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Cite as: [2007] ScotCS CSIH_62, [2007] CSIH 62

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SECOND DIVISION, INNER HOUSE, COURT OF SESSION

Lord Justice Clerk

Lord Nimmo Smith

Lord Kingarth

[2007] CSIH 62

XA132/05

OPINION OF THE LORD JUSTICE CLERK

In the Appeal by

ROBERT L DOWNIE (AP)

Tenant and Appellant;

against

THE TRUSTEES OF THE EARL OF STAIR'S 1970 TRUST

Landlords and Respondents:

_______

For the appellant: Sutherland; Wright, Johnston & Mackenzie LLP

For the respondents: Sir Crispin Agnew of Lochnaw, QC; Turcan Connell

26 July 2007

I Introduction

[1] This is an appeal by the tenant of Knock Farm, Leswalt, Wigtownshire against an Order of the Scottish Land Court dated 24 November 2005 in an application by the landlords for declarator of irritancy of the lease.

[2 ] The lease was entered into in 1994. Clause 19 provides, inter alia, as follows:

"If during this lease the tenant ... allows one half year's rent to remain unpaid for one month after it has become due ... it will be in the power of the landlord by written intimation addressed to the tenant forthwith to put an end to this lease ... "

[3 ] The tenant was late in paying the rent due at Whitsunday 2004. On 30 September 2004 the landlords notified him that if the rent was not paid timeously in future, they would irritate the lease. By 28 December 2004 the rent due at Martinmas 2004 remained unpaid. On 29 December 2004 the landlords terminated the lease by notice of irritancy under clause 19 and required the tenant to remove within two months.

[4 ] The tenant refused to remove. He contended that clause 19 was void ab initio because, by entitling the landlords to terminate the lease with immediate effect, it infringed his right to compensation for high farming under section 44 of the Agricultural Holdings (Scotland) Act 1991 (the 1991 Act), which was conditional on his giving notice of intention to claim not later than one month before the termination of the tenancy (s 44(2)(a)). The landlords pled that there was no reason why the notice of irritancy should not have effect since the tenant had no claim that was being impeded by it.

[5 ] The Land Court decided that since the irritancy clause did not in the event limit any of the tenant's claims for compensation, it was valid and effective. It repelled the tenant's plea in law on the point and continued the case for consideration of the landlords' crave for declarator. That is the decision appealed against.

II The history of the legislation

[6 ] The primary objective of the Agricultural Holdings (Scotland) Act 1883 (the 1883 Act) was to confer on the agricultural tenant a right to compensation at waygoing for his improvements where at common law he had none. To secure the tenant's position, the 1883 Act prohibited contracting out of the tenant's claims for compensation. Section 36 provided as follows:

"Any contract or agreement made by a tenant by virtue of which he is deprived of his right to claim compensation under this Act in respect of any improvement specified in the schedule hereto ... shall, so far as it deprives him of such right, be void."

[7 ] Section 2(2) of the Agricultural Holdings Act 1900 (the 1900 Act) provided that any claim by a tenant under the 1883 Act or that Act for compensation for improvements could not be made after the determination of the tenancy. In Cathcart v Chalmers (1911 SC (HL) 38; 1911 SC 292 (IH)) it was held that a clause that required the tenant to make his claim for compensation for improvements not later than one month before the termination of the tenancy had the effect of depriving him of his right under the 1900 Act to claim compensation at any time before the determination of the tenancy, and was therefore void by virtue of section 36 of the 1883 Act.

[8 ] Section 36 of the 1883 Act was re-enacted in substantially the same form in section 5 of the consolidating Agricultural Holdings (Scotland) Act 1908.

[9 ] Section 45 of the Agricultural Holdings (Scotland) Act 1923 (the 1923 Act) extended the scope of that provision. It provided that any contract or agreement was void not only to the extent that it deprived the tenant of his right to claim compensation under that Act, but also to the extent that it limited it; and by providing that it extended to compensation claims of all kinds. Section 45 was in the following terms.

"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."

