Decision of the Scottish Land Court

Richard Fyffe (Applicant) v John Esslemont (Respondent)

Case reference SLC 67/15
before
Iain F Maclean, Deputy Chairman, and John A Smith
15 September 2016

[1] In this Application, the Landlord Applicant craves an Order finding and declaring that the Tenant Respondent, “having inverted its possession, no longer holds the Farm of Muirton of Corsindae (“the Farm”) under a lease governed by the Agricultural Holdings (Scotland) Acts 1991 and 2003.” He pleads that in the circumstances condescended upon, the Farm having ceased to be an agricultural holding subject to those statutes, decree of declarator should be granted as craved. The circumstances condescended upon are that over a number of years, despite the Applicant’s objections, the Respondent has been using the Farm buildings and the yards around those buildings for non-agricultural purposes, principally through the vehicle of Monarch Conservatories Scotland Ltd. (“Monarch”), a sizeable construction business, and that the on-going conduct of the non-agricultural business of Monarch is “the principal activity now carried on at the Farm.” The Applicant further avers in Article 9 of the Statement of Facts in his Application that so far as known to him, the Respondent “carries out no agricultural activity at the Farm”, all livestock thereon being owned by third parties to whom the Respondent had purported to sub-let fields, and in Article 10 that the Respondent has “abandoned agricultural use of the Farm and instead devotes his time to the business of Monarch”, although in later adjustments to Article 9 he appears to row back somewhat from the position that the Respondent carries out no agricultural activity on and has abandoned agricultural use of the Farm, instead offering to prove merely that “in the context of the overall use of the Farm and the generation of income from it, any agricultural use made by the Respondent is de minimis”, and that the use of the Farm as the location and base of operations for Monarch is the “predominant use to which the Farm is put by the Respondent.”

[2] The Respondent, in his Answers, frankly admits that since 1996 he has been using the Farm buildings and yards around the buildings for non-agricultural purposes, being the receipt, storage and distribution of building materials and fitments for the construction of conservatories, home extensions and improvements, loft conversions and other building projects off the Farm, through the vehicle of Monarch, in the face of the Applicant’s past objections. He admits that these non-agricultural activities have expanded over a number of years, and that the non-agricultural business “is now the predominant economic activity on the Farm”, and that he derives the bulk of his income from Monarch, but he maintains that he has continued, and continues, to carry out various forms of agricultural activity on the holding, as averred in his Answer 9, and that the Applicant has continued to demand, and to accept, rent from him. He admits that he lets out land each year for seasonal grazing or mowing and has regularly wintered sheep on the Farm. It is contended for the Respondent that esto he has inverted possession, “the agreed purpose of the Lease continues to be that the land is used for agriculture for the purposes of a trade or business and therefor it is a lease of agricultural land which constitutes an agricultural holding for the purposes of the Agricultural Holdings (Scotland) Act 1991”, and that in any event, the Applicant is personally barred by mora, taciturnity and acquiescence from insisting in the present Application.

[3] At a procedural hearing on 13 June 2016, Counsel for the Applicant, Gavin MacColl, Advocate, and Counsel for the Respondent, Robert Sutherland, Advocate, were in agreement that a hearing by way of debate should be fixed, with each insisting that the case could be disposed of in favour of the party for whom he was appearing without the need for evidence to be heard. Upon that basis, we acceded to their wishes and fixed a diet of debate, which duly took place in Edinburgh on 26 July 2016. On that date, it became clear to us from quite an early stage in the proceedings that parties’ previously expressed optimism that the case could be determined on the basis of oral submissions, having regard to the admissions made in their respective pleadings, was misplaced, and that we would indeed require to hear evidence before reaching our decision. Standing that conclusion, it would be inappropriate for us, at this stage, to express any concluded views upon the substantive issues of law which we will, after proof has been led, require to decide, and so we shall say no more about them in this Note than is necessary to explain why we took the view that this Application is not one capable of being disposed of upon the basis of a consideration of the contents of parties’ respective pleadings.

