DIVISIONAL COURT

(Sheriff MacLeod)

GRANT v GLENGARRY ESTATE TRUST

(Application RN SLC/92/08 – Order of 7 July 2008)

AGRICULTURAL HOLDINGS – DIVERSIFICATION SCHEME – AGRICULTURAL HOLDINGS (SCOTLAND) ACT 2003, SECS 39, 40 – WHETHER LANDLORD WHO HAD WITHDRAWN OBJECTIONS UNDER SEC 40 OBLIGED TO GRANT WAYLEAVE OVER LAND FORMING PART OF HOLDING FOR PURPOSES CONNECTED WITH TENANT’S DIVERSIFICATION SCHEME

The tenant of an agricultural holding gave notice of diversification to his landlords in terms of sec 40(1) of the Agricultural Holdings (Scotland) Act 2003 (“the 2003 Act”). The landlords initially lodged objections in terms of sec 40(11) but later withdrew these. The diversification scheme involved the installation of a micro hydro electricity scheme. Two methods were available to the tenant of connecting his installation to the national grid but the most advantageous of those, from his point of view, involved the granting by the landlords of a wayleave in favour of Scottish Hydro Electric Power Distribution plc. The landlords having refused to grant such a wayleave, the tenant applied to the Court for an Order ordaining the landlords to grant it. The landlords took a plea to the relevancy of the application, arguing that in terms of the 2003 Act they were not obliged to grant such a wayleave, the tenant was not entitled to the Order sought and the Court had no power to grant it. The tenant argued that an obligation to grant such a wayleave had arisen as an implied obligation under the lease. In the absence of objection to said scheme persisted in by the landlords and sustained by the Court, the lease was to be taken to have been amended so as to permit said diversification scheme, and it therefore was an implied obligation on the part of the landlords that they had to do what was necessary to facilitate said scheme. Without such an obligation landlords could simply sit back and thwart a diversification scheme without the necessity of objecting under section 40(11) which could not have been the intention of the Scottish Parliament.

The Court held that neither as a matter of statutory interpretation nor as one of implied term arising from the statutory amendment of the lease did the provisions of Part 3 of the 2003 Act give rise to an obligation on the part of landlords of the kind founded upon here and application refused. Although the Court’s interpretation may mean that certain diversification schemes (although not this one because an alternative means of connection to the national grid was available to the tenant) could not go ahead it did not produce an absurd result because it did not make the scheme of Part 3 of the 2003 Act unworkable. Counsel for the applicant having sought a period for possible amendment in the event that the Court so decided, such an opportunity was given but not taken up and the application was dismissed of consent on 2 September 2008.

The Note attached to the Court’s Order was as follows:-

Introduction

[1] The parties are respectively tenant and landlords of an agricultural holding at Faicheamard, Invergarry, in terms of a missive of let dated 13 December 1982 and 20 January 1983. The tenancy is a full, secure tenancy governed by the Agricultural Holdings (Scotland) Act 1991 (“the 1991 Act”) as amended by the 2003 Act of the same name (“the 2003 Act”).

[2] In this application the tenant applicant seeks an order of specific implement ordaining the landlord respondents to execute a Wayleave Agreement between themselves and Scottish Hydro Electric Power Distribution plc (“SHEPD”) in relation to a micro hydro electricity scheme being undertaken by the applicant as a diversification scheme within the provision of Part 3 of the 2003 Act. The application is opposed by the respondents on the basis that the Court does not have the power to make the order sought.

[3] The case called before us for debate on 17 June 2008 when the applicant was represented by Sir Crispin Agnew of Lochnaw QC and the respondents by Mr Robert Sutherland, advocate.

Legislation and other instruments

Agricultural Holdings (Scotland) Act 2003, Part 3, ss. 39-41
European Convention on Human Rights and Fundamental Freedoms, First Protocol
Human Rights Act 1998

Autorities cited

Cawdor Trustees v Mackay 2005 SLCR 76
Downie v The Trustees of the Earl of Stair’s 1970 Trust 2007 S.L.T. 827
Huber v Ross 1912 S.C. 898
Lithgow v United Kingdom(1984) 7 EHRR 245
M. W. Investments Limited v Kilburn Envoy Limited [1947] 1 All ER 710
Palmer’s Executors v Shaw 2004 SC 408
Telfer’s Executors v The Buccleuch Estates Limited 2006 SLCR 131
The Sunday Times Case (1979) 2 EHRR 245

Texts

Bennion, Statutory Interpretation, 5th ed.
Rankine, Law of Leases in Scotland, 3rd ed.

Submissions for the Applicant

[4] Sir Crispin opened and invited the Court to grant the order sought. However, in order to lay a foundation for that order in law he moved the Court to allow the application to be amended by the introduction of an additional crave in the following terms:-

“The tenant craves the Court to find and declare that the landlords are bound to sign and agree the Wayleave Agreement between Scottish Hydro Electric Power Distribution PLC and the landlords which was sent to the landlords by the said company on about 13 September 2007.”

