FIRST DIVISION, INNER HOUSE, COURT OF SESSION

Lord President Lord Emslie Lord Osborne

[2012] CSIH 73 XA1/12 OPINION OF THE LORD PRESIDENT in the Special Case under section 27 of the Court of Session Act 1988 for (1) COLIN DOUGLAS RICHARDSON WHITTLE WS and (2) JAMES DEVAS (the Trustees of the late Sir Denis Mortimer Mountain, Bt) First Parties; SIR EDWARD BRIAN STANFORD MOUNTAIN, Bt Second Party; and (1) WILLIAM DENIS CHARLES MOUNTAIN and (2) RORY PATRICK WILLIAM MOUNTAIN Third Parties: _______

For the First Parties: Sir Crispin Agnew of Lochnaw, Bt; Drummond Miller

For the Third Parties: Holmes, Solicitor Advocate; Turcan Connell

(non-participating party - the Second Party)

28 September 2012

Introduction

[1] This is a Special Case concerning the Trust Disposition and Settlement of the late Sir Denis Mortimer Mountain, Bt. The case is stated for our opinion only (Court of Session Act 1988, s 27). The first parties are the settlor's trustees. The second party is his elder son. The third parties are his younger son William and William's son Rory. The second party has signed the Special Case and is therefore bound by the outcome; but in the event has not compeared.

[2] At the date of his death the settlor owned the estate of Delfur, which included the farms of Woodhead and Mains of Cairnty.

The bequest

[3] Clause 3.4 of the Settlement sets out the following bequest:

"All land, forming part of Delfur Estate lying north of the Delfur Lodge woodland policies [which for the avoidance of doubt are excluded] but to include WOODHEAD and MAINS OF CAIRNTY FARMS and the other land running to the north together with the whole sporting rights thereon to my said Son WILLIAM whom failing to his eldest or only Son but both expressly subject to my Son William and his Son agreeing to rent the agricultural land to my Son Edward in his own right or in partnership as my Son Edward shall determine at local market rental values as shall be determined in the first instance by my Trustees, so long as Edward wishes to be involved in the farming thereof, declaring that my trustees shall arrange an agricultural lease arrangement in favour of Edward that will extend for Edward's life only but not thereafter whom also failing to my son EDWARD whom also failing to his eldest or only Son but subject to the provisions for payment and vesting aftermentioned."

The draft contract

[4] The second party and the third parties have agreed on the terms of a contract in intended implement of the condition that is attached to the bequest. It bears to be a lease granted by the first parties qua landlord in favour of the second party qua tenant with the consent of the third parties jointly qua consenters. It relates to all of the land referred to in the bequest, apart from a small area that is not relevant to this case.

[5] The relevant provisions of the draft are as follows.

"The Landlord, in part implement of ... [the Settlement], and with the consent of the Consentor, lets to the Tenant or any general partnership in which the Tenant is a bona fide general partner, but specifically excluding assignees, executors, sub tenants except as aftermentioned and survivors of any kind, for the lifetime of the Tenant only or for such lesser period as the Tenant shall farm as an individual or as a general partner in a bona fide partnership the agricultural land forming and known as Cairnty, near Fochabers, Moray ('the Farm') ... and that on the following terms and conditions:-

1                   Non-statutory liferent

1.1             The liferent Lease granted by the Landlord to the Tenant does not fall under the provisions of the Agricultural Holdings (Scotland) Act 1991 ... nor the Agricultural Holdings (Scotland) Act 2003 ...

1.2             The Tenant shall not assign the Lease in whole or part;

1.3             The Tenant may not sublet the Lease in whole of part except for a sub grazing let on a less than 360 day basis, or as a winter let ...

1.4             The tenant may not bequeath this Lease by any instrument including a will of any nature whatsoever or otherwise to any successor inter vivos nor mortis causa.

