Are Licences Personal Rights or Proprietary Rights - Essay Example

Are Licences Personal or Proprietary Interests? The general principle that licences are personal rights and cannot be proprietary in nature has become a contentious issue, fuelling academic debate1. The focus of this analysis is to critically evaluate the development of judicial rationale in this area to consider whether licences are indeed merely personal rights or have become proprietary rights in practice. It is submitted at the outset that whilst the case law analysis clearly demonstrates blurring of the distinction of personal rights under a licence and proprietary rights, the recent trend in favour of the orthodox position highlights the need for legal clarity as to when equitable principles will prevent unconscionable behaviour under a contractual licence. In general terms, with regard to use of land, a licence is defined as permission to enter another party’s land without the act constituting trespass2. The range of activity covered by the term “licence” is wide and multifarious3. For example, in the case of Hurst v Picture Theatre 4it was held that permission to watch a film in a cinema constituted a licence. Moreover, in the case of Re Hampstead Garden Suburb Institute5, it was held that permission to run a school constituted a licence. The essence of a licence is that it prevents an individual’s act being illegal6. Conversely, the fundamental distinguishing nature of a proprietary right is that it will bind third parties7. Furthermore, proprietary rights are transferable and contractual rights are usually assignable8. However, it is this very concept which has been obfuscated in the practical implementation of rights under a licence, thereby creating ambiguity as to whether licences confer proprietary rights in addition to personal rights9. For example, the personal nature of a licence has theoretically entitled a licensor to revoke the licence at any time10. Moreover, if a licensor revoked a licence in breach of the contractually agreed fixed term period, the licensee’s sole recourse would be to sue for damages for breach of contract11. As such, the essential feature of the licence was as a personal right with no rights over land capable of binding successors to the licensor’s title12. However, as Megarry has propounded “each of these propositions has now been substantially modified13”. Indeed, the availability of equitable remedies as a result of the implementation of the Supreme Court of Judicature Act 1875 has enabled the courts to develop the principles of proprietary estoppel as a method for binding third parties to licences, thereby conferring proprietary status through the backdoor; blurring the distinction between contractual rights under a licence and proprietary rights afforded protection under an estoppel licence14. In general terms, proprietary estoppel covers the terms “estoppel by acquiescence”, “estoppel by encouragement” and “quasi-estoppel15. Moreover, it is the “equitable jurisdiction whereby a court may interfere in cases where the assessment of strict legal rights is found to be unconscionable16”. However, the inherent nature of proprietary estoppel in preventing “unconscionable” conduct has meant that the courts have failed to clarify the exact parameters of its applicability in practice, which in turn has facilitated ad hoc importation of principles relating to proprietary rights under an estoppel licence into the realm of contractual licence disputes17. For example, in the case of Winter Garden Theatre London Limited v Millennium Productions Limited,18 it was propounded that rights under a contractual licence were no longer to be viewed as distinct from the contract creating the licence in the first instance19. Furthermore, the judicial rationale went further and granted an injunction for specific performance to prevent a breach of contract on the ground that “equity does what it can to preserve the sanctity of the bargain”20. Whilst this rationale is justifiable on the facts, the broad interpretation of equitable principles has created ambiguity between the theoretical distinction between proprietary rights and personal rights under a licence21. Moreover, in the case of Duke v Patrick22 it was held unequivocally that estoppel rights are capable of binding third parties with actual and constructive notice. This was reiterated in the case of Unity Joint Stock Banking v King23, where estoppel rights were held to bind purchasers with notice. Therefore rights arising under proprietary estoppel relating to land can bind third parties, thereby granting a proprietary interest24. However, the effect of the implementation of the Law of Property Act 1925 (LPA) was to assert that the doctrine of equitable estoppel should apply to create and enforce existing equitable interests, rather than evolve new equitable proprietary rights on an ad hoc basis25. However, the 1925 LPA only prohibited