Mr Sutherland having indicated that he did not oppose the amendment, we allowed the application to be amended by the substitution of this for the present Crave 1 and the renumbering of the present Crave 1 as Crave 2.

[5] Sir Crispin then outlined the factual background. A Diversification Notice (production 5) had been served on the respondents on or around 7 November 2005. A plan enclosed with the notice (production 6) showed clearly that there was to be an underground grid cable linking the generator shed with the National Grid.

[6] On or around 8 December 2005 agents for the respondents had sent a letter (production 8) to the applicant objecting to the scheme on the ground that it would be detrimental to sound management of their estate, that being one of the grounds of objection permitted to landlords in terms of section 40(9) of the 2003 Act. The objection concerned only the abstraction of water originating from a source outwith the land tenanted by the applicant and the effect of that abstraction on the landlords’ own agricultural and estate activities.

[7] That objection had subsequently been withdrawn without qualification and the respondents had not sought to impose any conditions upon the scheme.

[8] The tenant had subsequently sought and obtained all necessary consents and the necessary funding for the scheme but his eligibility for financial assistance under the Scottish Government’s Agricultural Business Development Scheme was at risk due to delay in completion of the project, although the deadline for completion had been extended from 31 January 2008 first to 30 April and now to 30 June 2008 on the strength of this application being in court..

[9] Sir Crispin explained that there are two means by which the electricity generated by the applicant can be fed into the National Grid. One involves the provision and maintenance of the necessary connection equipment by SHEPD and the other provision and maintenance of that equipment by the applicant himself. The former is the applicant’s preferred option. It is more advantageous financially but it requires a wayleave in favour of SHEPD over the route of the connection. It was the respondents’ refusal to grant such a wayleave which had necessitated this application.

[10] Against that background, Sir Crispin turned to the powers of the Court. This was a question or difference between the landlord and tenant of an agricultural holding and therefore within the Court’s jurisdiction in terms of section 60(2)(b) of the Agricultural Holdings (Scotland) Act 1991. The tenant’s position was that the respondents were under an obligation to grant said wayleave and the Court had power under section 84(1)(b) of the 2003 Act to grant an order of specific implement compelling performance of that obligation. Alternatively, if we were to be of the view that the duty to grant the wayleave did not arise in such a manner as permitted the granting of an order of specific implement, then we should pronounce declarator in terms of the new crave introduced by amendment.

[11] Sir Crispin then turned to how such an obligation arose. It arose as a result of the statutory amendment of the parties’ lease by the diversification provisions of the 2003 Act.

[12] Where a statute varied a lease the lease then had to be read as if it contained the relevant additional statutory provisions and was subject to any statutory deletions: M. W. Investments Ltd v Kilburn Envoy Ltd. All other clauses in the lease had to be read by reference to the modification made by the statute.

[13] Leases of agricultural holdings were no exception. Specific examples of leases having to be read as amended by the Agricultural Holdings (Scotland) Acts of 1948, 1949 and 1991 were Downie v Stair’s Trustees and Palmer’s Executors v Shaw in which it had been held that irritancy provisions in leases had to be read by reference to the statutory provisions in relation to compensation.

[14] Cawdor Trustees v Mackay hadspecifically considered the relationship between the right to diversify and resumption clauses and, more generally, the relationship between the lease and the relevant statutory right. However, in Sir Crispin’s submission, the Court (at page 114) had been wrong in rejecting the submission that the effect of sections 39 to 41 of the 2003 Act had been to qualify the parties’ contract by the importation of an implied term or, alternatively, that their contract had been qualified by importation of a restriction on the landlord’s power to resume arising from the statutory entitlement in the tenant to pursue diversification. In Sir Crispin’s submission the correct approach was to read the lease as having been varied by the statutory diversification provisions so that one looked at the totality of the permitted use (agricultural and non-agricultural, the “sensible and workable approach” in reconciling rights of resumption and rights to diversify described by the Court at page 113) and on that basis to see whether the intended resumption was of so material a part of the land that it would not have been in parties’ contemplation when the variation of the terms of the lease by the statute took effect. In M. W. Investments Ltd v Kilburn Envoy Ltd the lease was said to have been varied ab initio but one did not have to go back to the commencement of the lease; in order to avoid the sort of artificiality referred to by the Land Court in Cawdor Trustees at page 115 (in terms of what had been in the contemplation of parties at the outset of the lease) one need not go back beyond the point at which the statute had amended the lease. In any event not all implied terms arising from the variation to the lease effected by the diversification provisions were ones relating to the intentions of the parties.

