SHORT steps in a sequence of cases over just 40 years have changed the dominant English understanding of equitable relief from forfeiture almost entirely. Each step has been volitional, yet taken without the judges evidently intending such large change or considering whether stare decisis permits it. That this has befallen a body of law that acquired its modern form 350 years ago is worrying.
Relief against forfeiture is routinely granted in relation to leases and mortgages. But relief in relation to licences and contractual rights has become controversial through the erroneous belief that equitable relief from forfeiture would disrupt such ordinary – and commercially-important – arrangements. Vauxhall Motors Ltd. v Manchester Ship Canal Co. Ltd. [2018] EWCA Civ 1100, [2019] 2 W.L.R. 330 makes clear the issues involved and the legal cul-de-sac to which this misunderstanding leads.
The relief granted in Vauxhall Motors concerned a drainage system. Vauxhall manufactures motor cars at a factory in Ellesmere Port, Cheshire, which it has operated since 1964. Drainage is a valuable amenity: the factory produces industrial effluent and much of the rain falls on impermeable surfaces. In 1962, the Manchester Ship Canal Company (MSCC) granted Vauxhall a perpetual licence to discharge all surface water and trade effluent of a sufficient purity through pipes and over spillways from Vauxhall's land into the canal, and to lay, construct and alter the structures required for that purpose. Vauxhall was to pay an annual fee of £50 and to fulfil certain covenants. The licence is currently worth roughly £300,000 to £440,000 to Vauxhall per year. For unknown reasons Vauxhall failed to pay the 2013 fee. It ignored a reminder notice, following which MSCC terminated the licence in March 2014. Vauxhall commenced proceedings a year later and was awarded relief from forfeiture in November 2016 on condition that it pay arrears, interest and costs: [2016] EWHC 2960 (Ch).
The now-dominant English understanding of relief from forfeiture is captured by the Court of Appeal's decision. Lewison L.J. (Floyd and David Richards L.JJ. concurring) dismissed an appeal after disagreeing with the judge's delineation of equitable relief from forfeiture. They redrew the judge's account, holding that the required equitable jurisdiction only arose if:
(1) the licence granted Vauxhall “proprietary or possessory rights”; and
(2) MSCC's right to terminate the licence was “intended to secure the payment of money or the performance of other obligations”.
The latter requirement was found established in a few words. Much more was said of the former requirement. The court considered that unless the jurisdiction was limited to apply only to proprietary or possessory rights, nothing would prevent courts granting equitable relief from forfeiture of contractual licences, contracts for services or, indeed, contracts full stop. The judge at first instance overstretched, the court held, in ruling it sufficient that Vauxhall's licence granted it rights that were close to possessory but not possessory. On appeal, Vauxhall conceded its lack of “proprietary” rights: the drainage infrastructure became fixtures and part of the land. But Vauxhall's exclusive rights (as against MSCC) to use the drainage infrastructure, together with the infrastructure's physical characteristics and the parties’ clear intention that Vauxhall should be the only entity allowed to use it, meant Vauxhall had both factual possession of the space occupied by the infrastructure and intention to possess that space. “[T]he way to the exercise of the equitable jurisdiction to grant relief against forfeiture” thus opened (at [68], [70]).
The clarity of the Court of Appeal's judgment enables one to notice difficulties in how the understanding of equitable relief from forfeiture has shifted. On its own terms, the court's conclusion that Vauxhall held these possessory rights is unproblematic. Licences vary. Some do confer possessory entitlements. But does a criterion of possession truly limit relief from forfeiture? It is telling that the court adopted the common law definition of “possession” drawn from possessory claims over chattels and land. They did not seek their definition in cases on relief from forfeiture of interests in land, especially leases – presumably because no such definition can be found. There is no established doctrine of equity that a claimant seeking relief from forfeiture must show a title to property or a possessory interest thereto. What the claimant must show, the House of Lords held in Shiloh Spinners Ltd. v Harding [1973] A.C. 691, 722, is that:
(1) “the object of the transaction and of the insertion of the right to forfeit is essentially to secure the payment of money” or
(2) the forfeiture was caused by “fraud, accident, mistake, or surprise, always a ground for equity's intervention”.