2                   Entry and duration

The Lease ... shall subsist until the earlier of

2.1             the death of the Tenant; or

2.2             the Tenant ceasing for his own part or as a general partner in a bona fide partnership to farm the Farm;

when it shall ipso facto terminate without the necessity for notice."

[6] The annual rent is to be £10,500 per annum with rent reviews every three years. If the first parties and the second party should fail to reach agreement at a rent review, either may refer the question to the Scottish Land Court (cl 3.5.4).

The trustees' concerns

[7] The first parties are concerned as to the effect of the proposed contract. They fear that it may qualify as a lease under the Agricultural Holdings (Scotland) Act 1991 (the 1991 Act) or under the Agricultural Holdings (Scotland) Act 2003 (the 2003 Act). If it will qualify as a lease under the 1991 Act, that is to say if it will confer on the second party a "1991 Act tenancy" as defined in section 1 of the 2003 Act; or if it will confer on the second party either of the limited duration tenancies for which the 2003 Act provides, the tenant's interest will be open to certain possibilities of succession on the death of the second party. The first parties are also concerned by the possibility of there being succession to the tenant's interest if the proposed contract is not governed by the Agricultural Holdings (Scotland) Acts. In any of these events, the granting of the proposed contract by the first parties would be contrary to the terms of the bequest.

The questions

[8] The Special Case sets out the following questions of law:

"1. Do the terms of the draft lease provide for a lease that will extend for the life of Sir Edward Brian Stanford Mountain Bt only and therefore comply with the requirements of Clause 3.4 of the Trust Disposition and Settlement?

2. Is it correct to say in Clause 1.1 of the lease that it is a liferent lease that does not fall under the Agricultural Holdings (Scotland) Act 1991 or under the Agricultural Holdings (Scotland) Act 2003?; and

3. Do the terms of the lease otherwise comply with the requirements of Clause 3.4 of the Trust Disposition and Settlement and that therefore the First Parties are empowered to grant the lease under the terms of the said Clause?"

The statutory provisions

The Leases Act 1449 (c 6 of the Record Edition)

[9] The Leases Act 1449 provides:

"Item it is ordanit and statute that for the saueritie and favor of the pure pupil that laubouris the grunde that thai and al uthiris that has takyn or sal tak landis in tym to cum fra lordis and has termes and yeris tharof, that suppose the lordis sel or analy thai landis, that the takaris sall remayn withe thare takis one to the ische of thare termez quhais handis at evir thai landis cum to for sic lik male as thai tuk thaim of befor."

[10] This is the source of the tenant's real right under a lease of heritable property and of the requirement that such a lease must have a fixed duration (Rankine, Leases, 3rd ed, pp 132, 139; Gloag, Contract, 2nd ed, p 233). I have quoted the text given in the Records of the Parliaments of Scotland to 1707, which contemporary scholarship suggests is more accurate than the Glendook duodecimo text of 1682 that was used by Rankine (loc cit); but nothing turns on that in the present case.

The 1991 Act

[11] Section 1(1) of the 1991 Act provides inter alia as follows:

"In this Act ... 'agricultural holding' means the aggregate of the agricultural land comprised in a lease, not being a lease under which the land is let to the tenant during his continuance in any office, appointment or employment held under the landlord."

Section 85(1) of the 1991 Act provides inter alia as follows:

"In this Act, unless the context otherwise requires-

... 'lease' means a letting of land for a term of years, or for lives, or for lives and years, or from year to year ... "

Section 11 provides inter alia as follows:

"(1) ... the tenant of an agricultural holding may, by will or other testamentary writing, bequeath his lease of the holding to his son-in-law or daughter-in-law or to any one of the persons who would be, or would in any circumstances have been, entitled to succeed to the estate on intestacy by virtue of the Succession (Scotland) Act 1964."

Section 11 also provides that in certain circumstances the Land Court may declare that the bequest is null and void (s 11(2)-(6)).

The 2003 Act

[12] The 2003 Act introduced two new forms of agricultural tenancy, namely the short limited duration tenancy (SLDT) and the limited duration tenancy (LDT).

