DIVISIONAL COURT

(Sheriff MacLeod, D J Houston)

BREWSTER V STRATHMORE ESTATES (HOLDING) LIMITED

(Application RN SLC/228/05 – Order of 30 May, 2007)

AGRICULTURAL HOLDINGS ” WHETHER LEASE DATED OCTOBER 1949 BUT WITH STATED DURATION OF 14 YEARS FROM MARTINMAS 1946 ENTERED INTO “ ON OR AFTER NOVEMBER 1 1948 ” FOR PURPOSES OF SECTION 5 OF AGRICULTURAL HOLDINGS (SCOTLAND) ACT 1991 ” WHETHER STATUTORY PROVISIONS OR COMMON LAW APPLIED TO MAINTENANCE OF FIXED EQUIPMENT – RETENTION OF RENT – WHETHER TENANT REQUIRED TO INTIMATE THE CORRECT LEGAL GROUND ON WHICH RENT BEING RETAINED – WHETHER A TENANT ENTITLED TO RELY ON RETENTION OF RENT AND CLAIM DAMAGES FOR THE SAME BREACHES OBLIGATIONS

The applicant had succeeded his father as tenant of an agricultural holding called Easter Denoon, in the County of Angus. His father had taken entry to the holding on or around Martinmas 1946 on the basis of missives dated 9 and 28 May in that year. However, the formal lease which eventually superseded these missives had not been signed until October 1949 although it specified as a duration for the lease a period of 14 years from Martinmas 1946. The applicant having applied to the Court for inter alia an order ordaining the respondents, as his landlords, to carry out certain work in respect of fixed equipment on the holding, founding on section 5 of the Agricultural Holdings (Scotland) Act 1991, and declarator that he had been entitled to retain rent for the holding since November 2002 on the basis of the respondents’ alleged failure to fulfil their obligations in relation to the fixed equipment, the respondents replied arguing (i)that the lease not been entered into “on or after November 1, 1948”, in terms of section 5(6) of the 1991 Act, and that section 5 did not, therefore, apply, (ii) that, the applicant’s retention of rent having been predicated upon the application of section 5, he was not now entitled to rely on alleged breaches of the respondents’ common law duties in respect of fixed equipment and that he had not, therefore, had any valid right of retention of rent, and (3) that the applicant was not in any event entitled both to rely on retention of rent and seek damages in respect of the same breaches of the respondents’ obligations.

The Court held (1) that the lease had been entered into as at Martinmas 1946 and that section 5 of the 1991 Act did not, therefore, apply; (2) that the existence of a right to retain rent did not depend on a tenant’s subjective knowledge or understanding as to his entitlement so to do but was to be assessed objectively and on the basis of whether there was a breach of a counterpart obligation on the part of the landlord resulting in rent not being due at the material time, regardless of whether the tenant knew of the existence of the right to retain or the correct legal basis of the right and regardless of whether he had intimated reliance on that basis when rent was first retained (the tacit concession by counsel for the landlord in Palmer’s Executors v Shaw (unreported SLC July 2005)approved), and (3) (following the approach of the Court in Palmer’s Executors) that retention was a different type of remedy from damages, its function being to compel the other party to perform the relevant counter-obligation, and that it was, therefore, competent to both rely on retention and claim damages in respect of the same alleged breaches of the respondents’ obligations; and, enough having been pled by the applicant on an esto basis in respect of alleged breaches of the respondents’ common law duties relating to fixed equipment, proof before answer allowed on such alleged breaches, the applicant’s right to retain and on other questions in the case with which this report is not concerned,

The Note appended to the Court’s Order is as follows:-

[1] By its letter to parties’ agents dated 4 January 2007 the Court identified two issues which it felt could usefully be dealt with by way of debate at this stage. These were (1) the date of the lease for the purposes of section 5(6) of the Agricultural Holdings (Scotland) Act 1991 (“the 1991 Act”) and (2) the scope of a landlord’s common law duty in relation to maintenance of fixed equipment where a lease was entered into prior to 1st November 1948 and, accordingly, section 5(6) did not apply. We heard the resulting debate on 26th and 27th March when the applicant was represented by Mr John Campbell Q.C. with Mr Jonathan Barne, advocate, and the respondents by Mr Lewis Kermack, solicitor.

[2] The debate proceeded on the applicant’s second and the respondents’ fifth and sixth pleas-in-law. The applicant’s first plea-in-law, seeking decree de plano, was not argued and has, therefore, been repelled for want of insistence. The applicant’s second plea-in-law, which asks that the respondents’ averments be refused probation, is given further specification by a tenth plea-in-law identifying which of the respondents’ averments are being referred to. Likewise, what are called pleas-in-law 7 to 15 for the respondents give greater specification of the legal propositions upon which the respondents rely under cover of their fifth and sixth pleas although they are not themselves in the form of proper pleas-in-law.

Legislation and authorities referred to

Legislation

Agriculture (Scotland) Act 1948
Agricultural Holdings (Scotland) Act 1991 section 5

Cases

Alexander v The Royal Hotel (Caithness) Ltd 2001 S.L.T. 17
Bank of East Asia v Scottish Enterprise 1997 S.L.T. 1213
Clark v Sharp 1923 S.L.T. (Sh. Ct.) 135
Forbes v Reid 1923 S.L.T. (Sh. Ct.) 105
Gordon’s Executors v Gordon 1918 1 S.L.T. 407
Hoult v Turpie 2004 S.L.T. 308
Humphrey v Mackay (1883) 10R 647
Inglis v Buttery & Co (1878) 5R (HL) 87
Knapdale (Nominees) Ltd v Donald 2001 S.L.T. 617
Mackie v Gardner 1973 S.L.T. (Ld. Ct.) 11
MacNab of MacNab v Willison 1960 S.L.T. (Notes) 25
Morrison v Rendall 1986 S.C. 69
Palmer’s Executors v Shaw unreported SLC July 2005
Tufnell and Nether Whitehaugh Co. Ltd., Applicants 1977 S.L.T. (Ld. Ct.) 14
Winston v Patrick 1980 S.C. 246

Text books

Dickson, A Treatise on the Law of Evidence, Vol II
Gloag, The Law of Contract 2nd ed
McBryde, The Law of Contract in Scotland, 2nd
Rankine, A Treatise on the Law of Leases in Scotland 3rd ed.
Sir Isaac Connell, Agricultural Law and Arbitration, The Agricultural Holdings (Scotland) Act 1923
The Hon Lord Gill, The Law of Agricultural Holdings in Scotland 3rd ed.

