Record No: SLC/242/04
Form: GENERAL 2003
Applicant: Alastair Eric Hotson Salvesen
Respondent: Douglas Graham
Subject: Kirkton Farm, Midlothian
EDINBURGH 25 July, 2006. The Land Court have issued the following Order and Note in the above Application:-
Edinburgh 25 July 2006. The Land Court having heard the solicitor for the Applicant, Alistair Eric Hotson Salvesen, and Senior Counsel for the Respondent, Douglas Graham, and having resumed consideration of the evidence adduced and the documents lodged, under reference to the appended Note, REFUSE the application; CONTINUE the motion for certification of the case as suitable for the employment of Senior Counsel; APPOINT parties to lodge motions on expenses with the Principal Clerk, George House, 126 George Street, Edinburgh EH2 4HH within twenty-one days of the date of intimation hereof.
“R J MacLEOD”
“DAVID J HOUSTON”
Member of Court
In this application the landowner applicant seeks declarators to the effect that a lease of the subjects in question which commenced in 1974 is at an end and that no tenancy exists in respect of the subjects, coupled with a consequential order for removal of the respondent. We heard evidence on 17th to 20th February and submissions on 20th and 21st April 2006. The applicant was represented by Mr Lewis Kermack, solicitor, and the respondent by Sir Crispin Agnew of Lochnaw Q.C.
Armia Limited v Daejan Developments Ltd 1979 SC (HL) 56
Ballantine v Stevenson (1881) 8 R 959
Bathie v Lord Wharncliffe (1873) 11 R 490
Buttercase & Geddie’s Trustee v Geddie (1897) 24 R 1128
Cayzer v Hamilton (No 2) 1996 SLT (Land Court) 21
City of Aberdeen Council v Clark 1999 SLT 613
Coats v Logan 1985 SLT 221
Comex Houlder Diving Ltd v Colne Fishing Co Ltd 1987 SC(HL) 85; 1986 SLT 250
Daks Simpson Group plc v Kuiper 1994 SLT 689
Fane v Murray 1995 SLT 567
Featherstone v Staples  1 WLR 861
Gordon Adams & Partners v Jessop 1987 SCLR 735
Graham v Stirling 1922 SC 90
Gray v Edinburgh University 1962 SC 157
Howson v Buxton (1928) 97 LJKB 749
Jardine v Howdle 1998 SLT 142
Jones v Lewis (1973) 25 P & CR 375
Knapdale (Nominees) Limited v Donald 2001 SLT 617
Korner v Shennan 1950 SC 285
Lloyd v Sadler  1 QB 774
McCall’s Entertainments (Ayr) Limited v South Ayrshire Council (No 1) 1999 SLT 1403
Macfarlane v Falfield 1998 SC 14
Morris v Allen 1982 SLT 99
Morrison-Low v Paterson 1985 SC (HL) 49
Smith v Grayton Estates Limited and Another 1961 SLT 38
Stonehaven Unionist Club v Blacklaws 1930 SLT (Sh Ct) 64
Sutherland’s Trustees v Miller’s Trustees (1888) 16 R 10
Walker v Hendry 1925 SC 855
Wight v Newton 1911 SC 762
W. S. Karoulias SA v The Drambuie Liqueur Company Limited 2005 SLT 813
Young v Gerrard (1843) 6 D 347
Agricultural Holdings (Scotland) Act 1991
Agricultural Holdings (Scotland) Act 2003
Succession (Scotland) Act 1964
Gloag, Law of Contract (2nd ed)
Rankine, The Law of Leases in Scotland (3rd ed)
Rankine, Personal Bar
The Laws of Scotland: Stair Memorial Encyclopedia, Vol 19, Title on Personal Bar by Sheriff A. M. Bell, Adv
The Right Hon. Lord Gill, The Law of Agricultural Holdings in Scotland (3rd ed)
The witnesses for the applicant were the applicant himself and his factor, Mr Anthony Whale. The witnesses for the respondent were the respondent and his solicitor, Mr James Drysdale W.S. of Messrs Anderson Strathern W.S..
In the course of his submissions Mr Kermack intimated that he was insisting upon an objection to the admissibility of much of the evidence, which objection had been foreshadowed in his pleadings and in written opposition to a motion for Specification and Diligence which had been lodged by the respondent in the week before the proof but had not been taken at any time during the hearing of evidence. It was directed against the evidence as to negotiations towards a new lease which had gone on between the parties. Such negotiations, short of agreement being reached, were said to be privileged (Walkers The Law of Evidence in Scotland paragraph 10.7.1). We must now rule on that objection.
It was opposed by Sir Crispin as coming too late. It ought to have been taken in the course of the proof. Failure to do so was fatal. He referred to Jardine v Howdle and Morris v Allen. If he was wrong about that, an objection of this kind would exclude only concessions made in the course of negotiations, not the facts of the negotiations (Daks Simpson Group plc v Kuiper).
We are satisfied, on the basis of the authorities cited by Sir Crispin and of our own understanding of proper procedure, that the objection should have been taken at the proof. Indeed in the Court’s Note dealing with said motion for Specification and Diligence we had said that that would be the appropriate point at which to take the objection. We had therefore been expecting such an objection and when none came we assumed that Mr Kermack had departed from the point. We were therefore surprised to hear it stated in the course of submissions. One of the reasons which make it too late at that stage is that it may affect the respondent’s position. As Sir Crispin pointed out, had the objection been taken and sustained in the course of the evidence, or even if the evidence had been heard under reservation of competency and relevance, he would have had to consider whether he required to lead other evidence in support of the respondent’s case. The objection coming when it did, he had not had that opportunity. The objection is therefore repelled.
We found the following facts admitted or proved:-
We are not going to narrate the whole evidence. It was almost all to do with the question of whether a new limited partnership lease ever came into existence. The facts are not really in dispute; they are as set out in our Findings in Fact. The dispute has been as to the significance to be attached to the facts, the inferences which we should make and the legal consequences which should follow. What follows, therefore, is an edited version of the evidence of the witnesses largely confined to their part in negotiations as they progressed, their understanding of what was happening and their explanation of their actings from time to time.
Mr Salvesen explained that, following service of the notice to quit, negotiations had been entered into with Douglas Graham to see whether there might be a basis on which he could stay on at the farm after November 2002. These had been along the lines of contract farming. They had not resulted in agreement.
Matters had then moved on to the meeting of 11th April 2002. That meeting had agreed a limited partnership arrangement in which Douglas Graham was to be the general partner. Its duration was to be 16 years. Mr Salvesen had later signed the limited partnership agreement and paid the contribution of £1,000 which he was liable to pay thereunder. So far as the lease was concerned, the rent was to be £8,800 per annum, being the rent payable under the old lease, plus an additional payment of £1,600 per annum for the Capelaw Grazings. The existing rent had been fixed on the basis that the hoggs were to be wintered away. That rent had been fixed by the Robert Forrest referred to in production 18. In the negotiations towards a new lease the other side had been suggesting that the cost of away wintering of hoggs should be taken off the rent. When Mr Rennie had attempted to revise Clause Twelfth of the draft lease so as to record that the rent had been fixed on the basis of away-wintering of hoggs, that revisal had proved unacceptable to the respondent.
The new lease, in terms of the draft under revisal, was to have been for a period of one year from Martinmas 2001. The tenant was to be the firm of Kirkton Farm. As to the subjects being let, no acreage was stated in the draft. There had, at some stage, been talk of parts being taken out of the farm as let under the old lease.
Mr Salvesen then gave evidence as to various communings towards agreeing a plan with an accurate acreage of the subjects to be let. It is not necessary to set that out in detail. Suffice to say that his position was that the extent of the subjects to be let under the new lease had never been agreed.
Asked about his decision not to proceed further, as intimated by his solicitor by letter dated 21st July 2003, Mr Salvesen said that things had become impossible. At some point one had to stop. To achieve anything there had to be communication between landlord and tenant and between the partners in a limited partnership situation. Negotiations having been terminated, it was Mr Salvesen’s view that Mr Graham had no contractual right to remain in possession. Mr Salvesen had been prepared to let him continue farming at Kirkton until the November term 2003 but no later.
Mr Salvesen was then taken through the history of rent payments being tendered and declined. The cheque for one of these payments, dated 27th March 2003 (production 52), had been drawn on the account of the Kirkton Farm Partnership, the others on accounts in the name of John Graham & Son. Similarly he was taken to annual accounts produced by the respondent. These comprised accounts for the firm of John Graham & Son for the year to 5th April 2003 (production 48), and for the Kirkton Farm Partnership for the year to 5th April 2004 (production 64), the latter so dated notwithstanding that the limited partnership agreement required accounts to be struck as at 28th November.
In cross-examination Mr Salvesen agreed that after the death of John Graham Junior he had suggested a contract farming arrangement to Douglas Graham. That had been on the basis that, without being derogatory, “the devil you know is better than the devil you don’t”. At that time he had not known the respondent very well. He agreed that, following the death of John Graham Senior, no steps had been taken to prevent the respondent’s succession to his grandfather’s interest in the lease. He explained that he had left matters to his lawyer to deal with as appropriate. No step of that kind having been taken, the step which was eventually taken had been the service of the notice to quit.
The notice to quit having been met with a counter-notice, there had been further discussion as to how the respondent may be able to continue in occupation of Kirkton. These had centred on a limited partnership agreement and had led to the drafting of the draft limited partnership agreement, draft lease, and draft post-lease agreement. These drafts had been sent by his solicitor, Mr Rennie, to the respondent’ solicitors, Mr Drysdale, on 21st January 2002. That had been done with Mr Salvesen’s authority, the drafts being intended as a basis for discussion.
In the correspondence, negotiation and discussions which followed, one of Mr Salvesen’s concerns had been the ecology of the hill ground at Kirkton. He explained that the ecology of the hill was of great importance to him and that in protecting that ecology it was necessary to have a good relationship with the person on the ground, the tenant of the farm. It was not just the balance as between grouse and sheep which worried him but whether it was going to be possible to have an agreement with the respondent as the tenant which would protect the ecology of the hill. These concerns were linked to the away wintering of hoggs. It was Mr Salvesen’s understanding, based on information from said Mr Robert Forrest, that the practice at Kirkton in previous years had been to winter the hoggs away.
It was put to Mr Salvesen that the purpose of that meeting of 11th April 2002 had been to thrash out an agreement if possible. Mr Salvesen explained that his understanding had been that the purpose had been to get closer to an agreement. He had never thought a full agreement was going to be reached at that stage. He accepted that a 16 year limited partnership had been agreed at that meeting but qualified that acceptance by saying that his agreement to such a partnership agreement was conditional upon everything else falling into place. It was too strong to say that a 16 year limited partnership had been “settled on”. Provided everything else was also agreed then he would have found such a partnership agreement acceptable. But at that stage, his agreement had not been “set in tablets of stone”. He agreed, however, that a limited partnership agreement had eventually been signed. It was production 71. It had a commencement date of 28th November 2001. It had a duration of 16 years. When it was put to Mr Salvesen that this document represented what had been agreed at the meeting on 11th April he was reluctant to accept that. He said that the document contained what had been agreed between the parties but he was not ascribing that to the meeting of 11th April.
Turning to the draft lease (production 7(b)) he accepted that it had been agreed that the maximum area to be taken over by resumption would be restricted to 1/20th of the subjects but again he said that this had been agreed subject to everything else being agreed. He did not accept that it had been agreed at said meeting that any disagreement as to the management plan was to be referred to arbitration. On the contrary, the management plan had to be agreed as part of the lease. It was only after the management plan had been agreed that one could possibly have arbitration re subsequent disagreements. In other words, as we understood him, the initial content of the management plan was not to be the subject of arbitration.
So far as Logan House being taken out of the subjects to be leased was concerned, the estate had established that the occupants of Logan House were not working on the farm and it had therefore been the estate’s position that the property should come back into their hands in any case. Mr Salvesen was unsure as to whether Logan House had been discussed at the meeting of 11th April. It may have been discussed but he was not sure. Whether it had been discussed or not the estate had followed up on the matter by going to see the occupants of Logan House as suggested in production 10. Asked whether he could remember if it had been agreed that the Grahams should tell the occupants of Logan House what was happening, he could not remember.
He was clear, however, that over-wintering away of hoggs had been discussed, as had the need for acreages to be agreed by reference to the IACS plans for the farm and also the matter of hefts. There had also been discussion about a post-lease agreement. In that context there had been reference to repairs having to be carried out. Mr Salvesen was adamant, however, that in executing repairs to the tup shed and culvert he had simply been discharging the responsibility for these matters which he had in any event as the owner of the subjects. Although the repair of these items had been discussed at the meeting of 11th April the work had been carried out, not as a result of any agreement come to at that time or later, but simply as a result of the estate’s discharge of its responsibilities as a responsible landowner.
Mr Salvesen was reluctant to accept that matters which had not been the subject of specific discussion at the meeting of 11th April should be taken as having been agreed between the parties. He said that there were some “pretty major ones” in dispute including rent and the number of sheep on the farm. The fact that particular matters were not noted as being in serious contention at the meeting of 11th April did not mean that these matters had been agreed.
Mr Salvesen was then taken through the post-meeting revisals to the draft documentation but his position as to what had and had not, in the final analysis, been agreed remained unchanged. Although, according to its terms, the limited partnership agreement was to be deemed effective as from 28th November 2001, Mr Salvesen refused to accept that he had considered the limited partnership was in occupation of the farm after 11th April 2002. Since the lease had never been completed he could not see how the limited partnership could be in occupation of the farm. Indeed, without the lease having been finalised, the limited partnership could not operate at all. Had he thought the limited partnership to be in operation would he not, he asked, have been cashing the cheques tendered as rent on its behalf? He accepted that he had been asking for production of accounts and said that he had eventually got accounts drawn up for the firm of John Graham & Son. He had asked for these accounts to see if the general partner’s covenant was strong enough to take on the lease.
Asked about the long delay between Mr Drysdale’s letter of 2nd August 2002 and Mr Rennie’s of 21 July 2003, Mr Salvesen was surprised that there had been nothing in between. Indeed he said that he would be “more than surprised” if he had not been in touch with Mr Rennie to tell him that Mr Drysdale’s revisal of 2nd August 2002 was unacceptable but, as we understood him, he could not really remember what, if anything, had happened in that period.
