William Mowat Alexander V. The Royal Hotel (caithness) Ltd Per R. Taylor
| Jurisdiction | Scotland |
| Judge | Lord Gill,Lord Cameron of Lochbroom,Lord Dawson |
| Docket Number | 0/66 |
| Date | 06 October 2000 |
| Court | Court of Session |
| Published date | 25 October 2000 |
EXTRA DIVISION, INNER HOUSE, COURT OF SESSION
| Lord Cameron of Lochbroom Lord Gill Lord Dawson
| 0/66/17(4)/1998 OPINION OF LORD CAMERON OF LOCHBROOM in APPEAL FOR TENANT From the Sheriffdom of Grampian, Highland and Islands at Wick in Arbitration under the Agricultural Holdings (Scotland) Act 19991 between WILLIAM MOWAT ALEXANDER Tenant and Appellant; against THE ROYAL HOTEL (CAITHNESS) LIMITED per R. TAYLOR Landlord and Respondent: _______ |
Act: Thomson Q.C., Nicoll; Shepherd & Wedderburn W.S. (for James Stewart & Co, Inverness) (Tenant and Appellant)
Alt: Reid Q.C., Henderson; Alex Morison W.S. (for Thorntons, Forfar) (Landlord and Respondent)
6 October 2000
[1]I have had the advantage of reading Lord Gill's opinion in draft. For the reasons given by him I agree that this appeal must succeed. In deference to the careful submissions of counsel and also because I was initially attracted to the approach taken in the submissions for the respondents, I state briefly my reasons for concluding that the appellant's submissions are to be preferred.
[2]I gratefully adopt, without repeating it, the factual and legal background which is set out in Lord Gill's opinion, while noting that counsel for the appellant tenant specifically disclaimed any intention to found upon failure by the landlord to carry out work on the farmhouse, such as described in one of the undertakings contained in the letter from the landlords to the tenant's solicitors dated 31 July 1989, as justification for the right of retention claimed by the tenant.
[3]As I understood the submissions on behalf of the landlord, it was fundamental to them that in applying to section 22(2)(d) of the Agricultural Holdings (Scotland) Act 1991, ("the 1991 Act"), the landlords were not exercising a contractual right in terms of the lease but were taking advantage of a statutory remedy. This remedy, it was said, had two stages. The first was a written demand for payment of the rent due in respect of the holding, requiring that such rent be paid within two months of service of the demand upon the tenant. The second was the giving of a notice to quit on the ground that at the date of the giving of the notice the tenant had failed to comply with the demand by way of payment. It was said that because the notice to quit provisions under section 22(2)(d) for failure to pay the rent due only applied while the lease was running on tacit relocation, the prompt payment of the rent due was the condition upon which the tenant enjoyed security of tenure in terms of the Act. That is to say, the landlord's continuing grant of possession of the holding was dependant upon prompt payment of the rent due when demanded in accordance with the terms of section 22(2)(d) while the tenant's security of tenure was qualified by the statutory scheme for notice to quit. That scheme was distinct from irritancy, conventional or legal, as for instance, the landlord's right to remove a tenant for non-payment of rent, in terms of section 20 of the 1991 Act, when six months' rent of an agricultural holding was due and unpaid. It was accepted that in the latter case, which could apply at any time whether during the stipulated endurance of the lease or when the lease continued in force by tacit relocation, the tenant could advance a plea of retention based upon the principle of the mutuality of contractual obligations. But, it was said, no such defence was open in relation to a valid statutory notice to quit. The right to serve the notice did not arise out of mutuality of contract. There was no contractual right to demand payment of rent due within two months. Rent was that sum which was stipulated in the lease as being the sum to be paid for the tenancy. Rent was due when the period for its payment passed without payment and liability to pay the sum by way of rent was thereby established. It was accepted that where an action for payment of rent at common law was raised by the landlord, it was open to the tenant to avail himself of the plea of retention in defence to the demand for immediate payment. But, it was submitted, this plea was not available in answer to a demand for payment of rent due made in terms of section 22(2)(d).