[13] Section 4 of the 2003 Act, so far as relevant, provides as follows:

"(1) Where-

(a) agricultural land is let under a lease for a term of not more than five years;

(b) the land comprised in the lease is not let to the tenant during the tenant's continuance in any office, appointment or employment held under the landlord; and

(c) the lease does not constitute-

(i) a 1991 Act tenancy ...

the tenancy under the lease is, by virtue of this subsection, a short limited duration tenancy."

Section 5, as enacted, provided inter alia as follows:

"(1) Where-

(a) agricultural land is let under a lease for a term of not less than fifteen years;

(b) the land comprised in the lease is not let to the tenant during the tenant's continuance in any office, appointment or employment held under the landlord; and

(c) the lease does not constitute a 1991 Act tenancy,

the tenancy under the lease is, by virtue of this subsection, a limited duration tenancy ...

(4) Without prejudice to subsections (2) and (3), where a lease constituting a tenancy of agricultural land, as described in paragraphs (b) and (c) of subsection (1), purports to be for a term of more than five years and less than 15 years, the tenancy has effect as if it were for a term of 15 years; and the tenancy is, by virtue of this subsection, a limited duration tenancy."

Section 21 provides inter alia as follows:

"(1) ... the tenant of a short limited duration tenancy or a limited duration tenancy may, by will or other testamentary writing, bequeath the lease constituting the tenancy to the tenant's son-in-law or daughter-in-law or to any one of the persons who would be, or would in any circumstances have been, entitled to succeed to the estate on intestacy by virtue of the 1964 Act."

It also provides that the Land Court may in certain circumstances declare that the bequest is null and void.

[14] For the references to fifteen years in section 5, the Public Services Reform (Agricultural Holdings) (Scotland) Order 2011 (SSI No 232; art 7) substituted references to ten years.

The Succession (Scotland) Act 1964

[15] Section 16 of the Succession (Scotland) Act 1964 (the 1964 Act), as amended by the 2003 Act, provides inter alia as follows:

"(1) This section applies to any interest, being the interest of a tenant under a lease, which is comprised in the estate of a deceased person and has accordingly vested in the deceased's executor ... and in the following provisions of this section 'interest' means an interest to which this section applies.

(2) Subject to subsection (4A), where an interest-

(a) is not the subject of a valid bequest by the deceased, or

(b) is the subject of such a bequest, but the bequest is not accepted by the legatee, or

(c) being an interest under an agricultural lease, is the subject of such a bequest, but the bequest is ... or becomes null and void ...

and there is among the conditions of the lease (whether expressly or by implication) a condition prohibiting assignation of the interest, the executor shall be entitled, subject to subsection (2A) of this section, to transfer the interest.

(2A) Transfer by an executor pursuant to subsection (2) of this section-

... (b) of an interest under any lease (other than the lease of a croft ... ) and which is not a transfer to one of the persons entitled to succeed to the deceased's intestate estate or to claim legal rights or the prior rights of a surviving spouse or civil partner out of the estate, in satisfaction of that person's entitlement or claim, shall require the consent of the landlord ...

(4A) Where an interest, being an interest under a lease constituting a short limited duration tenancy or a limited duration tenancy-

(a) is not the subject of a valid bequest by the deceased; or

(b) is the subject of such a bequest, but the bequest is not accepted by the legatee; or

(c) is the subject of such a bequest, but the bequest is declared null and void by virtue of section 21 of the 2003 Act,

and there is among the conditions of the lease (whether expressly or by implication) a condition prohibiting assignation of the interest, the executor shall be entitled, notwithstanding that condition, to transfer the interest to a person to whom subsection (4B) below applies; and the executor shall be entitled so to transfer the interest without the consent of the landlord ...

(9) In this section-

'agricultural lease' means ... a lease constituting a 1991 Act tenancy, or a lease constituting a short limited duration tenancy or a limited duration tenancy ...