Submissions for the respondents

[7] In Mr Kermack’s submission the lease with which we are concerned had been entered into on 28th November, Martinmas, 1946. “Lease” in section 5(6) of the 1991 Act did not just mean a document of lease. That was clear from the other terms of that Act. Section 1 of the 1991 Act, in defining the term “agricultural holding” contained no requirement that the relative lease be in writing. Section 4(1) expressly contemplated the possibility of an unwritten lease. And section 85(1) defined “lease” as “a letting of land for a term of years, or for lives, or for lives and years, or from year to year.”

[8] The applicant’s position, said Mr Kermack, seemed to be that the 1949 document had produced an implied renunciation of the 1946 missives. The subject of implied renunciation was dealt with by Gill at paragraph 14.02 but none of the situations discussed there – abandonment of the holding or of the pursuit of agriculture on the holding by the tenant or the entering into of a new lease differing in any material term from the old – arose in the present case. There was no question of abandonment by the tenant. As at 1949 the lease was not running on tacit relocation, so that any agreement then entered into might be seen as a new agreement as had happened in Mackie v Gardner, but was running in accordance with the duration stipulated in the missives. And the 1949 document did not differ in any material respect from the terms of the 1946 missives.

[9] Since the publication of the 3rd edition of Gill the case of Knapdale (Nominees) Ltd v Donald had been decided. Mr Kermack referred to Lord Kingarth’s adoption in that case (at paragraph [21] of his judgement) of what had been said by Hume (Lectures (Stair Society ed) Vol IV, pp 115-116) to the effect that for renunciation to be implied in the absence of a formal agreement to renounce, the facts must be such as plainly imply that this was the parties’ “final and deliberate resolution on the subject”. In the present case the circumstances between 1946 and 1949 did not give rise to the irresistible inference that the 1946 agreement had come to an end and that the 1949 document was the commencement of a new agreement between the parties.

[10] Neither was the present case similar on its facts to Tufnell and Nether Whitehaugh Co. Ltd., Applicants where it had been held that the introduction of new terms and conditions on purported assignation of the original lease amounted to a new lease. The “melange of tenancies and deeds” (page 17) which was a feature of that case was absent here. In the present case it was clear that the 1949 deed, far from signalling a departure from the 1946 terms and conditions, was an affirmation of them.

[11] In Mackie v Gardner, in coming to the view that a document executed in 1967 had had the effect of terminating a previous lease between the parties entered into in 1931 and creating a new one, the Court had laid stress on the fact that the terms of the 1967 document were clear and unequivocal. In the present case the 1949 document was similarly clear and unambiguous: it was a letting for 14 years from Martinmas 1946 and reflected the reality of what had happened.

[12] In the present case the applicant argued that the 1949 document had superseded the 1946 missives but that missed the point: the 1949 document was itself unambiguous in stating that entry was as at Martinmas 1946.

[13] For the foregoing reasons we should find that the lease had not been entered into on or after 1st November 1948.

[14] Mr Kermack then moved on to the second issue identified by the Court for debate; what the common law position on repair and renewal of fixed equipment had been prior to the Agriculture (Scotland) Act 1948. However since it turned out that parties were ultimately agreed on that matter there is no need for us to repeat his submissions here. Mr Kermack did not seek to argue that the common law had been contracted out of in the lease. Rather the provisions regarding fixed equipment in the lease reflected the common law.

[15] If the common law, rather than section 5 of the 1991 Act, applied that had consequences for the applicant’s averments on retention of rent. In order to plead a relevant case of retention the applicant had to aver not only that he had been entitled to withhold rent because of breaches of the respondents’ common law duties but that he had in fact done so. The mere fact of withholding rent was not enough. Nor was mere averment of an entitlement to do so. What had to be averred in addition to these two matters was a valid legal basis upon which the rent had in fact been withheld. If, therefore, rent had been retained in reliance on section 5 but section 5 was found not to apply, the applicant’s averments on retention of rent were irrelevant. That the applicant may have been entitled to withhold rent because of a breach of the respondents’ common law duties was neither here nor there where retention had in fact been predicated upon breaches of section 5.

[16] It was clear from Alexander v The Royal Hotel (Caithness) Ltd that rent could lawfully be retained where the landlord was in breach of obligations under section 5 and that such right to retain would, in terms of that case, be an answer to a notice to quit served under section 22(2)(d) of the 1991 Act (failure by the tenant within two months to pay any rent due in respect of the holding). But here section 5 did not apply and it was not necessarily the case that a landlord’s common law duties for the maintenance and replacement of fixed equipment was a counterpart of the obligation to pay rent in the same way as the more onerous duties imposed on a landlord by section 5 clearly were.

[17] As to the nature of the right of retention, Mr Kermack referred to passages from Erskine and Bell quoted in McBryde at paragraph 20-63.These, with Mr Kermack’s emphasis added, are as follows. Firstly, from Erskine:- “The right of retention may be here explained, upon account of its near resemblance to compensation, though it has not the effect of extinguishing obligations, but barely of suspending them, till he who pleads it obtains payment or satisfaction for his counter claim; and it is admitted in those cases only where compensation can have no place.” (Erskine III,iv,20). Secondly, from Bell’s Principles:- “Compensation is payment of and extinction of mutual debts; whereas retention of a debt is nothing more than an implied security for performance; a power of suspension, or right to withhold payment or performance till satisfied of some counter demand.” (4th ed), s.1411). A person claiming a right to retain had to state what his “counter claim” or “counter demand” was at the point at which he was exercising that purported right.

[18] Here the wrong “counter claim” or “counter demand” had been relied upon. The applicant’s case of retention, whether pled against the respondents’ service of the irritancy notice or notice to quit, therefore failed. The result, since the notice of irritancy had been served first, was that it had taken effect and the lease had been irritated rather than terminated as a result of the notice to quit.

