Scottish Court of Session Decisions

EXTRA DIVISION, INNER HOUSE, COURT OF SESSION

[2015] CSIH 39

XA58/14

Lord Menzies

Lady Smith

Lord McGhie

OPINION OF THE COURT

delivered by LORD MENZIES

in the appeal

by

THE GOVERNORS OF ROBB’S TRUST

Pursuers and appellants;

against

DAVID ALLAN EDWARDS

Defender and respondent:

Pursuers and appellants:  Sutherland; Davidson Chalmers LLP (for Stronachs LLP, Aberdeen)

Defender and respondent:  Sir Crispin Agnew of Lochnaw QC; Anderson Strathern LLP

26 May 2015

The issue
[1]        The issue in this appeal is whether, in respect of a lease governed by the Agricultural Holdings (Scotland) Act 1991, in terms of which the landlords have served on the tenant a notice to quit which is disputed by the tenant, and the dispute proceeds to arbitration, section 23(4) of the Act has the effect that the lease continues and rent remains due and payable until the date of issue of the arbiter’s award.  Resolution of that issue is, essentially, a matter of statutory interpretation.

The factual background
[2]        The parties entered into a lease of Pitcow Farm, Whiterashes, Aberdeenshire in terms of a lease dated 30 September 1975.  The pursuers and appellants were the landlords in terms of this lease, and the defender and respondent was the tenant.  The tenant took possession on 28 May 1976.  Rent was paid in arrears at the terms of Martinmas and Whitsunday.  The ish was Whitsunday 1986.  Thereafter the lease continued by operation of tacit relocation. 

[3]        Between 1996 and 2001 the tenant failed to pay a number of instalments of rent.  On 4 October 2001 the landlords’ agents served a “demand to remedy” notice requiring the tenant to pay the outstanding rent.  He did not do so. 

[4]        On 23 May 2002 the landlords’ agents served a notice to quit on the ground that the tenant had failed to comply with a written demand requiring the outstanding rent to be paid within two months.  The notice required the tenant to quit the subjects at the term of Whitsunday 2003 (ie 28 May 2003).  The tenant disputed that the instalments of rent were due and accordingly that the notice was valid.  That issue fell to be determined by arbitration.  On 18 June 2002 the landlords’ agents served on the tenant a demand to remedy requiring him to pay the instalments of rent within two months of the date of service. 

[5]        On 9 August 2002 the Scottish Ministers appointed an arbiter to determine whether the demand to remedy notice of 18 June 2002 was valid and correct.  At about that time appointments also were made for arbitration to determine other issues arising between the parties.  The detail of these is of no relevance to the present issue.  However, protracted negotiation followed and it was not until 2012 that the relevant arbitration was concluded. 

[6]        The landlords were successful in the relevant arbitration and accordingly, by awards dated 18 June 2012, both the demand to remedy notice and the notice to quit were held to be valid and incontestable.  On 13 July 2012 the landlords applied to the Scottish Land Court for declarator that the lease was at an end and for an order evicting the tenant from the subjects.  Declarator and warrant for eviction were issued on 3 September 2012, and the tenant was evicted on 30 October 2012. 

[7]        Shortly thereafter the landlords raised these proceedings in Aberdeen Sheriff Court.  A wide range of matters was put in dispute before the sheriff, and each party raised issues as to the relevancy and specification of the other party’s pleadings.  In April 2013 the sheriff heard a debate on the parties’ preliminary pleas; at this debate the tenant appeared on his own behalf without legal representation.  It is not necessary to dwell at length here on the proceedings before the sheriff, because the matter was thereafter appealed to the sheriff principal, and many of the issues that were argued before the sheriff were no longer in contention before the sheriff principal.  At the appeal, the sole point in issue was that identified at the outset of this opinion. 

[8]        Before the sheriff principal, senior counsel for the tenant submitted that the meaning of subsection 23(4) of the 1991 Act was that the effect of the suspension of the notice to quit was that the lease continued and therefore rent was due and payable until the date of the arbiter’s award.  (The terms of subsection 23(5) providing a possible exception were agreed to have no bearing on the present issue).  The lease ended only on that date.  He referred to Gill, The Law of Agriculture Holdings in Scotland (3^rd ed) paragraph 17.02 and to Muir Watt, Agricultural Holdings (13^th ed) pages 136/7 and 694/5.  Counsel for the landlords submitted that the effect of subsection 23(4) was not that the tenancy ended on the issue of the arbiter’s award, but that its operation, ie its enforceability, began only on that date – in other words the date when the tenant should physically remove from the subjects – and, if he failed to do so, the landlord could seek a judicial remedy to compel him.  He referred to Hendry v Walker 1926 SLT 678 and Coutts v Barclay-Harvey 1956 SLT (Sh Ct) 54.  It was suspension of the ability of the landlord to enforce an existing right; there was no question of the contract being varied by the operation of the subsection. 

