Decision of the Scottish Land Court

Peter Oag Jnr (Applicant) v The Executors of the late William Robertson Oag and Others (Respondents)

Case SLC 172/12 SLC 172/12
before
Lord Minginish, Chairman, and Mr Tom Campbell
20 June 2017

[1] Appended to this judgement is a copy of a lease of the farms of Brims Mains and Burn of Brims (hereinafter collectively referred to as “the farm”), near Thurso, granted by Peter Oag and his wife, Mrs Jessie Martin Oag, to their son William Robertson Oag and his wife, Mrs Ann Oag, who were then farming in partnership under the name “W and A Oag”, on 7 September 1982. The central question in the case is whether it was a lease to the partnership of W and A Oag or a lease to Mr & Mrs Oag as individuals.

[2] Peter and Jessie Oag are now both deceased, as is their son William, and this application is brought by another of their sons, Peter (Junior), to whom ownership of the farm was disponed by his parents in 1989, he then becoming his brother and sister-in-law’s landlord. He seeks to have it declared that the lease is at an end. That is on the basis that the lease was to William and Ann Oag as a partnership and that the partnership – and therefore the lease – terminated with a change in the partnership by the assumption of one or more of William and Ann’s sons and the subsequent death of William. The respondents are Mrs Ann Oag and her son Derek, who, on their version of matters, has succeeded to his late father’s interest in the lease.

[3] The applicant has an alternative case based on irritancy: it is said that if the lease survived the death of William Oag it was validly irritated on 28 May 2012 on the ground of failure to comply with the rules of good husbandry. The respondents have an esto case of personal bar: that the applicant is now barred from asserting that the lease was to a partnership by his conduct of earlier arbitration proceedings between the parties on the footing that the lease was to William Oag and Ann Oag as individuals.

[4] In the expectation that it may be possible to resolve the central question in the case by interpretation of the terms of the lease and without the need for extrinsic evidence, we heard debate on that matter at Edinburgh on 9 May 2017, when the applicant was represented by Mr Robert Sutherland, advocate, and the respondents by Sir Crispin Agnew QC.

Cases

Arnold v Britton & Ors [2015] AC 1619
Assets Company v Blair and Young (1896) 4 SLT 13
British Linen Company v Cowan (1906) 8 F 704
Grove Investments Ltd v Cape Building Products Ltd 2014 Hous LR 35
Moray Estates Development Co v Butler 1999 SLT 1338
Morrison v Gray 1932 SC 712
Murray v Hogarth (1835) 13 S 453
Patersons of Greenoakhill Ltd v Biffa Waste Services Ltd 2013 2013 SLT 729
Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900
Smith & Ors v Chambers Trustees (1877) 5 R 97

Textbooks

Cameron & Paton, Landlord and Tenant, page 63
Encyclopaedia of Scottish Legal Styles Vol 6, page 209
Greens Encyclopaedia of the Laws of Scotland Vol 11, Partnership, para 113
Halliday, Conveyancing Law & Practice, 1st ed 1985, Vol 1, para 3-10
Rankine, Law of Leases in Scotland 3rd ed., page 86

Submissions for respondents

[5] Sir Crispin opened the debate and favoured us with a written Note of Argument. He accepted that if, contrary to his position, this was a lease to a partnership it had ended with the death of William Oag; Moray Estates Development Co v Butler and the cases cited there. It was not being contended that this was a lease to a “house”.

[6] Under reference to passages from the decision of Lord Hodge in Patersons of Greenoakhill Ltd v Biffa Waste Services Ltd at paras [14] to [16] and from the decision of the Inner House in Grove Investments Ltd v Cape Building Products Ltd at paras [9] to [13] certain principles of interpretation were identified. The court should consider the language used. It should use the concept of the reasonable person who had all the relevant background knowledge that could reasonably have been known to parties at the time of making the contract. The court should ascertain what a reasonable person would have understood the parties to mean by the language they used. In doing so it was to have regard to the relevant surrounding circumstances which were reasonably within their knowledge. If the language was ambiguous the court should prefer the construction which best accorded with business common sense; Rainy Sky SA v Kookmin Bank, per Lord Clarke of Stone-cum-Ebony at para 23 and 25. The court should have regard to the position of the parties in attributing a purpose to a transaction or a clause within an agreement. Although warnings had been given in the cases against judges superimposing their own view as to what was commercially sensible on what the parties had done, it was also the case that “many judges tend to develop considerable experience of commercial contracts over the years … and … will usually be in a good position to decide what is commercially sensible”; Grove Investments Ltd at para [10]. This court, as an expert court, was well placed to judge what was commercially sensible in the agricultural world and was entitled to use that expertise.

