Windfall forfeiture reversed – General Motors/Vauxhall -v- Manchester Ship Canal

The prospect of a windfall of several millions of pounds quite appealed to the Manchester Ship Canal Company, which had in 1962 granted a ‘Licence’ to drain through its land into the canal beyond. The licence fee? Practically nothing, about £4 a month.

However, despite the considerable value of the drainage rights, which benefitted the Vauxhall assembly plant in Ellesmere Port, General Motors stopped paying the licence fee in 2013. They were reminded about this, and chased, but still failed to do so. This was extremely careless, and in the circumstances inexplicable as to why they did not remedy the situation. Particularly given the mire in which they then found themselves, with the Manchester Ship Canal Company in 2014 terminating the 1962 Licence because of the breach.

This was obviously disputed by GM, and matters ended up in the High Court. Its Judgment was handed down recently, on 23 January 2017. It found in favour of GM, but via an unexpected route, one which was – surprisingly – devoid of any previous guiding court decisions on the subject matter involved.

The Court decided to grant GM ‘relief from forfeiture’. Property lawyers and litigators have long thought that this discretionary escape route only applied to leases, or contracts granting ‘proprietary interests’ or at least ‘possessory rights’ over land.

However, the Court on this occasion extended the concept to encompass rights that were as close to those as it was possible to imagine, exceptionally, in its view. It equated a ‘right to drain through land’ with a ‘right to occupy land’.

In one sense this appears logical enough, in that water flowing over or through land ‘occupies’ it, at least temporarily, in the time it takes for any small section of water to pass through completely. But there again, such a right does not permit the creation of a pond, lake or stagnant water; it must involve movement through, a certain transience.

So the decision could perhaps be criticised as not drawing that distinction and deciding that the rights concerned were in fact more conceptually akin to that of easements (even if not strictly ‘easements’ as a matter of legal technicality).

Easements include rights of way or passage, such as those to drive or walk over land to get from land A to point C (perhaps a public highway, or a canal) via land B, with land B being the ‘servient land’ (burdened by the access rights) and Land A the ‘dominant land’ (benefitting from the rights). The flow of a body of drainage water through land is not so very different.

Perhaps Manchester Ship Canal will try to appeal this High Court decision. If it were to do so and won, which must be a possibility at least, it might be able to charge close to £0.5m per annum for the grant of replacement drainage rights. Capitalised, that would be well in excess of £10m.

Perhaps there will be an agreed settlement/compromise, despite the Judgment, involving the grant of a replacement ‘Licence’ or formal ‘Deed of Easement’ for drainage, perhaps with clearer updated terms and more protection for GM, in return for an upfront payment rather than involving the administration of annual payments and the sort of hiccups that inevitably occur with changes of IT, administration or banking arrangements.

And even though General Motors ‘won’ the litigation, it will in any event be facing a shortfall in the recovery of its legal fees that completely dwarfs the sums involved had it instead simply kept up the £50 per annum payments under the 1962 Licence.

GM will also have to pay some of the opponent’s costs as a condition of the Court granting ‘relief from forfeiture’, which might leave it puzzled as to why it didn’t just continue to pay in the first place.

Main points to note

  • The court’s ability to grant relief from forfeiture is not limited solely to leases
  • Licences and rights similar to easements could also be covered
  • There is no immediate time-limit for a tenant/licensee to apply for relief from forfeiture
  • The application could be made several months after forfeiture
  • In contentious cases it might be preferable to reach an appropriate settlement agreement rather than incur the expense of litigation
  • But beware the potential for ‘waiver of forfeiture’
  • This can be inadvertent and lose a landlord/licensor its right to forfeit, so needs to be dealt with extremely carefully

Contact a solicitor

For contentious commercial property queries and additional information about this case, please contact Neil Ham, a specialist property litigation solicitor.

Case: General Motors UK Ltd -v- The Manchester Ship Canal Company Ltd [2016] EWHC 2960 (Ch)