[15] Sir Crispin then dealt with the terms of sections 39 to 41 of the 2003 Act. His starting point was section 39(2), which reads: “Any term of the lease which prohibits the use of the land for a non-agricultural purpose is of no effect.” That was, basically, a statutory amendment of the lease. The right to diversify then became one of the tenant’s rights under the lease, provided that the statutory procedures contained in section 40 were followed. The lease then had to be read in the context of this statutory variation. The right thus introduced into the lease brought with it by necessary implication that the landlord would act in a way that allowed the right to be effectively exercised. Section 39(4) was the landlord’s protection: the right to diversify was limited to such non-agricultural uses as were permitted after the operation of sections 40 and 41.

[16] With reference to section 40, there was no requirement upon a tenant, in giving a notice of diversification under that section, to specify how the diversification scheme was to be operated or how any necessary services or public utility connections were to be provided. Nor was there any requirement to mention the involvement of third parties.

[17] Subsections (4) to (12) of section 40 provided a mechanism for objection on limited grounds to the scheme or imposition of reasonable conditions on the scheme by the landlord. The landlords having withdrawn their objection in the present case and never having sought to impose conditions, they must be taken to have impliedly consented to the diversification.

[18] Section 41 did not apply in the present case since it dealt only with the role of the Land Court in resolving disputes as to the reasonableness of objections or conditions advanced by the landlord.

[19] The submission which Sir Crispin developed against the background of these provisions was that it must be implicit in the powers given to a tenant by Part 3 of the 2003 Act that he was entitled to connect to public utilities or to other third party services or acquire incidental rights, such as rights of access to third parties, in order to be able to operate his diversification scheme. He gave examples of situations in which these needs would arise. The building of a farm shop or house for the farm shop manager in the middle of the farm would require connection to public services such as water, sewage, electricity and telephone. The building of a golf driving range on the farm, where the surrounding land was owned by the landlord, would require the granting of access rights to third parties. The development of a trout farm using water from a river not owned by the landlord but where the water had to cross the landlord’s land to reach the farm would require consent on the part of the landlords. These were situations in which wayleaves or other permissions were generally required unless resort was to be had to compulsory purchase procedures and it was unlikely that such could successfully be invoked in situations such as these. Where the landlord did not object to a diversification scheme, or where his objection had been over-ruled, there was an implied obligation that he would perform such acts as were necessary to allow the diversification to go ahead.

[20] Sir Crispin drew an analogy with the making of new improvements for which notice was required in terms of section 38 and Schedule 5 to the 1991 Act, in particular the provision or laying on of electric light or power in terms of paragraph 17 of Schedule 5. In that situation, where the tenant gave notice and the landlord failed to serve a counter-notice it must be implied that the landlord will consent to any necessary wayleaves to get the power to the relevant buildings. The tenant had to pay for the poles which carried the cables to those buildings but these poles formed part of the national grid and required a wayleave over the farm. He referred to the discussion of provision of an electricity supply in Telfer’s Executors v The Buccleuch Estates Ltd at pages 160-161.

[21] Returning to his analysis of the matter as one involving statutory variation of the lease, Sir Crispin submitted that where a tenant had given notice of diversification and the landlord had not objected (or any objection had been over-ruled by this Court) the result was a lease permitting the diversification. That was equivalent to the landlord have varied the lease so as to incorporate that permission. Therefore the landlord must be taken to have granted the necessary incorporeal rights to allow the permitted use to be undertaken and he was bound not to derogate from his grant: Rankine pages 205-206. Refusal to grant necessary wayleaves was a derogation from that grant. Reference was made to the discussion of the principle of non-derogation from grant in the judgements of Lord President Dunedin, Lord Johnston and Lord MacKenzie, at pages 910-912, 916-97 and 918 respectively, in Huber v Ross.

[22] Alternatively, it was an implied term of the consent that the landlord would not prevent the tenant from undertaking the diversification to which the landlord consented. By refusing to grant the wayleave in the present case, the landlord had in effect withdrawn his consent because the diversification could not take place economically without that consent.

[23] If we were against him on the respondents’ consent arising as an implied term of the amended lease it was an implied term arising from the provisions of the statute.

[24] For all of these reasons we should grant the orders sought. If we were against him on that, however, there was an issue about what the respondents’ factor had been told about the diversification scheme which might found a case of waiver or personal bar and we should continue the application for adjustment in order to give time for such a case to be investigated and, if appropriate, pled.

[25] Expenses should be reserved for written submissions except for the certification of the cause as suitable for the employment of senior counsel which was appropriate given the difficult issues arising under the 2003 Act and the crucial importance of the matter to the tenant.

Submissions for respondents

[26] In Mr Sutherland’s submission the scheme of Part 3 of the 2003 Act did not empower this Court to grant the orders sought. The scheme of the legislation was that the tenant could not require the landlord to take nay particular course of action in order for the tenant to carry out a diversification scheme under the Act.