[7] Sir Crispin then identified the features of the lease which, he submitted, favoured the respondents’ position. We can summarise them as follows:

(i) The wording of the instance of the lease: the individuals were named first, not the partnership and there was no wording to the effect that it was to them as partners in or trustees of the firm, as would be normal in a lease to a partnership; Encyclopaedia of Scottish Legal Styles Vol 6, page 209. Greens Encyclopaedia of the Laws of Scotland Vol 11, Partnership, para 113; ; Lord Hamilton in Moray Estates at 1342L – 1343C; Rankine, Law of Leases in Scotland 3rd ed, page 86. This was a lease prepared by solicitors with extensive experience of agricultural law and it was reasonable to conclude that they would have known how to frame the instance of a lease to a partnership correctly.

(ii) The instance referred to “the tenants” whereas, if this had been a lease to a partnership, it would have used the singular.

(iii) The terms of Clause EIGHTH, referring to “the tenants or either of them” (Sir Crispin’s emphasis) becoming bankrupt.

(iv) The terms of the testing clause, referring only to “William Robertson Oag and Mrs Anne Oag, the tenants”, with no mention of, or subscription by, the partnership as would have been proper practice had it been a lease to a partnership; Halliday, Conveyancing Law & Practice, 1st ed 1985, Vol 1, para 3-10. The testing clause was part of the body of the deed and one of its proper functions was the naming and designation of the parties (Smith and Others v Chambers Trustees, per Lord Deas at pages 106-107). Reference was also made to the case of Assets Company v Blair and Young in which the House of Lords approved the decision of the Inner House in Smith.

[8] Sir Crispin then turned to the information which would have been known to the parties when entering the lease. Two matters were significant:

(i) It was more likely than not that Peter Oag (Senior) would have granted the lease to his son as an individual along with his wife, rather than grant a lease to a partnership, which could end unexpectedly by a change in the composition of the partnership as might happen due to death, divorce or the assumption of new partners. The expectation would have been that grandchildren would eventually enter the business, so it was unlikely that the lease would have been granted to a partnership which would terminate in that very event.

(ii) The passing of the Finance Act 1981 would probably have been known to the parties’ legal advisers, it being averred by the applicant that Peter Oag (Senior) had acted on the advice of his lawyer and accountant. The Act had provided that the transfer of land by way of lease for full value avoided Capital Gains Tax but the lease had to endure for seven years. That made it unlikely that it would have been granted to a partnership which might terminate within that time. If we were to accept that the saving of Inheritance Tax and Capital Gains Tax was one of the purposes of the lease, the lease had to be interpreted with that in mind. As an expert court, we may be able to conclude that it was likely that such considerations had been in Peter Oag Senior’s mind when the lease was entered into without hearing evidence but, if that was a step too far, the possibility of taking evidence was open to us, albeit that efforts to date (a reference to attempts to recover the relevant papers from the relevant advisers) had produced no evidence (because the papers were no longer available). With reference to the requirement to take account only of information which was known or reasonably available to both parties (Arnold v Britton, per Lord Neuberger of Abbotsbury – on the applicant’s list of authorities – at para 21), in the context of a family arrangement such as was being entered into here, it was reasonable to assume that advice given to Peter Oag (Senior) would have been shared with his son and daughter-in-law.

[9] Sir Crispin then turned to his case on personal bar. Evidence on this was unnecessary: the productions spoke for themselves. The arbitration process had been an official process under the Agricultural Holdings (Scotland) Act 1991. It had been instigated by William and Ann Oag. All of the formal documents (productions 18-23) referred to Mr and Mrs Oag as individuals. It would have been open to the applicant to challenge the proceedings as not having been brought by the correct party. His failure to do so was a representation that the individuals were the tenants and Mr & Mrs Oag had been entitled to rely on that representation, which they had done by assuming their sons into the partnership. The representation were not limited to the arbitration proceedings, it applied to all of the purposes of the lease; Ben Cleuch Estates Ltd v Scottish Enterprise para [88].

Submissions for applicant

[10] Mr Sutherland also favoured us with a written Note of Argument, which he adopted before going on to highlight the principal points in oral submissions.

[11] His submission on the principles on which a contract is to be interpreted was to the same effect as Sir Crispin’s and based on the same authorities, with the addition of Arnold v Britton.

