An unwelcome relief? Opportunities to challenge forfeiture are broadened (again).
It is with some hesitation (and permission to appeal) that the court has granted relief from forfeiture of a licence for the discharge of surface water.
At first glance this may not seem particularly exciting, but the case of General Motors UK Limited v The Manchester Ship Canal Company Limited is a significant development, not least because, as the court recognised, there is no authority where it has been argued that there could be relief from forfeiture in circumstances like these. Whilst other factual and legal points were considered in this judgment, this article focuses on the developments relating to relief.
In a nutshell, the Defendant (The Manchester Shipping Canal Company), had terminated, pursuant to its contractual right to do so, a licence granted in 1962 to the Claimant (General Motors) to discharge surface water from its manufacturing plant into the Manchester Ship Canal because General Motors had failed to pay its annual fee of £50 for this right. Following the termination of the licence, MSCC proposed that the parties enter into a new agreement that would continue to allow General Motors the drainage right, but for a hugely increased fee of £450,000 a year, to reflect the current commercial value of the drainage right. The parties negotiated on this for a while, until General Motors took advice and claimed relief from forfeiture in the hope that the old licence, with its £50 fee, could be reinstated.
The court's ability to grant relief
Relief against forfeiture is limited to contracts involving the transfer of proprietary rights (i.e. relating to owning property) or possessory rights (i.e. the right to exercise control over a particular piece of land).
It was accepted in this case that this licence did not create proprietary rights. However, because General Motors had exclusive and indefinite use of the drainage pipes, and because MSCC never made use of the pipes, General Motors was able to persuade the court that, even if the licence did not create possessory rights, "it comes about as close to a possessory right as it is possible to imagine". On these rather shaky foundations, the court held (with hesitation), that it did have jurisdiction to grant relief.
The discretion to grant relief
Having decided that it had the ability to grant relief, the court then had to consider whether General Motors should be granted relief.
Amongst other things, MSCC put forward the following arguments against the grant of relief:
- the parties had assumed that the licence had been terminated and had started to negotiate a new agreement. This assumption was irrevocable.
- General Motors had delayed too long (about a year) before bringing a claim for relief and it should be refused relief.
- MSCC would suffer a huge disadvantage commercially if it could not charge current market rates for the drainage rights.
However, the court was persuaded that relief should be granted and the licence restored.
- Despite the negotiations for a new licence, there was no assumption that the termination of the licence was irrevocable and it would not therefore be unjust to allow General Motors to go back on that assumption.
- Despite the delay, General Motors had, all the while, carried on exercising the drainage right because MSCC had allowed it to do so, notwithstanding the termination of the licence and pending the outcome of the negotiations. Technically, therefore, time had not started running and there was no delay.
- MSCC could be compensated by General Motors paying the arrears, interest, a sum to reflect the losses suffered in the negotiations and in forfeiting the licence and certain legal costs. To refuse relief would allow MSCC a huge windfall when it would have been obvious to the parties on the grant of the licence for an indefinite period of time that market rents would change over time.
The net of relief from forfeiture has certainly widened.
Whether or not this ruling is to be welcomed, the express hesitation with which it was made, the judge's invitation to challenge this decision and the novelty of the issues means that this is far from the end of the story, rather only the beginning.