Decision of the Scottish Land Court

Islay Estates Company (Applicants) v George Anthony Archibald and Another (Respondents)

Case reference SLC 164/13
before
Mr Iain F Maclean, Deputy Chairman and Mr Angus Macdonald
1 October 2015

Introduction

[1] This is an Application at the instance of Islay Estates Company (“the Landlords”) under section 13 of the Agricultural Holdings (Scotland) Act 1991 (“the 1991 Act”) to have determined by the Land Court the question of what rent should be payable from 20 December 2013 in respect of the Holding of Craigens, Bunanuilt, Corsapol and Kilinallan (“the Holding”) on the Island of Islay. The Holding was let by the Landlords to George Anthony Archibald and George Craig Archibald and the survivor of them and the executors of the survivor whomsoever (“the Tenant”) in terms of a Minute of Lease dated 9 and 10 December 2010 (“the Lease”) for a duration of three years from 20 December 2010, and the tenancy has continued from year to year thereafter by operation of tacit relocation. The Tenant lodged Answers to the Landlords’ Application and the parties subsequently adjusted their respective pleadings. On 8 July 2015, we ordered the parties to intimate to the Principal Clerk their proposals for further procedure.

[2] Having considered parties’ submissions on further procedure as intimated in response to our Order of 8 July 2015, we allowed parties, in our Order of 27 August 2015, if so advised, to lodge written submissions “on the meaning and significance for the purposes of this application” of a particular provision of the Lease. We had been informed by the Landlords’ agents that the parties were in dispute as to the proper interpretation of part of Clause 2 of the Lease, and it was suggested that if we were prepared to allow that question to be addressed as a preliminary matter, it might facilitate a resolution of the parties’ wider dispute as to the level of rent payable for the Holding. The Landlords’ agents, in their submission on further procedure, had advised that they would be content to proceed by way of written submission on this question, in order to avoid the additional expense for all concerned of a hearing, and whilst we did not, in making our Order of 27 August 2015, have the benefit of the Tenant’s agents’ views on that specific proposal, we did, in the Note which accompanied that Order, make clear that whilst it invited written submissions, “if the respondents’ [i.e. the Tenant’s] agents wish a proof restricted to this issue, they should say so.” Rule 47 of the Rules of the Scottish Land Court 2014 (S.S.I. 2014 No. 229) (“the 2014 Rules”) provides that the court may, if it thinks fit and if the parties agree, determine a case or any part of a case on the basis of written submissions and without a hearing. In the event, the Tenant’s agents opted to lodge a written submission on behalf of their clients, and upon the basis that the parties were at one that the question might be determined on the basis of written submissions and without a hearing, we are content now to do so.

[3] We have taken it as being implicit in the parties’ agreement that this question may be determined on the basis of written submissions and without a hearing that they both accept that it resolves itself into a pure question of construction, and we shall treat it as such: for the record, we would note that it is not suggested by either party that the meaning and effect of the relevant provision may only be explicated by reference to extrinsic evidence as to the factual matrix in which the Lease was entered into.

Clause 2 of the Lease

[4] Clause 2 of the Lease commences by affirming that section 5 (2) of the 1991 Act shall apply, but that without prejudice to that section,

“The Tenant hereby accepts the buildings and fixed equipment on the Holding or serving the same all as defined by Section 85 of the 1991 Act, with the exception of the items specified in Schedule 1 annexed and signed as relative hereto which the Landlords warrant to the Tenant shall be renewed or replaced not later than 31st May 2011, in the condition in which they now are, as evidenced by a Record in terms of Section 8 of the Agricultural Holdings (Scotland) Act 1991 (as amended) to be made at the expense of the Landlords and the Tenant (the cost of preparation of which Record shall be payable in equal shares) as in sufficient tenantable and habitable condition, and adequate for the purposes for which the Holding is let, and shall be bound at their own expense to maintain and leave the same, together with any others which may be added during the currency of this Lease, in the like condition, natural decay and fair wear and tear excepted. It is recorded that the fixed equipment on the Holding after said implementation by the Landlord [sic] is deemed by the parties to be sufficient for carrying a maximum of 70 suckler cows and 1,000 ewes and followers …”