[12] Turning to the lease, the only description as to who the tenant was was in the instance. However the lease had to be read as a whole and when one did that it gave the lie to the notion that it could be assumed the lease had been drafted by someone experienced in agricultural law who would know how the instance of a lease to a partnership should be worded. For example, the terms of Clause Sixth of the lease, dealing with buildings and fixed equipment, were at odds with sec 5 of the Agricultural Holdings (Scotland) Act 1991. The textbooks referred to by Sir Crispin merely gave recommended styles, which were not prescriptive, and it had to be doubted whether any recommended style had been followed in the drafting of this lease.

[13] What would have been known by those solicitors of the Finance Act 1981 was mere speculation. It was not known what advice, if any, Peter Oag (Senior) had been given nor whether he had accepted it. The question before us had to be decided, if possible, on the basis of the terms of the lease itself.

[14] The uncertainties, such as death and divorce, on which Sir Crispin had founded in arguing that the lease was unlikely to have been intended to be to the partnership could equally arise where the lease was to individuals. Had the lease been intended to be to Mr and Mrs Oag as husband and wife one would have expected it to have been to them jointly, with a survivorship clause, in the manner described at para 170 of Vol 9 of the Encyclopaedia of the Laws of Scotland.

[15] As for the lease having been granted with Inheritance Tax in mind, it was for a five year term, not the seven year period required to satisfy the Inheritance Tax exemption.

[16] Looking at the wording of the instance of the lease, one had to ask why the words used were there. On the respondents’ construction the reference to the partnership would be meaningless. Rankine at page 86 gave examples of the ways in which a lease could be granted to a partnership, one of which was the lease being taken in the names of the individual partners and their heirs, executors and successors; without the necessity of the lease being taken in the name of the firm. An example was the case of Murray v Hogarth. The wording in the instance of the present lease was not the best formulation of a lease to a partnership but it was a competent way of doing it.

[17] Peter Oag (Senior) could have granted leases to his sons but he had not done that: William was married and his wife had been included. Why was that? It was because she was in partnership with her husband. If one had to look to any part of the factual matrix at all, that was the most relevant part to look at.

[18] As for the testing clause, all it told us was who had signed. They may de facto have been signing on behalf of the partnership although that was not said. Smith v Chambers was of no assistance.

[19] The words of the irritancy clause relating to the bankruptcy of “the tenants or either of them” were not inimical to the applicant’s position: they could equally well apply to a lease to a partnership. It was very understandable that a landlord would be concerned about the financial stability of a partnership where one of the partners was insolvent.

[20] Nor was the omission of a signature on behalf of the partnership inimical to the lease being to a partnership, since it was perfectly competent to take a partnership lease in the names of the individual partners.

[21] In summary, the instance of the lease pointed to an intention to lease to the partnership and all the other provisions were neutral. Commercial common sense was similarly neutral.

[22] Turning to the respondents’ case of personal bar, that had to fail for the simple reason that there were no averments of a clear representation of a factual matter that had then been relied upon by the respondents. The most important document, from the respondents’ point of view, was the demand to remedy in terms of sec 22(2)(d) of the 1991 Act which had led to the arbitration. It had merely used the same description of the tenant(s) as appeared in the instance of the lease. The subsequent documentation had been on behalf of the tenants. There had, in any event, been no issue in the parties’ minds at that time as to the precise identity of the tenant; what was being focussed on was the state of the buildings. The Stated Case which had followed on from the arbitration contained references to both “the tenant” and “the tenants”. Thus there had never been a clear representation by the applicant that the tenants were the individuals rather than the partnership. In any event there had been no reliance on any such representation. The respondents averred that they had taken legal advice before assuming new partners. This showed that there was then a question in their minds as to exactly who the tenant was. Their subsequent actings were based on the advice of their solicitor, not on any representation by the applicant.

[23] The lease having been to the partnership and the constitution of the partnership having changed, it had terminated and the orders first and third craved should be granted.

Sir Crispin

[24] Sir Crispin responded briefly but, beyond submitting that Murray v Hogarth involved a lease to individuals as individuals and not to a partnership in the names of individuals, his rejoinder added nothing of significance to his earlier submissions. He moved for certification for the employment of senior counsel, beyond which expenses should be reserved.

Discussion

[25] Our task is to see if we can resolve the conflict by interpretation of the terms of the lease, without extraneous evidence. Even as an expert court, we are not in any position to form views as to what the parties would have had in contemplation when the lease was entered into nor are we able to say that either of the competing interpretations makes better commercial sense than the other.