[19] Mr Kermack also discussed the possible effects of sections 64 and 84 of the Agricultural Holdings (Scotland) Act 2003 on retention of rent. Section 64 inserts a new section, 15A, into the 1991 Act giving the tenant a right to apply to this Court for, inter alia, an order authorising the withholding of rent where the landlord is in breach of an order of the Court made under section 84(1)(b) relating to failure by the landlord to fulfil obligations in respect of fixed equipment. Section 84 introduces new powers in the Court to grant remedies not previously available to it. Mr Kermack suggested that the existence of such remedies may detract from the reasoning which had led Lord Gill in Alexander v The Royal Hotel (Caithness) Ltd to hold that retention of rent was the only effective remedy available to a tenant to enforce a landlord’s compliance with the terms of his lease, given how drastic or cumbersome were the other remedies or procedures then available (see paragraphs [15] to [18] of his Lordship’s opinion). At the end of the day, however, all Mr Kermack’s submission on this point amounted to was that there was now less need for a tenant to resort to retention of rent than there previously had been.

[20] Finally Mr Kermack submitted that it was incompetent to claim both a right of retention of rent and damages in respect of the same alleged breach. He did so under reference to a passage in Sir Isaac Connell’s treatment of the Agricultural Holdings (Scotland) Act 1923 at page 399. A person in the applicant’s position therefore had to elect between retention of rent and damages.

Submissions for the applicant

[21] Mr Barne moved us to sustain the applicant’s second and tenth pleas-in-law; to repel the respondents’ fifth to fifteenth pleas-in-law; quoad ultra to allow a proof before answer and to certify the cause as suitable for the employment of senior and junior counsel and otherwise to reserve expenses.

[22] He began his substantive submissions by referring to a passage in Answer 1 for the respondents, which, he said, set out what was truly the applicant’s position. This is a passage in answer to the applicant’s call, in Statement of Fact 1, upon the respondents to explain the basis on which they seek to rely on the terms of the lease (i.e. the formal 1949 document) for the purposes of serving their notice of irritancy and notice to quit whilst denying in the present application that said lease governs the legal relationship between the parties.

[23] The averments in question are as follows:-

“With regard to the Applicant’s call upon the Respondents, the delivery of the Conditions of Let and Form of Offer by the Applicant’s father, dated 9th May 1946, superseded the offer by the said Alex Brewster dated 8th May 1946 and the delivery of the Lease dated 18th and 20th October 1949 ….superseded the Conditions of Let and Form of Offer dated 9th may 1946. However, all three documents are consistent, each with the other, and, accordingly, the delivery of the later of each did not constitute an implied renunciation of the earlier. On that basis, both the notice of irritancy and the notice to quit correctly refer to the Lease dated 18th and 20th October 1949……. The Respondents accept that the Lease ….governed the legal relations between the parties, but the said Lease lets the farm from Martinmas 1946 and the tenancy constituted by the said Lease has now been irritated.”

[24] The foregoing represented the applicant’s position: that the 1949 lease superseded what had gone before. Although that lease referred to Martinmas 1946 that was just a device for identifying the end date of the lease. It was not a date of entry as such. The lease did not narrate that entry was to be at that date “notwithstanding the date or dates of execution hereof” as would have been customary if Martinmas 1946 was to be taken as the date of entry under the lease.

[25] Notwithstanding this submission Mr Barne stated that the applicant accepted that as a matter of fact his late father had taken entry to the farm at Martinmas 1946. That was not relevant, however, to when the tenancy ascribable to the final lease commenced. There had been a lease in 1946 but it had been an interim arrangement, pending completion of the final lease. That had not happened until 1949.

[26] Mr Barne then referred to the missives under which entry had originally been taken. There were a lot of clauses in the eventual lease which did not appear in these missives. There were likewise clauses, such as clause 9, of the Conditions of Let (production 55) which were not repeated in the eventual lease. What, therefore, the missives represented was an interim agreement which had been superseded in its entirety on the signing of the lease. The fact that there had been such an earlier agreement did not mean that the present arrangement between the parties was not referable to the 1949 document. The use of the phrase “pending completion of the lease” in the final sentence of production 61 was indicative of an interim arrangement.

[27] But whatever the previous arrangement had been we could not now go beyond the terms of the 1949 lease. That was because of both the parole evidence rule in the law of evidence and the prior communings rule in the law of contract.

[28] As to the former, Mr Barne referred us to Dickson on the Law of Evidence, Title II, Chapter 1, particularly to paragraphs 1015 and 1017 and to the well known case of Inglis v Buttery & Co. The result of applying the principles there identified was that it was within the four corners of the probative document of 1949 that this case must be decided and not under reference to anything else. There was no room for speculation as to what parties’ intentions had been at the time.

[29] As to the latter, the position was summarised by what had been said by Viscount Haldane in Gordon’s Executors v Gordon at page 412:- “In a case such as the present it would of course have been open to those concerned to reach a definite and concluded agreement in conversation or by correspondence. Such an agreement is not the less a real one if the parties have, as part of its terms, stipulated that there is to be a further agreement embodying its substance and also other terms which they are subsequently to settle. In such a case the later agreement, when concluded and executed, will supersede the earlier one. But until then the earlier agreement stands and binds.” That was, said Mr Barne, exactly the situation in the present case.

[30] That tied in, in turn, with the rule in relation to supersession of missives by a formal deed (Lee v Alexander,particularly the final paragraph of Lord Watson speech at page 96; Winston v Patrick), which rule was still applicable in this case notwithstanding the provisions of the Contract (Scotland) Act 1997.

[31] Mr Barne went on to make much of the case of Korner v Sheenan. In that case entry to a farm had been given in 1945 but no written lease had been entered into until 1947. It was on these basic facts, therefore, a case similar to the present. A question had arisen as to the obligations of parties in the interim. Reference was made in particular to a passage from the opinion of Lord Jamieson at page 294, which we set out in our discussion below.

[32] Mr Barne submitted that there were terms in the present lease which did not appear in the missives, for example the provisions as to repair of fixed equipment, irritancy and muirburn. It was clear, therefore, that they were two different agreements and that the formal 1949 lease had not come into effect before its execution.

