MacFarlane v Falfield Investments Ltd

CourtCourt of Session (Inner House - First Division)
Judgment Date29 July 1997
Docket NumberNo 3
Date29 July 1997


Lord Marnoch

No 3

Landlord and tenantAgricultural holdingsLeasePartnershipLease to limited partnership in which landlords were partnersPursuer general partner but partnership not operatedWhether pursuer entitled to security of tenureWhether limited partnership void as sham to avoid security of tenureAgricultural Holdings (Scotland) Act 1991 (cap 55), sec 221

The pursuer entered into limited partnerships with the landlords of two agricultural holdings the landlords being limited partners and the pursuer general partner. The partnership was not operated but at the ish of each lease the pursuer failed to vacate the holdings. He brought an action against the

landlords contending that the contracts of copartnery were a pretence, the sole purpose of which was to allow the pursuer to be granted tenancies of the holdings without enjoying the benefit of security of tenure provided under sec 22 of the Agricultural Holdings (Scotland) Act 1991. The landlords accepted that the purpose of the limited partnership tenancy was to prevent security of tenure being granted to the pursuer. The pursuer sought declarator that the contracts were a nullity and that he was the tenant of the holdings under the leases. Alternatively, the pursuer sought declarator that the provision that the partnerships should terminate at the ish was null and that the partnerships, and he himself as general partner, could be removed from the holdings only by operation of a notice to quit under Part III of the 1991 Act. The landlords counterclaimed for violent profits. At procedure roll, the Lord Ordinary (Marnoch) dismissed the pursuer's action and the landlords' counterclaim. The pursuer thereafter reclaimed and the landlords counterclaimed

Held (1) that there was no objection in principle to a lease of an agricultural holding being granted to a limited partnership in which the landlords were limited partners, even when the admitted purpose of the arrangement was to prevent the general partner becoming sole tenant and therefore able to rely, as tenant, on the statutory provisions relating to security of tenure; (2) that the intention of Parliament was that it was in the public interest that tenants of agricultural holdings should have the degree of security of tenure which the statutory provisions secured for them but the arrangement in this case did not constitute an attempt to contract out of the statutory security of tenure provisions for in each instance the tenant was a limited partnership and, so long as the lease endured, the limited partnership was entitled to the statutory protection afforded by the Act; (3) that an agreement or contractual term by which a tenant under an agricultural lease renounced his statutory right to serve a counter-notice in terms of the legislation was unenforceable, but this was not a case where the tenant had so contracted as there was no term which sought to take away the right of the limited partnerships qua tenants to serve a counter-notice and, although the scheme was deliberately designed to make sure that the occasion where such a notice might be served would not arise, if such an occasion had arisen, there would have been nothing to prevent the limited partnerships from exercising their right under the Act to serve a counter-notice on the landlords; (4) that where two parties having all the necessary powers exchange consents in formal documents, the usual result in law would be that a contract was concluded, but that the law would look behind any such agreement if it was simply a sham designed to conceal the true nature of the parties agreement, which was not the case here as there was no basis upon which it could be held that the parties' exchange of consents was of no legal affect and that they did not become contractually bound by the terms of the partnership contract; (5) that there was nothing to prevent parties to a contract or partnership agreeing, as the parties had done in this case, to contract that the partnership should come to an end on a certain date; (6) that the leases which ex facie were leases to a partnership were prima facie inconsistent with the leases to the pursuer qua tenant so that the pursuer could not invoke the missives of let as being a foundation for leases to himself as an individual; and (7) that, as the sum sought in both of the conclusions in the counterclaim had been paid, if it were to proceed, the defenders would require to amend the pleadings and conclusions and any sums claimed could be the subject of separate proceedings, the counterclaim having been agreed to be dismissed were the principal action to be dismissed by the Lord Ordinary; and reclaiming motion and counter-appealrefused.

Opinion that if the pursuer had averred a relevant case for a declarator that the limited partnership agreements were invalid and a nullity a proof before answer would have been allowed.

Andrew Russell MacFarlane brought an action of declarator against Falfield Investments Limited and Targa Limited. The defenders counterclaimed. The averments of parties appear sufficiently from the opinion of the Lord President (Rodger).

The cause called in procedure roll before the Lord Ordinary (Marnoch) on parties' preliminary pleas in law. At advising, on 21 June 1996, the Lord Ordinary dismissed the principal action and counterclaim.

The pursuer reclaimed and the defenders cross-appealed.