Mr Salvesen was then asked about rent payments tendered. Production 26 was a letter from his factor, Mr Whale, to Mrs Lynn Graham dated 26th May 2002 returning a cheque which had been tendered as rent. The letter said that payment should be dealt with “once the new arrangements are fully in place”. He was asked whether this rent payment was being declined at this stage because he thought the old lease had already terminated. He replied that this was what he had been advised to do. Notwithstanding that the old lease was not to terminate, in terms of the notice to quit, until November 2002, rent payments had been refused in both May and November of that year. Accordingly the last payment of rent which had been accepted had been on 28th November 2001. That was what he had been recommended to do although he thought that he may have been told that he could have accepted one further payment of rent. He did not accept the suggestion that the basis of his having acted in this way was his belief that the old lease had already terminated. He had just been following advice. Asked by the Court whether the Grahams had ever raised with him why the rent cheques were not being cashed, Mr Salvesen said to the best of his knowledge they had not. He believed that they too had been waiting for the lease to be signed.
Mr Salvesen was then cross-examined as to the notice to quit. That no arbiter had been appointed had been on the basis of advice from Mr Rennie. Mr Rennie had not suggested that the appointment of an arbiter was necessary because at that time parties were talking about other things. Asked why, once his position had come to be that he was not prepared to enter a new lease, he had not taken steps to have an arbiter appointed, he again explained that that was on the basis of advice. Part of the problem was that Mr Rennie was a single practitioner and had been very busy. There had been delays. He (Mr Salvesen) had taken advice and it had never been suggested that the appointment of an arbiter was necessary.
In re-examination Mr Salvesen confirmed that his purpose in going to the meeting of 11th April had been to move towards a closer understanding with Mr Graham. He could not possibly have reached agreement at that meeting. There were no stocking numbers, no IACS forms, so many gaps. There had been some progress towards an agreement but it had not been a case of forming an agreement there and then. When he had left the meeting of 11th April he had not considered that he had an agreement with the Mr Graham. Rather his understanding had been that they had moved further forward by having had a discussion.
Asked what his understanding had been when he had been forwarded a copy of Mr Drysdale’s letter of 2nd August 2002, whether he thought he had reached agreement with Mr Graham or failed to reach agreement, Mr Salvesen responded by saying that they had totally failed to reach agreement. Asked whether he thought that Mr Graham believed himself to have an agreement with Mr Salvesen, Mr Salvesen said he did not think so. He agreed that the result was that as at 2nd August 2002 there was a lack of consensus on the particulars of the lease.
At a later stage in the proof Mr Salvesen had to be recalled for him to give evidence as to some additional productions which had come to light during the evidence of Mr Drysdale. These are productions 75 to 85. All that is necessary to record for the purpose of assessing what Mr Salvesen’s attitude was as to whether final agreement had ever been reached, is that he reiterated that he had made it clear throughout the negotiations that the over-wintering of hoggs away had to happen for the sake of the ecology of the hill. That had been a fundamental point for him. It was a point to fall out over. Given that the result of failure to agree on that matter was that he would not have known what the income from the lease was going to be he would not have entered a lease.
It was clear from his evidence that Mr Graham’s preferred position had always been to maintain the 1974 lease if possible. It was for that reason that he had not been interested in the approach made as to contract farming. Likewise at the meeting of 11th April 2002 it had been the Graham family’s starting point to seek to hold onto the 1974 lease if possible. That had been agreed at a private preliminary meeting between members of the family and Mr Drysdale before the main meeting had started. Once the main meeting had started, however, it had quickly become apparent that a continuation of the previous arrangements was of no interest to Mr Salvesen and talk had then turned to a limited partnership arrangement. At the end of the meeting he had thought that a limited partnership for a period of 16 years had been agreed and that they (meaning the two sides to the negotiations) were to go on to agree the points of the lease. So far as the lease was concerned, he thought that the meeting had resulted in agreement on “everything apart from a few fine points on the sheep”. The points which remained to be agreed about the sheep were the number of sheep on each heft and the question of the hoggs being wintered away. So far as the latter matter was concerned nothing had been agreed at the meeting. The intention had been to have another meeting to discuss the hoggs. No such meeting had ever taken place.
Turning to what had been agreed at the meeting of 11th April, it had been agreed that he was to be the tenant in the form of the general partner under a 16 year limited partnership agreement. So far as the land to be occupied was concerned, that was to be the same as before with the exception of Logan House which was being reclaimed by the estate. Likewise the rent was to be the same as before. As to the duration of the lease his understanding was that it was to be for 16 years. There had been discussion about compensation for improvements. The possibility of such compensation being set off against repairs requiring to be carried out by the landlord had been discussed. He had been asked to produce IACS plans, field sizes and schedules. He had provided these. He had given them to Mr Whale, the factor.
Asked about the status of the former lease, he thought that by the end of the meeting of 11th April parties had moved on from the old lease and were trying to enter a new one. He did not think that they had actually departed from the old lease but he thought they were on the way to creating a new one.
Sometime after said meeting the limited partnership agreement had been produced and he had signed it. He had told one or two people, including Mr Hunter Smith, who had witnessed his signature of the limited partnership agreement, that such an agreement was in existence and that he was delighted to be staying at Kirkton Farm for another 16 years. Also in connection with the limited partnership agreement he recollected that Mr Salvesen had paid his £1,000 contribution.
The book-keeping for the farm was done by his mother and accordingly he was not able to be very precise or helpful in answering questions as to entries on bank account statements. He was, however, clear in his understanding that, having signed the limited partnership agreement and Mr Salvesen’s contribution having been received, he was farming Kirkton as the general partner in the limited partnership.
Reverting to the meeting of 11th April, the matter of repairs to the bottom tup shed roof and the culvert had been discussed. The roof of the tup shed had had a hole in it from a storm the year before. It had been in that condition for at least a year prior to said meeting. Its condition had been reported to the landlord at least a year before said meeting. The hole in the road had been there for some four or five months before said meeting. It too had been reported to the landlord. Repairs to both had been carried out, possibly a couple of months or so after said meeting. The need for such repairs had been discussed at said meeting.
As to payment of rent, rent was usually paid in May and November of each year but Mr Salvesen had not accepted the rent payments tendered. Accordingly these payments had been paid into the Kirkton Farm Partnership account.
What was to happen to Logan House had also been agreed at said meeting. Mr Salvesen had wanted to reclaim the house. The Graham family had agreed to that. It had also been agreed that they (i.e. the Graham family) would get in touch with the occupants later that day to tell them what was to happen. That had been done by Mr Graham’s mother. Thereafter Mr Graham had not considered Logan House to form part of the lease.
Beyond the date of said meeting there had been some discussion of the question of sheep and hoggs. His understanding had been that Mr Salvesen wished a certain number to be wintered away. In response to that the Grahams had taken 120 hoggs off the places which Mr Salvesen had been concerned about and wintered these away. Asked whether he considered himself obliged to take the hoggs off he replied that he did not – he had just thought he would take the hoggs off “to show willingness”. Productions 20 and 24 were invoices for the away-wintering of said hoggs.
In the period from 11th April 2002 until July 2003 neither Mr Salvesen nor Mr Whale had come to Mr Graham to say that there was a problem with the lease. When, in July 2003, he had heard that there was a problem with the lease he had been shocked. Prior to that he had thought he had a 16 year limited partnership and that a lease would “just follow on”. Before having sight of Mr Rennie’s letter of 21st July 2003 he had thought himself secure in Kirkton for the next 16 years.
In cross-examination, Mr Graham confirmed that his understanding at the close of the meeting of 11th April had been that he had a limited partnership with Mr Salvesen and that they were working towards agreeing a lease. It was also his understanding that he was staying on in the farm because he had that limited partnership with Mr Salvesen. It was his understanding that they were still moving towards a lease.
He was asked whether he could recall discussions at said meeting about the costs of over-wintering hoggs away. He could. He remembered it being discussed that the cost might be as much as £5,000-£6,000 a year. He thought that had been on the basis of wintering away 300 hoggs but it had been hypothetical, “just plucking numbers out of the air really”. He thought the figure of £5,000-£6,000 per annum had come from the other side. Wherever the figure had come from, Mr Graham accepted that Mr Salvesen may have left the meeting believing the cost to be £5,000-£6,000. Kirkton had become an organic farm and organic wintering was harder to find.
On the matter of away wintering, Mr Graham understood that there had been a rent review in 1995. He had seen a document from a Mr Robert Forrest, who had assisted his father at the time of the rent review, in which his father had said that they used to winter 140 hoggs away. Mr Graham was unsure as to the significance of that for the purposes of said rent review. Asked by the Court as to whether Mr Forrest had fixed the rent on the basis that 140 hoggs were being wintered away, Mr Graham could not remember. He thought that it had just been stated that that number of hoggs were being wintered away. Despite having lived on the farm all of his life, and worked on it all of his adult life, he had never known hoggs to be wintered away. Certainly he himself had never wintered hoggs away and doing it in the winter of November 2002 to April 2003 had been “just a token gesture”. He had not repeated the exercise in the winter of 2003-2004 because by that time they had received the letter indicating Mr Salvesen’s refusal to proceed.
He identified production 47 as a copy of the annual accounts for the firm of John Graham & Son for the period to 6th April 2003. A copy of said accounts had been sent to Mr Salvesen by Mr Graham’s mother under cover of the letter which is production 48. Mr Graham understood that had been because Mr Salvesen had been asking for the accounts. He accepted that these accounts showed a payment of rent from the firm of John Graham & Son to Mr Salvesen. Only one such cheque had been drawn on the account of the firm of John Graham & Son, the rest had been drawn from the Kirkton Farm Partnership account. He thought that the accounts just referred to, for the period to 6th April 2003, had been the last set of accounts prepared for the firm of John Graham & Son. He thought that subsequent accounts had been prepared in the name of Kirkton Farm Partnership. He identified production 64 as accounts for that partnership to the year 5 April 2004. These accounts showed income of £10,600 described as an “occupancy charge” and expenditure, described as rent, of the same amount. He accepted, however, that this set of accounts did not show anything in the nature of trading going on. He also accepted that whereas production 64 showed accounts struck at 5th April, the partnership agreement which he had signed required, in terms of Clause 10 thereof, annual accounts to be struck at 28th November each year. Asked whether, on the set of accounts just referred to, Kirkton Farm Partnership appeared to be farming he replied that on the accounts it seemed the partnership had not been but his own understanding had been that the partnership had been farming during that period.
Questioning then turned to examining the feasibility of Mr Graham’s operation at Kirkton on the basis of things as shown in the accounts to 6th April 2003 (production 47) but with the super-imposed hypothesis of having to pay something of the order of £5,000 for the away wintering of hoggs. He accepted that, on that hypothesis, he would be making a loss and not a profit. He denied, however, that that was the basis for Mr Drysdale refusing Mr Rennie’s revisal to the effect that the rent had been fixed on the basis of stock being over-wintered away. He denied that in his, or his team’s, negotiations with Mr Salvesen they had been seeking to insist that if 300 hoggs had to be wintered away Mr Salvesen would have to pay some of the cost. He said that it had not been agreed how many hoggs were to be going away. He did not know why the number had jumped from 140 to 300. The whole situation was totally hypothetical. Asked whether there had been discussion as to who was to meet the cost of wintering away, he replied that they (presumably both sides to the negotiations) had intended to have a discussion about it later, sometime after the meeting of 11th April but he thought that it would be himself who would have to meet the cost of over-wintering away. He would have had to discuss why the number was 300 but if it was absolutely insisted that 300 hoggs were to be wintered away he would just have to try to find a way of paying for it. As long as he found a way to get it done he did not see what Mr Salvesen’s problem was. Asked whether he would have contemplated asking Mr Salvesen to reduce the rent, he said that he supposed that that could be put to Mr Salvesen but he did not know if Mr Salvesen would agree to it. Hogg wintering was just something which was to have been discussed later on. To his knowledge the hoggs had never been wintered away before but if it were to be insisted upon he would have done it. Asked whether he would have been happy paying the full rental plus the cost of away wintering hoggs he said that he did not think anyone would have been happy about that but he would have done it in order to stay at Kirkton Farm. He was confident that he would have found a way of doing it and paying for it. As long as he was paying the rent, doing repairs and generally maintaining things as they were, he did not see why Mr Salvesen should be concerned about how he, Mr Graham, was living. As to the possibility of bankruptcy, he had come through the foot and mouth crisis and was still farming.
In re-examination Mr Graham was asked what his understanding had been about the sheep as at 11th April; how outstanding disagreements on the sheep were to be resolved if there was failure to agree at the intended subsequent meeting. He replied that the intention had been to have a meeting later on. Failing agreement at such a meeting these matters were to be decided by an arbiter.
So far as the accounts were concerned he said that the book-keeping was done by his sister and his mother. It was his mother who liaised with the accountants who prepared the annual accounts. He did not know why the accounts had been drawn up in the way they had been.
He confirmed that when he left the April meeting the only matter outstanding had been the over-wintering of hoggs. The intention had been to have another meeting. Everything else had been agreed. There had been no other meeting. In that situation outstanding matters were to be decided by an arbiter. At the end of the April meeting he had considered himself safe in Kirkton Farm for 16 years. He had been in no doubt about that. Asked by the Court how he would describe the atmosphere at the meeting, he replied that towards the end of the meeting he thought everyone was quite satisfied and they had got up and shaken hands. He had thought “everyone was fine”. The meeting had been quite friendly.
Mr Drysdale explained how he had become involved in matters on behalf of the respondent in place of Messrs Connor Malcolm & Co who were not specialists in agricultural law. It had been he who had served the counter-notice to the notice to quit. He explained that, notwithstanding service of the notice to quit, the estate’s position then had been that they had no intention of removing the Graham family from Kirkton but that they required a new arrangement to be entered into for their staying on. Originally contract farming had been discussed but after service of the notice to quit, discussion had turned to a limited partnership agreement. The draft documentation comprised in productions 7(a), (b) and (c) had been produced by Donald Rennie. Mr Drysdale’s feeling was that if they (i.e. he and the Graham family) had agreed to everything as set out in that documentation that would have been an end of the matter, a concluded deal would have existed. However, some revisal had been necessary.
Much of Mr Drysdale’s evidence involved going through the detail of the successive revisals and on-going negotiations. It is not necessary to set out that evidence here.
At the meeting of 11th April Mr Drysdale’s letter to Mr Rennie (production 8) had, effectively, formed the agenda. He had taken notes of the discussion at the meeting. A limited partnership for a period of 16 years backdated to November 2001 had been agreed. There had been no issue regarding the rent. The limited partnership was to be the tenant. The holding was to be the farm as originally tenanted together with additional grazings on an area of land let by the estate from the Ministry of Defence (the “Capelaw Grazings”) but with the exclusion of Logan House. The duration of the lease was to be one year. Although that was so, the lease was to be linked to the 16 year partnership. There had been discussion at the meeting of a sheep management agreement. There was to have been a separate agreement dealing with that. It did not have to be agreed before the lease was finalised. It was a separate issue. At the end of the meeting he had thought that he had a concluded agreement on the lease. There was concluded agreement on the cardinal points of the lease - parties, subjects, rent and duration. His understanding had been that matters not discussed at the meeting had effectively been agreed.