[10 ] The Agriculture (Scotland) Act 1948 (the 1948 Act) effected major reforms, not least by conferring on the tenant security of tenure. Sections 9 and 10 of the Act provided inter alia as follows:

"9 (1) Save as expressly provided in the provisions of the Act of 1923, of this Part of this Act and of the Schedules therein referred to, in any case for which apart from this section those provisions provide for compensation a tenant or a landlord shall be entitled to compensation in accordance with those provisions and not otherwise, and shall be so entitled notwithstanding any agreement to the contrary ...

(3) Section forty-five of the Act of 1923 (which provides that certain contracts not in accordance with the provisions of that Act shall be void) shall cease to have effect ...

10 (1) The provisions relating to compensation of this Part of this Act [sc Part 1 (Agricultural Holdings)] and the Schedules therein referred to, other than this section, shall not have effect where the tenant of a holding quits the holding in consequence of a notice to quit given (whether by the landlord or the tenant) before the commencement of this Part of this Act, or in consequence of a renunciation of the tenancy in pursuance of an agreement in writing made before the commencement of this Part of this Act.

(2) Subject to the last foregoing subsection, the said provisions shall apply whether the tenant entered in to occupation of the holding before or after the commencement of this Part of this Act, except that the said provisions shall not apply in relation to any improvements specified in the First Schedule to the Act of 1923 begun before the commencement of this Part of this Act ... "

Section 45 of the 1923 Act was repealed in the Tenth Schedule to the 1948 Act.

[11 ] Section 9(1) of the 1948 Act was repeated in virtually identical terms in section 64(1) of the consolidating Agricultural Holdings (Scotland) Act 1949 (the 1949 Act), which I need not quote. Section 64(1) of the 1949 Act was re-enacted in slightly different wording in section 53(1) of the consolidating 1991 Act as follows:

"(1) Unless this Act makes express provision to the contrary, where provision is made in this Act for compensation to be paid to a landlord or tenant-

(a) he shall be so entitled notwithstanding any agreement, and

(b) he shall not be entitled to compensation except under that provision ... "

Section 53(1) applied at the date of the lease.

III Palmer's Exrs v Shaw, 2004 SC 408

[12] In this case an irritancy clause in a lease entered into in 1939, and therefore governed by the 1923 Act, provided that if the tenant allowed rent to remain unpaid for three months the landlord could by notice terminate the lease without prior warning. The parties were agreed that the question whether the clause was unenforceable, because it took away or limited any right of the tenant to claim compensation at waygoing, depended on the law as it stood at the date of the lease (ibid, at para [6]). The issue was therefore whether the irritancy clause contravened section 45 of the 1923 Act by providing that the landlord could in certain circumstances terminate the lease "forthwith," since in that event the tenant would be deprived of the opportunity to give notice before the termination of the tenancy of his intention to claim compensation for high farming. The essential question was whether the effect of the clause was to exclude any potential high farming claim, however improbable it was that the tenant would make one (ibid, at para [13]). In view of the provision that an irritancy could be enforced only after a period of three months default, the court held that the clause did not contravene section 45 (at paras [21]-[22]).

IV Submissions for the parties

[13 ] Counsel for the appellant submitted (1) that under section 45 of the 1923 Act any clause that took away or limited the tenant's right to claim compensation at waygoing was void; (2) that section 53(1) of the 1991 Act did not modify that provision; (3) that since clause 19 provided for termination of the lease without prior notice, it deprived the tenant of the opportunity to give notice of a claim for high farming; and (4) that the clause was therefore void ab initio. A consistent policy against the tenant's contracting out of his rights could be seen in the decision of Crossman J in Re Disraeli Agreement ([1939] 1 Ch 382, at p 392), in circumstances similar to those of the present case; in the decision of the House of Lords in Johnson v Moreton ([1980] AC 37), and in the decision of this Division in Morrison's Exrs v Rendall (1986 SLT 227; cf Wallace v Moll 1989 SLCR 21, at p 29). In Coates v Diment ([1951] 1 All ER 890) Streatfeild J held that a clause governed by the Agriculture Act 1923 that entitled the landlord to resume without notice was void ab initio, but added obiter that the clause would have been void also under the Agricultural Holdings Act 1948. Since the corresponding provisions of the Scottish Acts of 1923 and 1949 were in similar terms to those of the English Acts of 1923 and 1948, this court should take the same view of section 64(1) of the 1949 Act and its successor, the present section 53(1) of the 1991 Act.