There follows a list, preceded by the words “It is further recorded …” and the items in which are lettered (a) – (g), recording what the parties had agreed in relation to liability for the costs of replacing or renewing particular items of fixed equipment on the Holding; by way of example, “(a) in exchange for payment by the Landlords to the Tenant of £14,000 the Landlords shall have a share of 40% of the two existing silage pits and one new silage pit on the holding”, and “(d) the liability for the cost of replacing or renewing the water supply system serving Bunanuilt whether in whole or in part shall be the paid by the Landlords and the Tenant in equal shares.” Schedule 1 to the Lease is headed “FIXED EQUIPMENT AND PERMANENT IMPROVEMENTS” and consists of a list of the principal items of fixed equipment upon the Holding, followed by a note of the items of fixed equipment which, the parties had agreed, were to be renewed or replaced at the sole expense of or with the assistance of a financial contribution from the Landlords. There is a substantial overlap between the contents of this list and the list of items lettered (a)-(g) in the body of Clause 2 of the Lease.

The parties’ competing arguments

[5] The sentence in Clause 2, the meaning and effect of which has been put in issue, is that which provides that: “It is recorded that the fixed equipment on the Holding after said implementation by the Landlord is deemed by the parties to be sufficient for carrying a maximum of 70 suckler cows and 1,000 ewes and followers.” The position of the Tenant thereon can be shortly stated. The Tenant contends that the Landlords’ fixed equipment, upon which the Tenant is to be rented, is the fixed equipment detailed in Schedule 1 to the Lease. The implementation referred to, it is argued, is the making of the payments and the carrying out of the works by the Landlords provided for in Schedule 1 and Clause 2. The parties in deeming the fixed equipment on the Holding after such implementation to be “sufficient for carrying a maximum of 70 suckler cows and 1,000 ewes and followers” were in effect agreeing what was to be taken as the maximum stocking capacity of the Holding based on the Landlords’ provision of fixed equipment, and thus any additional stocking capacity falls to be regarded as the result of improvements by the Tenant, upon which the Tenant should not be rented.

[6] The Landlords, in Article 11 of the Statement of Facts in their Application (as adjusted to 25 June 2015), contend that properly construed, Clause 2 of the Lease:

“provides that the fixed equipment provided by the landlord is deemed sufficient for the level of stock specified in the Lease. There is no agreed maximum stocking level for the Holding. The Holding is not a stock farm but is a stock and arable farm and the methodology for rental assessment should be upon that basis.”

In Article 14 of the Statement of Facts in their Application, they argue that the provision, properly construed,

“does not amount to either an objective maximum stocking level on the whole of the Holding (as the Tenant maintains) nor is it an agreed basis for the calculation of the level of rent. Rather, it represents an agreement that the fixed equipment is deemed to be sufficient for a maximum stocking level. The maximum stocking level of the farm is considerably in excess of those figures when regard is had to the area of land let to the Tenant which exceeds the maximum area of land which would be required to sustain stock at the stated level.”

Discussion

[7] In their written submission, the Landlords’ agents advance a number of other points in support of their averred position, but before we go on to consider those points, we think it would be helpful to comment briefly upon the last quoted passage from the Landlords’ pleadings. It is a question of fact whether the “objective maximum stocking level” of the Holding is indeed, as the Landlords assert, considerably in excess of the figures of 70 suckler cows and 1,000 ewes and followers referred to in Clause 2, but even assuming for the purposes of argument that the Landlords are well founded in making that assertion, the issue is whether the “objective maximum stocking level” of the Holding is a relevant fact in the determination of a rent for the Holding where the parties to the Lease have “recorded that the fixed equipment on the Holding after said implementation by the Landlord is deemed by the parties to be sufficient for carrying a maximum [our emphasis] of 70 suckler cows and 1,000 ewes and followers.”