At this point the Court asked Mr Drysdale whether, as they left the meeting of 11th April, he had considered his client bound by what had been agreed. As we have noted him, he replied “I would have found it very difficult to advise him that he could walk away from it”.
On sheep management there had been the foresaid “agreement to agree”. Asked whether the sheep management agreement had been tied to rent he said that there had been no discussion about over-wintering. Mr Graham had been of the view that over-wintering had not taken place previously. Mr Drysdale did not think that the subject had been linked to the rent payable.
The limit of 1/20th on possible resumption from the lease had also been agreed at the meeting. There was to be an agreement to agree on the balance between sheep numbers and grouse. That was to be the subject of a separate agreement. He was quite clear on that. The agreement to agree was something quite separate from the concluded agreement on a lease.
Logan House had also been discussed. The Grahams were to tell the occupants what was going to happen.
It had been agreed that the tup shed and culvert would have to be repaired. He denied a suggestion that the carrying out of these repairs was completely unrelated to the negotiations on the new lease. He was clear that the repairs were to be carried out as part of the agreement relating to the new limited partnership arrangement.
Asked whether at the end of the meeting there was a concluded agreement or not he replied that he believed that, subject to what had been agreed at the meeting being accurately reflected in the documentation, the deal was done.
So far as any inter-play between over-wintering of hoggs away and rent was concerned, Mr Drysdale thought that that question would arise more in the context of subsequent reviews of rent. The opening rent under the new lease had been agreed. There had been agreement to enter into a management agreement. If the terms of that agreement could not themselves be agreed that too would be a matter for arbitration. Any financial implications could also be dealt with, failing agreement, by arbitration. Until that happened everyone knew what the rent was to be.
Mr Drysdale was then taken through the course of correspondence and revisals which had followed the meeting of 11th April. In the course of these the provision relating to the over-wintering of hoggs had been moved from Clause Eleventh of the draft lease to Clause Twelfth. Clause Twelfth was the “agreement to agree” clause. The post-meeting revisals were to reflect what had been agreed at the meeting. In due course this revisal procedure came to the stage where the only matter being revised was the reference to the over-wintering of hoggs in Clause Twelfth. In that regard Mr Drysdale was referred to production 17, a letter from him to Donald Rennie dated 2nd August 2002. With reference to that letter and the revisal therein referred to, Mr Drysdale explained that the reference to the rent being fixed on the basis of the away-wintering of hoggs was not acceptable to him because he thought it might be used as a factor in future rent reviews. The next Mr Drysdale had heard from Mr Rennie had been the following July. In the interim he had had no reason to believe that the revisal he had proposed was unacceptable to the other side. Asked by the Court whether there had been a conscious decision to put matters on hold, Mr Drysdale explained that the papers, at this point, were all in Mr Rennie’s hands, that he had had no contact from Mr Rennie to say that his revisal was unacceptable and that he was therefore assuming that it was to be agreed and that matters would be finalised in due course. In the meantime his client would be safe under the existing lease. Asked by Sir Crispin how, if that were so, it squared with his earlier evidence, Mr Drysdale explained that he had thought the parties had a deal agreed but that at this stage it was in the landlord’s hands to complete matters. He was aware that the two positions (the new lease being in existence or the old lease continuing) were distinct but he had had to take an overall view.
Asked in what capacity he had been advising Douglas Graham at this point, Mr Drysdale replied that he had been advising him as an individual and as the general partner in the limited partnership. Asked whether he had always thought of matters in these terms he confirmed that he had. Asked who he thought was in occupation of the farm at this stage he replied that since they had a limited partnership agreement backdated to November 2001 it was the limited partnership. Asked what his view was of the situation, he said that he thought a deal had been negotiated to allow the family to occupy the farm for 16 years from November 2001. Following the meeting of April 2002 that had been an agreed deal. Asked what effect he thought that had on the old lease, he replied that the fact of the parties entering into a new arrangement of itself terminated the previous one. Production 18, the letter of 21st July 2003, had been the first intimation he had received that Mr Salvesen was not proceeding with the new lease. In the period from 2nd August 2002 to 21st July 2003, however, he had tried to get hold of Mr Rennie a couple of times on the telephone without success. When he had received said letter he had not been of the view that Mr Salvesen could walk away from the new lease.
In cross-examination Mr Drysdale accepted that there were a number of things about the situation as it stood in 2002 (post April) and 2003 which were inconsistent with the view that the limited partnership was in occupation of and operating the farm. Thus he accepted that if, following 11th April 2002, the tenant had become Kirkton Farm Partnership that ought to have involved a transfer of the sheep stock to the partnership. Mr Drysdale did not know whether that had happened but there was certainly no trace of it in the items of documentation put to him such as production 64, being accounts for the Kirkton Farm Partnership. Also productions 50 and 54, cheques tendered by way of rent, had been drawn on the account of John Graham & Son. Similarly the invoices for winter grazing, productions 20 and 24, were made out to J Graham & Son. Furthermore the bank account relating to Kirkton Farm Partnership, of which production 66 is a statement, appeared to have been opened on 6th March 2003. Against that background it was put to Mr Drysdale that Mr Graham did not appear to have been fulfilling the obligations imposed on him as general partner in terms of Clause 7 of the Limited Partnership Agreement. Mr Drysdale agreed that that was probably so.
As to the essentials of a lease having been agreed on 11th April, Mr Drysdale was questioned as to whether there had been agreement as to the extent of the holding. He said that parties had been talking of the farm as under the 1974 lease subject to the removal of Logan House. He was asked whether the acreage stated in the lease was inclusive or exclusive of the Capelaw grazings. His understanding was that it was inclusive. Clause Fourth had been included in the lease because Capelaw was in effect a sub-let which may not always be available. It was pointed out to him that the area of Kirkton Farm was put at 859.14 hectares in production 73 whereas the area shown on the IACS plan was 1,030.48 hectares. He accepted that that was a significant difference. It was pointed out that in production 6 Mr Rennie had stated that Mr Salvesen did not know the precise extent of the holding. Mr Drysdale, however, had taken that to be a reference to the hectarage rather than to the boundaries of the holding. There was further, much more detailed, questioning as to whether parties had agreed on the extent of the subjects to be let but it is not necessary to go into that detail here.
Mr Kermack then turned to the question of whether rent had been agreed as at 11th April. Mr Drysdale could not recollect discussion on rental figures at that meeting but the figures had been in the draft documentation produced prior to the meeting and had been accepted. There had, therefore, been no need for a discussion on rent at the meeting. Asked whether there had been discussion of anything which might have a bearing on rent, Mr Drysdale said that there had been discussion of away wintering costs but he had thought that these would be dealt with in the agreement to agree. That was, he said, a reference to what had subsequently become Clause Twelfth of the draft lease. The management agreement itself was to form a separate document from the lease. It was anticipated that it would change from time to time over the 16 year period. Mr Drysdale thought that had Mr Rennie come back to him robustly rejecting the revisal he had made under cover of his letter of 2nd August 2002 that rejection would probably have been accepted.
Prior to resumption of Mr Drysdale in cross-examination on the morning of 19th January, Sir Crispin moved us to allow certain productions to be received late. It had been realised that there were, after all, some entries in Mr Drysdale’s file recording some contact between himself and Mr Rennie during the period from 2nd August 2002 to 21st July 2003. After hearing Mr Kermack in answer, we allowed these productions to be received and marked numbers 75-85, subject to Mr Kermack’s right to recall his witnesses to speak to any new matter arising and any consequences there might be in expenses.
The productions lodged included the following. Number 80 was an e-mail from Mr Rennie to Mr Drysdale on 6th August 2002 saying that he would take instructions on the away wintering of hoggs and asking for production of accounts and an IACS form previously asked for. Number 81 was a letter from Mr Drysdale to Mr Rennie dated 13th November 2002 suggesting that, since the limited partnership agreement was in place, Mr Salvesen could now safely accept rent from the partnership. That was followed up with an e-mail from Mr Drysdale to Mr Rennie attaching a copy of the letter of 13th November, calling for resolution of matters to do with the rent and pointing out that Mr Rennie still held the lease (production 82). That was followed in turn by a Business Attendance entry noting part of a conversation between these two gentlemen on 20th February 2003. That conversation had had to do principally with other matters but, in relation to the present matter, it recorded that Mr Rennie had explained that his client had “taken cold feet given the legislation passing through Parliament” and Mr Drysdale’s response that, if Mr Salvesen had signed the limited partnership agreement, “he had progressed too far to change his mind” (production 83). Production 84 was a letter from Mr Drysdale to Mr Rennie dated 20th May 2003 reiterating that, the limited partnership having been signed and the contribution of £1,000 having been paid by Mr Salvesen, it was Mr Drysdale’s view that Mr Salvesen could not now depart from the arrangement. Production 85 was simply a single sentence reminder from Mr Drysdale to Mr Rennie dated 13th June 2003 requesting a response. The response, when it came, had taken the form of the letter of 21st July 2003 stating that Mr Salvesen was not prepared to proceed with the lease.
Cross-examination having been resumed after Sir Crispin had taken Mr Drysdale through the additional productions, Mr Drysdale was pressed as to how he could say that parties were agreed on Clause Twelfth of the draft lease following the meeting of 11th April. He said that he had taken the view that parties were agreed on most things and that there was just this one clause which may stay in or may be removed. Asked whether the management agreement was to be an essential part of the whole package, Mr Drysdale said that the 11th April position had been that there was going to be an agreement to agree. Clause Twelfth was part of the package. They would not have been putting in a clause for a management agreement if it was not to be part of the deal.
On re-examination of Mr Drysdale, Sir Crispin went over with him again the extent of the management agreement and what could be referred to arbitration under it. Mr Drysdale said that it had been agreed that there would be a management agreement taking account of the landlord’s and tenant’s interests, including sheep numbers and away wintering and looking at the overall improvement of the moor for the sporting interest. The intention had been that parties look at schemes for mutual benefit. Asked what was to be put to arbitration in the event of failure to agree, Mr Drysdale said that arbitration could be used to sort out what the management agreement should be so that it was not unfair to either party. Asked whether there was to be any restriction of what was put to the arbiter, he said that the management agreement had to relate to ecology and the profitability of the farm, taking both interests into account. Asked whether, at the end of the meeting of 11th April, Clause Twelfth was open for negotiation and discussion he said that there would clearly have to be some negotiation and discussion. What could be put to arbitration included the fixing of the text of the management agreement. Asked whether he was quite certain that parties had agreed to agree a management agreement and that, failing agreement, matters were to be referred to arbitration he confirmed that that was so.
In answer to the Court Mr Drysdale said that he thought there had been discussion at the meeting of the relationship between rent and away wintering of hoggs. Whether or not the management agreement might or might not impact upon rent there was agreement as to what the commencing rent was to be. At the 11th April meeting both parties had been willing to accept the risk of what the arbiter might determine. Parties had not been as specific as deciding whether any financial adjustment would take the form of an adjustment of rent or that of a separate payment under the management agreement. Hopefully parties acting reasonably could agree as to that.
Finally, Mr Drysdale was asked about his understanding as to the basis upon which the farm was occupied for the period 15th July 2002 to 21st July 2003. His understanding was that, the limited partnership now being in existence, it was the tenant of the holding. So far as he was aware, that was also the understanding of his client, Mr Graham. With reference to the various annual accounts produced, Mr Drysdale was asked how often in his experience limited partnership arrangements were operated absolutely correctly. He said that one always tried to do so but very often the farm carried on doing the accounts in the way they had always been done.
Mr Whale was factor to Mr Salvesen. He had attended the meeting of 11th April 2002. He had not taken minutes of that meeting but had made a few notes of things concerning himself such as repairs. He confirmed that there had been discussion about repair to the roof of the tup shed. It had been damaged in a storm and repairs were being attended to through an insurance claim. It was the insurance company which had paid for the repairs. Similarly there had been discussion at the meeting of the need to repair the culvert under the road leading to Kirkton Farm. Had it not been repaired it would have collapsed. It had been in a very dangerous state. This had been paid for by Mr Salvesen. It had also been Mr Salvesen who had given instructions for the work to be carried out.
Most of the rest of Mr Whale’s evidence-in-chief had to do with preparing a draft plan of the subjects and resolving discrepancies between the IACS plan of the farm and the previous lease plan. He also confirmed that on 17th November 2003 he had attended at Logan House, the purpose of his visit having been to draw up a Short Tenancy agreement with the occupants.
In cross-examination, with reference to the tup shed, Mr Whale confirmed that he was not sure whether it had been damaged as a result of a storm or snowfall. Nor could he remember when, in relation to the meeting of April 2002, the damage had taken place. Similarly he could not remember when the matter of the collapsed culvert had been brought to his attention. He accepted that discussion of repairs to the culvert had come up in the context of the negotiations for a new lease. However, he said, the work would have had to be done in any event.
Mr Whale also recollected discussion about Logan House at said meeting. It was to be given up when the new lease was entered in to. He confirmed that it had been agreed that the Graham family would tell the occupants.
Asked what his understanding of the arrangement after the meeting of April 2002 had been he said that he gathered that a limited partnership was going to be entered into. Some terms had been agreed but numerous others needed to be looked into and remained to be agreed or else had not been discussed. As to the 1974 lease, his understanding was that it had been terminated. That was his understanding from a combination of Mr Salvesen and Mr Rennie. He did not accept that that was on the basis of a new lease having been entered in to. He just thought that the old lease had been terminated.
So far as the extent of the subjects was concerned, he confirmed that both he and Mr Graham knew what was being occupied and what, therefore, was to be let. On 11th April 2002, therefore, there had been no misunderstanding or dispute as to what was currently occupied or what was to be let.
Mr Whale confirmed that, following the meeting of April 2002, cheques had been sent tendering rent. He identified production 52 as a cheque drawn on the Kirkton Farm Partnership account which had been received at his office. He had assumed that it was in respect of rent. In answer to questioning from the Court, Mr Whale said that he had not been informed of any change as to the arrangement for rent for Kirkton Farm. He had, however, been instructed not to accept the cheques sent in.
The issues in the case can be summarized as follows;-
The respondent’s third plea-in-law is to the effect that in the circumstances the applicant is personally barred from maintaining that there is no new lease but the argument as presented was rather to the effect that the applicant’s acts and omissions following 11th April 2002 were such that consent to the new contract could be inferred from them, in the absence of express consent in the form of a signed lease. The argument was more that they inferred consent rather than barred the applicant from saying that there was no new lease.
Mr Kermack helpfully provided us with a verbatim transcript of his submissions. What follows is a summary thereof.