[4]I pause to observe that "the object of the Acts is to encourage the tenant to farm well and to make necessary improvements to his holding. This has been done by giving him substantial security of tenure and rights to compensation...The Acts make important provisions with regard to the terms of leases and the rights and obligations of landlords and tenants in regard to the maintenance and repair of buildings and equipment on farms." (Connell on the Agricultural Holdings (Scotland) Acts (7th ed) p.1). The underlying principle of mutuality of obligations governs agricultural leases just as much as any other contract. But at common law the exception of retention has a limited effect. In his speech in the case of Bank of South East Asia v. Scottish Enterprise 1997 S.L.T. at p. 1215 Lord Jauncey of Tullichettle cited the dictum of Lord Justice Clerk Inglis in Borthwick v. Scottish Widows' Fund (1864) 2 M at p. 607:
"Retention is a right to resist a demand for payment or performance till some counter obligation be paid or performed; and it has not the effect of extinguishing obligations as compensation has, but barely of suspending them, till the counter obligation be fulfilled - (3 Ersk., 4.20). This right never can emerge or be available as a security until a demand for payment or performance be made upon the person who is to plead retention."
Lord Jauncey thereafter considered the well known dictum of Lord Justice Clerk in Turnbull v. McLean setting out the general principles as to the enforceability of stipulations in mutual contracts. At p. 1217 Lord Jauncey concluded that those principles did not produce the result that any claim under a mutual contract could be set against any other claim thereunder, howsoever or whenever such claim might arise. Thus a breach of contract in relation to a particular obligation arising at a particular time would not give rise ex post facto to a right of retention in respect of obligations which had been duly performed.
[5]In Brodie v. Ker the landlord purported to put a conventional irritancy into effect and to put an end to the lease. As the tenant did not remove, the landlord raised an action for declarator of the irritancy and for removal. The defences for the tenant admitted the retention and sought to justify it by an averment that the landlord had failed materially to fulfil his obligations under the lease as to necessary repairs to the farmhouse and steading and certain other undertakings he was said to have given. As appears in the opinion of the consulted judges at p. 226 of the report, consideration was given to what was meant by a "question or difference as to liability for rent" as it appeared in section 74 of the Agricultural Holdings (Scotland) Act 1949 (and now section 60 of the 1991 Act). In particular the question arose whether such a question or difference was raised when a tenant claimed to retain rent admittedly due either in security for performance of the landlord's obligations or as a compulsitor upon the landlord to fulfil some obligation under the lease alleged to have been left unimplemented by him. It was there held that the phrase was to be confined to cases in which liability to pay the rent sued for was disputed upon grounds which, if sustained, extinguished "liability", as, for instance, by payment in whole or in part or where any liability to pay had been otherwise discharged. On the other hand, a plea of retention involved an admission of liability. It was held that the statutory provisions for arbitration required that the issue be determined by arbitration. The action was accordingly remitted to the sheriff court with an instruction to sist, pending arbitration.
[6]With respect to the present appeal, I consider that it was unfortunate that the sheriff was called upon to answer questions 1 and 2. It appears, from what is set out by the arbiter in the stated case, that these questions were posed in response to the request by the landlords that these and the remaining question should be included in the stated case. Both parties had joined in the submission to arbitration under the 1991 Act. At that time they must have been at one that the principal issue which the arbiter was being called upon to determine, was not concerned with a question or difference as to liability for rent but with the separate and distinct question as to whether, in the circumstances of the case, the tenant had any right to retention. That that must have been so is apparent from the terms of the two questions and the order in which they are set out in the joint submission which the arbiter was originally invited to answer.
[7]In the present case, the obligation of the landlords which is said to have been breached, relates to a failure to put farm buildings into a state of repair and derives from clause V of the lease. That clause states amongst other things that the landlord will provide "in a thorough state of repair...the buildings and other fixed equipment as will enable the tenant...to maintain efficient production". The averments for the tenant in the record of pleadings before the arbiter are that the breach antedated intimation given by the tenant to the landlord that he was withholding further payment of rent pending fulfilment by the landlords of the obligation. The tenant avers that the buildings on the farm remain in a derelict condition and have not been put into a state of repair sufficient to enable the tenant to carry out his obligations in terms of the lease so far as good husbandry is concerned. Clearly the expectation of efficient production, arising from the provision by the landlord of buildings and other fixed equipment in a thorough state of repair, is one of the essential bases upon which...
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