Cases referred to:

Antoniades v VilliersELR [1990] 1 AC 417

Belvedere Court v FrogmoreUNK [1996] 1 All ER 312

Craven v WhiteELR [1989] AC 389

Dando (SL) Ltd v HitchcockELR [1954] 2 QB 317

Dickson v MacGregor 1992 SLCR 1

Featherstone v StaplesWLR [1986] 1 WLR 861

Firstcross Ltd v East West (Export/Import) Ltd (1980) 41 P & CR 145

Furniss v DawsonELR [1984] AC 474

Galloway (Earl of) v McClellandENR 1915 SC 1062

Gisborne v BurtonELR [1989] QB 390

Hilton v Plustitle LtdWLR [1989] 1 WLR 149

Inland Revenue Commissioners v Burmah Oil Co LtdSC 1982 SC (HL) 114

Inland Revenue v Graham's TrsSC 1971 SC (HL) 1

Inland Revenue v McGuckianWLR [1997] 1 WLR 991

Jamieson v JamiesonSC 1952 SC (HL) 44

Johnson v MoretonELR [1980] AC 37

Jones v Wrotham Park Settled EstatesELR [1980] AC 74

Kaye v Massbetter Ltd (1991) 62 P&CR 558

Morrison-Low v PatersonSC 1985 SC (HL) 49

Ramsay (WT) Ltd v Inland RevenueELR [1982] AC 300

Shell Mex and BP Ltd v Manchester Garages LtdWLR [1971] 1 WLR 612

Snook v London and West Riding Investments LtdELR [1967] 2 QB 786

Somma v HazelhurstWLR [1978] 1 WLR 1014

Stoneleigh Finance Ltd v PhillipsELR [1965] 2 QB 537

Street v MountfordELR [1985] AC 809

Turnbull v MillarSC 1942 SC 521

Yorkshire Railway Wagon Co v MaclureELR (1882) 21 Ch D 309

Textbooks referred to:

Connell, The Agricultural Holdings (Scotland) Acts (6th edn), p 50; (7th edn), p 64

Gill, Law of Agricultural Holdings in Scotland (2nd edn), pp 47

At advising, on 29 July 1997

LORD PRESIDENT (Rodger)In 1948 Parliament enacted the Agriculture (Scotland) Act 1948. Section 7 gave an agricultural tenant who was served with a notice to quit the right to serve a counter-notice. Where such a counter-notice was served, except in certain specified circumstances, the notice to quit was not to have effect unless the Secretary of State gave his consent. The result was to give agricultural tenants a significant measure of security of tenure. With certain modifications the provisions have endured. They were re-enacted in sec 25 of the consolidating Agricultural Holdings (Scotland) Act 1949 and are currently to be found in sec 22 of the Agricultural Holdings (Scotland) Act 1991. Whatever may have been the benefits of the legislation for tenants, not all landlords found the arrangements congenial. Not surprisingly therefore they looked for ways in which they might let their agricultural land without creating tenancies which attracted the operation of the security of tenure provisions. Their lawyers were set to work and came up with a variety of schemes which are listed in the books on agricultural law (Gill, Law of Agricultural Holdings in Scotland (2nd edn, 1990), pp 47 and Connell, The Agricultural Holdings (Scotland) Acts (7th edn, 1996), p 64). One device involved letting the subjects to a company in which the landlord held a share or shares carrying voting rights which enabled him to terminate the company's tenancy. Due to certain changes in tax law this device fell into desuetude. Another device was to let the subjects to a partnership of which the landlord was partner. A refinement was to let the subjects to a limited partnership. In both cases the basic idea was that the tenancy would come to an end when the partnership ceased to exist, with the partnership agreement being so framed as to limit the life of the partnership and hence the life of the lease. The limited partnership device has been in use in Scotland since before 1970 and it is now usual for new leases to be on this basis. SeeConnell (6th edn, 1970), p 50 and (7th edn), p 64. In this action the pursuer has mounted a fundamental challenge to the validity of two such schemes involving a lease to a limited partnership. Given the widespread use of the limited partnership device, the question raised in this reclaiming motion is of considerable general importance.

The Facts and Issues

The pursuer is Andrew Russell MacFarlane who is a farmer and agricultural consultant. The transactions to which the action relates took place in 1987. They concerned two agricultural holdings, one at Laingseat, Potterton, Aberdeenshire (Laingseat) and the other at Milton of Potterton, Belhelvie, Aberdeenshire (Milton). The gist of the dispute can be set out fairly briefly.

According to the pursuer the transactions in question arose out of an advertisement which appeared in April 1987 offering Laingseat and Milton to let. In May the pursuer entered into one contract of limited partnership with Mr Harry Gilbert, the owner of Laingseat, and another with...

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9 cases
  • Salvesen v Riddell
    • United Kingdom
    • Supreme Court (Scotland)
    • 24 Abril 2013 let agricultural land on any other basis. The practice of letting to limited partnerships became widespread. 9 In MacFarlane v Falfield Investments Ltd 1998 SC 14 it was submitted that the use of limited partnerships was against the public interest. Greater importance, it was said, shoul......
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    ...12 January 2007, unreported Breadalbane v Cameron 1923 S.L.T. 6 Luton v Tinsey (1978) 249 E.G. 239 MacFarlane v Falfield Investments Ltd 1998 SC 14 (IH) Morrison v Rendall 1986 SC 69 Morrison-Low v Paterson 1985 SC (HL) 49 Morrison's Associated Cos Ltd v James Rome & Sons Ltd 1964 SC 160 R.......
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