He began by explaining why the matter had been brought to this Court rather than taken to arbitration as a result of service of the respondent’s counter-notice under section 23(2) of the unamended 1991 Act. Mr Kermack had had a preliminary point to the effect that said counter-notice made no reference to arbitration and did not, therefore, on the face of it, require arbitration. We did not understand this point to be insisted upon however.
Mr Kermack’s principal submission on this point was that the transitional provisions which implemented most of the Agricultural Holdings (Scotland) Act 2003 (‘the 2003 Act’) had, with effect from 27th November 2003, made the application appropriate in this Court. These transitional provisions are contained in the Agricultural Holdings (Scotland) Act 2003 (Commencement Number 3, Transitional and Savings Provisions) Order 2003 (SI 2003/548). In terms of paragraph 7 of the Schedule thereto, where an arbiter had already been appointed but had not issued a final award or where an application for the appointment of an arbiter had been made before 27th November 2003 these cases were to continue to be determined as if the 2003 Act had not come into force. In all other circumstances the Land Court was to have jurisdiction under the 2003 Act.
In the present case discussions and negotiations towards a possible new agreement had been ongoing between the parties until as late as 21st July 2003. It was only four months later that the relevant provisions of the 2003 Act had come into force. It was therefore appropriate to bring these matters before this Court by way of the present application. There was, in any event, no time limit covering the matter in terms of the relevant legislation, notwithstanding what had been said obiter by the Inner House in Fane v Murray.
Turning to more substantive matters, Mr Kermack identified possible outcomes from this application. There were, he said, only two of these. Either the Court would find that the notice to quit was effective in terminating the 1974 lease, in which case the applicant would be entitled to an Order for removal, or the Court would find that the 1974 lease had been superseded by a new tenancy in favour of the firm of Kirkton Farm. A third possibility, that the notice to quit under the 1974 lease was invalid and that there had not been sufficient agreement to constitute a new tenancy existed, said Mr Kermack, “only as an intellectual construct, a formal possibility”. That was on the basis of the evidence of Mr Drysdale and the respondent, both of whom, submitted Mr Kermack, had believed that the occupation of the holding after 11th April 2002 had been in terms of the allegedly completed limited partnership agreement and not on the basis of the 1974 lease. In that situation it would not be open to the Court to find that in 1974 a tenancy continued to exist. Where parties believed their contract to be at an end, there was no contract.
Turning to the first of these possible outcomes, Mr Kermack addressed us on the validity and effect of the notice to quit.
Notwithstanding that the 1974 lease had referred to John Graham Senior and John Graham Junior as being the partners of the John Graham & Son, it appeared that the tenancy had always been treated as a joint tenancy, more properly a tenancy in common (Gill, paragraph 3.12). That meant that each held their own pro indiviso share. On the death of John Graham Junior his share had passed to the respondent. When John Graham Senior had died notice had been given that his share had also been acquired by the respondent with effect from 24th April 2001. The respondent was not a near relative successor of his grandfather in terms of paragraph 1 of part 3 of Schedule 2 to the Agricultural Holdings (Scotland) Act (‘the 1991 Act’). This had happened by virtue of succession in terms of section 16 of the Succession (Scotland) Act 1964 (‘the 1964 Act’). Section 25(1)(a) of the 1991 Act therefore applied. Section 22(2)(g) of that Act dis-applied the requirement for Land Court consent to a notice to quit served under section 25(1) where that notice complied with the requirements of section 25(2)(a), (b) and (d). The question then became whether notice to quit had duly been given to the respondent as “tenant of an agricultural holding who acquired right to the lease of the holding” under section 16 of the 1964 Act. Section 85(1) of the 1991 Act defined the tenant as
“the holder of land under a lease of an agricultural holding and includes the executor, assignee, legatee, disponee, guardian, tutor, curator bonis or permanent or interim trustee (within the meaning of the Bankruptcy (Scotland) Act 1985) of a tenant”.
In Mr Kermack’s submission that definition was wide enough to include a joint tenant, as a joint tenant was a holder of land under a lease of an agricultural holding. If he were wrong in that, Mr Kermack relied on the proviso to section 85(1) which said that the foregoing definition applied “unless the context otherwise requires”. There was at least one example in the 1991 Act of the term “tenant” meaning the interest of a joint tenant. That was section 3 of the Act which provided that
“the tenancy of an agricultural holding shall not come to an end on the termination of the stipulated endurance of the lease, but shall be continued in force by tacit relocation for another year and thereafter from year to year, unless notice to quit has been given by the landlord or notice of intention to quit has been given by the tenant”.
In Smith v Grayton Estates Limited & Another one of two joint tenants had given notice of intention to quit. The landlord had accepted the notice and contended that the tenancy had thereby come to an end. The other joint tenant disputed that that was the effect of the notice. The Inner House had held that both tenants were bound to remove. Mr Kermack referred in particular to the analysis of Lord President Clyde at page 41ff.
Lloyd v Saddler was an English case in which one of two joint tenants had sought protection under the Rent Act 1968. The Court of Appeal had held that such a tenant, on his own, was a protected tenant. Mr Kermack relied particularly on a passage from Megaw LJ at page 783 in which His Lordship had concluded that
“It appears to be decided that, where an Act of Parliament refers to ‘the tenant’ and the letting is to two or more persons jointly, it is permissible for the Court to hold, if so to do makes better sense of the relevant statutory provision in its particular context, that one of those persons, by himself, may for certain purposes be treated as being ‘the tenant’”.
In Mr Kermack’s submission it made better sense for the Court here to hold that the term “tenant” applied to one of two joint tenants.
Howson v Buxton was another English case, this time relating to an agricultural holding. Two people had come to be joint tenants. On the termination of the tenancy, one of the joint tenants had given notice of intention to claim compensation. He had been the person who had funded the improvements in question. His entitlement to pursue such a claim on his own had been upheld by the Court of Appeal. That had been on the approach that in construing an Act of Parliament one was entitled to have regard to the mischief which the Act was intended to remedy and to construe the words in such a way as suppressed the mischief and advanced the remedy (Scrutton LJ at page 436). The same approach could be taken with the 1991 Act. That Act made a distinction between near relative successors and non-near relative successors. A notice to quit served on a near relative successor could operate only with the consent of the Land Court, whereas a notice to quit served on a non near relative successor required no such consent. Where the tenant was a single individual who had acquired the tenancy as a non-near relative successor, therefore, a notice to quit could be served and the tenancy brought to an end in reliance on section 22(1)(g) of the 1991 Act. Paraphrasing Mr Kermack, it would be odd if, where there was a joint tenancy with one of the tenants having acquired right as a non-near relative successor, the tenancy could not also be terminated in this way.
In Mr Kermack’s submission, the effect of a notice to quit in respect of a share of a tenancy was to terminate the entire tenancy in a situation where the lease was continuing under tacit relocation (Gill, paragraph 14.18).
In developing this part of his argument Mr Kermack founded strongly on the case of Coats v Logan and in particular on a lengthy passage from the opinion of Lord Ross (as he then was) at page 225ff. In that case one of several joint tenants had died, bequeathing his interests to one of the other joint tenants. The bequest had not been timeously intimated, however, and the executors had subsequently sought to transfer the interest as intestate estate. The landlord had sought declarator that the lease was at an end. The case had been decided in favour of the landlord on the basis that the interest of one of the original joint tenants had, at some prior stage, lapsed and that all of the consents necessary for tacit relocation were thus no longer available. Relying on that case, the core of Mr Kermack’s submission on this branch of his argument was that the notice to quit had terminated the interest in the lease which had been held by John Graham Senior and that, once that interest had been terminated, there were thereafter insufficient implied consents for the operation of tacit relocation. The result was that the entire tenancy fell.
The fact that the person to whom the deceased’s interest in the tenancy was being transferred was the other joint tenant made no difference. Otherwise, in the situation where two different interests came into the hands of the one tenant, one of these interests being that of a non-near relative successor, the effect would be to create an implied survivorship destination where, contractually, there had been none. Survivorship destinations were a matter of contract between the landlord and joint tenants. It would be odd in the extreme if an implied survivorship destination could be created at the option of the joint tenants without reference to the landlord. Mr Kermack referred to Gill at paragraph 14.18:-
“If the interests of one joint tenant is terminated after the contractual term, for example, through the failure of the executor, if there is no destination to survivors, to transfer it under section 16 of the 1964 Act, there will be a deficiency in the necessary consents and the entire operation of further relocation in respect of the survivors will be excluded.” [Mr Kermack’s emphasis]
Reference was also made to the following passage from Lord President Clyde in Smith v Grayton Estates (at page 41):-
“So far as the first of these possible consequences is concerned, namely, that this Notice terminated the tenancy so far as the one tenant was concerned but left the other as sole tenant, although this view was pressed both before the arbiter and before the sheriff, it was ultimately given up by the appellant before us as it is clearly an impossible contention”.
The present case involved the same impossible contention.
Mr Kermack then turned to the second of the two possible outcomes he had identified at the outset of his submissions. It was at this point that he intimated his objection to much of the evidence led in the course of the proof. We have dealt with that objection above and now go on to summarise Mr Kermack’s substantive submissions under this head.
In essence the applicant’s position was that, while attempts had been made to negotiate a new lease in favour of a limited partnership, these negotiations had foundered upon the question of the cost of over wintering away of sheep. That was, in effect, the position of both applicant and respondent on their evidence. The only witness who had spoken to the existence of an agreement as to a lease was Mr Drysdale. However, Mr Drysdale could not be said to be a disinterested bystander with an objective view of negotiations. He was an adviser to one of the parties. He was “one of the respondent’s team”.
Most tellingly, said Mr Kermack, Mr Drysdale had given evidence that he had not chased matters on during the period of delay in negotiations culminating in the termination of the negotiations by the applicant because he, Mr Drysdale, hoped that the situation might be exploited so as to revive the 1974 lease. This was entirely contradictory to his evidence that the basis of occupation at that time was a lease agreed on 11th April 2002. It struck Mr Kermack that Mr Drysdale had been seeking to present an analysis which he had prepared after the event in order to paint a picture of agreement.
If there was a new lease then it was a lease to a limited partnership commencing on 28th November 2001. The Notice to Quit under the 1974 lease did not take effect until 28th November 2002. In that situation it was an impossibility for the applicant to grant a new lease and maintain a new tenant (the limited partnership) in possession whilst already obliged to maintain another person (the respondent as an individual) in possession under the previous lease. There could not be implied renunciation of the earlier tenancy since the tenants under the respective leases were, in law, different persons. For implied renunciation to operate the parties under the new lease must be the same as under the old (Gill paragraph 14.02). For renunciation to be implied, in the absence of a formal agreement to renounce, the facts must be such as plainly imply that renunciation was the party’s “final and deliberate resolution on the subject”. (Knapdale (nominees) Ltd v Donald per Lord Kingarth at page 623, paragraph , quoting Hume, Lectures, Volume 4 pp 115-116).
It was, in Mr Kermack’s submissions, a flawed analysis of the situation to view the meeting of 11th April 2002 in isolation. It was part of a process which had begun with the exchange of e-mails and draft documents between Mr Rennie and Mr Drysdale in January of that year. The meeting of 11th April was in the nature of a discussion of these drafts. Both before and after that meeting the parties were making changes to the draft documentation. Thus there had been changes and counter changes proposed to the documentation after the meeting but there was never a protest that what the other party was doing was in breach of what had been agreed. Parties had not acted as if they were in agreement on the essentials.
It was telling that as soon as the terms of the limited partnership agreement had been agreed the relevant document had been signed by the partners. The draft lease, in contrast, had never been signed. That was because its terms had never been agreed.
Mr Kermack founded strongly on the case of W S Karoulias SA v The Drambuie Liqueur Co Ltd. On the basis of Lord Clarke’s discussion of matters, including what had been said by Lord MacKay of Clashfern in Comex Holder Diving Ltd v Colne Fishing Co Ltd, at page 34, what one had to ask was whether the parties had assented to be bound in law. The parties here had not reached finality in their agreement. Reference was also made to the case of Gray v Edinburgh University and in particular to the opinion of Lord Justice Clerk Thomson.
In the present case it had been the disagreement over the “agreement to agree” the management plan which had prevented finalisation of the draft lease. It had been at the point of revisal and counter-revisal on that matter that negotiations had broken down. At the meeting of 11th April the respondent had led the applicant to believe that there would be a cost of £5,000 to £6,000 involved in the away wintering of sheep. In revisals after 11th April Mr Drysdale had wanted to put it into the hands of the arbiter to decide that the landlord would pay these costs. That would have had the effect of reducing the landlord’s income from the lease. The purpose of Mr Rennie’s counter-revisal had been to increase the likelihood that the tenant would bear most of the cost of over wintering. Mr Drysdale had not liked that direct correlation being drawn between over wintering costs and rent. Mr Drysdale had represented Clause Twelfth of the draft lease as being an agreement to agree. In reality it was far more than that. It was the instruction to be given to the arbiter. The dispute was as to the powers to be given to the arbiter. The respondent had sought to widen those powers whilst the applicant had sought to narrow them and agreement had never been reached. What it amounted to was a failure to reach a meeting of minds on what rent was to be payable under the new lease. There was also doubt as to the precise extent of the new holding. These matters were sufficient to prevent agreement to a new tenancy.
For all of the foregoing reasons the Court should find that there had been no agreement between the applicant and the respondent which would constitute a replacement lease. The Court should also find that the notice to quit was valid and effective to terminate the 1974 tenancy. Accordingly the Court should grant the Orders craved.
In the event, however, that we were to find that a new lease had been agreed we should make a finding that the words “regard being had to the fact that the rent payable was fixed on the basis that stock are wintered away” be included in Clause Twelfth. This was the revisal by Mr Rennie which had been deleted by Mr Drysdale.
We should reserve the question of expenses.
Sir Crispin also let us have a written version of his submission, although in more skeletal form. He invited us to refuse the application and assoilzie the respondent. This would involve the Court in finding one of three things established:-
So far as the evidence was concerned, we should treat Mr Salvesen’s evidence, where it differed from that of Mr Drysdale or Mr Graham, with caution. His claim that there never was a concluded agreement was inconsistent with his actions after the meeting of 11th April 2002 which were all suggestive of acceptance of there being a concluded agreement. We might also have regard to a possible motive for a change of heart, referred to in the file note of a telephone conversation between Mr Rennie and Mr Drysdale in which Mr Drysdale had noted “Mr Rennie explained that his client had taken cold feet given the legislation passing through Parliament”. It was also notable that Mr Rennie himself had not been called as a witness.