[8] The Landlords’ agents, at paragraph 13 in their written submission, observe that as a deeming provision, this part of Clause 2:

“is intended to avoid uncertainty about the quality and suitability of fixed equipment. It grants specific rights and imposes specific obligations in a detailed manner. It is not concerned with stocking levels/carrying capacity.”

Whilst we accept the points made in the first and second of those sentences, we cannot go along with that made in the third: the inclusion in Clause 2 of the reference to the fixed equipment on the Holding being deemed by the parties to be sufficient for carrying a maximum of 70 suckler cows and 1,000 ewes and followers clearly is concerned in some way or other with stocking levels and/or carrying capacity. We do not consider plausible the Landlords’ agents suggestion, contained in paragraph 18 of their written submission, that the “language of the clause is simply descriptive of a state of fact, namely the sufficiency of the fixed equipment on a particular date”.

[9] It seems to us to be tolerably clear that what this provision does is to settle, as between the parties to the Lease, the issue of the stock carrying capacity of the fixed equipment provided by the Landlords on the Holding. Section 5 (2) of the 1991 Act, to which reference is made in the first sentence of Clause 2 of the Lease, provides that there shall be deemed to be incorporated in every lease of an agricultural holding to which section 5 applies - (a) an undertaking by the landlord that, at the commencement of the tenancy or as soon as is reasonably practicable thereafter, he will put the fixed equipment on the holding into a thorough state of repair, and will provide such buildings and other fixed equipment as will enable an occupier reasonably skilled in husbandry to maintain efficient production as respects both – (i) the kind of produce specified in the lease, or (failing such specification) in use to be produced on the holding, and (ii) the quality and quantity thereof, and that he will during the tenancy effect such replacement or renewal of the buildings or other fixed equipment as may be rendered necessary by natural decay or by fair wear and tear. The extent of a landlord’s obligation to provide fixed equipment in terms of section 5 (2)(a) of the 1991 Act being defined by reference to what will enable an occupier reasonably skilled in husbandry to maintain efficient production as respects both the kind of produce specified in the lease, or (failing such specification) in use to be produced on the holding, and the quality and quantity thereof, it does not seem to us surprising that the parties, upon entering into the Lease, should have chosen to record in Clause 2 that they deemed the fixed equipment on the Holding to be sufficient for carrying a stated maximum headage of livestock.

[10] The Landlord’s agents, in paragraph 20 of their written submission, observe that the language of Clause 2:

“may be a compromise; it may not reflect what either party proposed at some stage in the drafting process or negotiations. It is well settled that evidence of such matters is inadmissible. The Court should construe the language used and not assume restraints which are not present.”

Whilst we have no quibble with those observations at the level of general principle, it is not obvious to us how they advance the Landlords’ argument here. It may well be that the parties, when they came to negotiate the terms of the Lease, had divergent views as to the maximum number of stock the fixed equipment on the Holding was sufficient to carry, and they may continue to hold those views, but for present purposes, it seems to us that on the terms of Clause 2, we are not only entitled but bound to proceed upon the basis that the stated maximum of 70 suckler cows and 1,000 ewes and followers reflects the parties’ agreement (or “compromise”) on that issue. We have in recent times, in this Court, had occasion to consider the meaning and effect of statutory deeming provisions, but such provisions are also commonly encountered in commercial leases. Neither party has chosen to refer us to any authority about the operation of deeming provisions in either the statutory or the contractual context, but we take it to be uncontroversial to observe of deeming provisions that (i) they may involve the making of artificial assumptions; and (ii) a recognised purpose of a contractual deeming provision can be to settle a potentially contentious issue and to close off the possibility of either of the parties subsequently arguing the contrary. It seems to us to be entirely consistent with the Landlords’ suggestion that the language of Clause 2 “may be a compromise” which “may not reflect what either party proposed at some stage in the drafting process or negotiations” that the parties should have chosen to adopt the “is deemed” formula in expressing their agreement as to the maximum number of stock the fixed equipment on the Holding was sufficient to carry.

