Swift v Dairywise Farms Ltd
| Jurisdiction | England & Wales |
| Judge | LADY JUSTICE HALE,SIR MARTIN NOURSE |
| Judgment Date | 01 February 2001 |
| Neutral Citation | [2001] EWCA Civ 145 |
| Docket Number | Case No: CHANI 2000/0316/B3 |
| Court | Court of Appeal (Civil Division) |
| Date | 01 February 2001 |
[2001] EWCA Civ 145
IN THE SUPREME COURT OF JUDICATURE COURT OF APPEAL (CIVIL) DIVISION)
ON APPEAL FROM MR JUSTICE JACOB
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Chadwick
Lady Justice Hale And
Sir Martin Nourse
Case No: CHANI 2000/0316/B3
Mr Paul Morgan QC and Mr S Jourdan (instructed by Burges Salmon) for the Appellants
Mr Michael Briggs QC & Mr Stephen Davies QC (instructed by Bond Pearce) for the Respondents
CHADWICK LJ:
This is an appeal against an order made on 28 February 2000 by Mr Justice Jacob in proceedings brought under section 112 of the Insolvency Act 1986 in the liquidation of Dairywise Limited ("Dairywise"). The joint liquidators of Dairywise are the respondents to the appeal.
Dairywise was incorporated in 1983 under the Companies Act 1948. Its business was, or included, the lending of money to dairy farmers. As security for the money lent, the borrowers entered into arrangements under which milk quota was transferred to an associated company, Dairywise Farms Limited ("Farms"), and was registered as an accrual to the holding in respect of which Farms was, itself, the milk producer for the purposes of the relevant regulations now the Dairy Produce Quotas Regulations 1997 (SI 1997/733). In this context 'holding' has the meaning given to it by those and earlier regulations.
Dairywise and Farms are subsidiaries of Dairywise Holdings Limited, a company controlled by Mr Ivan Randall and his wife, Mrs Helen Randall. Mr and Mrs Randall, their three children and a pensioneer trustee company, Union Pension Trustees Limited, were, at all material times until 20 January 2000, the trustees of a pension scheme known as the Dairywise Executive Pension Scheme. On 20 January 2000 Mr and Mrs Randall retired from that office. The continuing trustees of the pension scheme are the appellants in this appeal.
The holding in respect of which Farms was the milk producer comprised, in part, agricultural property at Rye Court, near Malvern in Worcestershire, of which the pension trustees are the freehold owners. That property was let to Farms under a tenancy agreement dated 29 July 1987. The pension trustees are entitled to the reversion expectant upon the determination of that tenancy. It was a term of the tenancy agreement that Farms would not transfer, lease or charge any milk quota (or any portion of milk quota) registered in relation to the holding or any part thereof. Further, on the termination of the tenancy, milk quota registered in respect of the holding (so far as attributable to the land comprised in the tenancy) would pass to the landlord, leaving the tenant with a right to compensation.
Milk quota
It is necessary, in considering the issues which arise on the appeal, to have some understanding as to the nature of milk quota. Milk production within the United Kingdom is controlled by regulations made in order to give effect to community legislation introduced in 1984 by Council Regulations (EEC) 856/84 and 857/84. The nature of that control was analysed by this Court in Harries v Barclays Bank plc [1997] 2 EGLR 15. It is unnecessary to rehearse that analysis in detail. It is sufficient to mention the basic principles: (i) the control of production is imposed by means of a levy on the amount of milk produced in a period of twelve months ("a quota year") which is in excess of a predetermined quantity ("milk quota"); (ii) milk quota (or, more accurately, "wholesale quota") was allocated, initially under the Dairy Produce Quotas Regulations 1984, to those engaged in milk production in 1984; (iii) quota was allocated, and is entered in the register which is maintained for that purpose, to a "producer" in respect of a "holding"; (iv) in that context "producer" means a person (or group of persons) farming a holding, and "holding" means all the milk production units operated by the producer within the relevant territory; (v) with some exceptions (not material in the present context) quota cannot exist independently of a producer and a holding; (vi) subject to special provisions which permit the short term leasing (or 'temporary transfer') of quota, quota is attached to the holding in respect of which it is registered and cannot be transferred independently of that holding or a part of that holding.