[33] Under reference to Rankine at page 148 the result of agreeing new terms with a sitting tenant was a new lease. If a dispute relating to one of the obligations contained in the 1949 lease but not in the preceding missives arose in relation to the period between 1946 and the date of execution of the formal lease such an obligation could not be enforced because it had not existed at the material time.

[34] Under reference to Paton & Cameron at page 7, where a lease was complete except for a date of entry it could be assumed that the date of entry was the date of the concluded agreement. In Mr Barne’s submission the present formal lease contained no date of entry – merely a way of working out the ish – and the date of entry was, therefore, to be taken as its last date of execution.

[35] The position here was that between 1946 and the execution of the formal lease the late Mr Brewster’s occupation of the farm had been referable to the missives of let and that after execution of the formal lease it was referable to that lease. Nothing contained, or that could be contained, in the 1949 deed could have the effect of bringing it into force in 1946.

[36] Mr Barne then went on to address each section of the respondents’ pleadings which he said should be excised. Subject to one exception, it is not necessary to set out his submissions at length. Suffice to say that the reasons included irrelevancy in the legal sense, irrelevancy in the ordinary sense and the improper (in pleading terms) quotation of passages from text books.

[37] The exception is what Mr Barne had to say on the right to retain rent.

[38] In the first place in relation to that, with reference to a passage of pleadings at page 4 of the Answers, the new remedies now available in the Land Court had not displaced the common law rules on retention and how they operated.

[39] Secondly, with reference to an ensuing passage at pages 4-5, there was no rule of law which said one was required to identify the legal basis on which a right to retain was being exercised. Rather, the right to retain arose from the principle of mutuality in contracts. Under reference to Palmer’s Executors v Shaw,it was immaterial whether a tenant even knew he had a right to retain rent at the relevant time. That case showed that whether the obligations concerned were grounded in statute, contract or common law was not relevant: all that mattered was that they were counter-stipulations of the payment of rent.

[40] In passing Mr Barne also took from that case, from a passage at page 48, that retention was a different type of remedy from damages and that it was, therefore, competent both to retain rent and claim damages.

[41] Reverting to the right to retain rent, Mr Barne referred to Gloag on Contract at pages 628-628 and to the case of Hoult v Turpie, the former for a helpful historical perspective on the development of the principle and the latter as an example of its operation and for the point made by Lord Drummond Young in that case to the effect that the need for the obligations to be counterparts of each other should not be used in an artificial manner which breaks up the essential unity of a contract.

[42] Even if he were wrong in these submissions as to retention, however, there was here correspondence from the applicant’s agents which specified what the obligation being founded upon was. He referred in particular to the copy letter from the applicant’s agent to the respondents’ factor which is part of production 45. It explained why rent was being retained without making any reference to section 5 of the 1991 Act.

[43] On the matter of the scope of a landlord’s common law duties in relation to fixed equipment, Mr Barne, with one proviso with which we need not concern ourselves since it does not arise in this case, agreed with Mr Kermack. Gill’s treatment of the subject at paragraphs 7.13 and 7.14 was an accurate statement of the law.

[44] MacNab of MacNab v Willison showed that the landlord’s obligations in relation to fixed equipment continued to apply when a lease was running on tacit relocation.

Mr Kermack’s response

[45] Mr Barne’s submission that the 1949 document constituted a new lease was both misdirected and wrong in law. Mr Kermack referred again to Knapdale (Nominees) Ltd v Donald.It had followed on from Morrison v Rendall, discussed by Gill at paragraphs 14.06-14.09. It was not open to parties to terminate the lease of an agricultural holding by agreement. The 1949 document would only supplant the 1946 tenancy if it was shown that that was parties’ “final and deliberate resolution on the subject”. The reference to a duration of 14 years from Martinmas 1946 was to contrary effect: it was an indication of the final and deliberate resolution of the parties being that the 1946 lease continued.

[46] With further reference to Tufnell,it was significant that none of the documents in that case had been set aside. If Mr Barne were right the assignation incorporating new terms and conditions and its acceptance would have themselves constituted a new lease but that was not how the Land Court had dealt with the case. Instead it had decided that a new lease had been derived partly from the original lease as well as from the assignation and subsequent minutes of agreement.

[47] As to Mr Barne’s point that condition 9 of the Conditions of Let did not appear in the 1949 document, that was hardly surprising because that condition applied to accommodation before entry and by the time of the 1949 document entry had already been taken. It would, therefore, have assisted the applicant’s case if such a condition had appeared in the 1949 document.

[48] What the Court had to consider was what was said by Gill about implied renunciation at paragraph 14.02. Here the 1949 document did not differ in any material respect from the 1946 lease. That point was reinforced by a combination of the provision in the missives which contemplated entry into a lease on the usual terms and conditions in use on the Estate and the fact that the ultimate formal lease was in pre-printed form, which suggested that it comprised these standard conditions

[49] In any event, and even outwith the area of operation of section 16 of the 1948 Act, a landlord and tenant could agree additional terms and conditions without terminating the lease which had gone before.

[50] With reference to the case of Korner,Mr Kermack read what had been said by Lord Jamieson in that case differently from Mr Barne. What the passage at page 294 meant in the context of the present case, in Mr Kermack’s submission, was that in so far as the 1949 document simply repeated the 1946 terms and conditions it was to be treated as the document regulating these provisions from 1946 onwards and in so far as it introduced new provisions these applied only from 1949 onwards. The passage was entirely consistent with the respondents’ position in this case.

[51] Paragraph 1015 and what followed in the passage referred to from Dickson had no application in this case because the respondents were not seeking to contradict or modify the 1949 document.

[52] So far as Winston v Patrick was concerned, the true rule was that delivery of the disposition superseded the missives only in so far as it implemented the missives.

[53] Turning to the question of retention, under reference to what is said at paragraph [18] of Lord Gill’s opinion in Alexander v Royal Hotel (Caithness) Ltd to the effect that the right of retention may not be available to the tenant in respect of every breach by the landlord, it remained to be decided whether failure by the landlord to perform common law duties re fixed equipment was a counter-part of payment of rent. On the basis of Bank of East Asia Ltd v Scottish Enterprisethat was something which required to be determined by reference to all the circumstances of the case.