[26] Turning to the terms of the lease, then, it is not well drafted and not only in relation to the identity of the tenant; for example, Mr Sutherland drew attention to the conflict between Clause Sixth and sec 5 of the 1949 Act. But we must see what we can make of it.

[27] The only point at which there is any attempt to define the parties is in the instance. It reads:

“MINUTE OF LEASE between PETER OAG, Senior and Mrs Jessie Martin Oag, both residing at West Park House, Wick, (hereinafter referred to as “the landlords”) on the one part: and WILLIAM ROBERTSON OAG and MRS ANN OAG, both residing at Brims Mains, Thurso, farming in partnership under the firm name of W. and A. Oag at Brims Mains aforesaid (hereinafter referred to as “the tenants”) on the other part.”

[28] We read that as a lease to William Robertson Oag and Mrs Ann Oag as a partnership: in other words to the partnership. We do so because were it a lease to them as individuals there would be no need to refer to the fact that they were in partnership. We have to assume that the reference to a partnership is there for a reason and the reason plainly is in order to describe the capacity in which the lease is being granted to them: it is being granted to them “farming in partnership”, in other words as the partners in the firm of W. and A. Oag.

[29] We are mindful, however, of the need to read the lease as a whole. Throughout the rest of the deed the reference is to “the tenants”, plural. In none of the contexts is that reference incapable of being read as a reference to Mr and Mrs Oag as partners in a partnership. Clause Eighth, with its reference to “the tenants or either of them” becoming bankrupt, is the reference which most strongly favours the respondents’ position. It does not say “the partners or either of them”, as it might have done. On its own it points clearly to the tenants being Mr and Mrs Oag as individuals but, in the context of a fairly casually drafted lease, that cannot be determinative. Unlike the instance, the purpose of Clause Eighth is not to identify the parties but to set out the circumstances in which the lease could be irritated.

[30] We come next to the testing clause. A contract involving a partnership as one of the parties should certainly be signed on behalf of the partnership by one of the partners. That has not been done in this case. Instead the reference is to “the said William Robertson Oag and Mrs Ann Oag, the tenants”. That might be thought to be a clear description of them being the tenants as individuals, not partners. However it may also be a shorthand reference to them in the capacity in which they were tenants, for which one would have to refer back to the instance. The cases of Smith v Chambers and Assets Company v Blair and Young are of no assistance on this. They are authority for the proposition that, although the testing clause is part of the body of the deed, it cannot be used to cut down or qualify anything set out in the preceding clauses. It serves the limited purpose of designing the subscribers and the witnesses and recording the place(s) and date(s) of subscription.

[31] What our consideration of the lease comes to, therefore, is (i) that the clearest indication as to the identity of the tenant is the description contained in the instance, (ii) that it points to the tenant being the partnership, (iii) that the rest of the deed contains nothing necessarily contrary or inimical to that interpretation and (iv) that the tenant was, therefore, the partnership.

[32] We can deal quite shortly with the respondents’ case on personal bar. To our mind nothing done in the course of the arbitration, or the sec 22(2)(d) procedure which led to it amounted to a representation as to the identity of the tenant. The only document issuing from the applicant was the sec 22(2)(d) notice of April 2000, production 18, and it merely repeats the description of the tenant contained in the instance of the lease. The fact that the applicant failed to challenge the description of the tenant contained in the counter-notice served on behalf of William and Anne Oag did not amount to any kind of representation on the applicant’s part as to who he thought the tenant was and certainly not to the kind of representation necessary to found a plea of personal bar. For one thing the identity of the tenant was not then in issue. The point certainly could have been taken by the applicant or, more likely, by his legal advisers, but, as it is put in the discussion of Personal Bar in the Stair Encyclopaedia of The Laws of Scotland, Vol 16, para 1612, under reference to the case of Morrison v Gray,“The mere neglect to assert one’s rights, as by failing to state a defence to a claim, does not in itself necessarily amount to a representation that the right has been given up”. Moreover, since this would be a representation by silence or inaction it could only be founded upon where there was a duty to speak; ibid and the case of British Linen Company v Cowan. There was no such duty on the applicant here. For these reasons the respondents’ plea of personal bar also fails.

Decision

[33] Accordingly we have granted crave 1 of the application. The granting of crave 3 will follow but we have thought it right to allow parties an opportunity to make representations as to when it should take effect. Accordingly, consideration of that matter has been continued to a date to be afterwards fixed. We have reserved expenses meantime.