Scottish Court of Session Decisions

[1] The petitioners and reclaimers, Southesk Trust Company Ltd. and Elsick Farms Ltd. ("Southesk"), seek judicial review of the Secretary of State's appointment of an arbiter under Section 62(5) of the Agricultural Holdings (Scotland) Act 1991 ("the Act") in their dispute with D. Geddes (Farms) Ltd. ("Geddes") as to compensation for improvements made to the subjects of an agricultural lease.

[2] Southesk were the landlords, while the tenants under the lease were a limited partnership, Montreathmont Farms, of which Geddes were the general partner and the Earl of Southesk the limited partner. It appears that at the relevant time the lease was running on from year to year by tacit relocation, the anniversary of the contractual ish being 31 March. By letter dated 5 November 1996 the Earl's factor intimated that the limited partnership was to be dissolved on 28 November 1997. Two days before the stated date of dissolution, Geddes intimated in writing the claim for compensation for improvements which they intended to make "on the termination of their tenancy of the ... holding at 28th November 1997". This constituted notice for the purposes of Section 62(2) of the Act and under Section 62(4) the parties had four months from the termination of the tenancy to settle the claim, but on the application of one of the parties made within that period the Secretary of State could extend it by two months in the first instance and by a further two months after that. No such application was made in this case and therefore the four-month period applied. Section 62(5), which is the focus of the present dispute, provides:

As from 1 July 1999 the powers of the Secretary of State under Section 62 have been devolved to the Scottish ministers, but it is convenient in the context of this case simply to refer to the Secretary of State.

[3] The contention for Southesk is that the lease terminated on the dissolution of the limited partnership on 28 November 1997 and that the four-month period under Section 62(4) expired on 28 March 1998, with the one-month period under Section 62(5) expiring on 28 April 1998. It is common ground, in any event, that no application for the appointment of an arbiter had been made by that date. The application was in fact made under cover of a letter dated 28 May 1998 from Geddes's agents to an official of the Secretary of State. In the application the agents stated that the date of termination of the lease was 30 March 1998. This was on the basis that, even if the limited partnership had been dissolved on 28 November 1997, none the less the lease had continued to run until the end of the year. On that basis, of course, the application for the appointment of an arbiter would have been made well within the allotted period. On the other hand, if Southesk were right in their contention, the lease would have terminated on 28 November 1997 and so Geddes's claim would have ceased to be enforceable from 28 April 1998 - unless the Secretary of State appointed an arbiter within such longer time as he might in special circumstances allow. The rival contentions were placed before the Secretary of State in correspondence.

[4] Eventually on 28 July 1998 the Secretary of State appointed Mr. James Inverarity to act as arbiter under Section 61. Although Mr. Reid, Q.C., who appeared for Southesk, specifically conceded that the Secretary of State was under no obligation to do so, in fact he gave his reasons in a letter to the parties which contained the following passage:

[5] In their petition Southesk ask the court to pronounce various orders, including decree of declarator, that the Secretary of State's decision to appoint the arbiter was ultra vires, null and of no effect, and decree of reduction of his purported decision. On 18 December 1998 the Lord Ordinary dismissed the petition and Southesk have reclaimed against that decision.

[6] In presenting his argument for Southesk Mr. Reid really proceeded on the basis that the date of termination of the lease was 28 November 1997 and that the real question was whether there were special circumstances which could justify the Secretary of State in allowing a longer period under Section 62(5). His submission was that the phrase "in special circumstances" meant circumstances which related solely to the lateness of the particular application and which were abnormal and out of the ordinary run. Mr. Reid's cardinal point was that the special circumstances required to relate exclusively to the lateness of the application and that they could not, for instance, relate to the nature of the claim.

[7] Section 62 contains a number of provisions which are designed to set a fairly tight timetable for the submission of claims, for negotiation and settlement and, if need be, for arbitration. Parliament's intention that, normally, parties should adhere to that timetable is made plain by the sanction that, if the one-month period under Section 62(5) elapses without the claim being settled, it is to cease to be enforceable, unless the Secretary of State allows a longer time for the appointment of an arbiter or for an application to be made. This is indeed the most powerful compulsitor on the claimant to pursue his claims with the utmost expedition (Chalmers Property Investment Company v. MacColl 1951 S.C. 24 at p. 29 per Lord President Cooper).

