SECOND DIVISION, INNER HOUSE, COURT OF SESSION |
|
Lord Justice Clerk Lord Kirkwood Lord Osborne
|
XA117/02 OPINION OF THE LORD JUSTICE CLERK in SPECIAL CASE stated by THE SCOTTISH LAND COURT between J L PALMER'S EXECUTORS Landlords; and WILLIAM WHITTON SHAW Tenant: _______ |
For the landlords: McNeill, QC, Sutherland; Donald G Rennie, OBE, WS
For the tenant: J G Reid, QC, Henderson; Balfour & Manson (Thorntons, Perth)
17 December 2003
Introduction
[1] This is a Special Case stated by the Scottish Land Court at the request of the tenant. It arises from a joint application made by the now deceased landlord and the tenant of the farm of Newton of Ballunie, near Blairgowrie. [2] The cause of the dispute is the tenant's failure to pay the half year's rent that was due at Whitsunday 2000. The landlord served on the tenant a notice of irritancy dated 30 August 2000. The notice stated inter alia:"In respect that you have allowed one half year's rent of the holding ... to remain unpaid for three months after the same became due ... I put an end hereby to the Lease ... and ... will forthwith resume possession of the said holding."
The tenant thereafter made two attempts to pay the rent; but if the notice of irritancy was valid, these attempts came too late.
[3] In the joint application the landlord craved a declarator that the tenant had incurred a conventional irritancy of the lease and that the tenancy had been brought to an end by the landlord's notice. The tenant craved declarators (1) that the irritancy clause was void and separatim unenforceable, and accordingly that the notice was invalid; and (2) that as at Whitsunday 2000 and as at the date of service of the notice, the rent was not due because the tenant was entitled to retain it by reason of the landlord's breaches of the lease. [4] The Land Court heard a debate on preliminary questions of law relating to the tenant's craves. By Order dated 22 May 2002 the Court refused the tenant's first crave, in effect sustaining the landlord's position on the validity and enforceability of the irritancy clause. The Court also excluded from probation certain averments by the tenant relating to his claim for retention. Quoad ultra the Court allowed a proof before answer on the tenant's remaining averments on the retention issue (cf Palmer's Exrs v Shaw, 2002 SLCR 1). This is the Order under review. [5] The Land Court has submitted the following questions of law for our opinion:"(1) Whether the Land Court erred in concluding that the irritancy clause was valid and enforceable and (conversely) whether it erred in failing to dismiss the landlord's case on the basis that the clause was neither valid nor enforceable.
(2) Whether the Land Court erred in refusing (sic) from probation the averments in Answer 4(b)."
The tenant no longer insists in the second question.
The irritancy clause
[6] The lease was entered into in 1939. The material clause is as follows:"And in the event of the tenant during the currency of this lease becoming bankrupt or insolvent or divested of his estate and effects or of his allowing one-half year's rent to remain unpaid for three months after the same shall have become due then and in any of these events it shall be in the option of the proprietor by written intimation addressed to the tenant and posted in a registered letter forthwith to put an end to this lease and to resume possession of the farm in whatsoever condition the same may be without any declarator or process of law to be used for that effect and the tenant obliges himself to flit and remove himself and his family, servants, goods and effects at the expiry or sooner termination of this lease without any warning or process of removing to be used for that effect."
The parties agree that the validity of this clause depends on the law as it stood at the date of the lease (Grant v Broadland Properties Estates Ltd, 1997 SLT 1030, Lord President Rodger at p. 1034D-F; cf Coates v Diment, [1951] 1 All ER 890, Streatfeild J at p. 895A).
The statutory framework
[7] At the date of the lease the tenancy was governed by the Agricultural Holdings (Scotland) Act 1923 (the 1923 Act). Sections 9 and 45 of that Act provided inter alia as follows:"9 (1). Where a tenant on quitting a holding proves to the satisfaction of an arbiter appointed under this Act that the value of the holding to an incoming tenant has been increased during the tenancy by the continuous adoption of a standard of farming or a system of farming which has been more beneficial to the holding than the standard or system (if any) required by the lease, the arbiter shall award to the tenant such compensation as in his opinion represents the value to an incoming tenant of the adoption of that standard or system:
Provided that -
(a) This section shall not apply in any case unless a record of the condition of the holding has been made under this Act or any Act by this Act repealed or in respect of any matter arising before the date of the record so made; and
(b) Compensation shall not be payable under this section unless the tenant has, before the termination of the tenancy, given notice in writing to the landlord of his intention to claim such compensation; ...
45. Subject to the provisions of this Act, any contract or agreement made by a tenant of a holding by virtue of which his right to claim compensation under this Act is taken away or limited shall to that extent be void."