[54] So far as Palmer’s Executors v Shaw was concerned, the whole of that decision had proceeded on a concession on behalf of the landlord which Mr Kermack would not himself have offered. In substantiation of his own position Mr Kermack referred again to the passages from Erskine and Bell set out above. These talked about counter demands and counter claims which were terms relating to pleadings. The precise identity of the counter part being relied upon when retaining rent had, therefore, to be pled. So far as the passage from Gloag which had been cited was concerned, that was to the effect that retention was only allowed where there was material breach, but before one could assess the materiality of the breach one had to know exactly what the obligation being breached was. That had to be specified. In any event the obligations being spoken of at page 629 were obligations which arose at commencement of a tenancy, not ongoing ones.

[55] The case of Clark v Sharp also demonstrated that a tenant withholding rent had to aver specifically the obligation on the part of the landlord in respect of which it was being withheld. The tenant’s case for retention here was based entirely upon the application of section 5 of the 1991 Act. The reports on the condition of the fixed equipment instructed by the applicant had been prepared on that basis. That being the case there was now no room for saying that rent had been retained because of breach by the landlords of their common law duties.

[56] As to Mr Barne’s attack on various parts of the respondents’ pleadings the only averment which Mr Kermack conceded should come out was the single sentence reading “Therefore, the obligations of the landlord in terms of the Lease expired on [sic] Martinmas 1953”. That was on the basis that he was now conceding that the landlord’s common law obligations continued while a lease was running on tacit relocation.

Senior Counsel for the Applicant

[57] Mr Campbell adopted the submissions of his learned junior but went on to discuss further the question of the date of the lease.

[58] He took us back to the initial documentation. Condition 14 of number 55 expressed a clear intention that a formal lease was to be entered into when called upon. It could be read as containing an option for either party to call upon the other to enter into such a lease. Production 61 likewise, by the phrase “pending completion of the lease”, contained a clear statement of further intention to enter a formal arrangement containing terms.

[59] Moving beyond these documents, it was not proved or admitted why it had taken three years to get to the formal document. That was something which might be established in evidence.

[60] Mr Campbell then passed on to the terms of the formal lease itself. It was expressed in the present tense: “It is contracted…”. It identified the subjects as being “presently tenanted by Michael George Cox”. That might just be sloppy, as parties believed Mr Cox had by then removed, or it might just be a shorthand description of the farm, but in Mr Campbell’s submission it most probably showed that there was in the minds of the parties a recognition that the formal position was that Mr Cox was the tenant.

[61] It was unnecessary to analyse the precise nature of the previous arrangement between the parties; as to whether it had been an informal lease, a lease resting upon missives or merely a licence to occupy. The mast to which the applicant firmly nailed his colours was the formal, 1949, lease. Unless there was ambiguity we could not go beyond its terms. And there was no ambiguity. The applicant did not shrink from the fact that it stated the period of occupation to be 14 years from Martinmas 1946.

[62] The applicant’s position was, therefore, clear. The respondents’ by contrast involved a conundrum from which there was no escape. The conundrum was how the respondents, having relied on the provisions of the formal lease for the service of their notice of irritancy and notice to quit, could now deny that the formal lease governed the relationship between the parties.

[63] Asked by the Court whether the 1949 lease regulated the terms and conditions of the lease for a period of 14 years, Mr Campbell said that it did not. It regulated terms and conditions for only the 11 years subsequent to the date of its execution. It may be that a proof could establish whether the late Mr Brewster regarded himself as bound by additional terms and conditions beyond these specified in the missives in the period between Martinmas 1946 and the execution of the formal lease but to hold such a proof would be to fly in the face of the law: unless there was ambiguity we could not go beyond the four corners of the 1949 deed.

[64] Knapdale (Nominees) Ltd was a case which depended very much on its own facts and was in any event to do with possible renunciation of a lease. There was no question of renunciation here. If we were against him on that, Knapdale (Nominees) Ltd was really a case which supported the applicant’s position in as much as the 1949 lease represented “the final and deliberate resolution” of the parties. In the present case the applicant had come to court offering to prove a new contract in 1949 and it was not open to the court to worry about what had happened in the three years before then. If the applicant succeeded in that, then ex lege the provisions of section 5 of the 1991 Act applied to that contract. The application of section 5 to the facts of this case was quintessentially a matter for proof.

[65] So far as the applicant’s own pleas-in-law under debate were concerned, we should excise the passages of the respondents’ pleadings identified in plea-in-law 10 either because they were not properly part of pleadings, in some cases, or on grounds of relevancy in others.

[66] Mr Campbell renewed his junior’s motion as to how we should dispose of matters.

Discussion and Decision

(i) The date of the lease

[67] Subsection 5(6) of the 1991 Act merely states that section 5 applies to leases “entered into on or after 1st November 1948”. Sections 85(1) defines “lease” as “a letting of land for a term of years, or for lives, or for lives and years, or from year to year”.

[68] 1st November 1948 is the date on which section 13 of the Agriculture (Scotland) Act 1948 came into force. That is the section which changed the law on liability for maintenance of fixed equipment on agricultural holdings. Its terms do not, however, assist us in our present task but, to state the obvious, it is clear that the provisions then introduced were to apply to all leases of agricultural holdings and not just to written leases. It is accordingly to the legal relationship that the term “lease” refers and not to the formal document which may express it. Consistently with that, it is the point at which the legal relationship of landlord and tenant in a lease of an agricultural holding was entered into which matters rather than the date of execution of the formal document which sets out the terms of that relationship.

[69] It is as well to note, parenthetically, at this point that nothing turns on the fact that neither of the present parties was a party to the 1949 document, the applicant having succeeded to his deceased father’s interest and the respondents being an incorporated version, so to speak, of the original landlords. Both parties agree that their relationship is governed by the 1949 document.

[70] So the question is “when was the lease - taking that term to mean the relationship which the 1949 document represents and governs - entered into?”