[27] Section 39 was merely permissive of a non-agricultural use of the holding. The only interference with the landlord’s position which the section entailed was that if the procedures laid down in sections 40 and 41 were successfully followed any prohibition on non-agricultural use in the lease was nullified. Mr Sutherland took us through the provisions of section 40. We need not repeat the detail of his submission on these but what he took from them was as follows.

[28] Firstly, a notice of diversification was required to address only these matters listed in section 40(2) together with such matters as may constitute any ground of objection on the part of the landlord in terms of subsection (9)(a)(i) to (iii). However subsection (9)(a) also included a fourth ground of opposition, viz (9)(a)(iv);that the landlord considered that the intended non-agricultural use of the land would cause the landlord to suffer undue hardship. It was significant, in Mr Sutherland’s submission, that that ground had been excluded from the list of matters a notice of diversification required to address in terms of section 40(2) because that was the very ground a landlord might want to found upon if there was the potential for the landlord to be compelled to enter into an agreement with a third party which might affect the landlord’s interest over the subjects. Section 40(9)(a)(iv) was also left out of account for the purposes of the landlord being entitled to ask for relevant information as to certain matters in terms of subsections 40(6) and (7). Thus a notice of diversification did not require to contain all the information which a landlord might need to know before deciding whether to consent to the scheme, neither did the legislation entitle a landlord to insist upon the provision of that information. In that situation we should approach the matter by looking at the express terms of the legislation rather than by attempting to draw out inferences as to implied terms or consents in the way Sir Crispin had.

[29] Secondly, only two provisions of Part 3 involved the imposition of any sort of obligation on any party: section 40(10), whereby the landlord could impose reasonable conditions upon the tenant, and section 41 whereby such conditions could be imposed upon the tenant by this Court. These were, in effect, obligations which were being imposed upon the tenant. It could not reasonably be thought that the Scottish Parliament would have legislated to provide an express basis for the imposition of conditions on a tenant yet leave the imposition of an obligation on the landlord to implication.

[30] Thirdly, it was noteworthy that the Act did not provide any mechanism by which a landlord could challenge the terms of a proposed wayleave agreement. Similarly the Court was not given any jurisdiction over third parties so as to require them to accept wayleave agreements on terms different from those which they had offered.

[31] More generally, the imposition of a wayleave on a landlord would be an interference with his peaceful enjoyment of property rights and as a matter of general statutory interpretation, therefore, such interference would require to be based upon an express power: Bennionsection 278. There was also a presumption against doubtful penalisation (Bennion supra) and although in the present case we were not dealing with the expropriation of property we were dealing with control of how property was used. The scheme of Part 3 of the 2003 Act set out a code which was different from what parties had agreed between themselves and it was therefore contrary to principle to innovate upon that code by broadening it on the basis of implication.

[32] The application also raised issues under Article 1 of the First Protocol of the European Convention on Human Rights and Fundamental Freedoms as given effect to by sections 1, 3, 6 and 7 of the Human Rights Act 1998. Interference with property rights had to be provided for by law and be proportionate to any legitimate aim being pursued. That required there to be both a clear and predictable basis for the interference and a clear understanding of why that action was being taken: The Sunday Times Case; Lithgow v United Kingdom. The present case did not satisfy these tests.

[33] There was a further complication caused by the absence of jurisdiction in the Court to deal with third parties. What if the land in question was burdened with a Standard Security and the security holder refused to consent to a proposed wayleave? There was no power in the Court to require such a party to consent. If the tenant was entitled to the kind of order sought in this case then the Conveyancing and Feudal Reform (Scotland) Act 1970 would have to be revisited.

[34] Mr Sutherland then turned to Sir Crsipin’s submissions.

[35] There was no real distinction between the implicit power in the lease which the applicant was founding upon and any implicit power arising from the Act because everything derived from the Act, which was the sole basis upon which a tenant was entitled to go ahead with a diversification scheme at all.

[36] Palmer’s Executors and Downie if anything favoured the respondents. In the former the court had been concerned with an express provision of the Agricultural Holdings (Scotland) Act 1923 and it was that which enabled the court to consider interfering with the contractual roles of the parties. In Downie the legislation had changed and what the tenant was trying to found upon was an implication from the legislation and he had been unsuccessful. Neither case assisted the applicant here. One could interfere with the contractual powers of the parties only where the legislation permitted that in clear terms.

[37] The approach of this Court in Cawdor Trs was correct. Further, it was not inconsistent with the M.W. Investment case. The Court in Cawdor Trs had not been trying to extend the express provision of the legislation to other circumstances by implication.

[38] Sir Crispin’s submission on the effect of section 39 was too broadly stated. There was a big difference between an Act allowing something to be done which had hitherto been prohibited and a landlord being required to agree to any means of implementing a diversification scheme which a tenant may choose, particularly where the legislation restricted the basis on which he was entitled to object and the information which he was entitled to obtain.