Sir Crispin went on to break down his primary submission, that there was a concluded new lease, into various parts. Firstly, he invited us to find that a concluded agreement anent a new lease had been reached at the meeting of 11th April 2002. That included an agreement to agree the management agreement because any issues arising from that agreement to agree were to be remitted to arbitration. The lease was to be from year to year so did not require to be proved by writing (Morrison-Lowe v Paterson, per Lord Keith of Kinkel at page 78).
Were we unable to hold that a concluded agreement had been reached at the meeting of 11th April 2002, agreement could be inferred from the applicant’s silence for a period of 9½ months after the final revisals had been sent to his solicitor and the limited partnership had taken entry to the subjects. The particular facts from which such an inference could be drawn were (a) the lack of objection from the applicant to the minor revisal suggested on behalf of the respondent on 2nd August 2002; (b) the occupation of the farm and (c) that the applicant had taken no steps in relation to terminating the 1974 lease, such as the appointment of an arbiter to resolve issues arising from the notice to quit.
Another possibility was that we could hold that since at least the cardinal elements of a lease had been agreed and that had been followed by the tenant being allowed to take entry to the subjects, a valid lease existed albeit that some of its clauses remained to be agreed and finalised. The cardinal elements of a lease, namely (1) parties, (2) holding, (3) rent, and (4) duration, were not in dispute. The only thing which might be said not to have been agreed in the present case was the “agreement to agree” a management agreement. That had been left over at the meeting of 11th April 2002, but there was nothing in the lease itself which remained to be agreed. Were we of the view that there were clauses still to be finalised after said meeting, the terms of the new lease would be those which had been agreed and the clauses still to be finalised would not become binding on the parties until agreed.
In all of the foregoing situations a concluded agreement could exist without a concluded written lease. Sir Crispin then went on to rehearse the evidence upon which he founded to show that a concluded agreement had been arrived at by one or other of the foregoing routes. It is not necessary to narrate it here. So far as the relevant law was concerned, that one could have a concluded agreement where any disagreement could be resolved by arbitration was supported by McCall’s Entertainments (Ayr) Ltd v South Ayrshire Council (No. 1) and City of Aberdeen Council v Clark. In support of the submission that agreement on the part of the landlord could be inferred from his silence, reference was made to Ballantine v Stevenson, Gordon Adams & Partners v Jessop, Stonehaven Unionist Club v Blacklaws and Morrison-Lowe v Paterson (Lord Fraser of Tullybelton at page 75 in relation to rei interventus). On the basis of these authorities it was submitted that it could be inferred from the silence of Mr Salvesen and his agents from 2nd August 2002 and from the actings of the parties after that date that there was full agreement in terms of the draft lease as finally revised by Mr Drysdale.
In support of the argument that there was a binding agreement in relation to at least the cardinal elements of the lease, reference was made to Wight v Newton. Particular emphasis was laid on the following passage from the opinion of Lord Salvesen at page 775:-
“It is quite well settled that, if the essentials of a lease have been agreed on and possession has followed – if parties cannot agree on the clauses to be inserted in the formal lease the Court will remit the adjustment to a man of business to settle the usual and necessary clauses; and it does not appear to me to make the matter worse for the tenant that all these clauses, except one, have been made matter of express agreement before possession was taken.”
The case of Korner v Shennan made clear that a tenant can enter possession under a verbal lease and if a formal lease is agreed on later which contains agreement on new matters, the agreement on the new matters is binding only from the date of the formal lease. Reference was made to the opinion of Lord Jamieson, including the following passage at page 294, where, after surveying the relevant authorities, his Lordship goes on to say:-
“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 possession 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 neither 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”.
In that case, also, their Lordships had referred to a passage from Rankine on Leases (3rd edition, page 338,) in the following terms:-
“It frequently happens that, on account of entry having been taken, or possession retained, in consequence of a verbal agreement, the lease is dated later than the term of entry. It is then usual in the lease to declare that the entry was so taken ‘notwithstanding the date hereof’”.
That passage covered not only possession being taken following upon an informal agreement but possession being retained under such an agreement. Reference was also made to the cases of Bathie v Lord Wharncliffe and Sutherland’s Trustees v Miller’s Trustees (particularly to passages from Lord Young at page 13 and Lord Rutherford-Clark at page 14).
Again Sir Crispin set out the evidence upon which he relied. That evidence included (a) that the limited partnership had been created and signed by both partners, and (b) that Mr Salvesen had sent a cheque for £1,000 in completion of said agreement. That had been done by letter dated 22nd July 2002. The only inference which could be drawn from that was that Mr Salvesen expected the limited partnership to take possession of the farm, which was what Mr Graham had said he understood the position to be. It was clear, therefore, that Mr Salvesen had accepted that the limited partnership was in possession of the holding at least from 22nd July 2002. Moreover it was clear that both parties were acting on the basis that the agreement arrived at at said meeting was being operated. Thus the Graham family had told the occupiers of Logan House that the house was being removed from the lease and that they would have to discuss future arrangements with the estate. The applicant had carried out the agreed works to the tup shed and the culvert under the access road. Mr Graham and Mr Whale had discussed improvement claims. Mr Graham had informed people that the farm was now being operated by a limited partnership. In March 2003 a bank account had been opened by Mr Graham in the name “Kirkton Farm Partnership”. Rent had been tendered from that account. That was known to Mr Salvesen. The farm was being farmed, which involved ongoing expenditure of money. Mr Graham considered that he was farming in his capacity as the general partner under the limited partnership agreement. Hoggs were wintered away. As well as the rent, a payment of £50 due to Mr Salvesen in terms of the limited partnership agreement had been tendered.
As well as things done by Mr Salvesen it was important to note what he had not done. These “inactions” were also attributable to the fact that there was a new lease. They included failure to appoint an arbiter under the old lease and failure to give any intimation that the new lease had not, in fact, been agreed. A parallel was drawn with the case of Sutherland’s Trustees v Miller’s Trustees where a tenant had not given notice of intention to quit because he thought he had a new lease.
As there was continuing occupation by the same natural person and the limited partnership was not a corporeal entity, actual change of possession could not be physically demonstrated in the present case. That was not in any event necessary (Ballantine v Stevenson; Sutherland’s Trustees v Miller’s Trustees; and Bathie v Wharncliffe). It could, however, be inferred from the creation of the limited partnership agreement followed by payment of the landlord’s contribution to the general partner and the other actings of the parties as aforesaid in implement of the lease obligations that the limited partnership had taken possession in the legal sense.
With reference to the fact that the limited partnership may not have been operated properly (in terms of preparation of trading accounts etc), that was not a reason for saying that the limited partnership did not exist and had not taken possession of the holding (Macfarlane v Falfield). Mr Graham may not have done much about operating the limited partnership but that did not mean that the partnership was not in possession in a legal sense. In any event there was nothing in the lease to say that the farm had to be farmed by the limited partnership or that the stock had to be the bona fide property of the tenant. The only requirement was the requirement in Clause Sixth that the buildings be continuously occupied by the general partner. It was therefore quite in order to have the farming operation carried out by someone else, such as a family farming partnership, which was a common way of proceeding. Reference was made to Rankin 3rd edition, pages 234 and 235. Nothing could, therefore, be taken from the fact that the actual farming was being done by the Graham family partnership. Nor could anything be inferred from the fact that the rent was being paid by that partnership, although from 2003 it had been tendered from the limited partnership account. Rent could be paid by anyone on behalf of a tenant (Morrison-Lowe v Paterson per Lord Keith of Kinkel at page 79).
Sir Crispin then addressed the argument that a new lease could not have been granted as there could not have been surrender of the old lease because the occupier under the two leases was not one and the same person. In Sir Crispin’s submission there was no substance in this. Douglas Graham was the person in right of the old lease and was the general partner in the limited partnership which was the tenant under the new lease. Douglas Graham, therefore, was the person entitled to surrender the old lease in favour of a new lease to the limited partnership. By accepting the new lease in favour of the limited partnership Mr Graham could be taken to have surrendered the old lease by implication. Implied renunciation existed where a party took up a new lease (Mackie v Gardner). It also arose, in Sir Crispin’s submission, where a tenant took up a new lease as a general partner under a limited partnership.
In the event that we were to hold that no new limited partnership lease had been agreed, it was submitted that the original lease continued in force and that the applicant had abandoned or waived his right to enforce the notice to quit. The failure of the applicant to respond to the last minor revisal made on 2nd August 2002, if it did not amount to acceptance of the existence of a new lease, meant that he had waived or abandoned his right to enforce the notice to quit. Reference was made to Armia Ltd v Deajan Developments Ltd and Cayzer v Hamilton (No. 2). Waiver was to be inferred here from the facts and circumstances. The relevant facts and circumstances were (a) that the notice to quit was due to take effect on 28th November 2002, (b) no attempt had been made by the applicant to get an arbiter appointed, (c) there was no indication after 28th November 2002 that the right of occupation was at an end and that the respondent was to remove, and (d) the tenant had been allowed to remain in occupation and to continue farming, with all the expense that that entailed, without any suggestion that he had no continuing right to do so.
After August 2002 the first indication that everything was not well was the return of the rent cheque on 16th May 2003 although there had been the passing comment by Mr Rennie in his telephone conversation with Mr Drysdale of February 2002 to the effect that his client had taken “cold feet”. That virtual silence from 2nd August 2002 to 16th May 2003, coupled with the other factors mentioned above, was sufficient to infer waiver of the right to enforce the notice to quit. The Court could also have regard to the period from July 2003 to the raising of the present application, in December 2004, during which nothing had been done to enforce the notice to quit. The applicant had certainly lost the right to enforce the notice by the end of that period.
Turning from waiver of the notice to quit to its validity, Sir Crispin’s primary submission was that a landlord could not terminate half a lease by serving a notice to quit on only one joint tenant or, as here, on the tenant but in respect of only a half share of the tenancy which had come to him by transfer.
There was a preliminary point that the two interests in the tenancy had become consolidated in Douglas Graham when the landlord accepted Mr Graham’s succession to his grandfather’s half share in the lease without objection under section 12(2) of the 1991 Act. At that point the two interests had merged and Mr Graham had become the sole tenant. Therefore it was no longer competent to serve a notice to quit in respect of a one-half share under section 25(1) because the recognisable one-half share had merged with the other one-half share and the tenancy had therefore become consolidated in the person of Douglas Graham as the sole tenant.
Had Douglas Graham been the sole tenant and had he acquired his right to the tenancy exclusively from his grandfather he would have been vulnerable to a notice to quit served under section 25(2) (d). However, the situation here was that he had inherited a half share of the tenancy from his father and the other half share from his grandfather. The notice to quit which had been served had been served explicitly in relation to his interest in the lease as successor to his late grandfather. Therefore it had been given only in respect of a one-half share of the tenancy. It had not been served on him in respect of the half share inherited from his father and there were no grounds upon which his interest in the half share of the tenancy inherited from his father could have been terminated.
On a proper construction of section 25 it applied only to the whole tenant: it could not apply to half a tenant. Section 25(1) spoke of a Notice to Quit being “duly given to the tenant of an agricultural holding”. That must mean the whole tenant. It was accepted that under the Interpretation Act the singular included the plural but it did not mean, in this context, one half of the tenant. The normal rule was that where there were joint tenants the landlord had to give notice to quit to all of the joint tenants (Gill, paragraph 3.12; Jones v Lewis). That was because, in general, a joint tenancy was one and indivisible (Featherstone v Staples). Therefore it was not competent to serve a notice to quit on one half of the tenant where there was no right to terminate the other half of the tenancy. It could not have been Parliament’s intention that the holder of one half of a tenancy interest with a good right to remain in the lease should be capable of being put out because there was a ground on which the other half tenant could be got out by the landlord. This was different from the situation where one of two joint tenants did not want to continue to be bound by a lease.
In summary, for a notice to quit to be valid in a joint tenancy situation, the landlord had to be in a position to serve the same notice to quit, on the same ground, on all of the tenants.
If, contrary to the foregoing submission, the notice to quit was competent then it terminated only the right to occupy under the grandfather’s share of the tenancy. It did not terminate Douglas Graham’s interest as the holder of his father’s one-half share. The effect of that was that Mr Graham became the sole tenant in right of his father’s share and, therefore, the person in right to the whole tenancy. That was because joint tenants each had a right to the whole tenancy and, therefore, on the termination of a half right the whole right became vested in the remaining joint tenant.
Coats v Logan could be distinguished. That case concerned tacit relocation and therefore required the consent of all parties to the lease. That was not the position here. Here the lease was in favour of Douglas Graham as successor to his father and continued in force until terminated by a notice to quit. The present notice to quit affected only the share he had inherited from his grandfather. Unlike the situation in Coats v Logan this was not a matter of consent but a matter of the landlord trying to terminate the right of one joint tenant to continue to occupy the holding. Although here the two interests in the tenancy were held by the one person, the situation, subject to the foregoing argument on consolidation, was no different from the situation where the interests were held by two tenants and what the landlord was trying to do here was terminate the right of one joint tenant to occupy the holding. In effect only one joint tenant had been given notice to quit, not both. The termination of the right of one such tenant could not, in law, affect the other tenant’s rights. The other tenant continued to have a right to occupy which could only be terminated by notice to quit.
If, contrary to the foregoing submission, we were concerned here with a matter of consent then, the landlord having terminated the grandfather’s half share, the only person whose consent was relevant was the holder of the other half share in the tenancy, the effect of what the landlord had done (assuming the validity of the notice to quit) in terms of terminating the late grandfather’s share, being akin to the effect of a survivorship destination. The cases of Featherstone v Staples, Lloyd v Saddler and Howson v Buxton were said to support this approach.
On these various bases it was Sir Crispin’s motion that we should refuse the application and assoilzie the respondent.
We heard Mr Kermack in answer. Much of what he said was in the nature of reinforcing his earlier submission but we note the following matters.
In his treatment of section 85(1), said Mr Kermack, Sir Crispin had omitted reference to the words “unless the context otherwise requires”. In Mr Kermack’s submission it was open to us to hold that the context here “otherwise required”. But it may not be necessary to rely on that because the definition of “tenant” as “the holder of land under a lease of an agricultural holding” was wide enough to include a joint tenant.
Mr Kermack reiterated his reliance on Coats v Logan. It was the applicant’s position that a notice to quit served on one of two joint tenants had the effect of terminating that tenant’s interest and, where the lease was running under tacit relocation, the rest of the lease fell because the necessary consents for tacit relocation would then be lacking.
The separate interests in a joint tenancy were forever separate and identifiable. Where one was terminated the others did not expand or “inflate” to fill the void. (We understood this also to refer to the situation where the lease is running on tacit relocation.)