Inversion of possession

[4] In a Note issued by us at an earlier stage of these proceedings, we explained, under reference to a passage in Somerled M. Notley’s Scottish Agricultural Law Handbook (2009) at page 45, that unless otherwise permitted by the lease or by the relevant statutory diversification provisions, a tenant is at common law not permitted to invert possession of the land let by using it for a purpose other than agricultural. If the tenant inverts possession of the land let, the landlord is entitled to terminate the lease without proof of any prejudice caused to him by the change of use. This rule does not apply in the case of exercise of the statutory right of a tenant under a traditional tenancy or a limited duration tenancy to diversify use of the land let, provided such diversified use proceeds in accordance with the statutory provisions. In that earlier Note dated 9 December 2015, we further observed, citing the case of Cayzer v. Hamilton (No. 2) 1996 SLT (Land Ct.) 21, that it might be a matter of fact and degree in each case whether inversion has taken place. We noted that whilst the Applicant had here invoked the concept of inversion of possession in his pleadings, his position, in contrast to that of the landlord in Cayzer v. Hamilton (No. 2), appeared to be not that the Respondent having inverted possession, the Applicant, in response, either had terminated, or was entitled to proceed to terminate, the Lease, but rather that in consequence of such inversion of possession, the Farm was no longer an agricultural holding. The Applicant having neither a crave for declarator that the lease had actually been terminated nor any operative craves to have the Respondent remedy any such alleged breach of the terms and conditions of his tenancy or to secure the removal of the Respondent from the Farm, we inferred that the Applicant’s position was that, were he to obtain decree in the terms craved, the effect thereof would be that the Lease in favour of the Respondent would endure, but shorn of its previous statutory protection. At the procedural hearing, Mr MacColl confirmed that this was indeed the Applicant’s position.

The Respondent’s submissions

[5] At the debate, Mr Sutherland, for the Respondent, did not, as we understood him, take issue with the central tenet of the Applicant’s argument, which is that a lease of an agricultural holding subject to the Agricultural Holdings (Scotland) Acts 1991 and 2003 (hereafter “the 1991 Act” and “the 2003 Act”) may continue in force, albeit no longer enjoying the protections which those statutory provisions afford, when the holding ceases to be used by the tenant for agricultural purposes. His objection was less fundamental: properly analysed, the Applicant’s complaint that there had been inversion of possession applied only to a small part (in terms of physical area) of the Farm, which he submitted, under reference to the case of Howkins v Jardine [1951] 1 KB 614, could not be considered in isolation from the remainder of the holding. A single tenancy could not be partly an agricultural holding, and partly not, and where the tenancy was substantially agricultural in character, the whole subjects, including any parts which were not themselves in agricultural use, would be an agricultural holding. The test of whether there has been inversion of possession did not depend on considerations of the relative profitability of the agricultural and non-agricultural activities conducted on the subjects of let (although we did not understand Mr Sutherland to be arguing that the Applicant’s averments about Monarch’s turnover were irrelevant and should not be remitted to probation) and came down to the predominant physical use to which the whole subjects of let were being put. It did not matter for the purpose of establishing that the Farm was used for agriculture for the purposes of a trade or business either that the livestock on the ground did not belong to the Respondent or that part of the Farm had been sub-let on seasonal grazing or mowing lets. It was in each case a matter of fact and degree whether inversion of possession had occurred, but loss of the protections afforded by the agricultural holdings legislation would occur only where the tenant had “wholly or substantially” abandoned agricultural activity on the subjects of let. Use by the tenant of part only of the subjects of let for non-agricultural purposes without the consent of the landlord might give rise to statutory (e.g. serving a demand to remedy under section 22(2)(d) of the 1991 Act) or ordinary contractual (e.g. interdict or damages) remedies at the instance of the landlord, but anything less than whole or substantial abandonment of agricultural activity on the subjects of let would not take the lease outwith the ambit of the agricultural holdings legislation.

[6] Whether there had been inversion of possession, and whether the tenant had “wholly or substantially” abandoned agricultural activity on the subjects of let, were properly to be regarded as two separate questions, and whilst there might be some overlap between the two, a finding that possession had been inverted on one discrete part did not necessarily lead to the conclusion that use of the subjects of let for agricultural purposes had been “wholly or substantially” abandoned, with the consequence of loss of statutory protection in respect of the whole which that conclusion would entail. It was Mr Sutherland’s submission that on the face of the Applicant’s own pleadings, it was apparent that agricultural activities on the Farm had not been “wholly or substantially abandoned”, so that the Applicant’s case must necessarily fail, and the Respondent accordingly was entitled to absolvitor, which failing dismissal. At the outset of his submissions, Mr MacColl questioned the competency of Mr Sutherland’s preferred mode of disposal, asserting that a party who successfully argues at debate that the case he has been asked to meet is irrelevant in law is entitled only to dismissal, but in light of our decision to allow proof before answer we need say no more now about that issue.