the creation of new equitable interests in land, which left the application and development of the estoppel licence as a proprietary interest exposed to broad interpretation26. This was further compounded by the lack of consistency in the judicial approach to rights under licence, perpetuating legal ambiguity. For example, in the case of Errington v Errington 27 the Court of Appeal’s determination bound the licensor’s widow to allow the licensees to remain in occupation. The rationale justifying the outcome was stated to be the licensee’s right to restrain revocation of the licence because it was contrary to the implied contract. As such, the Court of Appeal asserted that they had an equitable interest capable of “binding the whole world except a bona fide purchaser without for value without notice28”. However, this radical departure from established authority was heavily criticised29. Whilst, the outcome of the case may have been clearly justifiable on the facts of the case, the inherent flaw in the reasoning was the blurring of distinction between contractual rights and proprietary rights. The decision was indeed criticised by Lord Upjohn and Lord Wilberforce in National Provincial Bank Limited v Ainsworth30, where they asserted that licences were personal rights. Moreover, in the case of Ashburn Anstalt v Arnold 31Fox J stated that the Errington decision should have been reached without the need to infer a proprietary interest into a contractual licence32. Alternatively, it was propounded that a justifiable approach would be to bind third parties by virtue of an interest under an estoppel licence33. However, notwithstanding the theoretical distinction, the circular nature of this rationale ignores the practical result that the estoppel licence can still be utilised to confer proprietary rights under a contractual licence. Moreover, as evidenced in the case of Binions v Evans34, the blurring of the distinction is further compounded by conferring proprietary rights on licensees under a constructive trust. In this case, it was held that the relevant consideration was to consider the conscience of the successor and whether this was so affected that to allow a licensor to deny the claimant’s interest in the property would be inequitable35. However, such a principle relies on the presumption in equity that there is a proprietary interest that needs protection in the first place36. As such, the adoption of the constructive trust again enables the courts to manipulate the established legal principles in order to strengthen the rights afforded under a contractual licence beyond merely personal rights. . The above analysis highlights that whilst established legal principles assert that rights under licence are merely personal, the courts’ use of equitable principles of estoppel to reach a “just” decision has led to the incorporation of proprietary rights under licences through the backdoor. Whilst the recent decisions in Ashburn Anstalt v Arnold, IDC Group v Clark 37and Lloyd v Dugdale38 confirming that rights under licences can only be personal have been hailed as a “welcome and clear return to orthodoxy”39, the uncertainty surrounding the parameters of the estoppel licence and constructive trust highlight the need to adopt a definitive framework to address circumstances in which a contractual licence will bind third parties outside of principles rooted in proprietary rights. Indeed, Johnathan Hill highlights the situation as follows: “it might be concluded that, in view of the basic similarities between contractual and estoppel licences, both in terms of the circumstances in which they occur and the issues of policy which they give rise, they should have the same effect on purchasers. According to this view…… the courts should reconsider the impact of estoppels on third parties”40. It is further submitted, that until policymakers and legislators reconsider the implementation of a set of clear rules specific to contractual licences outside the parameters of proprietary rights, the established legal distinction between licences being personal as opposed to proprietary will remain uncertain. BIBLIOGRAPHY Graham Battersby [1991] Contractual and Estoppel Licences as Proprietary Interests in Land. Conv 36. Blackstone’s Statutes on Property Law., (2007-2008). 15th Edition Oxford University Press. M. Dixon (2005) “Principles of Land Law”, 5th Edition. Routledge –Cavendish Publishing Jonathan Hill. (1988). Case Note on Ashburn. 51 Modern Law Review 226. Alistair Hudson (2007). Equity and Trusts. 5th Edition Routledge-Cavendish. J MacKenzie& M Phillips (2005). Land Law. 10th Edition Oxford University Press. A J Oakley (2001) Megarry’s Manual of the Law of Real Property 8th. Sweet & Maxwell R J Smith (2003) Property Law 4th Edition, Longman R J Smith (2003) Property Law Cases & Materials 2nd Edition, Longman Megarry and Wade., (2007) The Law of Real Property. 7th Edition Sweet & Maxwell Read More