'the 1991 Act' means the Agricultural Holdings (Scotland) Act 1991

'the 2003 Act' means the Agricultural Holdings (Scotland) Act 2003 ...

'1991 Act tenancy,' 'short limited duration tenancy' and 'limited duration tenancy' shall be construed in accordance with the 2003 Act."

[16] Section 36(2) provides as follows:

"(2) Any reference in this Act to the estate of a deceased person shall, unless the context otherwise requires, be construed as a reference to the whole estate ... belonging to the deceased at the time of his death or over which the deceased had a power of appointment and, where the deceased immediately before his death held the interest of a tenant under a tenancy or lease which was not expressed to expire on his death, includes that interest."

A preliminary question

[17] In the questions put to us it is assumed that the proposed contract constitutes a lease. The draft sets out a clear consensus as to parties, subjects and rent; but there is a question as to the duration (cf Gray v University of Edinburgh 1962 SC 157). The specified duration, echoed in the entry and duration clause, is to be for the lifetime of the tenant only "or for such lesser period as the tenant shall farm as an individual or as a general partner in a bona fide partnership the agricultural land forming and known as Cairnty ... "

[18] A lease granted for the unascertainable duration of the lifetime of the tenant, a so-called liferent lease, is regarded as being a lease for a valid term for the purposes of the 1449 Act (Rankine, op cit, p 139). It does not matter that it cannot be known for how long the lease will endure. All that matters is that the duration is clear. In this case, however, it is provided that the lease may endure for less than the lifetime of the tenant and may come to an end if the second party should cease to farm the land. The question therefore is whether that provision affects the validity of the contract. In Stirrat v Whyte (1967 SC 265) the owner of a farm let two fields forming part of the farm for a rotation of cropping, no rotation or term of years being specified, on condition that the let was to terminate in the event of a sale of the farm at any time. In an arbitration conducted under the Agricultural Holdings (Scotland) Act 1949 as to the validity of a notice to quit served by the landowner, the question arose as to whether a contract of such a duration constituted a "lease" within the definition of that term in the Act. The First Division held unanimously that it did not. Lord President Clyde, however, was of the view that the contract was not a lease at all, since it was terminable at any time when the landowner chose to sell the farm (at p 268). Lord Migdale took the same view. He thought that the contract constituted only a licence to occupy the fields until the farm was sold (at p 270).

[19] I have come to the view that the contract in that case was not a lease at all, but for a different reason; namely that the contract was unspecific as to the nature of the rotation and as to the number of years over which the rotation was to be carried out. If that had been a lease for a specified number of years, the condition for earlier termination on sale would not, in my opinion, have invalidated it. That condition would not have affected the contractual duration. It merely provided for the possibility of earlier termination in the specified event. In that sense, it would have been no different from the familiar form of irritancy or break clause in leases of land.

[20] In the present case, in my view, the unambiguous contractual duration is to be the lifetime of the second party. I interpret the provision relating to his ceasing to farm the land as being only a resolutive condition specifying an event the occurrence of which will bring the lease to an end at an earlier date. It therefore does not invalidate the proposed lease.

The issues

[21] On the view that the draft contract is a valid lease, I consider that there are five issues; namely (1) Does the lease confer on the second party a 1991 Act tenancy? (2) if not, does it confer on the second party a SLDT or a LDT under the 2003 Act? (3) being a lease of agricultural land, is it valid if it does not qualify as a lease under either the 1991 Act or the 2003 Act? (4) if it is a valid lease that is outwith the scope of those Acts, can the tenant's interest be validly bequeathed by him; and (5) if not, is the tenant's interest capable of being transferred after his death to an eligible acquirer under the 1964 Act?

Conclusions

(1) Does the lease create a 1991 Act tenancy?