So far as succession to a lease was concerned, it was possible to figure three situations:- (1) where there had been only one tenant, transfer of the lease to another individual; (2) where there was a joint tenancy, transfer of a joint tenant’s interest to a person other than the a surviving joint tenant; and (3) again where there was a joint tenancy, transfer of a joint tenant’s interest to the surviving joint tenant. Referring to non-near-relative succession, it could not have been Parliament’s intention to differentiate among these three situations with the effect of making some transferees more secure than others. In each case the transferee would continue to be liable to a section 25(1) notice to quit. The transferee in situation (3) was in no stronger a position than the other two.
So far as the argument on waiver was concerned, in order to decide that there had been waiver the Court would have to have heard evidence that nothing had happened during the period in question rather than draw conclusions from the fact that it had not heard evidence that something had happened. Just because there was no evidence of something happening one could not assume that nothing had happened.
With reference to the question of a possible new lease, the applicant was asserting the existence of an agreement which included an agreement to agree, failing which arbitration. If that were so, why had the respondent not sought the appointment of an arbiter? That, in Mr Kermack’s submission, was because the respondent knew that there was no enforceable agreement in existence.
In framing our discussion of the various issues which have arisen it is convenient to adopt a structure broadly similar to the order in which Sir Crispin presented his submissions. Such an approach should take us through the various issues and arguments in a reasonably logical way.
Following that order, the first set of questions which arises has to do with whether a new lease came into being. On that part of the case, Sir Crispin’s submission was that the meeting of 11th April 2002, taken along with the negotiations which had preceded it, resulted in complete agreement on all matters and, therefore, in a concluded, though unwritten, lease. Failing that, a concluded agreement could be inferred from parties’ later actions and inactions. We deal with matters in that way although it has to be said that doing so involves some artificiality in as much as the subsequent actings of the parties may be relevant as shedding some light on whether agreement was reached on 11th April. Such artificiality is, we think, outweighed by the desirability of showing clearly the view we have taken on each aspect of the case.
Before embarking on that exercise it is important to set out what we consider to be the correct approach to resolving the question whether a binding agreement ever came into being. We can summarise that approach in three propositions:-
Taking that approach, we turn to look at matters in the order referred to above.
It is not disputed that a number of things were agreed either in the course of the negotiations which preceded the meeting of 11th April 2002 or at that meeting itself. We have set these out in finding in fact . So far as the cardinal elements of the lease are concerned, the only one of these which was said in evidence not to have been agreed was the extent of the subjects being let. We consider the applicant’s position on that to have been so entirely without merit that it reflected badly on his credibility generality. There was some evidence about small areas of woodland to be excluded but our understanding from the rest of the evidence was that these were not in any event being occupied by the respondent and on the whole evidence there is absolutely no doubt that what everyone was talking about at said meeting was the lease of Kirkton Farm as possessed on the ground by the respondent, less Logan House. Whilst the precise acreage within the boundaries of the farm may have been subject to clarification, there was no doubt about the boundaries themselves. There was, therefore, in our view, no doubt as to the subjects to be let.
Having decided that at least the cardinal elements of a lease were agreed at said meeting we have to decide whether said meeting resulted (a) only in agreement as to what the terms of a lease would be should a new lease eventually be decided upon, or (b) in a concluded lease. Or, in the words of our test, by the end of said meeting, whether the parties mutually assented to be bound in law. For the following reasons we have come to the view that they had not.
Firstly, the parties always intended to have their agreement expressed in writing. That is what the negotiations and revisals which preceded said meeting had been leading up to. The purpose of said meeting was to advance that process by resolving outstanding matters. When people intend to commit their agreements to writing they commonly do not regard themselves as bound until they have done so and then signed that writing. We are not suggesting that there was an express stipulation to that effect in this case, as there sometimes is, but we think that the intention to have a written lease, in a situation in which a written lease was not in law necessary, has some significance nevertheless.
Secondly, the arrangement by which the respondent had hitherto possessed Kirkton had taken the form of a written lease albeit to his father and grandfather. We do not attach a great deal of significance to that but the approach of Lord Clarke in W S Karoulias SA (at pages 34-35) tells us that the form agreements have historically taken is a factor to be considered.
Thirdly, and again with reference to the history of matters, the 1974 lease was the subject of notice to quit and counter-notice. There was, therefore, a degree of wariness on both sides as to the nature of any future arrangement. Contract farming had been discussed but rejected by the respondent. That is not a situation in which it can lightly be assumed that parties would enter into an irrevocable commitment on the basis of an informal arrangement.
Fourthly, parties did not regard themselves as bound. That was clearly Mr Salvesen’s position. Whilst his assertion that the extent of the holding was not agreed may have been without merit, his other concerns to do with the away wintering of hoggs and the ramifications thereof in terms of cost and any impact on rent immediately or in the future were, in our view, real and valid. We, therefore, find his evidence that he agreed to all that was agreed at said meeting on the basis that everything else fell into place entirely understandable and plausible.
Mr Graham’s position was less clear. On the one hand he believed his occupancy of the farm after 11th April to be as general partner in the limited partnership and soon thereafter he told a few people that he had a limited partnership which would secure him in the farm for 16 years. But, on the other, he did not claim that a concluded lease had resulted from that meeting. Instead he used expressions such as “moving towards a lease” or “moving forward”. Most tellingly, however, when he was asked why he had wintered some hoggs away during the winter of 2002-2003 and in particular whether he had considered himself obliged to do so under his agreement with Mr Salvesen, he replied that he had not but had done it “to show willingness” and “just as a token gesture”. On his whole evidence, while Mr Graham would no doubt have been only too glad to be bound by a deal which extended his future at Kirkton, it is impossible to conclude that he thought that that point had been reached by the end of the meeting with Mr Salvesen, handshakes notwithstanding.
Mr Drysdale was the only witness who gave evidence of a concluded deal having been arrived at on 11th April. Mr Kermack urged us to treat his evidence on this with caution because he was, after all, “part of the respondent’s team”. In the abstract there must be some force in this. It is not a criticism; it is a statement of fact and one which we have to bear in mind when assessing Mr Drysdale’s evidence. Mr Kermack went slightly further, however, and suggested that the analysis presented by Mr Drysdale in evidence was one to which he had come after the event. It was in order to explore a similar concern on our own part that the Court asked Mr Drysdale whether, as at the end of said meeting, he had considered his client bound by what had been agreed. Mr. Drysdale’s reply was as noted above – that he would have found it very difficult to advise Mr Graham that he could walk away from it. That was a properly cautious and careful reply but it was not the evidence of someone who unequivocally believed that he was coming away from the meeting of 11th April with a binding, enforceable lease.
Fifthly, although much was agreed at said meeting there was at least one important thing which was not. That was as to the financial ramifications of the away wintering of hoggs. We have already described Mr Salvesen’s concerns on this as real and valid. That view is supported by the fact that both Mr Rennie and Mr Drysdale thought it sufficiently important to engage in the exchange of revisals which was still ongoing when the correspondence petered out in August 2002. Consistently with that view we reject the notion that if parties could not agree on this it was to be left to an arbiter to resolve. In our view it was too important a matter from Mr Salvesen’s point of view for it to be left on that basis. It had implications for future rent reviews. Furthermore, what, in our view, parties were doing in their revisals to the new Clause Twelfth after the meeting of 11th was laying down the basis - the terms of reference - for future arbitrations in the event of failure to agree any aspect of future management agreements, not agreeing that this matter itself (i.e. whether the rent had been fixed on the basis of away-wintering of hoggs) should, failing agreement, be referred to arbitration. In any event, whether the rent had historically been fixed on the basis of away wintering of hoggs was a matter of historical fact not a matter for an arbiter to assess as one of competing submissions as to what should be in a management agreement. One would have expected it to have been capable of settlement - and settled - one way or the other in the negotiation of the lease.
For these reasons we have come to the conclusion that the meeting of 11th April 2002 did not result in a concluded lease.
It was Sir Crispin’s submission that in the event that we held that there had been no final agreement about the management agreement at the meeting of 11th April 2002, agreement as to the acceptance of the respondent’s last revisal can be inferred from the lack of objection by the applicant to the final minor revisal intimated by Mr Drysdale on 2nd August 2002 coupled with occupation of the farm.
For present purposes we are prepared to accept that a landlord’s failure to intimate objection over a lengthy period of time coupled with the tenant’s possession of the holding during that time can produce the result of implied acceptance of a lease on the part of the landlord. Of the cases cited by Sir Crispin in support of this proposition the one most in point is Ballantine v Stevenson. That case can be taken as being to the foregoing effect although Lord Craighill at least was of the opinion that something more than lapse of time – something in the nature of homologation or rei interventus - was necessary to complete the contract (pp 975-976).
This argument essentially involves a significant period of possession on the part of the tenant on the basis of the agreement which is being negotiated, undisturbed by any indication of lack of assent on the part of the landlord. The effect of that combination of circumstances is said to be that it supplies the landlord’s consent to be bound, because such consent can be inferred from such circumstances.
For the argument to get off the ground, therefore, it requires that the tenant’s occupation of the subjects be referable to the agreement being negotiated. We are not satisfied that that is so in the circumstances of this case.
In the present case there are two possible bases for Mr Graham’s possession of the subjects after April 2002. One is the new agreement which was, on the view we have taken, in the course of being negotiated at that time. The other is the 1974 lease in respect of which operation of the notice to quit had been suspended in terms of section 23(4) of the 1991 Act. The question is to which of these bases was Mr Graham’s possession of the subjects referable in the period from April 2002 to July 2003?
Mr Graham himself thought he occupied as general partner of the limited partnership and on the strength of the intended new arrangements. Mr Salvesen thought Mr Graham had no title to occupy at all and was there only on sufferance. Mr Drysdale believed that a new lease was in place and that Mr Graham was occupying on that basis but, recognising that as a matter of law he could be wrong about that, reserved the right, so to speak, to fall back on the 1974 lease. His position accords with the way in which the respondent’s case is pled.
Parties understandings, even were they at one, would not be conclusive of the matter. We require to look at the situation objectively. That involves taking account of what parties did at the time as well as of what they said in evidence. In that regard, there undoubtedly were actings, particularly on the part of Mr Salvesen, which are referable to the matters agreed at the April meeting. We refer to the repairs to the tup shed and culvert, to the signing of the limited partnership agreement, to the payment of his capital contribution to the partnership and to Mr Whale going to see the occupants of Logan House to discuss future arrangements with them.
With regard to the repairs, we reject Mr Salvesen’s explanation that attending to these was something he would have done anyway. The timing is against him. Both of these repairs had been outstanding for a considerable time before the April 2002 meeting and both were attended to within a few months of that meeting. The need for such repairs was discussed at that meeting. In these circumstances we have little difficulty in holding that the carrying out of these repairs was referable to discussions at that meeting.
The position is even clearer in regard to the other factors we have listed. The execution of the limited partnership agreement and the payment of the £1,000 can be referable only to the agreement reached at the meeting. Likewise the discussion of new arrangements with the occupants of Logan House was only possible on the basis that the Logan House was being removed from the Kirkton lease, another matter discussed and agreed at said meeting.
These actings on the part of Mr Salvesen amount to a fairly formidable list of indicators pointing towards the existence of a new agreement by the summer of 2002. There were actings on Mr Graham’s part as well. The Graham family had told the occupants of Logan House that it was being removed from the farm lease. In the winter of 2002-2003 some hoggs were wintered away. In March 2003 a bank account was opened in the name of the Kirkton Farm Partnership. Again these actings may appear to be steps of some significance which are attributable only to what had been agreed in the course of negotiations towards a new lease.
But these actings, on the part of both Mr Salvesen and Mr Graham, are not the whole story. Mr Salvesen’s actions have to be seen in the context of his qualification that anything agreed in April 2002 was subject to agreement on all matters being achieved. We are inclined to accept his evidence to that effect because it seems to us to make sense. It is not inconsistent with that position to implement certain parts of an agreement whilst refusing to be bound by the new lease until everything else had been agreed. For the reasons already given we do not accept that everything else had in fact been agreed (on the basis of an agreement to agree, which failing, arbitration) at the meeting of 11th April or later. Indisputably the matter of over-wintering and how it was going to be dealt with in the lease remained to be agreed and was, in fact, never agreed. That is confirmed by Douglas Graham’s own evidence to the effect that, when he sent hoggs away in November 2002, he was not doing so because he considered himself legally bound to do so but only as a gesture of goodwill, “to show willing”. Seen in that context the over-wintering of hoggs away, which might otherwise have been a very compelling piece of evidence, loses its force as a pointer towards either a concluded agreement having come into existence by November 2002 or his possession of Kirkton post-April 2002 having been referable to the negotiations towards a new agreement. And so far as the opening of the limited partnership bank account is concerned, the facts that it happened 11 months after the April meeting and that it was not used for trading purposes detract from what might otherwise have been its evidential significance, although we take the point that the actual farming operation in limited partnership leases is often not in fact carried out through the vehicle of the limited partnership.
Looking objectively at the whole evidence on this matter, therefore, we are unable to say that Douglas Graham’s occupation of Kirkton in the period from April 2002 to July 2003 was unequivocally referable to the new arrangement, or potential arrangement. That is probably as far as we have to go for the purposes of dealing with this leg of the argument from Ballantine but, were it necessary to go further, our view would be that possession after April 2002 continued to be on the same basis as it had been on prior to April 2002, that is to say the 1974 lease as kept alive by section 23(4) of the 1991 Act. We consider that possession continued on that basis while parties endeavoured to reach agreement on the intended new lease.
The other leg of this argument requires the possession to be undisturbed by any objection on the part of the landlord. In relation to that we observe how different the present case is from Ballantine. In Ballantine negotiations on the lease had been completed – there was nothing in the way of unresolved revisal outstanding. Not only that but the lease had been extended and signed by the tenant. And, thirdly, a payment of rent attributable to the new lease had been accepted by, or on behalf of, the landlord. In the present case revisal of the lease had not been completed, the lease was not, therefore, in a form in which it could be signed by anybody and rent was being refused by the landlord. Furthermore all of these things were known to Douglas Graham. In that context we are unable to hold that the period of inactivity from August 2002 to July 2003 operates to supply, by inference, the assent to be bound on the part of Mr Salvesen which was otherwise lacking.
For these reasons we are against the respondent on this branch of his case.
In the words of Lord Keith of Kinkel in Armia v Daejan (at page 72), whether or not there has been waiver is “a question of fact, to be determined objectively upon a consideration of the relevant evidence”. That approach was followed by the Full Land Court in Cayzer v Hamilton (No. 2) (see the Opinion of the Court at page 27J). Beyond that, we are aware of an ongoing debate as to whether waiver is part of the law of personal bar or something else which stands on its own (see the article by Sheriff Andrew Bell in Stair Memorial Encyclopedia of The Laws of Scotland Volume 16 under the heading of “Personal Bar”). In the present case it is pled by the respondent, in terms of his fourth plea-in-law, as a separate and distinct plea, without reference to personal bar.