The standard or system of farming referred to in section 9 is commonly known as "high farming." Section 9 has been continued with modifications in the consolidations of 1949 and 1991. It is now section 44 of the Agricultural Holdings (Scotland) Act 1991 (the 1991 Act). The substance of section 45 of the 1923 Act has been continued to date, but in much amended form. It is now in section 53 of the 1991 Act. It is agreed that the tenant in this case did not practise high farming.
The decision of the Land Court
[8] The ratio decidendi of the Land Court on the question with which we are concerned is set out in the following paragraph of the Note appended to the Order:" ... The clause was part of the original agreement. It should receive effect unless it can properly be said to limit the tenant's rights to compensation within the meaning and intent of section 45. For all practical purposes the tenant's potential right to make a claim under section 9 is not limited if he has time to give notice of his claim at a stage when he can be taken to be aware that termination is imminent. The provisions of section 45 were not to protect the tenant from uncertainty but to ensure that no contractual provision limited his right to claim compensation. We are satisfied that there is no practical sense in which any minor uncertainty as to precisely when the landlord might choose to exercise the right can properly be said to limit the tenant's own rights. Where the imminent risk of termination ought to be clearly understood the situation is quite different from the circumstances discussed in the English cases where the risk of termination existed as an unfocused threat from the outset" (Palmer's Exrs v Shaw, supra, at p. 20).
Submissions for the parties
For the tenant
[9] Counsel for the tenant submitted that the irritancy clause contravened section 45 of the 1923 Act because, in allowing for the instant termination of the lease, it purported to deprive the tenant of his right to compensation under section 9, a precondition of which was that the tenant should give notice before the termination of the tenancy of his intention to claim it. In Cathcart v Chalmers (1911 SC 292; affd. 1911 SC (HL) 38) a clause that required the tenant to make his claims for compensation for improvements no later than one month before the termination of the tenancy, while the statute allowed him to make such claims at any time up to the date of the termination, was held to deprive the tenant of his right to compensation and therefore to contravene the corresponding provision of the Agricultural Holdings (Scotland) Act 1883. That principle had been applied in two English decisions on clauses providing for resumption by the landlord without notice (Re Disraeli Agreement [1939] Ch 382; Coates v Diment, supra). In Parry v Million Pigs Ltd ((1981) 260 EG 281) the principle had been extended to a clause providing for forfeiture and re-entry without notice upon a breach of any condition of the tenancy. Whether Scots law provided the same result in the case of an irritancy was uncertain (cf Gill, Law of Agricultural Holdings in Scotland, 3rd ed, para 15-10). In principle, it should.For the landlord
[10] Counsel for the landlord submitted that the irritancy clause did not deprive the tenant of any statutory rights and therefore was not void. Cathcart v Chalmers (supra) was distinguishable (i) because a notice of intention to claim compensation under section 9 of the 1923 Act could be given at any time during the tenancy and (ii) because that case did not deal with irritancy. Parry v Million Pigs Ltd (supra) was distinguishable because the statutory provision in that case (Agricultural Holdings Act 1948, s. 56), unlike section 9 of the 1923 Act, required the tenant to give notice of intention to claim compensation at least one month before the termination of the tenancy. Irritancy clauses were "perfectly legal" (Chalmers' Tr v Dick's Tr, 1909 SC 761, Lord Ardwall at p. 771). The 1923 Act expressly recognised the right of a landlord to irritate under a conventional provision (s. 26(4)). The legislature must have recognised that an irritancy could operate without notice, or at any rate without the familiar statutory periods of notice. The legislation could have provided for the issuing of a warning notice in irritancy cases but had not done so. Although the landlord in a commercial lease was required to give such a notice in the case of irritancy (Law Reform (Miscellaneous Provisions) (Scotland) Act 1985, s. 4), the law relating to agricultural leases was unaffected by this reform (s. 7). In any event, where the breach related to non-payment of rent, the tenant in this case knew as soon as the due date passed that if he failed to pay within three months, the landlord would be entitled to irritate the lease. He had the opportunity during that period to give notice of intention to claim compensation for high farming, if he had such a claim.High farming
