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‘Relief from forfeiture’ – court’s jurisdiction widens


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Summary: Court extends ‘relief from forfeiture’ property remedy to restrain a contractual termination right.

In principle, it may seem attractive for the court to have discretion to refuse to enforce a contract where it would be ‘unconscionable’ for it to be enforced.  Commercially, however, contractual parties need certainty that the terms of their contract will be recognised and enforced by the courts without the existence of some undefined discretion to refuse to do so.  It is this policy reason which explains why the court carefully controls its discretion to grant relief and why the discretion is usually confined to contracts involving possessory or proprietary land interests.

In General Motors UK Limited v The Manchester Ship Canal Company Limited, the court had to decide whether to exercise its discretion even though the agreement in question was found to be a contractual licence only without any possessory or proprietary rights attaching to it.  The licence agreement originally entered into by the parties in 1962 gave General Motors rights to discharge surface water and treated trade effluent from its main manufacturing plant at Ellesmore Port into the Manchester Ship Canal in return for an annual payment of £50.00.  The licence agreement entitled Manchester Ship Canal Company (MSCC) to terminate the right if the £50.00 was not paid.  Whilst the agreement and payment operated without difficulty between 1962 up to 2013, in 2013 the £50.00 annual payment was not paid and MSCC exercised its termination right under the licence.  MSCC then proposed an increased licence fee of £450,000 per annum to continue the arrangement in a fresh agreement. 

General Motors applied to the court for relief from MSCC’s termination of the 1962 licence agreement.  The court ruled that it did have jurisdiction to grant relief; General Motors enjoyed exclusive and indefinite use of the drainage pipes so long as the annual payment was made.  These rights amounted to more than contractual rights of limited duration and extent as might be found in an equipment leasing contract, for example.  Accordingly, the court exercised its discretion in General Motors’ favour which restored the parties to their previous position and prevented MSCC from increasing the licence fee to £450,000.

The ruling is to be welcomed in demonstrating the agility of the court to grant relief whilst maintaining a balance with commercial policy.

Case: General Motors UK Ltd v The Manchester Ship Canal Company Ltd [2016] EWHC 2960 (Ch) (30 November 2016)

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