[22] In my opinion, a liferent lease does not fall within any of the categories of lease to which the 1991 Act applies. The definition of "lease" in section 85 of the 1991 Act includes a lease for "lives." The rule of statutory interpretation that references to the plural are presumed to include the singular applies only if the contrary intention does not appear (Interpretation Act 1978, s 6(c)). In my opinion, the contrary intention appears in the section 85 definition. In the case of a contractual duration measured in terms of years, it includes the singular "year to year" and the plural "a term of years," but in the case of a duration measured in terms of lives, it includes a lease for "lives" but not a lease for "a life."

[23] I conclude therefore that the express reference to "lives" cannot be presumed to include the singular. I agree with the view expressed on this point in the Stair Memorial Encyclopaedia (Reissue 1990: Agriculture, para 37, fn 2).

[24] The question why the definition in section 85 and its predecessors should have been expressed in this way is in any event academic in this case because the proposed lease does not provide that the 1991 Act is to apply to it. In consequence of section 1 of the 2003 Act, in the absence of such a provision the proposed lease cannot create a 1991 Act tenancy.

(2) Does the lease create an SLDT or an LDT under the 2003 Act?

[25] The 2003 Act does not provide a definition of the word "lease" and it does not incorporate the 1991 Act definition referentially.

[26] The policy of the 2003 Act was to allow the creation of fixed duration tenancies in two cases, namely the SLDT and the LDT. The proposed lease is not a lease for a term of "not more than five years" (2003 Act, s 4(1)(a)). Therefore it cannot constitute an SLDT. It is not a lease for a term "of more than five years and less than 15 years", or as is now the law, less than ten years (s 5(4)); nor is it a lease for a term of "not less than fifteen years", or not less than ten years (s 5(1)(a)). Therefore it cannot constitute an LDT.

(3) Being a lease of agricultural land, is it valid if it does not qualify as a lease under either the 1991 Act or the 2003 Act?

[27] In my opinion, the 1991 and 2003 Acts, in applying only to leases of certain specified durations, do not have the effect that leases of agricultural land for other durations are invalid.

[28] It is unnecessary to explore the origins of the durations that have been specified in the definition of "lease" since the first Agricultural Holdings (Scotland) Act of 1883 (cf 1991 Act, s 85(1), supra). It is sufficient to say that neither that Act nor any of its successors has provided that a lease of agricultural land for a duration that is not so specified is invalid on that account. The point had little significance in the context of the 1883 Act, the primary purpose of which was to confer on the waygoing tenant certain rights to compensation; but the point became important on the conferment on the tenant of security of tenure, and other valuable rights and protections, by the Agriculture (Scotland) Act 1948. At that point, it would have been open to Parliament to provide that agricultural leases of a duration that fell outwith the statutory definition of "lease" would be of no effect. From the continued silence of the legislation on this point, I infer that it is not the policy of the Agricultural Holdings (Scotland) Acts (the Acts) to proscribe such leases. Those leases are simply outwith the scope of the Acts.

[29] It follows therefore that the subjects of let in this case will not constitute an agricultural holding (1991 Act, s 1) and that rights conferred on tenants by the Acts will be available to the second party only if granted to him ex contractu.

[30] If I am right in this conclusion, the parties will, I think, have to reconsider the provisions for rent review. Clauses 3.5.3 and 3.5.4 provide that if the parties fail to agree on a revised rent at a triennial review, either of them may refer the question to the Scottish Land Court. In my view, that provision is inept. The Land Court has no jurisdiction in such a question. Its jurisdictions in relation to agricultural tenancies are conferred by the Scottish Land Court Act 1993 (s 1, as amended by the 2003 Act, s 82); by the 1991 Act (s 60, as substituted by the 2003 Act, s 75), and by the 2003 Act (s 77). These jurisdictions apply only in relation to tenancies falling within those statutes. Even the greatly extended jurisdiction conferred on the Land Court by Part 7 of the 2003 Act applies only to questions arising between landlord and tenant of such tenancies or between a claimant to any such tenancy and the landowner. Likewise, the long-established jurisdiction of the Land Court to adjudicate on disputes brought before it by joint application, now part of its much enlarged jurisdiction, was exerciseable before 2003 only in relation to disputes between landlord and tenant of an agricultural holding (1991 Act, s 60(2) as enacted).