The Applicant’s submissions

[7] Mr MacColl argued, in support of the grant of decree de plano, that on the Respondent’s own pleadings it was quite apparent that there has been an inversion of possession, with the agricultural use of the Farm having been substantially abandoned by the Respondent. He acknowledged that the Respondent had made averments, in Answer 9, of what he characterised as “piecemeal and irregular” use of some parts of the Farm for agricultural purposes. However, those averments (which should be taken as the highest at which the Respondent was able to put any agricultural use of the subjects of let) only served to make clear that the predominant use to which the Respondent put the Farm was non-agricultural. He submitted that, in light of the Respondent’s admissions as to the non-agricultural use to which he put at least part of the Farm, there had been clear inversion of possession, the position being made all the clearer by the Respondent’s acknowledgement that Monarch, the vehicle for the principal activity now being carried out on the Farm, had no legal entitlement whatsoever to be present thereon. He referred us to the statutory definition of “agricultural holding” set out in the 1991 Act, in terms of which section 1 (1) provides that “agricultural holding” means “the aggregate of the agricultural land comprised in a lease …” and section 1 (2) that “agricultural land” means “land used for agriculture for the purposes of a trade or business …”, with section 85 (1) of the 1991 Act providing that “agriculture” includes “horticulture, fruit growing; seed growing; dairy farming; livestock breeding and keeping; the use of land as grazing land, meadow land, osier land, market gardens and nursery grounds; and the use of land for woodlands where that use is ancillary to the farming of land for other agricultural purposes: and “agricultural” shall be construed accordingly”, and submitted that at no stage did the Respondent offer to prove that any of the piecemeal and irregular uses of the Farm averred by him were uses of land “for agriculture for the purposes of a trade or business”.

[8] With regard to the concept of inversion of possession, he commended to us in the course of his speech a passage from Rankine on Leases (3rd Ed.; 1916) at page 236, submitting that the corresponding passages in the more recent treatises on the law of landlord and tenant in Scotland added nothing to Rankine’s account, a proposition with which Mr Sutherland did not take issue. In the quoted passage, the learned author explained that:

“Ordinary leases are granted with a view to a particular sort of possession, and to that only – the lease of a farm for agriculture or pasture; of a garden for horticulture; of a dwelling-house for residence; of a mill for manufacture; of a shop for trading, and so forth. If the tenant trespasses beyond the limits thus generally, or by special covenant more particularly, laid down for his guidance, he is said to invert the possession. The term “inversion” is, however, confined in practice to a course of conduct on the tenant’s part inconsistent with the objects of his lease, and perhaps involving alterations on the premises let; and is not extended to isolated acts, such as (in the case of an agricultural tenant, for example) night-poaching, trouting, or illegal trapping. The question in every case is as to the fair bona fide construction of the contract between the landlord and the tenant, as gathered from the words of the lease and the nature of the sort of occupation contemplated when it was entered into, subject to such alterations as have been tacitly or expressly imported into it during its course. It is impossible to formulate any rule; it is only possible to indicate the class of cases which have arisen in practice, and the mode in which they have been disposed of.”

[9] In support of his proposition that the consequence of the Respondent’s inversion of possession was that the Lease continued, but no longer as a lease of an agricultural holding as defined in section 1 of the 1991 Act and as governed by the provisions of the 1991 Act and the 2003 Act, Mr MacColl referred us to Wetherall v Smith [1980] 1 WLR 1290, a case which Mr Sutherland had also prayed in aid of his position. Unsurprisingly, the concept of inversion of possession was not, in terms, invoked in that English decision, and we note that whilst Lord Gill, in The Law of Agricultural Holdings in Scotland (3rd Ed.; 1997), does reference the case in a number of paragraphs, he does not do so in his discussion (at paragraph 7.41) of inversion of possession, but rather principally in paragraph 2.11 which bears the heading “Cessation of agricultural use”. It was, however, Mr MacColl’s submission that the principles expounded by the Court of Appeal in Wetherall v Smith were in substance those of the doctrine of inversion of possession as it was known under Scots law.

[10] In Wetherall v Smith, a tenant had the let of an agricultural holding (in terms of the statutory definition in section 1 of the Agricultural Holdings Act 1948, which for present purposes may be taken as differing in no material respect from the definition in section 1 of the 1991 Act) consisting of a field of about an acre and a quarter for use as grazing land. The landlords purported to terminate the lease on the basis that it had ceased to be an agricultural holding protected by the 1948 Act, having for some time been used by the tenant only as a jumping paddock, which was not a use for agriculture. The landlords having served notice to quit and retaken possession, the tenant sued for damages for breach of the implied covenant of quiet enjoyment and the landlords counterclaimed for, inter alia, a declaration that the tenant having unilaterally changed the nature of the tenancy, the lease had been lawfully terminated. The tenant was successful after proof in the County Court, being awarded damages and securing dismissal of the landlords’ counterclaim. No written judgment was issued by the judge at first instance, but it would seem from a contemporaneous note of his oral judgment that he found as a matter of fact that the field had come to be used for agricultural purposes only to a small degree, with its major use being for the [non-agricultural] uses of grazing and schooling horses and ponies. He declined, however, to determine whether the tenancy was or was not as at the date of the notice to quit an agricultural tenancy, arguing that if the landlords’ contention was that any such non-agricultural use was in breach of the parties’ agreement, it was for them to advance that argument before the agricultural land tribunal, and for the agricultural land tribunal to determine whether such user was at the date of the notice to quit agricultural user.