[39] So far as the practical difficulties which Sir Crispin had sought to illustrate were concerned, access to the hypothetical golf range would be the tenant’s by right once the golf range became a permitted use. But a tenant would not be entitled to insist upon the building of an access road over a shorter route across other land belonging to the landlord which was not part of the holding even if that route would make the golf course more commercially viable. The scheme of the Act was to set out a balance of interest between the landlord and tenant and it did that in such a way that the tenant could carry out a diversification scheme provided he could do so from his own resources, at his own hand, and without imposing obligations on the landlord in relation to his property rights to which the landlord was unable or unwilling to consent.

[40] So far as supply of electricity to a building which did not have it was concerned Mr Sutherland had suggested, somewhat tentatively, at an earlier stage in his submissions that the problem could be resolved by the tenant, once the particular scheme had passed through the procedures contained in sections 40 and 41, serving a notice of improvements under section 38 and Part II of Schedule 5 of the 1991 Act, envisaging a two-stage process although it was not clear to us how these provisions of the 1991 Act, dealing as they do with compensation for improvements, could be used to achieve that to which the tenant was not, in Mr Sutherland’s submission, entitled in terms of the diversification provisions of the 2003 Act.

[41] Likewise at a later stage in his submissions Mr Sutherland made a point which it is convenient to narrate here. It had to do with rights of access to land on which diversification was to take place. The point was that such rights may have to be over land owned not by the landlord but by a third party. The landlord’s own right over that land may take the form of a servitude. In that situation, if the diversification was to proceed, the landlord would have to reach agreement with the neighbouring proprietor as to increasing the scope of the right in terms of who was to be entitled to use it and the use made of it. But the landlord could choose not to get involved in such negotiations because there was no compulsitor on him to do so in the Act and the scheme of the Act was not intended to impinge on the rights of third parties.

[42] Asked by the Court whether his position meant that a landlord had a power of veto over any scheme requiring any co-operation on his part – and whether he had objected to the diversification notice or not – Mr Sutherland responded that we had to apply the legislative scheme contained in the Act whatever the consequences of that might be. The result of this legislative scheme was that a tenant could carry out any diversification which he could implement himself and it was in that context that the landlord’s limited right to object should be seen.

[43] In relation to Huber v Ross at page 911 the example was given of two adjacent properties owned by the same landlord. What the passage referred to by Sir Crispin illustrated was that, in terms of a tenant’s right to use the subjects let, whether arising by agreement or from statute, there was no right to unrestrained enjoyment of the subjects: there were other rights which the landlord may retain or a third party may hold which may interfere with that. So benefit to the tenant was not unlimited and in the present situation what one had to do was go back to the particular scheme of the 2003 Act in order to see what it permitted and what it did not. And what Lord Johnston had been discussing at page 916 of Huber had been a positive act. In the present case there was no positive act of interference and there was therefore a material distinction between what the court was talking about in Huber and the present case. Withholding co-operation could not be an interference although it may frustrate the applicant’s expectation that the diversification scheme would go ahead. That expectation was no more than a hope and, that being so, the fact that he may not be able to implement his scheme in a particular way as a result of non-cooperation by the landlords was not an interference with his rights.

[44] For all of these reasons we should refuse both craves of the application and grant absolvitor to the respondents. If that were the result expenses should follow success. If we were against him, however, the appropriate step would be to allow a proof before answer. It would not be possible to grant the orders sought without a hearing on such matters as why this particular method of connection to the National Grid should be imposed on the respondents. The cause certainly justified the employment of counsel but Mr Sutherland was content to leave it to us to decide whether it merited certification as being suitable for the employment of senior counsel.

Rejoinder by Sir Crispin

[45] In a brief rejoinder, Sir Crispin concentrated on two aspects of the position taken by Mr Sutherland; the apparent veto which that position would confer on landlords in relation to many diversification schemes and the resolution of questions as to what would be reasonable for a landlord to be expected to do in the way of co-operation in any given situation.

[46] Many diversification schemes were likely to be located in the middle of an estate. Many of these would require connection to the public utilities. He again cited examples such as the building of a shop, golf driving range and holiday cottages. That would often require the co-operation of the landlord in terms of granting rights such as wayleaves. Mr Sutherland’s position would mean that a landlord in such a position would hold a veto over the development. That did not sit very well with a scheme which allowed landlords to object – and only on limited grounds at that. A landlord holding such a veto would not need to object: the diversification scheme could not proceed without his co-operation in any event. That was an absurd construction of the legislation. It would mean that many schemes of the kind which were likely to take place – the very sorts of scheme that the Scottish Parliament had had in contemplation in passing the legislation – could not proceed if the landlord chose to withhold co-operation.

[47] It must, therefore, be implicit that the landlord is bound to take appropriate steps to allow a development to which he has not objected, or which has survived such an objection, to go ahead if it is in his power to do so. And in the present scheme what the landlord was being asked to do was within his power.