Then the claimant must be able to make good the loss caused by his or her default (see M. Pawlowski, The Forfeiture of Leases (London 1993), ch. 7). Relief thereafter will ordinarily follow subject to discretionary considerations, such as third-party interests. Particular claimants who seek relief to restore a proprietary interest must indeed demonstrate that they had a proprietary interest earlier that they were deprived of. But as the general requirements in Shiloh Spinners show, no property or possession criterion is universally needed. Hence a legatee who forfeits a legacy of any kind can be relieved from the forfeiture, even though the legatee held no title to or possessory interest in the testator's property: Leong v Chye [1955] A.C. 648 (PC). Likewise, whether relief from the forfeiture of a licence is available has not traditionally depended on a search for a title to or possessory interest over property: Elliott v Turner (1843) 13 Sim. 477 (patent for invention). These principles are traceable, without much change, from the 1660s onwards and are living principles today.
What, then, disables courts from re-opening every forfeiture and every exercise of a contractual right of termination, including for repudiatory breach? What defines “relief from forfeiture”? And why has the traditional understanding of equitable relief from forfeiture become a lost friend?
Forfeitures and terminations in general are not subject to equitable relief under the principles in Shiloh Spinners because it is really quite difficult to establish the required facts. No party who defaulted by inadvertence or wilfully can establish that the forfeiture suffered was caused by fraud, accident, mistake or surprise. The one precludes the other: Shiloh Spinners (p. 722). The security principle discussed in Shiloh Spinners is no flimsier. Vauxhall Motors states (at [70]) that the clause providing for the forfeiture must be intended to secure the payment of money or the performance of other obligations, but much more is required. Old cases say that that must be the parties’ “only” intention – meaning, in modern terms, the essence thereof, their primary or dominant purpose: Peachy v Somerset (1720) 1 Str. 447, 453. (The facts at trial in Vauxhall Motors reached that threshold.) Outside security transactions and leases, parties seldom predominantly intend a termination clause to secure payment or performance: Scandinavian Trading Tanker Co. A.B. v Flota Petrolera Ecuatoriana (The Scaptrade) [1983] 2 A.C. 694, 702 (time charterparty withdrawal clause). Equity will only relieve where the security purpose stands ahead of any other.
The proposition that “relief from forfeiture” must be defined with reference to property is sound subject to a proviso, viz. that for the purpose of equitable relief “forfeiture” is somewhat loosely defined. “Forfeiture” describes no uniform legal operation: in a proper case equitable relief will go against forfeitures of money in which title has passed or, again, of legacies conferring no title or possession, or of titles to and possessory entitlements over property. The various forfeitures reflect a simple lay idea: a forfeiture consists of being deprived in another's favour of something that was one's own as the cost of one's default or misconduct. Analysts suspicious of extra-legal concepts may be disconcerted, but one should not regret that a lay concept, rather than a technical legal concept of “property” or “possession”, defines relief from forfeiture. What this also implies, however, is that the definition of relief from forfeiture is not a simple tool to delimit equity's application: that work is instead done by the principles in Shiloh Spinners outlined above.
Why is the traditional face of the doctrine now unrecognisable to some? Essentially because of how judges have thought they must temper the risk that equity might cancel every forfeiture and contractual termination. In refusing relief from forfeiture of a services contract – a time charterparty – Lord Diplock said in The Scaptrade (pp. 700G, 702B–C) that the contract transferred to the charterer “no interest in or right to possession of the vessel”, and that the traditional principles of relief were “never meant to apply generally to contracts not involving any transfer of proprietary or possessory rights”. In the following year, Lord Templeman grasped that dictum to justify refusing relief from the forfeiture of a trademark licence. He said Lord Diplock “confined that power” of equity “to contracts concerning the transfer of proprietary or possessory rights”: Sport Internationaal Bussum B.V. v Inter-Footwear Ltd. [1984] 1 W.L.R. 776, 794. Both cases were decided correctly on traditional principles: in neither case did the parties predominantly intend the termination right merely to secure performance and in neither was the claimant a victim of fraud, accident, mistake or surprise. But the anxiety in each case over equity's reach was misplaced. Trial judges should be trusted to appreciate the forensic difficulty a claimant faces in seeking relief from forfeiture, and the difference between what parties intended and what they might have predominantly intended. The Diplock-Templeman dicta have become a distraction.
It is hoped that the appeal to the Supreme Court in Vauxhall Motors will walk conventional lines.