[9]        The sheriff principal preferred the submissions for the tenant to those for the landlords.  He held that the proper construction of section 23(4) of the 1991 Act was that by suspending the operation of the notice to quit the effect of the notice was also suspended, that being the termination of the lease.  By interlocutor dated 25 March 2014 he allowed the appeal and granted decree in favour of the landlords for lesser sums than those sought in the first and second craves.  It is against this decision that the landlords have appealed to this court. 

The relevant sections of the 1991 Act

“21.¾ Notice to quit and notice of intention to quit.

         (1)  Subject to section 20 of this Act and to subsections (6) and (7) below a tenancy of an agricultural holding shall not come to an end except by operation of a notice which complies with this subsection notwithstanding any agreement or any provision in the lease to the contrary.

         (2)  In this Act, a notice which complies with subsection (1) above is referred to as a “notice to quit” if it is given by the landlord to the tenant and as a “notice of intention to quit” if it is given by the tenant to the landlord.

         (3)  A notice complies with subsection (1) above if¾

(a) it is in writing;

(b) it is a notice of intention to bring the tenancy to an end;

…

(d) In the case of a lease continued in force by tacit relocation, it gives not less than one year nor more than 2 years’ notice.

…

22. ¾ Restrictions on operation of notices to quit.

         (1)  Where not later than one month from the giving of a notice to quit an agricultural holding (or, in a case where section 23(3) of this Act applies, within the extended period therein mentioned) the tenant serves on the landlord a counter-notice in writing requiring that this subsection shall apply to the notice to quit, subject to subsection (2) below and to section 25 of this Act, the notice to quit shall not have effect unless the Land Court consent to the operation thereof.

         (2)  Subsection (1) above shall not apply where¾

…

         (d)  at the date of the giving of the notice to quit the tenant had failed to comply with a demand in writing served on him by the landlord requiring him within 2 months from the service thereof to pay any rent due in respect of the holding, or within a reasonable time to remedy any breach by the tenant, which was capable of being remedied, of any term or condition of his tenancy which was not inconsistent with the fulfilment of his responsibilities to farm in accordance with the rules of good husbandry;

…

and, where any of paragraphs (a) to (f) above applies, the ground under the appropriate paragraph on which the notice to quit proceeds is stated in the notice.  

…

23. ¾ Consent by Land Court or arbitration on notices to quit.

(1)  An application by a landlord for the consent of the Land Court under section 22 of this Act to the operation of a notice to quit shall be made within one month after service on the landlord by the tenant of a counter-notice requiring that subsection (1) of that section shall apply to the notice to quit.

(2)  A tenant who has been given a notice to quit in connection with which any question arises under section 22(2) of this Act shall, if he requires such question to be determined by arbitration under this Act, give notice to the landlord to that effect within one month after the notice to quit has been served on him.

(3)  Where the award of the arbiter in an arbitration required under subsection (2) above is such that section 22(1) of this Act would have applied to the notice to quit if a counter-notice had been served within the period provided for in that subsection, that period shall be extended up to the expiry of one month from the issue of the arbiter’s award. 

(4)  Where such an arbitration as is referred to in subsection (2) above has been required by the tenant, or where an application has been made to the Land Court for their consent to the operation of a notice to quit, the operation of the notice to quit shall be suspended until the issue of the arbiter’s award or of the decision of the Land Court, as the case may be. 

…

62. ¾ Claims on termination of tenancy.

(1)  Without prejudice to any other provision of this Act, any claim by a tenant of an agricultural holding against his landlord or by a landlord of an agricultural holding against his tenant, being a claim which arises, under this Act or under any custom or agreement, on or out of the termination of the tenancy (or of part thereof) shall, subject to subsections (2) to (5) below, be determined by arbitration.

…

(6)  Where a tenant lawfully remains in occupation of part of an agricultural holding after the termination of a tenancy, references in subsections (2) and (4) above to the termination of the tenancy thereof shall be construed as references to the termination of the occupation.”

Submissions
[10]      Counsel for the landlords (the pursuers and appellants) submitted that the reference in section 21(1) and section 23(4) of the 1991 Act means that where a tenant unsuccessfully challenges a notice to quit, the notice is deemed to be operative from the date specified in it.  The landlord is immediately entitled to remove the tenant from the property.  The only result of section 23(4) is that in the event of an arbitration, the landlord’s right to evict is suspended until the challenge is disposed of.  Section 22(1) provides that if the tenant serves on the landlord a counter-notice, the notice to quit shall not have effect unless the Land Court consent to the operation thereof – that is to say, effectively the notice to quit is considered “voidable”.  In the present case, section 22(2)(d) provides an exception to section 22(1). 

[11]      Counsel for the landlords further submitted that the sheriff principal had confused the concept of enforcement by the landlord, with the concept of the legal effect of a notice to quit.  This contention was, he submitted, supported by section 62(1) and (6) of the 1991 Act.  The termination of the tenancy should be seen as the date specified in the notice to quit.  He referred us to Coutts v Barclay-Harvey.  There must be a distinction between the effect of a notice to quit, and the ability of a landlord to act on that notice; this was the essence of his submission, and it was consistent with the scheme of the Act as a whole.  He relied on Hendry v Walker and Gill, The Law of Agriculture Holdings in Scotland at paragraph 17.06.  It is critical to distinguish between the operation of a notice to quit and the effect of a notice to quit, although because the point had not been raised in the past, he could find no authority to support this proposition. 