[48] As to adjudicating on what it was reasonable to require a landlord to do, that was a matter for this Court in the exercise of an equitable and discretionary power to refuse to grant applications such as the present one where what was being asked was judged by the Court to be unreasonable. For instance if the terms of a particular wayleave were in some way objectionable, the Court could refuse to ordain a landlord to grant it.

[49] So far as any ECHR dimension was concerned, it should be remembered that section 45A of the 1991 entitled landlords of holdings which had been reduced in value due to use for a diversification scheme to compensation.

[50] Referring to M. W. Investments Ltd, the point was that once a lease had been amended by statute one then had to construe the other clauses of the lease and the terms that were to be implied by law in the light of that amendment. It was not that the application of the statute was being extended but that the lease had to be read in the light of the amendment, which included the reading into the lease of implied terms. In the present case it was appropriate to approach it in that way (i.e. as a situation in which the lease was being amended) because section 39(2) read “Any term of the lease which prohibits the use of the land for a non-agricultural purpose is of no effect” . That was a deletion of a provision in the lease and once one had deleted something from a lease one had amended the lease.

[51] With reference to the Sunday Times case, and to the requirement (at paragraph 49 of the judgement) for sufficient precision in the law although many laws were inevitably couched in terms which are vague to a greater or lesser extent, Sir Crispin said that he had tried to put his submission on the basis of well established law such as the principle of non-derogation from one’s grant.

[52] Likewise he did not accept what Mr Sutherland had sought to take from Palmer’s Executors and Downie. What these cases demonstrated was that the lease had to be construed in accordance with the relevant statutory provisions and if these provisions rendered terms of the lease null and void then one had to construe other, connected, provisions of the lease in accordance with that.

[53] Likewise the distinction drawn by Mr Sutherland between a positive act of interference, such as the structural alterations in Huber, and declining to grant a wayleave, as in the present case, was not valid: one was as much an interference as the other.

[54] In conclusion Sir Crispin repeated his submission that there was in this case an implied obligation on the respondents to grant the wayleave. If they were unhappy with its terms they could ask the Court to exercise its discretionary and equitable powers. Otherwise there was no need for a proof before answer and we should grant the orders sought.

Discussion and decision

[55] The essential question in this case is whether Part 3 of the 2003 Act imposes upon landlords an obligation to positively co-operate with tenants, in so far as is reasonable to expect them to do so, in the execution of diversification schemes.

[56] A number of possible ways in which that obligation might arise were canvassed by Sir Crispin. It is not easy to keep these distinct from one another and we tend to agree with Mr Sutherland (see paragraph [35] above) that there is no real distinction between the implicit power arising from amendment of the lease or directly from the statute. Much of what can be said on one strand of the argument applies equally to the others but in what follows, in an attempt at clarity and in order to reflect how the argument was presented and show what we made of each aspect of it, we try to treat them separately

(i) By implied term in the statutorily amended lease

[57] Sir Crispin’s principal argument was that Part 3 of the 2003 Act had amended the lease in such a way that it was now an implied term of the lease that the respondents were bound to do anything which was in their poser to do and could reasonably be required of them in order to allow this diversification scheme to proceed.

[58] We have no difficulty with the notion of the statute having amended the lease. In our view the effect of that amendment is quite simple: it widens the scope of the permitted use of the land comprising the holding and the lease has to be read with whatever modifications are necessary to allow that: M. W. Investments Ltd v Kilburn Envoy Ltd. In effect the newly permitted use is put on the same footing as the original.

[59] That brings us to Sir Crispin’s comparison with the position concerning improvements under Part IV of the 1991 Act, the particular comparison being with the laying on of an electricity supply, one of the improvements requiring notice to the landlord in terms of Part 2 of Schedule 5 of the Act.

[60] The statutory code governing that matter is strikingly similar to that governing diversification schemes in the 2003 Act. Thus there is a requirement for notice to the landlord, provision for objection by the landlord by counter-notice and a mechanism for adjudication on the reasonableness of objections by this Court - and no mention of any obligation on the part of the landlord to positively co-operate in the execution of the improvement.

[61] The comparison therefore does not take us very far and Sir Crispin had to rely on it being a matter of necessary inference that the landlord was under an enforceable obligation to co-operate. But he seemed to regard the existence of such an implied obligation in the case of improvements as more self-evident than it was in the case of a diversification scheme.

[62] We agree with Sir Crispin that if there is such an implied obligation in the case of improvements it would be at least reasonable, if not necessary, to read such an obligation into the provisions on diversification. But we do not see that the case for the existence of such an obligation arising by necessary inference is any more compelling in relation to improvements than it is in relation to diversification. Comparison of the two situations does not, therefore, assist Sir Crispin’s argument.

[63] Nor is Sir Crispin’s argument materially assisted by the cases on which he sought to rely. As we have said at paragraph [58] above, we consider the extent of the statutory amendment of the lease in this situation to be a widening of the permitted use of the holding and consequent nullification of anything in the lease which is at odds with that.