[14 ] Counsel for the landlords submitted (1) that while section 53(1) of the 1991 Act was a consolidating provision, its origins were not in the 1923 Act and it should not be construed by reference to that Act; (2) that section 53(1) did not necessarily nullify any provision of the lease, and in any event did not nullify any such provision ab initio; (3) that on the facts, the landlords' notification of 30 September 2004 that they would irritate the lease if a future rent was not paid timeously would have given the tenant sufficient time to make a high farming claim; and (4) that Palmer's Exrs v Shaw (supra) should be re-considered since it proceeded on an erroneous agreement of the parties that the validity of the irritancy clause in that case depended on the law as it stood at the date of the lease, and since section 45 of the 1923 Act did not make the clause in that case void ab initio, but made it invalid only if it excluded or limited the tenant's claim when that claim actually arose.

V Conclusions

The interpretation of section 53 of the 1991 Act

[15 ] In Palmer's Exrs v Shaw (supra), I described the history of the emergence and demise of the claim for high farming. The tenant in this case did not practise high farming and we can take it that at the date of the lease there was not the remotest possibility that he would. Even if he had practised it, he would have had no claim for compensation on that account because no record of the holding had been drawn up (1991 Act, s 44(2)(b)). Therefore the termination of the tenancy with immediate effect by notice in terms of clause 19 did not exclude or curtail any such claim.

[16 ] The tenant can therefore avoid the irritancy only if clause 19 was void ab initio. In my opinion, it was not.

[17 ] The proposition underlying the case for the tenant is that section 45 of the 1923 Act had the effect that a contract or agreement of the kind to which it referred was void ab initio. Counsel for the landlords challenges this proposition. For the present, I shall disregard the point because in my view section 45 of the 1923 Act has no bearing on this case.

[18 ] I do not accept the submission for the tenant that the substance of section 45 of the 1923 Act has been continued in the 1948, 1949 and 1991 Acts. As counsel for the tenant accepted, the 1948 Act was not a consolidation. I agree with the Land Court (Note, p14) that section 53 should be construed without reference to the different wording of section 45 of the 1923 Act. Section 9(1) of the 1948 Act did not declare that any agreement to which it related would be void. It provided inter alia that where the tenant was entitled to compensation under the provisions to which it referred, he would be so entitled "notwithstanding any agreement to the contrary." To confirm the change, section 9(3) expressly provided that section 45 of the 1923 Act would "cease to have effect." Section 9 was in substance re-enacted in the consolidations of 1949 and 1991.

[19 ] The present section 53(1), so far as relevant to this case, provides that where the Act provides for compensation to be paid to a tenant, the tenant shall, in the absence of "express provision to the contrary," be so entitled "notwithstanding any agreement." The words "express provision to the contrary" seem to refer to those provisions of the Act that disqualify the tenant from compensation because the preconditions of his claiming it have not been met; for example, where the landlord has not given the necessary consent to the improvement in question (1991 Act, s 37) or where a record has not been drawn up (s 44(2)).

[20 ] I reject the submission that section 53(1) renders clause 19 void ab initio. Re Disraeli Agreement (supra), on which counsel for the tenant relied, is beside the point, because it was decided under section 50 of the Agricultural Holdings Act 1923, which corresponded with section 45 of the Scottish Act of 1923. For the reasons that I have given, I consider the present Scottish legislation supersedes the provisions of 1923. Neither Johnson v Moreton (supra) nor Morrison's Exrs v Rendall (supra) has any particular relevance to the present question, in my view. We are concerned here with a straightforward question of construing section 53.

[21 ] In my opinion, there are two possible constructions. On the construction proposed by counsel for the landlords, the section means, in the context of this case, that clause 19 is valid and effective, but because it entitles the landlords to terminate the lease with immediate effect, and in that event to make it impossible for the tenant to claim compensation for high farming in accordance with the statutory provisions, the section will entitle the tenant to make his claim otherwise than in accordance with those provisions, and in particular to do so outwith the time limit laid down by 44(2)(a). On this construction, there would be no time limit within which the tenant would be required to intimate his claim. Counsel for the landlords suggested that he would have to do so within a reasonable time. That, I think, is an unsatisfactory principle that would create uncertainty for both parties. That is undesirable in an area of law where the legislation has always given priority to the prompt resolution of waygoing claims.