[11] The Court of Appeal held that the County Court judge’s approach was wrong in law. He had misunderstood the landlords’ argument, which was not that the tenant’s non-agricultural use had been in breach of the parties’ agreement, but rather that because of the non-agricultural use which had been made of it, the field had ceased to be an agricultural holding and therefore had ceased to be something which was within the jurisdiction of the agricultural land tribunal at all. It had been incumbent upon him to decide whether, as a result of change of user, the tenancy had ceased to be an agricultural tenancy, and the case was remitted back to him for rehearing for that purpose. In so doing, Sir David Cairns, with whom Lord Justices Ackner and Stephenson agreed, took as his starting point that notwithstanding what appears in the tenancy agreement, the character of a tenancy can change. Following a review of the authorities, he added that, on principle, it was in his judgment right that:

“the protection of the statute should be lost if agricultural activity is wholly or substantially abandoned during the course of the tenancy even if without consent of the landlord. The object of the legislature is surely to maintain continuity in the conduct of farming and horticultural operations rather than to put people, who have at some time in the past acquired a particular type of tenancy, in a privileged position. At the same time, the cases show that the tenancy is not to be regarded as alternating between being within and outside the Act of 1948 as minor changes of user take place, and that, when the tenancy is clearly an agricultural one to start with, strong evidence is needed to show that agricultural user has been abandoned [at page 1299 F-G]”.

Conclusion

[12] It seems to us to be implicit in all of the above that, as indeed was submitted by Counsel for the tenant in Wetherall v Smith, as recorded by Sir David Cairns at page 1297 G of his judgment,

“the matter has to be decided by considering the whole history of the tenancy, and that the question is one of degree, depending on the extent to which agricultural use has been abandoned and to which any other use has been adopted.”

As we understood their oral submissions, Mr MacColl and Mr Sutherland, having flirted briefly with various other possible verbal formulations of the relevant test (e.g. in relation to the concept of “predominant” use), both ultimately arrived, albeit by slightly different routes, at a shared position that in order to succeed, the Applicant would have to prove that the Respondent had wholly or substantially abandoned agricultural use of the Farm, bringing about a change in the character of the tenancy from agricultural to commercial (cf. Gill, op. cit.) which would result in the loss of its statutory protection. This formulation of the relevant test would apply whether the issue is characterised as one of inversion of possession or not (Mr MacColl at one point had submitted that his first crave would hold equally good even if the words ”having inverted its possession,” were to be deleted therefrom). The Applicant contends that the Respondent has wholly or substantially abandoned use of the Farm for agricultural purposes, but he acknowledges in his pleadings that there may be some residual agricultural activity taking place thereon, albeit that he would argue that if so, it is de minimis. The Respondent, in turn openly – it might even be said brazenly - accepts that parts of the Farm are being occupied for non-agricultural purposes by a third party, in the form of Monarch, which has no legal entitlement to be there, but he argues that there is sufficient agricultural activity taking place upon the other parts of the Farm to enable him to rebut the charge that agricultural use of the Farm has here been wholly or substantially abandoned. Whilst the Respondent’s averments in Answer 9 as to the various agricultural uses to which he claims other parts of the Farm have been put over the period whilst Monarch’s business has been expanding are far from being a model of clarity and do indeed convey the impression of a somewhat “piecemeal and irregular” (to borrow Mr MacColl’s terminology) pattern of usage, we are conscious that not all agricultural holdings are farmed at the same level of intensity and we consider that enough has been averred by the Respondent here to stave off the grant of decree de plano and to justify the fixing of a hearing by way of proof (before answer), reserving for argument after the evidence has been heard and the facts have been ascertained and seen in their proper setting the parties’ preliminary pleas to the relevancy of their respective averments. We are dealing here, as both parties recognised in their oral submissions, with what ultimately is a question of fact and degree, and it seems to us to be inevitable that, as occurred in Wetherall v Smith, we shall have to hear evidence in order to answer that question: we shall also wish to carry out a site inspection, and of course, as an expert tribunal, the impressions we form on our site inspection as to whether the character of the Farm has been changed from agricultural to commercial as a result of Monarch’s expanding activities thereon will form part of the evidence upon which we base our decision.