[8] While fully acknowledging that the Secretary of State must not exercise his power in such a way as to subvert the statutory timetable and so weaken the compulsitor, we reject the submission that only circumstances relating to the lateness of the application can constitute special circumstances for the purposes of subsection (5). It appears to us that the only necessary characteristics of the circumstances envisaged by the subsection are: that they relate to the particular case, that they are such as may justify allowing a longer time for the appointment of an arbiter or for an application, and that they are abnormal and out of the ordinary run. Had Parliament wished to limit the nature of the relevant circumstances to those relating to the lateness of the application, it could have done so. Where it has not done so, we would be justified in reading in such a limitation only if we regarded that as necessary in order to make the subsection work. We do not so regard it since we consider that factors other than those relating to the reasons for the lateness of the claim could be relevant for the Secretary of State in considering whether to allow a longer period. For instance, the fact that a claim was for a vast sum, completely out of the run of ordinary claims, could constitute a special circumstance in which the Secretary of State might allow the tenant a longer period to make an application and so prolong the enforceability of the claim which would otherwise perish. To hold that such circumstances could be "special" would not, in our view, subvert the intention of the legislature in enacting Section 62(5) nor would it weaken its operation as a compulsitor in the ordinary case. Mr. Reid's construction of the phrase is, accordingly, too narrow.

[9] Although Mr. Reid put that aspect of the case at the forefront of his submissions, the passage which we have quoted from the Secretary of State's letter makes it clear that he realised that he was dealing with an application submitted by Geddes on the basis that the termination of the lease had occurred on 30 March 1998. On a straightforward application of that kind his only function would have been to identify and appoint an arbiter. The Secretary of State's decision, so far as proceeding on the basis of the date in the application, would not have been open to challenge. But his letter shows that he was also aware of Southesk's contention that the true date of termination was 28 November 1997. The Secretary of State realised that, if that were so, he could appoint an arbiter only if he had first allowed a longer time for making the relevant application - hence he said that he found that there were special circumstances "insofar as it may be necessary to do so". By using this formula the Secretary of State indicated that he was aware of the dispute and would have appointed an arbiter, whichever might be the true date of termination of the lease. In these circumstances, Southesk's attack on the Secretary of State's decision can succeed only if two conditions are met. First, in dealing with Geddes's application, the Secretary of State ought actually to have decided when the lease terminated and, in addition, that the correct date was 28 November 1997. Secondly, he should have found that there were no special circumstances in which he could allow a longer time for Geddes's application.

[10] In our view, the first of these conditions is not met. The Secretary of State's role under Section 62(5) is limited, even though important: essentially, it is to appoint an arbiter when called upon to do so in terms of the Act. It is not his function but, rather, the function of the arbiter, to determine the issues relating to the claim. Otherwise, the relatively simple administrative task of appointing an arbiter would become a complex operation calling for an input from lawyers and tending, in certain cases at least, to undermine the role of the arbiter. In the present case the Secretary of State appears to have been satisfied that the rival contentions about the date of termination and other matters were being advanced in good faith. Had he not been so satisfied, he would have disregarded the contention in question. But having identified what he regarded as genuine rival contentions on the point, it was not the Secretary of State's function to determine which was the correct view as to the date of termination. That was an issue which might have to be resolved by the arbiter in adjudicating upon the claim for compensation, as the Secretary of State seems to recognise in his letter of appointment addressed to the arbiter in which he says that the application for appointment gave notice of an issue between the parties as to the date of termination of the tenancy and goes on to explain how he dealt with it. If it was not the Secretary of State's function, when asked to appoint an arbiter, to determine the true date of the termination of the lease, it follows that it would have been wrong for him to purport to decide that the date of termination was 28 November 1997. Since Southesk's attack on the Secretary of State's decision presupposes that he should have decided that the lease terminated on that date, the attack must fail.

[11] That is sufficient to dispose of the reclaiming motion but out of deference to counsel's arguments we add some observations on the second condition underlying Southesk's challenge. From the passage which we have quoted from his letter it is apparent that the existence of the dispute about the true date of termination of the lease was one of the factors which weighed with the Secretary of State in deciding that the circumstances relating to Geddes's application were special and that he should allow a longer period for it. Under the legislation it was for the Secretary of State to decide whether that circumstance was one which was special and justified allowing Geddes's application to be made late. In particular, as Mr. Reid was the first to acknowledge, it was for the Secretary of State to determine what weight to give to the relevant factors. In a case like this, as a practical matter, that must indeed be so. The Secretary of State sees the applications which are made under the Section and is therefore in the best position - and in a far better position than the court - to decide which are normal and which are special circumstances. For our part, in the absence of any factual material pointing the other way, we are unable to say that the Secretary of State was not entitled to take the view that this particular dispute about the date of termination made the circumstances of the application special. Moreover, in informing parties of his decision the Secretary of State mentions, but does not identify, a range of issues on which stateable arguments had been advanced on either side. It may well be, therefore, that he also looked on the size and nature of the claim - for compensation for converting an abandoned military installation into viable agricultural land - as factors which made the circumstances of the application special. Again we are unable to say that he would not have been entitled to take that view.

[12] We are accordingly satisfied that the Secretary of State was entitled to appoint an arbiter in this case. For the reasons which we have given and which differ in certain respects from those of the Lord Ordinary, we consider that he reached the correct conclusion and we therefore refuse the reclaiming motion.