[22 ] The alternative construction, which I prefer, is that the irritancy clause is valid, but if the landlord should seek to enforce it in a way that prevents the tenant from claiming compensation in accordance with the relevant statutory provisions, the section will make the clause unenforceable to that extent only.

[23 ] If the tenant in this case had had a claim for high farming, the section would have prevented the landlords from enforcing clause 19 by an irritancy that had immediate effect; but since it is accepted on the tenant's behalf that he had no such claim, section 53(1)(a) of the 1991 Act, in my opinion, does not come into play.

[24 ] I should add, however, that although clause 19 gives the landlords the power to terminate the lease forthwith, it does not, in my view, prevent them from terminating it at a deferred date. If the tenant had had a possible high farming claim, clause 19 would, in my opinion, have entitled the landlords to give a notice of irritancy intimating that the irritancy would take effect on a specified date that was more than one month later. That date would be the date of termination of the lease (1991 Act, s 85(1) sv "termination"). Therefore the notice would have given the tenant the necessary time within which to intimate his claim. A division of the Land Court has taken a similar approach to the construction of a resumption clause that entitled the landlords to resume "at any time or times" (Broadlands Properties Ltd v Mann, 2006 SLCR (1) 1). It held that the landlords were entitled to give notice of resumption specifying that the resumption would take effect at a date that would enable the tenant to make a timeous claim for compensation.

[25 ] I should also mention the obiter dictum in Coates v Diment (supra) on which counsel for the tenant relied. In that case Streatfeild J held that a resumption clause in a 1939 lease that entitled the landlord to re-enter without notice had the effect of limiting the tenant's right to compensation and therefore to contravene section 50 of the English Act of 1923 which, in his view, made such a clause void ab initio (ibid, at p 894A). That was in keeping with Re Disraeli Agreement (supra).

[26 ] Streatfeild J then considered obiter what effect the then current provision, section 65(1) of the consolidating Agricultural Holdings Act 1948, would have had on the clause if it had applied (ibid). He interpreted section 65(1) to mean that any agreement that deprived the tenant of, or curtailed, his right to compensation must be "unenforceable" (at p 897B). He then concluded that the effect of that subsection was to make the clause in question void (at p 897E-F).

[27 ] Although the obiter dictum of Streatfeild J on this point has passed without adverse comment by the English writers for over 50 years (eg Muir Watt and Moss, Agricultural Holdings, 14th ed (1998), paras 12.7; 13.2; 13.5), I consider that it is unsound. The terms of section 33(1) and (3) of the Agriculture Act 1947 were identical to those of sections 9(1) and (3) of the Agriculture (Scotland) Act 1948 (supra); and the terms of section 65 of the Agricultural Holdings Act 1948 were identical to those of section 63 of the Scottish Act of 1949, which I have discussed. For the reasons that I have given in relation to the Scottish legislation, I consider that section 65 of the English Act of 1947 was materially different from its predecessor in the English Act of 1923 and fell to be construed without reference to it. By the same reasoning I consider that if section 65 of the English Act of 1948 had applied in that case, it would not have made the clause in question void ab initio. It would have made the clause unenforceable to the extent that, when the time came, the operation of it excluded or limited the tenant's claim.

The landlords' argument that they gave timeous notice on 30 September 2004

[28] On the view that I have taken in this case, this question does not arise. I should say however that I do not accept the submission for the landlords. The question as to the enforceability of the clause in this case can arise only when the landlord seeks to enforce it. It is not until that date that the effect of the irritancy on the tenant's claims can be assessed. The landlords' notice of 30 September 2004 was no more than a warning to the tenant as to what they would do if there was a further default. In this respect the case is distinguishable from Palmer's Exrs v Shaw (supra), where the irritancy clause itself gave the tenant the benefit of a three months default period during which the clause could not be enforced and therefore gave the tenant sufficient time in which to make the relevant claim.