[71] It is true, as Mr Campbell pointed out, that the language used in the formal lease is in the present tense. The narration is of an agreement being entered into contemporaneously with the execution of the deed.

[72] Despite the use of such language, however, the deed records as the period of duration of the agreement 14 years from Martinmas 1946. Mr Barne submitted that that was just a formula for working out the ish. We think that involves a degree of artificiality. If that was the intention the lease could just as easily, and more naturally, have said that it was to run until Martinmas 1960, leaving it to be inferred that the date of entry was to be the date of execution. We think, rather, that the plain meaning of the clause is that the date of entry was Martinmas 1946 which accords with the admitted fact that the late Mr Brewster took occupation of the farm at that time.

[73] We are accordingly of the view that the 1949 document represents and records a lease entered into at Martinmas 1946. We come to that conclusion on the basis of that deed itself and without looking beyond it.

[74] Counsel for the applicant submitted, however, that notwithstanding the reference to Martinmas 1946 it was obvious that the execution of the 1949 document created a new relationship between the parties. That was because it brought into existence a number of additional terms and conditions which had not been part of arrangements between parties prior to its execution. The result was a new lease.

[75] This leads us to a paradox at the heart of the applicant’s argument on this branch of the case. On the one hand, under reference to the parole evidence and prior communings rules, we were told that we must not go beyond the four corners of parties’ probative agreement. This was aimed at the respondents’ averments as to the missives and other documentation which had gone before the formal lease. But it is the applicant himself who needs to go beyond the terms of the 1949 deed because he requires to show that that deed represents a new lease between the parties. In order to show that, he needs to look at what went before it.

[76] This brings us to the case of Korner v Shennan on which junior counsel for the applicant relied heavily. We begin by noting, firstly, that Korner was concerned not with the question of when a lease had been entered into but whether certain conditions in a written lease were enforceable in the period between entry to the subjects being taken and the subsequent execution of the lease and, secondly, that the only question before the Court at the stage with which the report is concerned was whether the Sheriff-substitute had been correct in deleting certain averments from the landlords’ pleadings. So the case is a little distance from the question with which we are concerned in the present case.

[77] Nevertheless some of the dicta of Lord Jamieson are of interest and assistance to the question before us. At page 292, having pointed out that the rule against reference to prior communings applies where a formal document has been entered into before the contract comes to be performed, his Lordship goes on to say:-

“But what of the position where no formal document has been executed prior to the contract being in part performed? Can a party to a lease be held to be in breach of an obligation contained therein alleged to have been committed subsequent to possession being given but before the lease has been executed? In most cases the answer I think may be ‘yes,’ because the formal document will usually embody the terms previously agreed to by the parties and on the strength of which possession has been given, and in the absence of express averment that possession was given on other terms, which were altered by the formal document, it may be assumed to do so. In that sense the formal lease may be read retrospectively. On the other hand, where there are such averments the position, I think is different. It would be inequitable that one party to a lease should be held in breach of an obligation before it was entered into, because it was embodied in a formal lease innovating on the agreed terms on which possession was given.”

Then, the passage at page 294 on which Mr Barne relied where, having reviewed the relevant authorities, his Lordship summarises the position as follows:-

“The result of these authorities is, I think, to establish that, where possession is given under an informal agreement, the terms so agreed will regulate the position until a formal lease is executed. If the formal lease contains no variation of, but merely embodies, what was previously agreed to, effect will be given to its terms, as if it had been executed at the date of entry, because it sets out in a formal deed the prior informal agreement of the parties. In that respect only can it be said to be retrospective. Where, however, it places on either party an obligation at variance with, or not expressly or impliedly contained in, the informal agreement, the party will not be liable for the breach of such an obligation committed before the date of its execution. It follows that, where it is averred that new obligations have been introduced, the Court must look at the terms of the prior informal agreement.”

And finally, in the penultimate paragraph of his Lordship’s opinion, speaking of the landlord’s position in that case, the following passage:-

“[The pursuer] accepts the lease as being the agreement come to between the parties as at the date of its execution. What he does maintain is that its terms are not those verbally agreed on when entry was given, and he makes sufficiently specific averments as to what these terms were. In my view, he should have an opportunity of proving his averments. I think the onus is on him to establish that the formal lease did not embody, but varied, the agreement arrived at before the defender’s entry; but I express no opinion as to the result of the case if he is able to discharge that onus.”

[78] What we take from the foregoing passages is this. Firstly, that a formal lease executed after entry has been taken can cover, retrospectively, the period since entry. Secondly, if that is what the deed itself appears to mean, in the absence of contrary averment as to different terms and conditions having applied during that interim period the deed will be taken to apply retrospectively. Thirdly, that a party seeking to assert that the deed does not apply retrospectively must make specific averments as to what the terms of the earlier, different, agreement were. And, fourthly, that the onus will be on that party to prove these averments.

[79] In the present case the applicant makes no such averments but we are nevertheless prepared, and consider it helpful, to carry out the exercise of examining what the prior communings between parties say. That involves looking at the Conditions of Let, missives, and relevant correspondence which are represented by productions 55 to 64.

[80] Taking these chronologically, the first is number 59, a letter which may be dated 9th May 1946 (the date is unclear) from the Estate Office apparently acknowledging receipt of a letter from Mr Brewster offering an annual rent of £780 for the tenancy of the farm from Martinmas 1946. It encloses a copy of the relevant Conditions of Let and asks Mr Brewster to complete the form of offer appended thereto.

[81] Production 55 comprises said Conditions of Let and form of offer. Condition 1 of the Conditions of Let states that the farm is to be let with entry at Martinmas 1946 for a period of 14 years with a mutual break at Martinmas 1953. The remaining conditions go on to deal with rent instalment dates, buildings insurance, the requirement for the tenant to live on the farm, some matters to do with cultivation and a number of other matters before concluding with Condition 14 which says that a formal lease “embodying the above and other usual clauses in use on the Estate [is] to be entered into when called upon…”. In terms of said offer, dated 9th May 1946, Mr Brewster offers an annual rent of £780 and does so expressly for the tenancy “as from Martinmas nineteen hundred and fortysix, subject to the foregoing terms and conditions”. The offer is signed and witnessed by two witnesses.