The true nature of milk quota, as a juridical concept, has been explored from time to time in the cases. In Wauchauf v Bundesamt fur Ernährung und Forstwirstschaft ( Case 5/88) [1989] ECR 2609, [1991] 1 CMLR 328, the Advocate-General (Mr Francis Jacobs QC) referred to "the intangible asset constituted by a milk quota, which can properly be regarded as having an independent economic value". He went on, at paragraph 25 of his opinion ( [1989] ECR 2609, 2630, [1991] 1 CMLR 328, 342) to say this:
"In their written observations in this case, both the Commission and the United Kingdom Government have sought to argue that a quota is nothing more than an instrument of market management and cannot be considered as a kind of intangible asset in which property rights can arise. In my view, while this might correspond with the intention of the Community legislation, it does not reflect economic reality. If one considers the nature of quota from the point of view of the producer, then it is plain that what the quota amounts to is a form of licence to produce a given quantity of a commodity (milk) at a more or less guaranteed price without incurring a penalty (the additional levy). In a market which has been effectively ossified by the introduction of quotas such a "licence" is bound to acquire an economic value."
In Faulks v Faulks [1992] 1 EGLR 9, at page 15D-E, I suggested that it was not correct to describe quota as 'a form of licence to produce a given quantity of a commodity (milk).' I said this:
"The true position, at least in England and Wales, is that a producer does not require a licence to produce milk and will not necessarily incur any liability as a consequence of production. It is in respect of his potential liability that he enjoys an immunity from Formula B contribution by virtue of, and to the extent of, the register entry of an amount of wholesale quota in his name. Nevertheless, the appellant is entitled to point to the Advocate-General's view that, as a matter of economic reality, milk quota is to be regarded as an intangible asset having an intrinsic value."
In Harries v Barclays Bank plc [1997] 2 EGLR 15, Lord Justice Morritt (with whose judgment the other members of this Court agreed) doubted whether 'a consideration of the somewhat metaphysical question as to the true nature of the benefit of milk quota was a helpful starting point'. He said this, at pages 18M-19A:
"Milk quota is the creation of the legislation both European and domestic to which I have referred. In determining where the benefit of it lies and how it got there it is necessary to apply that legislation to the facts of the case. I do not find it helpful in that context to seek to label or categorise milk quota as an asset or as an asset of a particular description, not least where the description is one of English law which may not be recognised by the domestic laws of other member states."
Whatever the true nature of milk quota – and, in particular, whether or not it can properly be regarded as an asset within any existing category recognised by English domestic law – there is no doubt that it is widely perceived as something which has an economic value independent of the land comprised in the holding in respect of which it is registered and which is capable of being traded, in practice, independently of that holding. Trading in milk quota may take one of two forms. First, short term leasing (or 'temporary transfer') of the quota itself; permitted under Article 1 of Council Regulation 2998/87 and introduced in England and Wales with effect from 31 March 1988 by regulation 6 of the Dairy Produce Quotas (Amendment) Regulations 1988 (SI 1988 No 534). Second, permanent transfer of the quota to another producer for registration in respect of another holding. The way in which that is done was described in Harries v Barclays Bank plc [1997] 2 EGLR 15, at page 18B-D, in a passage taken from the judgment of Mr Justice Rattee in that case. The passage originates, I think, in Gregory and Sydenham, Essential Law for Landowners and Farmers (see, in the 3 rd ed. (1990), paragraph 8.4: 'Transfer of Quota'). It is convenient to set out that description:
"It has become common practice that, where farmer A has quota in respect of his holding but no longer wishes to carry on a dairy farming business and, therefore, wishes to dispose of his quota without the land, he will grant a short lease for, say 11 months, of his holding to farmer B, who wishes to acquire farmer A's quota. It will be a term of the arrangement that the land let by farmer A to farmer B shall not be used for dairy production. On taking the lease farmer B will be registered as the holder of what was farmer A's quota in respect of the holding comprised in the lease. Farmer A's land and farmer B's land will thereafter during the continuance of the lease form one holding for the purposes of the quota regulations. As a result, when the lease in respect of farmer A's land terminates, an apportionment will have to be made of the quota enjoyed during the term of the lease in respect of the composite holding, and that apportionment will fall to be made according to the use made of the two parts of that composite holding. Since farmer A's land will not have been used during the lease for dairy farming, the whole of the quota will...
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