[64] That seems to us to be consistent with M.W. Investments Ltd v Kilburn Envoy Ltd in whichGreene, M.R. (at page 712E-F) approved the following treatment of the matter of statutory amendment of the lease by the judge below:-

“On the other hand, such of the original provisions as contradict or conflict with or are incompatible with the positive provisions of the Act must be rejected, or at any rate modified, when and so far as they are susceptible of modification.”

His Lordship then goes on to say (712G)

“Section 1 … appears to give a clear direction as to what is to be done to this invalid clause in the lease, and I cannot myself see how the directions given by s. 1 can be satisfied unless any other clause in the lease which is referential to or dependent on the invalid term is construed, and, if necessary , modified accordingly.”

[65] Nothing said in Palmer’s Executors v Shaw or Downie v The Trustees of the Earl of Stair’s 1970 Trust seems to us to add to that in any way and these cases were, of course, cited merely as examples of irritancy provisions in a lease requiring to be read against statutory provisions as to compensation. In other words they demonstrate the application of statutory provisions on one subject (compensation) having a bearing on the validity of clauses dealing with another subject (irritancy) or, more generally, the need to read the lease as a whole so that it is consistent with the statutory requirements.

[66] In the present case, however, the applicant asks the Court to go a step beyond what is illustrated in any of these cases and find that the amendment to the lease gives rise to a positive, implied obligation on the part of the landlords to do something which they would not otherwise be obliged to do. The cases cited do not in our view support that but we ask ourselves whether the absence of such an implied obligation is necessarily repugnant to the new statutory provisions.

[67] We think not. We say that because although the absence of such an implied obligation in the lease may make certain diversification schemes impossible it does not make the new legislative provisions in themselves unworkable. In other words such an obligation as Sir Crispin contends for is not necessary to give meaning, content and effect to the new statutory provisions generally.

[68] At this point the distinction between such an obligation arising by amendment of the lease or from the statute itself becomes meaningless. We deal with interpretation of the statutory provisions below. What we say there is relevant to the present branch of the argument also, however, and reinforces us in our conclusion on this branch, which is that a positive obligation on the respondents does not arise as a result of any process of amendment of the lease.

(ii) By application of the principle of non-derogation from grant

[69] The principle of non-derogation from grant seems to us to be, essentially, an equitable doctrine: one is not entitled to take back what one has contracted to give.

[70] In Sir Crispin’s submission the effect of amendment of the lease in this case as aforesaid is that the landlords are to be taken to have granted the tenant the subjects for the permitted new use as well as the original use.

[71] That is not, of course, what in fact happens in diversification schemes. What in fact happens is that the tenant wins his new entitlement by operation of the statutory provisions. The landlord gives (grants) nothing. Sir Crispin’s position is that he is to be deemed to have granted permission for the new use.

[72] At this point we encounter the sort of artificiality referred to by the Full Court in Cawdor Trustees v Mackay in the passage of its judgement (at pages 114-115) criticised by Sir Crispin. What the Court was considering there was the effect of subsequent legislation on what was to be taken to have been within the contemplation of parties at the outset of the lease in a question of resumption and whether the proposed resumption was such that it was outwith what would have been in the contemplation of parties at that time. As we read that part of the Court’s judgement it is the attempt to superimpose the subsequently statutorily permitted use on what was in fact in parties’ contemplation at the outset of the lease that is being described as “wholly artificial” at page 115. We respectfully agree with the Full Court in that description and consider that a similar artificiality arises here which debars the applicant from founding on the principle of non-derogation from grant.

[73] Even if we are wrong in that, however, we do not think that the application of the principle of non-derogation in this context entitles the applicant to the orders sought. That is because of the scope of the principle, as to which Rankine (at page 206) says this (referring to the incorporeal rights and privileges which the grant of a lease carries with it):-

“The privilege, however, should be either an absolute necessity of occupation; or it must be expressly granted, or plainly implied.”

[74] In our opinion, for the reasons given above, the grant of a “privilege” of positive co-operation on the part of a landlord is not absolutely necessary to the operation of the statutory code on diversification. Nor can it be said to be expressly granted, nor, again for the reasons already given, can it be said to be implied.

[75] Our conclusion on this branch of the argument is, therefore, that the doctrine or principle of non-derogation does not apply for equitable reasons but, esto it does, it does not produce the result for which the applicant contends.

(iii) By implied consent

[76] We consider the argument on implied consent to be similarly artificial. It depends on the proposition that non-objection is to be equiparated with consent. That in itself is a falsity but is seen to be more obviously so in a situation where objection is permitted only on limited grounds. We therefore reject this strand of the argument.

(iv) By necessary implication from the statutory provisions themselves

[77] Sir Crispin argues that it is necessary to read the legislation as giving rise to an obligation of co-operation on the part of the landlords in order to give it effect.