[82] Production 60, dated 20th May 1946, merely invites Mr Brewster to the Estate office for interview.

[83] Production 61 is a further letter, dated 28th May 1946, from the Estate Office, presumably from the Factor of the time, saying that he has been instructed to accept Mr Brewster’s offer. It refers to an annual rental of £780 for the tenancy of the farm “from and after the term of Martinmas 1946” and concludes “I shall prepare and send you a formal lease for signature in due course, but meantime I shall be glad if you will kindly write me accepting the tenancy of the farm so as to keep the matter in order pending completion of the lease”.

[84] Production 56 is Mr Brewster’s response, dated 29th May 1946, which again refers to an annual rent of £780 from and after the term of Martinmas 1946 and concludes “I formally accept the tenancy of the farm on the terms contained in my offer. This now closes the matter, and perhaps you will be good enough to send me the draft Lease for perusal before it is made out for signature”. It is adopted as holograph.

[85] These documents comprise, in effect (one of them is not formally authenticated), missives for the rent of the farm for a period of 14 years from Martinmas 1946 at an annual rental of £780 with a mutual break at Martinmas 1953 on the terms and conditions specified in said Conditions of Let and binding either party if called upon to do so by the other to execute a formal lease embodying not only the specified conditions but “other usual clauses in use in the Estate”. The clear expectation is that such a lease will be entered into but Mr Brewster’s letter of 29th May 1946, saying, as it does, that “this closes the matter”, could hardly be clearer as an indication that by that stage the deal has been done; that negotiations, at all events on the substantials of the lease, are complete and that all that remains is the adjustment and signature of the formal lease.

[86] It is admitted that Mr Brewster took occupation of the farm at Martinmas 1946. By that time no formal lease had been entered into but such a lease was eventually prepared. Production 7 is a copy. It is dated 18th and 20th October 1949. It has the appearance of what we would call a “standard” lease for use on the Estate, with the standard terms and conditions - in the sense of these which are to apply across the Estate - printed and the variables typewritten.

[87] We pause here to say that when one compares the terms and conditions contained in that document with the terms and conditions of the missives two things emerge. Firstly, there are indeed terms and conditions in the latter which do not appear in the former. Secondly, however, there is not any repugnancy between the lease and missives such as to suggest that they represent two separate agreements. Thus the parties, subjects, rent and duration are all the same. And specifically there is no such repugnancy on the question of maintenance of the fixed equipment. The Conditions of Let and missives are silent as to that. Subject to anything in the usual conditions in use on the Estate, therefore, the common law must apply. And when we come to the written lease it is accepted by the respondents that all it does on this question is set out the common law – or at least that it does not displace it. There is, therefore, no question of the formal lease placing on either party, in the words of Lord Jamieson in Korner, “an obligation at variance with, or not expressly or impliedly contained in, the informal agreement” so far as liability for maintenance of fixed equipment is concerned.

[88] For the sake of completeness of our review of the documentation we should also refer to production 63 which is a letter from the Estate to Mr Brewster dated 9th July 1948 enclosing a record which has been prepared in relation to the holding and production 64 which is another letter from the Estate, this one dated 2nd November 1949, which reads, so far as relevant for present purposes “The Lease of your farm has now been duly completed. The Stamp Duty amounts to £16 and as this expense falls to be borne mutually in accordance with the Conditions of Let of the farm I shall be obliged to receive at your convenience a remittance for £8 in payment of your share.”

[89] That completes our review of the 1946-1949 documentation. There is no suggestion in any of it that what it represents is anything other than a continuum, with the missives and executed lease forming part of the same agreement. On any fair reading of the documents the lease is to be seen as the culmination of earlier procedure and not as a departure from it; it records, rather than innovates upon, an existing agreement. If the applicant wishes to argue that the additional terms and conditions which appear in the formal lease are new matters and not “the usual clauses in use on the Estate”, as envisaged in the Conditions of Let, it is for him to aver such a case. Unsurprisingly, given the terms of the documentation we have just looked at, he does not. There is in any event a difference between the variation of the terms of a lease and the entering into of a new lease and the latter, as at the date of execution of the 1949 document, is what the applicant would have to prove.

[90] Thus, whether we decide this part of the case solely with reference to the terms of the probative lease or with reference to the whole documentation we have just looked at taken together with the probative lease, the result is, in our view, the same: this lease, in the sense of that word set out in paragraph [70] above, was entered into before 1st November 1948.

[91] The result of that in turn is that section 5 of the 1991 Act does not apply and, as far as matters relating to fixed equipment are concerned, the common law does.

(ii) Extent of common law duties

[92] As we have said, parties were agreed on this. Mr Kermack dealt with the matter more fully than Mr Barne, who was content to rely on the statement of the position at paragraph 7.13 of Gill. In addition to what is said there, Mr Kermack relied on a the more extensive treatment of the subject by Sir Isaac Connell at pages 396 to 400 of his work which, said Mr Kermack, had the advantage of having been written before 1948. It was, therefore, a contemporary description of the common law at that time. Although Mr Barne contented himself as aforesaid we did not understand him to take issue with anything in the fuller treatment of the subject by Connell. Parties are, therefore, to be taken as being agreed on the law as set out in these passages.

(iii) Retention of rent

[93] Mr Kermack argued that if the common law applied the applicant here had no relevant case for retention of rent since rent had been retained on the basis of breach by the respondents of purported duties under section 5 and not on the basis of breach of common law obligations.

[94] There are various elements to that argument. First of all it requires that retention be an overt act, made known at the time it arises. The “retainer” must therefore explain, at that time, that that is what he is doing and that his non-performance of the obligation in question is not attributable to some other reason. Secondly, it requires that the basis of the right to retain must be explained at the point at which retention takes place. Thus one is not entitled to retain without giving a reason: one cannot retain and then cast about at leisure, so to speak, for a valid basis for retention. Thirdly, the correct basis of retention has to be specified at that time. Reliance on alleged breach by the other party of what is later found to be a non-existent counter-obligation (which Mr Kermack says is the position here) is fatal to the right to retain even if the person retaining subsequently discovers that he would have been entitled to retain on another basis. Mr Kermack’s submission was, as we have recorded above, based on the passages from Erskine and Bell quoted by McBryde at paragraph 20-63.