[31] The parties cannot confer jurisdiction on the Land Court by their own agreement. Unlike the Lands Tribunal for Scotland, the Land Court cannot accept a reference to arbitrate on a private dispute (cf Lands Tribunal Act 1949, s 1(5)). In this case a contentious rent review would best be resolved by arbitration.

(4) If the lease is outwith the scope of the 1991 and 2003 Acts, can the tenant's interest under it be bequeathed?

[32] In a tenancy of agricultural land under the 1991 Act or the 2003 Act, the tenant has a statutory right of bequest. In a tenancy that falls outwith those statutes the question is whether the tenant has such a right at common law. In my opinion, he does not.

[33] At common law, the essence of a liferent lease is that it comes to an end on the death of the tenant (Rankine, op cit, pp 551, 593; IRC v Graham's Trs 1971 SC (HL) 1, Lord Guest at pp 24-25). For that reason the interest of the tenant could not vest in the heir-at-law (Stewart v Grimmond's Reps 1796 Mor 13853; Johnston's Trs 1803 Mor 15207). The proposed lease therefore cannot continue in the hands of a legatee because on the death of the second party, his interest in the lease will not form part of his estate (Succession (Scotland) Act 1964, s 36(2); Cormack v McIldowie's Exr 1974 SLT 178, at p 183).

(5) If the tenant's interest cannot be bequeathed, is it capable of being transferred after his death to an eligible acquirer under section 16 of the 1964 Act?

[34] For the same reason, the interest of the second party under the proposed lease cannot vest in his executor. Therefore it will not be available for transfer to an acquirer under section 16(1) and (2) of the 1964 Act (supra).

Disposal

[35] On the conclusions that I have reached, I propose to your Lordships that we should answer all three questions in the affirmative.

FIRST DIVISION, INNER HOUSE, COURT OF SESSION

Lord President Lord Emslie Lord Osborne

[2012] CSIH 73 XA1/12 OPINION OF LORD EMSLIE in the Special Case under section 27 of the Court of Session Act 1988 for (1) COLIN DOUGLAS RICHARDSON WHITTLE WS and (2) JAMES DEVAS (the Trustees of the late Sir Denis Mortimer Mountain, Bt) First Parties; SIR EDWARD BRIAN STANFORD MOUNTAIN, Bt Second Party; and (1) WILLIAM DENIS CHARLES MOUNTAIN and (2) RORY PATRICK WILLIAM MOUNTAIN Third Parties: _______

For the First Parties: Sir Crispin Agnew of Lochnaw, Bt; Drummond Miller

For the Third Parties: Holmes, Solicitor Advocate; Turcan Connell

(non-participating party - the Second Party)

28 September 2012

[36] For the reasons given by your Lordship in the chair, I agree that the three questions in this Special Case should be answered in the affirmative.

FIRST DIVISION, INNER HOUSE, COURT OF SESSION

Lord President Lord Emslie Lord Osborne

[2012] CSIH 73 XA1/12 OPINION OF LORD OSBORNE in the Special Case under section 27 of the Court of Session Act 1988 for (1) COLIN DOUGLAS RICHARDSON WHITTLE WS and (2) JAMES DEVAS (the Trustees of the late Sir Denis Mortimer Mountain, Bt) First Parties; SIR EDWARD BRIAN STANFORD MOUNTAIN, Bt Second Party; and (1) WILLIAM DENIS CHARLES MOUNTAIN and (2) RORY PATRICK WILLIAM MOUNTAIN Third Parties: _______

For the First Parties: Sir Crispin Agnew of Lochnaw, Bt; Drummond Miller

For the Third Parties: Holmes, Solicitor Advocate; Turcan Connell

(non-participating party - the Second Party)

28 September 2012

[37] I agree with the Opinion of your Lordship in the chair and have nothing further to add.