted virtually exclusive possession, a high degree of control over the relevant land and was granted in perpetuity. It remains to be seen if these qualities, particularly as regards perpetual grants, are strictly enforced at first instance.

Lord Briggs commented (obiter)[1] that the pre-condition that the right granted, whether over land or personalty, be perpetual may go too far in relation to all forms of property and particularly so in relation to land which is inherently a form of perpetual property.

As regards the division between proprietary and possessory rights, the Court approved Lewison LJ’s reasoning in the Court below as to whether possessory rights will be generated by a licence. The bellweather for future assessments will be an application of the classic twofold criteria defining possession in J A Pye, requiring:

(1)    A sufficient degree of physical custody and control; and

(2)    An intention to exercise such custody and control on one's own behalf and for one's own benefit.[2]

A significant factor in the Court’s determination that the licence gave rise to possessory rights was the degree of access retained by Vauxhall over the spillway from its own adjacent land for the purposes of servicing the drainage infrastructure. MSCC’s rights to conduct maintenance in default of Vauxhall complying with its obligations or to reroute the spillway if required did not negative Vauxhall’s possessory right. The grant of relief was upheld.



[1] MSCC v Vauxhall Judgment Paragraph 51

[2] J A Pye (Oxford) Ltd v Graham [2002] UKHL 30 applied by Lewison LJ at [59] and approved at [42] by Lord Briggs


Judge:
Lord Carnwath, Lady Black, Lord Briggs, Lady Arden, Lord Kitchin

Comment:

This decision addresses the unprincipled lacuna between personal and real property as regards the rights courts are willing and permitted to safeguard through the relief from forfeiture jurisdiction. The decision recognises that valuable rights over land are often crafted falling short of full-bodied proprietary rights to exclusive user, but which nonetheless require safeguarding against trivial and remediable breaches of covenant.

Lady Arden’s observation that some uncertainty in the application of relief is inevitable is true but the effect of the MSCC decision is to confine uncertainty to the Court’s general discretion to grant relief and to the boundary between possessory and purely contractual rights. It is submitted that locating the outer limit of forfeiture at this point is both more principled and easier to define than the previous divide between proprietary and possessory rights which also led to a schism between varying rights over land.

Two points of interest emerge for the future:

(1)    How will the Court’s adapt relief in the face of ever-expanding categories of property such as cryptocurrencies which straddle the rights boundary between possessory and purely contractual?

(2)    Will Courts of first instance restrictively apply the majorities’ observations regarding the perpetuity of rights or adopt a more liberal line commensurate with broad justice on particular facts?

Associated Members:

Practice Areas:

© New Square Chambers Ltd