[11] The Landlords’ agents note in paragraphs 14 and 15 of their written submission that Clause 2 “does not place any restrictive obligation on the tenant relating to the number of ewes or suckler cows to be carried during the continuance of the Lease” and point out that it would have been very easy for the parties to specify in the Lease either the minimum or maximum number of stock to be carried on the Holding. In the absence of such specification, they argue, “there is no need to imply such obligations to make the contract work or to enable the rent payable to be reviewed.” At paragraph 19 of their written submission, the Landlords’ agents suggest that Condition 12 (Stocking and cultivation of lands) of the Landlords’ general “Conditions for Leases of Agricultural Holdings on the Estate of Islay (Martinmas Entry)” annexed and executed by the parties as relative to the Lease, which provides, inter alia, that immediately after his entry, the Tenant shall be bound to put on the Holding sufficient of his own stock and farm implements to farm the Holding fully and in accordance with the rules of good husbandry and to keep it so stocked throughout the period of the Lease, “negates the notion advanced by the Tenant, that [Clause] 2 imposes a contractual restraint or cap on the number of stock which may be put on the Holding.” The Tenant, in Answer 14, does indeed aver that “The clause referred to is an agreement that the maximum the holding can carry is 70 cows and 1,000 ewes”, but in our view, that averment mis-states its true import, and we consider that what was agreed by the parties in Clause 2 is more accurately reflected in the Tenant’s averment in Answer 11 that “The fixed equipment is sufficient to enable the holding to carry the agreed stock.” The general obligation imposed on the Tenant by Condition 12 to put on the Holding sufficient of his own stock to farm it fully and in accordance with the rules of good husbandry is, we think, quite compatible with such an approach to the interpretation of Clause 2. Should the Tenant put on the Holding fewer than 70 suckler cows and 1,000 ewes and followers, the Landlords would, on the wording thereof, still be entitled to insist on the rent being determined on the basis that the fixed equipment was sufficient for carrying that number.

Conclusion

[12] In our view, Clause 2 does not either expressly or impliedly impose a cap on the number of stock that the Tenant may put on the Holding, but it does establish both the stock carrying capacity of the fixed equipment provided by the Landlords on the Holding (upon which, of course, the Tenant will be rented), and that the Landlords’ obligations in relation to the provision of fixed equipment do not extend beyond providing the Tenant with such fixed equipment on the Holding as would be sufficient to enable the Tenant as an occupier reasonably skilled in husbandry to maintain efficient production carrying a stock of 70 suckler cows and 1,000 ewes and followers. We express no view meantime upon any such further implications as there may be of our preferred approach to the interpretation of Clause 2 for the methodology of valuation in the circumstances of the present Application.

Further procedure

[13] In the final paragraph of their written submission, the Landlords’ agents suggested that once the contractual issue has been determined, the Court should order what they referred to as a case management hearing, to be attended by the parties and/or their representatives and principal expert, with a view to discussing further the scope of the proof, including its likely duration and format, the real issues in dispute, and the question of inspection. The Tenant’s agents did not, in their written submission, make any proposal as to what should happen procedurally after the issue of our decision on the question of interpretation. We can see that there may be merit in appointing a procedural hearing (for which, see Rules 16 (2)(b) and 19 (2)(a) of the 2014 Rules) along the lines the Landlords’ agents propose in preference to proceeding straight away to identify dates for and then fixing a full hearing, but before proceeding to so order, we would wish to afford the Tenant’s agents the opportunity to comment thereon. We would invite them to advise the Principal Clerk by letter within 21 days of the date of this Order whether or not they agree that the next step in this Application should be a procedural hearing, and if they do agree, to set out in their letter their own proposals for the form and content of such a hearing.