[95] Turning to the cases on retention, one notices immediately how different the foregoing requirements are from the basis upon which Palmer’s Executors v Shaw proceeded. In that case there was no overt act of retention when the rent remained unpaid. There was no mention of retention at all at that time. It was only later, in the context of the litigation which ensued, that the right to retain was claimed and at that stage, the Court records at page 3 of its Note, “it was not disputed that if, on a proper view of the facts and circumstances, the tenant had such a right it was immaterial whether he knew of the right at the time”. Although the case therefore proceeded upon what was in effect a concession on the part of counsel for the landlords, we detect no criticism of, or even surprise at, that concession on the part of the Full Court which heard that case. Nevertheless Mr Kermack is quite right in saying that the points he takes in this case were not argued and decided in Palmer’s Executors.

[96] But if Palmer’s Executors is of little assistance the other cases are of even less. The facts of Alexander v The Royal Hotel (Caithness) Ltd are similar only to the extent that it too involved retention of rent as against a landlord’s obligations in relation to fixed equipment on an agricultural holding but in that case the basis for retention of rent seems to have been known from the outset so the same questions did not arise. Bank of East Asia Ltd v Scottish Enterprise was cited to us only for the proposition that the extent to which an obligation by one party to a mutual contract is the counterpart of the obligation of the other is a matter of circumstance in each case but, given the status of that decision, we have looked to see if we can derive any guidance from it. We can not. It decided that for a right to retain to arise the obligations which are said to be counterparts of each other must exist contemporaneously at the point at which retention is operated. It offers no assistance with the present question. Neither does any of the other cases to which we were referred or which were included in parties’ lists of authority. One of these, Forbes v Reid, quotes a dictum from Lord Justice-Clerk Moncrieff in Humphrey v Mackay which on the face of it seems to offer some support to Mr Kermack’s position. Referring to the doctrine that “the landlord’s right to rent cannot be enforced if a separate and material part of the subject of the lease is withheld”, his Lordship (at page 650) said, “But the condition of that doctrine is that the tenant who is proposing to retain his rent shall distinctly aver that some specific part of the landlord’s obligation is not fulfilled.” On looking at the report of Humphrey v Mackay, however, one sees that his Lordship then goes on to say “Here I do not know what is said to have been withheld from this tenant.” So the point is that even at the stage of litigation it was not clear to the Court what obligation of the landlord was being relied upon as the counterpart of payment of rent. Instructively, however, his Lordship’s opinion opens as follows:- “If it appeared from the statement on this record that it admitted of being made more specific as to the subject let, I should have been inclined to give an opportunity to the defender of amending his record or producing documents so as to instruct the ground of his defence.” So his Lordship was clearly of the view that a tenant could at least give greater specification of the ground for retention at a stage later than the time at which retention was being operated. But the passage is also consistent with the view that a tenant retaining rent can plead the ground for retention for the first time at the stage of ensuing litigation.

[97] In the absence of clear authority we attempt to approach matters from first principles.

[98] Approaching the matter in that way, it is not apparent to us that the existence of the right to retain can depend upon the subjective understanding of the person who enjoys that right. That is simply not how rights arise. Rights arise from the application of the law to the objective facts and circumstances of the case; they do not depend on subjective understandings.

[99] Turning from the general to the particular, it is important to bear in mind the question which was at the centre of cases such as Alexander v The Royal Hotel (Caithness) Ltd and Palmer’s Executors v Shaw, and is also the relevant question, for present purposes, in this case. That question was, and is for us, whether the rent claimed is due (see the opinion of Lord Gill at paragraph [39] in the former and the final paragraph of the Court’s Note at page 49 in the latter). That is obviously a question which can only be answered by applying the law to the objective facts and circumstances of the case at the point in time at which the rent was otherwise payable. The answer to it does not depend upon the tenant’s understanding of the source of any right to retain which he may have. What it does depend upon is whether the landlords were in material breach of a counterpart obligation at the point at which rent was retained. The applicant offers to prove that they were and in our view he is perfectly entitled to found now on averred breaches of common law duties rather than statutory ones regardless of what his understanding was, or how he expressed it, at any earlier stage. The concession upon which Palmer’s Executors proceeded was, therefore, in our respectful opinion, properly made.

[100] So far as the passages from Erskine and Bell relied upon by Mr Kermack in support of this branch of his argument are concerned we would say only that in these passages the learned writers are dealing with the matter of retention in general terms: they are not laying down, nor does their language provide any foundation for, a condition as to the exercise of a right of retention of such a narrowly specific kind as Mr Kermack desiderates.

[101] Even if we had held Mr Kermack to be right in law on this point, however, we would still have allowed a proof before answer on this aspect of the case. That is because the applicant offers to prove, as his esto position, retention based on breaches of common law duties and it may have been possible for him to show, for example on the basis of his agent’s letter of 21 November 2002 to the respondents’ Factor, that retention was never predicated exclusively on the application of section 5 of the 1991 Act.

Whether applicant entitled both to rely on retention and claim damages

[103] Mr Kermack’s submission was founded on a passage from Sir Isaac Connell at page 399 of his work. We are not persuaded that the passage comes anywhere near saying that it is incompetent to claim both a right of retention and damages in the same action. As the Full Court noted in Palmer’s Executors v Shaw (at page 48) retention is a different type of remedy from damages. Its function is to attempt to compel the other party to perform the relevant counter-obligation. Unlike damages, it is not a claim for reparation in respect of loss sustained due to breach of contractual or other duty by the other party. Accordingly we think it competent both to rely on retention and to seek damages although, at the end of the day, account may have to be taken of rent still retained in the quantification of any damages found to be payable. The claim for damages having been attacked only on the ground of competency and not relevancy or specification, it will, therefore, remain.

For applicant: Mr J Campbell, QC; Mr J Barne, Advocate; Messrs R & R Urquhart, Solicitor, Inverness

For respondent: Mr L Kermack, Solicitor; Messrs Turcan Connell, Solicitors, Edinburgh