THE COURT

(Lord McGhie, Mr D J Houston)

WALSTON BRAEHEAD FARMERS v ERRINGTON

(Application SLC 63/13 – Order of 20 November 2013)

AGRICULTURAL HOLDINGS – WAY-GOING CLAIMS – CLAIMS ON TERMINATION OF LEASE – COMPENSATION FOR IMPROVEMENTS – NOTICE OF CLAIMS – CLAIM CEASING TO BE ENFORCEABLE – CLAIMS AS A RESULT OF THE TERMINATION – REQUIREMENT OF NOTICE OF IMPROVEMENT – IMPROVEMENT BEING WORK WHICH THE LANDLORD WAS REQUIRED TO EXECUTE – AGRICULTURAL HOLDINGS (SCOTLAND) ACT 1991, AS AMENDED, SECTIONS 34, 38, 60 AND 62.

This action was remitted to the Land Court from the Court of Session. It dealt with two separate matters arising after a lease to a limited partnership; namely, a claim relating to sheep stock and a claim for compensation for improvements. This report relates to the latter. It was not disputed that no notice of claim against the landlord was made within two months of the termination of the tenancy and that if the provisions of sec 62 of the Agricultural Holdings (Scotland) Act 1991 applied, the claim for improvements was out of time. It was contended for the tenant that because the tenant had a statutory entitlement no claim was necessary and that in any event such a claim was not a result of the termination of the tenancy. It was also undisputed that no notice of intention to carry out improvements within the meaning of sec 38 was given but the tenant contended that as the work should have been done by the landlord in implement of his obligations under sec 5(2)(a), the claim was covered by the exemption in 38(2A).

HELD that it was quite clear that a claim was required in respect of any assertion of entitlement to compensation for improvements on the termination of a tenancy and that there was no need for a causal link between the termination and the claim.

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

[1] This action was remitted to the Land Court from the Court of Session. It deals with two separate matters; a claim relating to sheep stock and a claim for compensation for improvements. We heard debate on 8 November 2013 to deal with two points in relation to the improvements claim. At the hearing, the applicants were represented by Mr Neil MacDougall, advocate, and the respondent by Mr Jonathan Barne, Advocate.

Statutory material

Agricultural Holdings (Scotland) Act 1991
Agricultural Holdings (Scotland) Act 2003

Case authorities

Southesk Trust Co Ltd v Secy. of State for Scotland 2000 S.C. 400
Chalmers Property Investment Co v MacColl 1951 S.C. 24

Textbook material

Lord Gill The Law of Agricultural Holdings in Scotland 3rd Ed.
Stair Memorial Encyclopedia Reissue 1 Agriculture

Circumstances and issues

[2] The issues dealt with at debate did not depend on the particular circumstances of the present case and it is unnecessary to say much about the wider background. The tenant was a limited partnership and the landlord one of the partners. However, the debate related only to a claim for improvements directed against the respondent as landlord and we were not required to consider any claim between the parties as partners. It may also be noted, for completeness, that there was no suggestion that the provisions of section 72 of the 2003 Act had any bearing in the circumstances of this case. The tenancy terminated with effect from 20 February 2010. It is not disputed that no notice of claim against the landlord was made within two months of the termination of the tenancy and that if the provisions of sec 62 of the Agricultural Holdings (Scotland) Act 1991 apply, the claim for improvements is out of time. The first point related to the scope of these provisions. It is also undisputed that no notice of intention to carry out improvements within the meaning of sec 38 was given. The second point turned on the provisions of sec 38(2A).

[3] Both parties submitted detailed Notes of Argument and it is unnecessary to repeat these. The essential nature of the competing submissions will be clear from the material set out below.

[4] Section 62 only applies to claims falling within sec 60(2)(c) which is in the following terms: “any claim by the landlord or tenant of such a holding against the other which arises, under this Act or under any rule of law, custom or agreement, on or out of the termination of the tenancy (or part thereof)”.

[5] Mr MacDougall contended that a claim for improvements did not fall within the scope of that provision. He pointed out that the subsection only applied to a claim by one party “against” the other. He submitted that the word “against” implied opposition. He said that there could be no opposition to the tenants’ entitlement because the applicants were entitled to compensation for improvements in terms of section 34. There was, accordingly, no need to make a claim for such compensation. It was only where a tenant had no right to a particular payment that it was necessary to make a claim. Pressed on this submission he revised it to submit that where a tenant’s entitlement was doubtful it was necessary to make such a claim. But where a landlord was obliged to pay compensation there was no need for a claim until there had been a failure on the landlord’s part. Issues of quantification were said to be irrelevant to the submission. A distinction had to be drawn between the general entitlement to compensation for improvements and entitlement to recover in respect of any particular improvement or in respect of any particular amount. The practical implications of this were not addressed.

[6] The contention was supported by the proposition that the situation was similar to that of a beneficiary under a will. There was no need for such beneficiary to make a claim. This was said to contrast with the situation of a beneficiary in an intestate succession.

[7] Counsel’s second argument in relation to the time-limit was that section 60(2)(c) only applied to claims which were “as a result of the termination”. The right to compensation for improvements was not caused by the termination. Pressed on this point he accepted that his argument relied on the proposition that the words “on the termination” in subsection (2) fell to be construed as requiring some causative link. He agreed that he was unable to advance any authority for such construction and did not attempt to elaborate the matter.

[8] In general support on the time-limit issue Mr MacDougall pointed to the fact that the provisions of section 62 were to be found in Part 7 of the Act whereas the provisions relating to improvements were in Part 4. This, he said, showed that the former were not intended to apply to improvements.