What makes all of this relevant is the question whether a successful plea of waiver requires that the other party has altered his position to his prejudice as is a feature of other forms of personal bar. The conclusion at which Sheriff Bell arrives in the article just mentioned, which is derived from the approach of Lord Fraser of Tullybelton in Armia Ltd, is that:-
“…it now appears to be clear that the law is that ‘waiver’ is simply the giving up or abandonment of some right. This may of course be express; but if the actings (including failure to act) of the person alleged to have waived his right are to be successfully relied on, there must be proof that the other party conducted his affairs on the basis of the actings amounting to waiver. This necessarily implies that he must be aware of the actings. He need not, however, have suffered prejudice by such reliance.”
We respectfully adopt that approach in what follows.
The starting point, for the purpose of identifying the relevant evidence, must be the period of time involved. Arguably the commencement of that period could be as early as the date of service of the counter-notice (30th November 2001) since it was always open to the landlord at any time thereafter to seek the appointment of an arbiter. However, as has been seen, the parties quickly became involved in negotiations as to a new agreement and their approach seems to have been that the old lease would simply be superseded when the new arrangements came into force, without the need for further procedure by way of arbitration or otherwise. Accordingly it is not appropriate, in dealing with the question of waiver, to take account of the period during which such negotiations were ongoing: throughout that period the landlord was still plainly intent on the termination of the 1974 lease.
Sir Crispin’s starting point was 28th November 2002, the date of expiry of the notice to quit. We think that is too early. Although Mr Drysdale’s revisal of 2nd August 2002 turned out to be the last piece of negotiation, viewed as at November 2002, we think that it can be said that negotiations were ongoing. No response to said revisal had been received but equally negotiations had not been broken off. Formal intimation of negotiations being broken off did not come till July 2003 but there is evidence that Mr Salvesen had taken the decision which was intimated then some time earlier. There was the intimation by Mr Rennie to Mr Drysdale of his client having taken cold feet given the legislation passing through the Scottish Parliament. That was on 20th February 2003 and was followed by the refusal of a rent payment tendered the following month. Accordingly it seems to us that the period we have to look at is from February or March 2003 until December 2004, when the present application was lodged.
The significance of the “start date” we have identified - and the reason for our choosing it - is that it represents the point in time at which the landlord had to address his mind to what was to happen with the old lease. Beyond that point in time the prospect of a new lease had disappeared and Mr Salvesen had an option as to what was to happen with the old; whether it was to be left to continue or was to be brought to an end by completion of the steps necessary to achieve that, the first of these being the appointment of an arbiter. That is an option similar to that which the landlord had in Cayzer (No 2). It is an option which the landlord must, sooner or later, exercise and he may do so expressly or impliedly (Rankine on Personal Bar page 196).
What then do the events - or lack of them - of the period from March 2003 to December 2004 tell us about the Mr Salvesen’s exercise of that option? Do they disclose implied waiver of the right to enforce the notice to quit?
Mr Kermack argued that we would not be entitled to hold that nothing had happened during that time simply because we had heard no evidence that anything had happened. However, as Sir Crispin pointed out, waiver having been put in issue by the respondent in his pleadings, it was for the applicant to aver and prove that certain things had happened, if that was going to be his position. Against a background of the earlier history of matters having been very fully disclosed in the evidence led by both sides and of waiver having been put in issue in the pleadings by the respondents, we do not think it is good enough for the applicant to leave the events of 2003-2004 shrouded in mystery and then tell the Court that because no evidence has been led on the matter it is not entitled to hold that nothing of relevance took place in that time. The Court can have regard only to the evidence led before it. That evidence does not disclose any acting on the part of the landlord from March 2003 until the lodging of the present application other than the letter of 22nd July 2003 breaking off negotiations on the new lease. We accordingly proceeds on the basis of there having been no such acting during that time.
The significance of the letter of 22nd July is, of course, that it makes very clear that Mr Salvesen no longer wants Mr Graham as his tenant in any shape or form. One would take from that that he must be intent on putting an end to the 1974 lease in pretty short order. But that letter seems to overlook altogether what has to be done to achieve that result. It makes no mention of the outstanding notice to quit. Instead it proceeds on the basis that Mr Graham has no right to occupy. Having intimated Mr Salvesen’s decision not to proceed with the new lease, it goes on: -
“In the absence of a lease, you clients [sic] have no contractual right to continue in occupation of the property. My client is prepared to allow your clients to continue farming until the November term coming but no later.” The final paragraph refers to the sheep stock being valued “as at the termination of the old tenancy”. It accordingly seems to proceed on the basis that, by some means, the old lease had already been terminated.
In our view that is a wrong analysis of the legal situation as at July 2004. In our view in the absence of a new lease there was no surrender of the old. Absent such surrender, the old lease was being kept alive by the operation of section 23(4) of the 1991 Act. That was also, presumably, the view of Mr Salvesen’s new agents when they decided to raise the present application.
But whether the analysis on which it proceeded was right or wrong, it appears to have been Mr Salvesen’s intention, as at July 2003, to allow Mr Graham to stay on at Kirkton until November of that year and no further. However, November 2003 came and went without any attempt on Mr Salvesen’s part to remove Mr Graham. In the year that followed, although nothing was done towards terminating the 1974 lease, neither was anything done (bar letting time pass) which was inconsistent with such an intention. In particular, unlike the landlord in Cayzer (No 2), Mr Salvesen did not accept any rent during this period.
Looking at Mr Graham’s actions in that period, for the purpose of seeing whether he, was “conducting his affairs on the basis of the actings amounting to waiver”, we have already held that his occupation of the subjects throughout was on the basis of the old lease rather than the new. We think that the very fact that he went on farming at Kirkton without looking to secure his future elsewhere could amount to his conducting affairs on the basis of Mr Salvesen’s actings. In other words he was intent on staying on at Kirkton as long as Mr Salvesen allowed him to. That aspect of waiver is, we think, made out in this case but the fundamental question is whether Mr Salvesen’s actings, or lack of them, are capable of amounting to waiver at all.
On that particular question we have come to the conclusion that they are not. There is a continuing question whether mere delay, short of prescription, in enforcing a right can ever lead to waiver (see Sheriff Bell’s article at paragraph 1634 and his discussion of delay under the head of Mora, Taciturnity and Acquiescence at paragraph 1623). But we need not answer that question for the purposes of our decision because we are satisfied that, seen in the context of Mr Salvesen having made it plain that he did not want Mr Graham as his tenant and of his continuing refusal of rent, it cannot be said that by December 2004 Mr Salvesen had waived his right to pursue the notice to quit.
We have found this to be the most difficult issue in the case.
The first difficulty is in defining the issue. In terms of the respondent’s fifth plea-in-law it is one of competency. It was debated before us in terms of validity. We think it is a question of competency rather than validity since neither the form of the notice to quit nor the ground on which it is served is being challenged. The question of competency here is whether it is competent to serve a notice to quit on only one, or some, of a number of joint tenants. On any view the important thing is the effect of the notice, if any. We think the above formulation is, therefore, an appropriate way in which to express the issue.
The issue comes before us by virtue of the counter-notice served on behalf of the respondent. The matters which it sought to have determined were “all questions arising out of the reasons stated in the Notice to Quit and all questions relating to the validity thereof”. “Validity” is wide enough to cover competency. Although the crave of the present application does not explicitly refer these questions to this Court, it was accepted on both sides that we should determine them in this application in exercise of our new jurisdiction, replacing aribitration, under the 2003 Act.
Moving on to the substantive issue, therefore, it is surprising that the competency of service of a notice to quit on only one, or some, of a body of joint tenants (we shall follow the practice of referring to “joint tenants” and “joint tenancies” rather than “tenants [or tenancies] in common”) remains open at this stage in the development of our agricultural law or of the law of joint tenancies more generally but that appears to be the position.
Before we address that issue, however, we have to deal with Sir Crispin’s preliminary point to the effect that this was not a joint tenancy issue at all, the two “halves” of the tenancy having “consolidated” in the hands of Mr Graham making him the sole tenant. No authority was cited for that proposition nor was much time spent on it. Having stated it Sir Crispin moved on to the rest of his argument which was based on Mr Graham being the holder of two half shares in the tenancy. Mr Kermack likewise cited no authority for his opposing proposition that the interests of joint tenants always remain separate and distinct, regardless of whose hands they come into.
At first sight, this had the look of a short point which had the potential of deciding the case. Sir Crispin’s argument also had the attraction, if sound, of avoiding the conceptual difficulties and artificialities of considering a single individual as being in some way equivalent to a joint tenant or as being the holder of his tenancy in two different capacities. On consideration, however, things do not seem so simple and it appears to us that it is the question whether the notice to quit is competent which determines whether consolidation has taken place, not vice versa. Our reasoning is as follows.
Firstly, there is no reason in principle why the interests of two or more joint tenants should not consolidate so as to lose their individual identities. That is, after all, what happens with pro indiviso rights of ownership of heritable property. To take the simplest example, where there are two joint owners of heritable property - again we follow the usual practice of referring to owners in common as joint owners - and the interest of one transfers to the other, that interest disappears as a separate entity and the person to whom it has transferred can then intromit with the whole property in any way he likes. Thus he can sell his whole interest or he can divide ownership into other shares of whatever size he wishes. A tenant cannot, of course, do that but the point is that consolidation of the hitherto separate interests takes place in the equivalent heritable title situation.
Secondly, it happens in practice. We have in mind, for instance, the situation where a lease is held by husband and wife and both shares devolve to a single son or daughter. On Mr Kermack’s argument that person is forever the holder of two separate and identifiable interests in the lease. On the logical extension of that argument, if the landlord wanted to remove such a tenant he could do so only by the service of two notices to quit, one in respect of each half of the tenancy. That is an absurd result. The reality is that the two shares merge, they have no continuing identity and the person in whom they merge becomes sole tenant.
But that example deals with a situation in which the two interests inherited are of an identical character. What makes the present situation different - and non near relative succession is possibly the only situation in which such a difference can arise - is that the two interests inherited are arguably of a different character: one is, on Mr Kermack’s argument, vulnerable to a section 25 and 22(2)(g) notice to quit while the other is not.
If Mr Kermack is right about that, consolidation could not, we think, operate. Sir Crispin’s argument would put the matter the other way round and say that consolidation makes the interest invulnerable to a notice to quit of the kind mentioned. But in our view, whether consolidation can take place at all depends on whether the interests are of the same kind and that involves addressing the vulnerability of the interest inherited from Mr Graham’s grandfather to such a notice to quit first. That involves turning to parties’ wider and fuller submissions. These were made on the basis that the separate share still existed and that the position, for the purposes of testing the competency of the notice to quit, was the same as it would have been had that share been acquired by someone other than Mr Graham. In other words, although the shares here had come to be held by one individual the position was in principle no different from a true joint tenancy situation with two or more people holding the tenant’s interest.
Proceeding on that basis, it is important to be clear about the scope and nature of the question. We say that because we heard much in submissions about the effect of terminating the interest of a joint tenant where a lease is running on tacit relocation. But section 3 of the 1991 Act provides that a lease running on tacit relocation can only be terminated by notice to quit or notice of intention to quit. That means that the validity of the notice to quit has to be addressed first. This, therefore, is primarily a case about the competency of the notice to quit and the fact that the lease was running on tacit relocation becomes significant only if we hold that the notice to quit was effective to terminate the interest formerly held by John Graham (Senior). The scope of our enquiry at this stage, then, is confined to whether the notice to quit had that effect.
The notice to quit machinery being entirely statutory, the nature of our task is primarily one of statutory interpretation.
The starting point is section 25(1) of the 1991 Act, being the section upon which the server of the notice to quit in this case was obviously proceeding although the notice itself does not expressly say so. It reads:-
“This section applies where notice to quit is duly given to the tenant of an agricultural holding who acquired right to the lease of the holding –
(a) under section 16 of the Succession (Scotland) Act 1964; or
(b) as a legatee, under section 11 of this Act.”
The question of statutory interpretation on which the parties joined issue in relation to that subsection was as to the meaning of “tenant”. Nothing was made of the reference to acquiring “right to the lease of the holding” although that phrase may shed some light on the meaning of “tenant”; it seems to us to be a reference to the whole lease rather than to a share in it. If we are right about that it would mean that a section 25(1) notice to quit could only be served on a sole tenant and that would be an end of the matter. But we have to follow the arguments as presented to us and what both agent and counsel founded on was the definition of tenant contained in section 85(1) of the Act. We have already set out its terms.
The terms of these two sections bring to mind what was said by Scrutton LJ in Howson v Buxton (at page 437) about the Agricultural Holdings Act 1923 – that the word “tenant” had been used “without any nice consideration about what would happen if there were more than one tenant”. The same might be said of the 1991 Act and its predecessors. Seeking to apply the section 85(1) definition to the joint tenancy situation, however, the question becomes to whom does the phrase “the holder of land under a lease of an agricultural holding” refer in that situation: does it refer only to the body of joint tenants collectively (Sir Crispin’s position) or is it wide enough to include an individual joint tenant (Mr Kermack’s position)?
In order to answer that question it is necessary to identify the nature and features of a joint tenancy. For that purpose the following extract from Gill (paragraph 3.12) provides a convenient summary:-
“…in a tenancy in common held by a number of tenants pro indiviso the share of each tenant descends to his successor, either by bequest or by transfer, unless there is a survivorship destination…
Each of the joint tenants is personally liable for the tenant’s obligations under the lease. For example, each is bound by a normal residence clause and is liable in solidum for the rent. All of the joint tenants as a body constitute “the tenant” of the holding under the statutory definition”
That passage makes clear (a) that a tenancy in common is a single tenancy, not a plurality of tenancies, and (b) that the tenant comprises all of the joint tenants as a single entity. The second of these propositions, for which Gill cites as authority the case of Featherstone v Staples, is plainly against Mr Kermack, at least if it is intended as a comprehensive statement of the law.
The learned author then goes on:-
“Ín the normal case, therefore, notices, counter-notices and other statutory intimations must be given by all of [the tenants]. In certain circumstances, however, the rights of the “the tenant” under the Act may be validly exercised by any one or more of a body of joint tenants. [The examples of Howson v Buxton and Lloyd v Sadler are then given followed by discussion of Newman v Keedwell and Featherstone v Staples] …
Notices, demands and other statutory intimations which are served by the landlord must be served on all of the joint tenants.”