[11] A discussion of high farming in an appeal being heard in 2003 comes as a surprise. The claim for high farming originates in an arbitration in 1889 in which the oversman accepted a claim that the outgoing tenant's management of the holding had greatly enhanced its fertility and that his improvement in sowing out the land and enriching it during a long succession of years by a liberal consumption of cake and other feeding stuffs was of lasting value to the holding. This was the first occasion in which such a claim had been allowed in an arbitration (Sir Isaac Connell WS, The Agricultural Holdings (Scotland) Act 1923, pp. 33; 283-286). Thereafter a practice grew up by which arbiters awarded compensation for such farming in the name of "cumulative fertility." It was recognised in the farming world that there was at least a doubt about the validity of the claim. The Royal Commission on Agriculture (1897) considered that the claim qualified under two existing heads of compensation for improvements, namely the application of purchased manure and the consumption of bought-in feeding stuffs. In 1915, at the instance of the Board of Agriculture for Scotland, a committee was appointed to consider inter alia whether the claim should be recognised and, if so, how it might be quantified. In 1916, while the committee was deliberating, an arbiter awarded a sum of compensation on an outgoing claim for "continuous good farming." The Inner House held that the claim was irrelevant and reduced the award (Brodie-Innes v Brown, (1916) 54 SLR 170; (1917) 1 SLT 49). In 1917 the committee reported. It concluded, in brief, that the liberal use of manures and feeding stuffs in the early years of a tenancy followed by continuous good farming could produce an improvement over and above the residual value of the manures and feeding stuffs that were left in the soil, because it was not necessary to spend so much to maintain the condition of the holding. [12] The 1923 Act introduced the statutory claim in response to that conclusion. Sir Isaac Connell thought that the claim was unnecessary and that the claim considered in Brodie-Innes v Brown (supra) would have qualified under the existing legislation if it had been presented under the heads of improvement to which I have referred (op cit, p. 33). That conclusion is supported to some extent by Marshall's analysis of the claim (Agricultural Outgoing Claims, pp. 104-106; 251). This may be why section 9 and its successor sections have been a dead letter for so long. I doubt if there is anyone now in practice who has had any experience of it. It is my impression that even in 1939 the idea that the tenant might ever make such a claim would have been regarded as fanciful. I mention this history by way of demonstrating the unreal background against which this appeal was argued. [13] Nevertheless, senior counsel for the tenant was right in insisting that the essential question is whether the effect of the irritancy clause was to take away or limit any potential claim by the tenant for compensation for high farming, whatever the improbability of his making it.Conclusions
[14] In my opinion, the irritancy was valid in this case. The only ground on which it is now suggested that the clause contravened section 45 is that it could have had the effect, if strictly enforced, of depriving the tenant of any claim that he might have under section 9. That raises two questions, namely (1) whether, in general, the principle laid down in Cathcart v Chalmers (supra) applies to irritancy clauses; and (2) whether it applies to the clause in this case.The general principle
[15] I agree with counsel for the landlord that section 26(4) of the 1923 Act preserved the landlord's lawful remedy of irritancy; but that is beside the point. Section 26(4) saved the landlord's remedy of irritancy in the context of the termination of a tenancy by statutory notice. That does not mean that it saved an irritancy clause that infringed other provisions of the Act. The real question is whether a clause that entitled the landlord to bring the tenancy to an end without warning and, in that event, deprived the tenant of the opportunity to give notice of a high farming claim was invalidated, at any rate so far as non-payment of rent was concerned, by section 45. [16] Counsel for the tenant relied on Parry v Million Pigs Ltd (supra) in which the general principle set out in the cases to which I have referred was extended to forfeiture. That decision has been generally accepted as sound by the English writers, for example by the current editors of the leading English textbook (Muir Watt and Moss, Law of Agricultural Holdings, 14th ed, at para. 13.2), but I would be reluctant to base my conclusions in this case on it. It is reported only in an unofficial series of reports and the opinion of Ewbank J does not disclose what arguments were put forward on behalf of the landlord in reply to the tenant's reliance on Re Disraeli Agreement (supra) and Coates v Diment (supra). Since Parry v Million Pigs Ltd (supra) is unsatisfactory in these respects, and since this court has remarked on the dangers of equiparating the law of forfeiture with that of irritancy (cf HMV Fields Properties Ltd v Bracken Self Selection Fabrics Ltd, 1991 SLT 31, at p. 35C-D), I think that we should re-examine this question in the light of Cathcart v Chalmers (supra), which to my mind is the case that matters. [17] In Cathcart v Chalmers the clause regulating the tenant's claims for compensation for improvements stipulated that "no claim for compensation under the said Acts [sc. The Agricultural Holdings Act 1900 and the Agricultural Holdings (Scotland) Act 1883] or under these