[12]      Senior counsel for the tenant (the defender and respondent) submitted that the language of sections 21(1) and 23(4) of the 1991 Act was clear; the use of the words “operation of the notice to quit” means that the notice cannot operate to terminate the tenancy until the issue of the arbiter’s award or of the decision of the Land Court.  The natural and logical interpretation of the words is that the notice does not terminate the tenancy until after the suspension comes to an end.  Not only is this construction in accordance with the normal meaning of the words, but it has a practical and logical effect and is consistent with business sense.  The landlord will continue to be entitled to receive payments of rent until the suspension comes to an end, and all parties know their obligations during this period.  On the interpretation advanced for the landlords, neither party would know what their obligations were in the period of suspension.  This uncertainty might last for a significant period, particularly when account is taken of the need to apply to the Land Court and possibly to the Inner House of the Court of Session.  In the present case, a period of more than 10 years elapsed; if the landlords’ construction is correct, this would result in uncertainty as to entitlements and obligations throughout the period of suspension.  The interpretation favoured by the tenant appears to be consistent with the procedure in England – Muir Watt, Agricultural Holdings (14^th ed) at page 896/7.  No assistance was to be found from the cases of Hendry v Walker or Coutts v Barclay-Harvey.

Discussion and decision
[13]      We can find no error of law in the judgment or interlocutor of the sheriff principal.  We agree with his approach and reasoning. 

[14]      The wording of section 23(4) reflects the wording in section 21(1) of the Act.  Section 21(1) provides that a tenancy of an agricultural holding shall not come to an end except by operation of a notice.  If that notice is given by the landlord, it is referred to as a “notice to quit”.  Unless the notice becomes operative, it does not bring the tenancy to an end.  By reason of section 23(4), where an arbitration has been required by the tenant, the notice to quit shall be suspended until the issue of the arbiter’s award.  The notice does not become operative until the issue of the arbiter’s award, and the tenancy does not come to an end until the notice becomes operative.  Section 23(4) expressly provides that the operation of the notice to quit shall be suspended until the issue of the arbiter’s award; it seems to us to be clear that this means that the tenancy does not come to an end until the same date. 

[15]      We note that this construction is consistent with the treatment of this subject in Gill, The Law of Agricultural Holdings in Scotland (3^rd ed) at paragraph 17.02:

“Pending the issue of the arbiter’s award in such a case, the operation of the notice to quit is suspended.  The issue of the award may be delayed beyond the date of ish specified in the notice to quit, particularly if a case is stated to the sheriff, or if an appeal is taken from the sheriff to the Court of Session, on a question of law arising in the arbitration.  In such a case, the notice will have effect from the date of the issue of the award, but the Land Court may mitigate the effect of this on the tenant.”

[16]      It appears from the passage in Muir Watt, Agricultural Holdings (14^th ed) to which we were referred, that this construction is consistent with the analogous procedures in England. 

[17]      Counsel for the landlords submitted that it was critical to distinguish between the operation of a notice to quit and the effect of a notice to quit, but he was unable to support this proposition with any authority.  He accepted that this distinction was essential for his submission to succeed.  The basis for this distinction is not apparent to us in the context of these statutory provisions.  If the operation of the notice to quit is suspended, it has no effect during the period of suspension.  Once the arbiter’s award or the decision of the Land Court is issued (and depending on the result of those proceedings), the notice to quit comes into operation and becomes effective. 

[18]      We see no justification, either in the words of the statute or in practical terms, for treating the notice to quit as at the date of the issue of the arbiter’s award as if it had come into operation on the date specified in the notice itself.  The notice did not come into operation until the issue of the arbiter’s award, and accordingly the tenancy did not come to an end until that date.  To proceed on the basis that the tenancy had come to an end at the date specified in the notice to quit would be to fly in the face of the clear words of section 21(1) of the 1991 Act.  It would also have the practical result that throughout the period between the date specified in the notice and the date on which the arbiter’s award was issued, there would be considerable uncertainty as to parties’ rights and obligations.  Depending on the result of the proceedings, parties’ rights and obligations in the intervening period might have been governed by the terms of the lease, or they might not.  The tenant might have been entitled to continue to occupy the subjects in terms of the lease, or he might not.  The circumstances of the present case show that the period in question may last for many years.  It would be surprising if Parliament intended to legislate for such an eventuality.  There is nothing in the statutory provisions to which we were referred, or in the scheme of the Act as a whole, (including the terms of section 62 of the 1991 Act) which leads us to conclude that this was Parliament’s intention. 

[19]      In these circumstances we are not persuaded by the submissions advanced for the landlords.  We answer the issue which we posed at the outset of this opinion in the affirmative.  We shall refuse this appeal and adhere to the interlocutor of the sheriff principal dated 25 March 2014.