[9] In relation to section 38 and the requirement of notice, Mr MacDougall had to accept that his pleadings were inadequate and that if this issue was allowed to go to proof some amendment would be required.

[10] It is unnecessary to set out the detail of Mr Barne’s submission. He did not add significantly to the material in his written submission and his contentions are reflected in our discussion below.

Discussion

[11] We are satisfied that the submission bravely made on behalf of the applicants is without merit. The flavour of it was well illustrated by the proposition that a claim was only necessary where the tenant had no right or entitlement. But the short answer to the argument is that, in normal language “against” is a common preposition to use in connection with a claim and we find nothing unusual in its use in the context of assertion of a right in relation to the other party to a contract, even where it may be clear to both sides that there is little or no room for dispute in relation to it. Further, the terms of section 62(3) might have been thought to preclude any argument that no claim was needed where the entitlement was based on a statutory provision. In relation to the second argument as to causation, we need simply observe that the entitlement given by section 34(1) arises “on quitting the holding at the termination of the tenancy”. In absence of any coherent argument to the contrary we have no doubt that this falls within the scope of the expression “on the termination of the tenancy” as used in section 60(2)(c).

[12] It is hardly necessary to add that provisions in terms broadly similar to those of the present section 60(2)(c) have been understood, without question, for many years to require intimation of claims for improvements. Mr Barne referred, as an example, to Southesk Trust Co Ltd v Secretary of State for Scotland. He tendered copies of relevant material from Gill at 22.02 where we note in the second footnote a reference to various cases which dealt with the need for such claims to be made in time. Plainly the need for some form of claim to be made in respect of compensation for improvement is not a creature of the 2003 Act. Mr Barne tendered a copy of the article by Lord Dervaird on Agriculture at para 85, dealing with way-going claims and pointing out the need to make such claims within two months.

[13] The reference to the duties of trustees under a will has no bearing on the present case. Mr MacDougall accepted that he was not advancing a submission that the landlord was to be deemed to act as trustee for the tenant. In any event, there is no statutory equivalent to section 62 in relation to trust accounts. We need say nothing of the purported distinction between testate and intestate administration.

[14] As we have no doubt that a claim for improvements falls within the terms of section 60(2)(c) and as there was no dispute that notice had not been given, any such claim against Mr Errington as landlord has ceased to be enforceable in terms of sec 62(5).

[15] We recognise that, to some, the provisions of section 62 may seem to impose a surprisingly Draconian regime. However, it must be remembered that the context is of parties winding up their affairs at the conclusion of a lease of a farm. Parliament would have had in mind the needs of the continuing business and plainly took the view that claims against the landlord could be expected to be made without delay. The real surprise is that the applicants are apparently unable to point to anything of the nature of a claim in the present case.

[16] In the circumstances, it is unnecessary to deal at any length with the argument under section 38. Put very shortly, this section provides that compensation is not payable for improvements carried out without prior notice. However subsection (2A) provides an exception where “the improvement was carried out by executing work which the landlord was required, at the time the lease was entered into and by virtue of section 5(2)(a) of [the 1991 Act] to execute in order to fulfil his obligations under the lease.”

[17] Mr MacDougall said that the applicants were relying on this exception. However the applicants’ pleadings make no reference to it and there are no averments providing a factual basis for it. There is nothing to suggest that the applicants recognise the need to establish that work done by the tenant should have been done by the landlord – other than the faint hint provided by a reference to section 33A. That section contains a provision in terms somewhat similar – but not identical – to section 38(2A).

[18] Landlords and tenants may well have quite a close relationship. The nature and scope of claims between them may often need little elaboration because the nature of the dispute may be sufficiently clear to both parties. However, in some situations that may not be so. Although this Court seeks to avoid undue emphasis on formality, the need for proper notice is fundamental to efficient dispute resolution. It not only gives an opponent an opportunity to provide a proper answer but it also should force a claimant to analyse and identify the nature and legal basis of the case he seeks to make. It cannot be assumed that any improvement carried out by the tenant, however beneficial, is simply the execution of work which the landlord should have done. This type of situation is one which needs clear analysis. It is one where parties should always try to clarify matters by discussion and should not come into court without having a clear idea of the extent of their dispute. But, in any event, a landlord is entitled to have some indication of the essential aspects of the tenant’s claim set out in the pleadings.

[19] The landlord makes express averment to the effect that the new shed, which was the main improvement in question, was too big for the holding. This itself called for some response by the tenants to explain why they were to contend that the landlord was obliged to provide such a shed at the outset. On the present pleadings the applicants’ claim would have fallen to be rejected. However, the faint hint referred to above might have been thought sufficient to alert the landlord to the fact that the tenants were to contend that the work was work he should have done at the outset. If we had accepted the applicants’ submissions in relation to section 62, we would, with some hesitation, have given them an opportunity to amend to attempt to bring themselves within the provisions of section 38(2A).

Decision

[20] The fifth plea for the respondent must be sustained. We accept that this has the effect of excluding from probation the averments in Article 3 from “During the currency of the lease” to “set out in the Write Down Agreement”; the averments in Article 6 from “and secondly” to the end of the sentence; the whole averments in Article 8. Article 9 will fall to be read in light of this decision. The second part of the applicants’ first plea in law falls to be repelled.

Expenses

[21] Both parties moved for expenses in the event of success with an alternative that expenses be reserved. We see no reason to reserve. The debate concluded the claim for improvements and we see no reason why expenses should not follow success.