conditions shall be made by the tenant later than one month prior to the determination of the tenancy." The 1900 Act gave the tenant an absolute right to compensation at the determination of the tenancy, on quitting the holding, provided that his claim was not made after the determination of the tenancy (1900 Act, ss. 1(1), 2(2)). It was held that the clause was void. It limited the tenant's right to claim compensation and therefore contravened section 36 of the 1883 Act, the differently worded predecessor of section 45 of the 1923 Act. [18] In Re Disraeli Agreement (supra, at p. 386), Cathcart v Chalmers (supra) was relied on for the tenant. In that case, a condition in the lease entitled the landlord to resume part of the holding without notice and without payment of compensation. Crossman J held that the condition was void under the English section corresponding to section 45 (Agricultural Holdings Act 1923, s. 50) because it prevented the tenant from timeously giving the requisite notice of his claim for compensation for disturbance in relation to the resumed area. In Coates v Diment (supra, at p. 894A) Streatfeild J applied that principle to a condition that, while not excluding the right to compensation, entitled the landlord to resume without notice, adding that in his opinion the clause also deprived the tenant of his right to compensation for high farming under the English Act of 1923 (ibid, at p. 893G-H). [19] In my opinion, an irritancy clause that provides for termination of the tenancy without prior warning is subject to the same principle. The clause may say nothing about the tenant's rights to compensation; but if its operation can have the indirect effect of abridging them, it contravenes the statutory provision. That is the point that was made by Lord Dundas, and adopted by the House of Lords, in Cathcart v Chalmers (supra) when he said that under the predecessor of section 45 a clause would be illegal if it might "at least indirectly" operate to deprive the tenant of his right to compensation (1911 SC 292, at p. 298; 1911 SC (HL) 38, LC Loreburn at pp. 38-39; Lord Shaw of Dunfermline at p. 40; cf. Coates v Diment, supra, Streatfeild J at p. 897B-C). [20] I am further of the opinion that the fact that ex hypothesi the tenant is in default when the irritancy is enforced has no bearing on its validity. Unlike the claim for compensation for disturbance, which did not arise on termination by irritancy (1923 Act, s.12; now 1991 Act, s. 43(1)), other claims for compensation under the 1923 Act, including the claim for compensation for high farming, were open to a tenant on the termination of the tenancy, whatever breaches on his part might have led to it.The clause in this case
[21] We are concerned in this case with the validity of the clause only so far as it relates to non-payment of rent. Although the clause allows the landlord to irritate the lease without notice, it provides that he can do so in the case of non-payment of rent only after the tenant has been in default for three months. In my opinion, the clause was not invalidated by section 45. Under section 9, a notice of intention to claim compensation for high farming was competent to the tenant at any time during the currency of the lease. Under this clause, a tenant who failed to pay his rent at the due date must be taken to have known that, if he continued in default for three months, he would be vulnerable to an immediate irritancy. Until then the lease remained current. He therefore had the opportunity throughout that period to give the requisite notice under section 9. [22] For that reason, whatever questions might arise under this clause in relation to other grounds of irritancy, I am of the opinion that in relation to non-payment of rent the timetable that it specified did not contravene section 9.Interlocutor
[23] I propose that we answer the first question by saying that the Land Court was right in holding that the irritancy clause was valid and enforceable. I propose that we answer the second question, of consent, in the negative and return the case to the Land Court to proceed as accords. Palmer, Executors of v. Shaw [2003] ScotCS 318 (17 December 2003)
SECOND DIVISION, INNER HOUSE, COURT OF SESSION |
|
Lord Justice Clerk Lord Kirkwood Lord Osborne
|
XA117/02 OPINION OF LORD KIRKWOOD in SPECIAL CASE stated by THE SCOTTISH LAND COURT between J L PALMER'S EXECUTORS Landlords; and WILLIAM WHITTON SHAW Tenant: _______ |
For the landlords: MacNeill, QC, Sutherland; Donald G Rennie, OBE, WS
For the tenant: J G Reid, QC, Henderson; Balfour & Manson (Thorntons, Perth)
17 December 2003
[24] I am in full agreement with the Opinion of your Lordship in the chair and there is nothing I wish to add. Palmer, Executors of v. Shaw [2003] ScotCS 318 (17 December 2003)>
SECOND DIVISION, INNER HOUSE, COURT OF SESSION |
|
Lord Justice Clerk Lord Kirkwood Lord Osborne
|
XA117/02 OPINION OF LORD OSBORNE in SPECIAL CASE stated by THE SCOTTISH LAND COURT between J L PALMER'S EXECUTORS Landlords; and WILLIAM WHITTON SHAW Tenant: _______ |
For the landlords: MacNeill, QC, Sutherland; Donald G Rennie, OBE, WS
For the tenant: J G Reid, QC, Henderson; Balfour & Manson (Thorntons, Perth)
17 December 2003
[25] I entirely agree with the Opinion of your Lordship in the chair and have nothing useful to add.