[78] We were initially attracted to this view because, as Sir Crispin demonstrated, it is not difficult to figure examples of diversification schemes of a kind which Parliament (we were informed) had very much in mind when passing the legislation, over which, because of particular requirements of particular schemes, landlords would in effect have a veto whether they had objected to the scheme or not. We thought Mr Sutherland’s stance was likely to produce results which were unlikely to have been intended.

[79] But by a similar process of citing examples - such as requiring, in the interests of economy, the building of a shorter access road to the hypothetical golf driving range over other land belonging to the landlord – Mr Sutherland showed how difficult it might be to put limits on the power contended for by the applicant. Sir Crispin’s response was that these were questions of reasonableness which would require to be decided by this Court: a jurisdiction not even hinted at in the 2003 Act and quite possibly inferentially excluded by the fact that the Court, in section 41, is given a very specific role in ruling on objections and conditions.

[80] On reflection, therefore, we consider that Mr Sutherland was right to sound a note of caution about implying any obligations in this area of law. It is an area in which legislation has been increasingly prescriptive of parties’ rights and obligations since the first Agricultural Holdings (Scotland) Act of 1883. By the time of the consolidating landmark of the 1949 Act these rights and obligations could be said to have been codified in as much as the legislation contained a fairly comprehensive, detailed and explicit code of rights and obligations in which little or nothing was left to implication. For our own part we have difficulty of thinking of anything which the landlord of an agricultural holding is obliged to do to assist his tenant which is not spelt out in that code as presently comprised by the 1991 and 2003 Acts. The recognition of such an obligation arising by way of implication would therefore be something of a novelty.

[81] The history of legislation in this area is a history of Parliament adjusting the competing rights and liabilities of landlords and tenants and that was also, said Mr Sutherland, what the 2003 Act was doing. And it had drawn the line at what the tenant could do at his own hand. What the tenant could do at his own hand, the landlord was obliged to allow him to do but the landlord’s obligations went no further.

[82] We are satisfied that, given said history of legislation, we should be slow to read into the Act something which is not explicit. Furthermore, if we can make sense of the intention of Parliament from the terms of the Act we cannot go beyond that to impute further, or different, intentions.

[83] We also agree with Mr Sutherland that the effect of Part 3 of the 2003 Act is to set out a code which is different from that which parties have agreed between themselves and that it is contrary to principle to innovate upon that code by implication. Further we agree that any interference with a right of property requires to be based on an express power: Bennion section 278.

[84] Standing what we have said about the nature and history of legislative intervention in this area and applying the principles of statutory construction to which we have just referred it is not necessary for us to rely to any extent on the ECHR considerations and associated cases from which Mr Sutherland sought further support.

[85] Approaching matters in that way it seems that what Parliament intended was that a tenant is to be allowed to pursue a diversification scheme which has been subjected to the statutory procedures and which he can pursue either at his own hand or with such assistance as he can procure. The landlord is given limited rights of objection. Should his objections fail he has to allow the scheme to go ahead. He must do nothing to stop it. But he is not obliged to do anything positive in the way of co-operation.

[86] Although such a reading will in some situations mean that a scheme cannot go ahead or cannot be carried out in the most economically efficient way, that does not produce an absurd result: there is no reason why Parliament should not have balanced parties’ rights in that way. The existence of a limited right to object is irrelevant. It merely allows landlords to object to schemes which are otherwise outwith their control, in the sense of being schemes which the tenant can carry out at his own hand. But if Parliament’s intention was that a tenant should not be able to insist on the positive co-operation of his landlord then a scheme requiring such co-operations could not get off the ground in the first place and no question of objection arises.

[87] As to the practical outcome of such an approach, there is no reason to think that it will lead to large numbers of diversification schemes not going ahead. In many cases landlords will be happy to co-operate or their co-operation can be secured by appropriate inducement. It would appear that Parliament has accepted whatever risk there is of some schemes which are dependent upon the landlord’s co-operation not going ahead. That is explicable on the basis that it considered compulsion of co-operation on the part of landlords in matters affecting their own property rights as a step too far. If we are wrong in that analysis, however, it is for Parliament to correct their omission because the obligation upon which the tenant relies in this application is not contained in the 2003 Act and we have concluded that no legitimate reading of the legislation allows us to supply it by implication.

[88] We have therefore refused to grant the orders sought. In that situation Sir Crispin asked us to allow an opportunity to investigate and, if so advised, plead a case of personal bar and, although on one view the respondents are entitled to absolvitor at this stage, we have taken a pragmatic approach and continued the application four weeks for that purpose.

[89] We have reserved expenses, including the certification of the cause as suitable for the employment of senior counsel, for written submissions.

For Applicant: Sir Crispin Agnew of Lochnaw QC; Messrs Gillespie Macandrew, Solicitors, Edinburgh

For Respondents: Mr R Sutherland, Advocate; Messrs Anderson Strathern, Solicitors, Edinburgh