That final sentence, for which the English case of Jones v Lewis is authority, is not qualified in any way. Again it is plainly against Mr Kermack if it is intended to be a comprehensive statement of the law. What Mr Kermack’s argument in effect seeks to do, therefore, is persuade us that in both his reference to the tenant in a joint tenancy being the body of tenants and to the requirement that notices by the landlord have to be served on all of the joint tenants what the learned author of Gill is describing is merely the normal (in the sense of most common) situation and that he is not stating an absolute, exhaustive, inflexible definition or rule.
Mr Kermack’s primary position on the question of interpretation of section 85(1) was that the phrase “holder of land under a lease of an agricultural holding” was wide enough to include each individual joint tenant as well as the joint tenants as a body. Quite apart from the terms of the passage from Gill just quoted and the authority on which it is founded, we would not have been inclined to agree with Mr Kermack on this. To describe an individual joint tenant as a “holder of land under a lease” at the very least does not tell the whole story. What he holds is only a share in a lease of land. On his own he has no right to hold the land: that right is conferred on the body of tenants to whom, collectively, the land has been let under a single tenancy. We do not think, therefore, that there is any justification for extending the definition of “tenant”, as explained in Gill, in the way suggested by Mr Kermack. Accordingly his primary argument on section 85(1) fails.
Mr Kermack’s secondary position in relation to the section 85(1) definition was that this was one of these situations, akin to the English Court of Appeal cases of Lloyd v Sadler and Howson v Buxton, where the context required (as allowed for in the opening words of section 85(1)) that “tenant” be understood as including the holder of a share in a joint tenancy.
The opening words of section 85(1) expressly sanction the general approach taken by Mr Kermack. They recognise that there may be situations in which the stated definition must give way to some variant thereon. The question for us is whether this is one of them.
In answering that question the cases cited are of limited value since their contexts are not the same as ours. But one can look to them for guidance as to when the “normal’ definition can be departed from. Thus Scrutton LJ in Howson v Buxton looked to the mischief at which the legislation was directed and found it permissible to “construe the words used, if possible, in such a way as shall suppress the mischief and advance the remedy” (page 436). His general approach was followed in Lloyd v Sadler and perhaps the best statement of it is contained in the judgement of Megaw LJ in that case at page 786:-
“In my opinion, the judgment of Scrutton L.J. in Howson v Buxton shows that, where the strict application of the doctrine of joint tenancy would lead to unreasonable results, or results which the legislature is unlikely to have intended, it is permissible for the court to conclude that the legislature did not so intend but that, instead, in such a case, the phrase ‘the tenant’, where there is a joint tenancy, is to be read as meaning ‘the joint tenants or any one or more of them’”.
We are happy to take that passage as containing the appropriate test for us to apply in deciding what is meant by “the tenant” for the purposes of the present case.
So far as the application of that test in the English cases themselves is concerned, it seems to us that in both of these case is was manifestly equitable that their Lordships in the Court of Appeal should have interpreted the statutory provisions before them as they did. Thus in Howson v Buxton the approach taken by the Court allowed the only tenant who had borne loss on the landlord’s termination of the lease to claim compensation and in Lloyd v Sadler it allowed the only tenant left in occupation of the house to be treated as a protected tenant. In neither case was there another joint tenant whose interest was going to be adversely affected by the court’s approach. Accordingly there were compelling factors in favour of departure from the norm.
Smith v Grayton Estates Ltd is a closer case to the one before us. In that case there were two joint tenants each with a live interest in the matter and the approach taken by the Court was obviously inimical to the interests of the one who wanted to carry on in the lease. The case involved an argument that the notice of intention to quit was invalid because it was served by only one of two joint tenants. That argument was unsuccessful. Indeed it was almost eclipsed by the Court’s focus on tacit relocation, the Lord President saying (at page 41) merely that “this argument overlooks the meaning and effect of tacit relocation”.
Mr Kermack did not suggest that Smith v Grayton Estates Ltd was binding upon us. Plainly, given its different facts, it is not strictly so. But it is on the face of it similar enough to make us ask whether any principle emerges from it which would assist, if not bind, us in this case.
As we have said it was decided on the basis of tacit relocation. But tacit relocation arose in that case in a way different from the way in which it arises in the present one. In Smith it was the lack of consent of the person serving the notice of intention to quit which was founded on as terminating tacit relocation. Here absence of consent does not arise in that way. Here, it is not lack of consent on Mr Salvesen’s part which is founded upon. Instead what is being said is that the interest formerly held by Mr Graham (Senior) has been terminated by the notice to quit, that the consent of one of the interests in the original lease is, therefore, no longer available and that the lease, running as it has been on tacit relocation, is therefore at an end.
Both in terms of Mr Kermack’s argument and section 3 of the 1991 Act the interest of Mr Graham (Senior) can only have been terminated by the service of a notice to quit. That seems to us to compel us to examine, first and foremost, and before any question as to tacit relocation arises, the competency and effect of the notice to quit. Tacit relocation does not arise in this case, therefore, in the same way and at the same point as it did in Smith v Grayton Estates Ltd. In the present case Mr Salvesen’s lack of consent to continuation of the lease could hardly be relied upon because, in terms of what he has done, he seems to be objecting to a continuation with Mr Graham but only in one of Mr Graham’s capacities.
Smith was also different in terms of the equities of the situation. First, to have refused effect to the notice would have bound an unwilling joint tenant to continuation of the lease. Thus, at page 42, Lord President Clyde says:-
“In my view therefore at common law the effect of the notice by one of these two tenants is to stop the running of tacit relocation and to terminate this lease at Martinmas, 1959. The alternative construction of the notice by one of two joint tenants involves the consequence that the tenant who desires to terminate the tenancy and has given notice to that effect must none the less be deemed to have consented to its prolongation from year to year until such times as the other tenant agrees also to give notice. Such a result is neither in accordance with principle nor equity.’
The result arrived at in that case can, of course, be viewed as an unfair result on the other tenant who wanted to continue with the lease but in that situation there was no way of satisfying both. In the present situation there is no other tenant than Mr Graham and if one looks at the equities of the situation from his point of view, to hold that the notice was effective to terminate his grandfather’s interest is, given Coats v Logan, also to hold it effective to terminate the interest inherited from his father. That does not seem to us to be an equitable result, and, in applying the test we have identified from the English cases we are entitled to have regard to that. It is part of assessing whether the result is something Parliament would have intended.
Mr Kermack also founded on another passage from the Lord President’s opinion in Smith about the possibility that the effect of the notice served by one of the tenants was to terminate his own interest in the lease, leaving the other tenant as sole tenant. At page 41 His Lordship said this:-
“…although this view was pressed both before the arbiter and before the Sheriff, it was ultimately given up by the appellant before us as it is clearly an impossible contention. Indeed it would be astonishing if the effect of a notice given by one of two joint tenants was to convert the contract of lease into a totally different contract under which there was a single tenant only.”
There is a difference between that situation and this. In that situation the landlord is presented with a fait accompli: a joint lease has become a lease to a sole tenant without reference to him. In the present case, by contrast, it is the landlord who is seeking to terminate the interest formerly held by one of the tenants. Unfairness to the landlord does not therefore arise in the same way: he is the person initiating the change.
Accordingly, we do not think anything in Smith v Grayton Estates Ltd compels or persuades us to decide this case one way or the other. As in the English cases referred to above, there were in that case compelling considerations of fairness and common sense which underpinned the decision on tacit relocation and favoured an approach which allowed an individual joint tenant to act on his own.
Having dealt with the cases, we now turn to the rest of Mr Kermack’s argument.
Mr Kermack submitted that confining the term “tenant” to the body of joint tenants would create a differentiation in the security of tenure of tenants who had inherited as non near relative successors as between those who had inherited from a single tenant and those who had inherited from a joint tenant. The former would be vulnerable to a section 25 notice to quit, founding on section 22(2)(g), while the latter would not. That was said to be a distinction unlikely to have been intended by Parliament.
We note that a similar distinction would arise, as between a sole tenant and a joint tenant, in relation to a tenant’s apparent insolvency in terms of paragraph (f) of subsection 22(2). A single tenant who has become apparently insolvent would be vulnerable to an incontestable notice to quit under section 22(2)(f) while a joint tenant would not. It appears to us that, so far as the grounds for an incontestable notice to quit contained in subsection 22(2) are concerned, these are the only two situations in which the present problem arises.
Both of these situations involve the landlord’s rights in the joint tenancy situation being potentially limited in comparison with the single tenancy situation. The right to serve an incontestable notice to quit is a powerful weapon in the hands of a landlord and therefore its unavailability is a matter of some consequence. Parliament plainly intended it to be available on the grounds specified in subsections 22(2)(f) and (g) against a single tenant and against joint tenants as a body (where all of the joint tenant’s had become apparently insolvent or where the whole tenancy had devolved to non near relative successors). Why would it not intend it to be available against one of a number of joint tenants?
Put more simply the question is why should a landlord not be able to get rid of an apparently insolvent joint tenant when he can get rid of an apparently insolvent sole tenant? The simple answer to that is that in a joint tenancy situation the whole tenant is not insolvent. And in the non near relative successor situation the whole lease has not passed into the hands of non near relative successors. But Mr Kermack would object that that is simply to rely on our primary view as to the meaning of “tenant” and that it fails to address his argument that the context requires a different interpretation. Let us, therefore, test that simple answer by its results.
So far as the apparent insolvency provision is concerned, in a joint tenancy situation the landlord can call on the other joint tenants for performance of the whole obligations of the lease, since each is, as we have seen, liable for these obligations in solidum. He can look to the other tenants for full implementation of the lease. In an irritancy situation where the lease has not reached its ish that is what he has to do since termination of a joint tenant’s interest prior to the ish does not end the tenancy (Lord Ross in Coats v Logan at page 225; Buttercase & Geddie’s Trs v Geddie; Young v Gerrard). The unavailability of a section 22(2)(f) ground against a joint tenant does not, therefore, seem to us to involve very much prejudice to the landlord.
So far as succession is concerned, absence of a right to serve a section 25 and 22(2)(g) notice to quit does not leave the landlord entirely without protection against non near relative succession. He would still have the right to object under section 12(2) of the 1991 Act. We want to expand on that a little because it is not immediately obvious from the language of section 12 that it does allow objection in the joint tenancy situation. Thus the section speaks of “a person to whom the lease of an agricultural holding is transferred” (subsection (1)) and of this Court terminating “the lease” in the event of the objection being successful (subsection (2)). But section 16 of the 1964 Act, to which section 12 of the 1991 Act directly relates, refers to “the interest of a tenant under a lease”. We have already commented on the fact that the 1991 Act does not distinguish between tenant and joint tenant. The wording of the 1964 Act seems more subtle and wide enough to include the interest of a joint tenant. If that is so then section 12 of the 1991 Act must be taken, despite the difference in terminology, to include such an interest as well. The alternative interpretation is to confine section 12 to single tenant succession, excluding the right to object in cases of succession to a share of a tenancy. In so far as it was touched on at all in the submissions before us, parties seemed to accept that the landlord in the present case could have objected under section 12. That he did not do so was explained by Mr Kermack on the basis that such an objection would have had no hope of success since Mr Graham had already been accepted as a suitable person to succeed to his father’s interest. But both sides seemed to assume the applicability of section 12 and we proceed on that basis. The result is that the landlord in a joint tenancy lease would have the protection of section 12(2).
It may be objected that it is perverse to hold that section 12(2) applies in succession to a joint tenant’s interest but that section 25 and section 22(2)(g) do not. After all, section 25(1)(a) refers expressly to a tenant who has acquired right under section 16 of the 1964 Act. There is, however, a basis for such a distinction. It is that section 12 is merely part of the succession “machinery”. It is the second stage of the two stage procedure which must be completed for the acquirer to become tenant, the first stage being the procedure contained in section 16 of the 1964 Act. Until both stages are complete the acquirer is not a tenant and is entitled at most to possession of the holding. (As authority for that description of the meaning and effect of section 12 see Gill at paragraph 34.01). Once that procedure has been completed, however, the acquirer becomes the tenant, whether as sole tenant, joint tenant or, in the case of Mr Graham, the holder of two “halves” of a formerly joint tenancy. Once that stage has been reached the acquirer of the interest is entitled to the rights and immunities to which his new status entitles him. In a joint tenancy situation that would include the requirement that, at least in most cases, any notice from the landlord must be served on all of the joint tenants. We realise that at this point the argument becomes circular, but the point being made is that the section 12(2) would apply in the joint tenancy situation even if sections 25 and 22(2)(g) did not. Accordingly the landlord would continue to have the protection of section 12(2) and, of course, in the unlikely but not impossible event of the whole tenancy devolving onto non near relative successors he could serve section 25 and 22(2)(g) notices on them all. In that situation again, it seems to us, there is not the degree of prejudice to the landlord which requires us to give “tenant” an extended meaning.
So far we have been looking at prejudice to the landlord. In a joint tenancy situation there are other interests beyond those of the landlord and the individual joint tenant on whom a notice to quit has been served. The prejudice which would result to the other joint tenant(s), were we to interpret section 85(1) as Mr Kermack invites us to do, is enormous: they lose the lease despite lack of fault, or ground for service of a notice to quit, relating to them. Why should Parliament have intended that result? For our part we think that Parliament did not so intend.
For all of the foregoing reasons we are not persuaded that applying the normal definition of “tenant” produces, in the words of our test, “unreasonable results or results which the legislature did not intend”. The result is that the normal definition falls to be applied and that the notice to quit was incompetent.
So far as Coats v Logan is concerned, it is implicit in what we have already said that we are of the view that had the notice to quit been competent and effective to terminate the interest formerly held by the late John Graham (Senior) the ratio of that case would apply and the lease would be at an end. Despite Sir Crispin’s attempts to distinguish it, we consider that Coats v Logan is binding upon us and we would not, therefore, have been at liberty to uphold his argument that the result of termination of one interest in a joint tenancy continuing on tacit relocation is that the lease continues in the hands of the other joint tenants.
Finally, we can return to Sir Crispin’s preliminary point as to whether the two pro indiviso shares formerly held by his father and grandfather have now merged or consolidated in the person of Douglas Graham. Since we have decided that a non near relative successor who inherits only a joint tenant’s interest is not vulnerable to a section 25 and 22(2)(g) notice unless the other joint tenants are similarly vulnerable (or perhaps vulnerable to a notice to quit on another ground) we conclude that the two interests have indeed merged in the hands of Douglas Graham, reflecting the reality that he is the sole tenant.
As we were invited to do, we have reserved expenses. In principle, given the novelty of the case and number and complexity of issues arising, we have no difficulty with certifying it as suitable for the employment of Senior Counsel, but we shall await the submissions on expenses before doing anything further in that regard. We have ordained parties to lodge motions on expenses within 21 days of intimation hereof.
of which intimation is hereby made.
for Principal Clerk