Agricultural holdings — Claim for compensation in respect of milk quota on termination of tenancy — Whether arbitrator erred in valuation method
The following
case is referred to in this report.
Wachauf v Bunderesamt fur Ernahrung und Forstwirtschaft (Case 5/88)
[1991] 1 CMLR 328; [1989] ECR 2609
Paul Morgan
(instructed by Horwood & James, of Aylesbury) appeared for the applicant
tenant, Cyril David Carson (deceased), acting by his executor Midland Bank
Trust Co Ltd; Nicholas Green (instructed by Burges Salmon, of Bristol)
represented the first respondents, Cornwall County Council; the second
respondent, John Edgar Pallett, the arbitrator, did not appear and was not
represented.
The applicant,
Cyril David Carson, farmed an agricultural holding on an annual tenancy from
the first respondents, Cornwall County Council, which ended on September 29
1987 as a result of a notice given by the applicant to the first respondents.
The holding was then relet by the first respondents to another tenant. The
applicant made a claim for compensation in respect of his part of the milk
quota which he gave up. The claim was referred to arbitration and the second
respondent, John Edgar Pallett, was appointed as arbitrator. The second
respondent sat with a legal adviser and the parties agreed that the relevant
quota for the purpose of Schedule 1 to the Agriculture Act 1986 was 210,040
litres; the standard quota was 158,792 litres and the tenant’s fraction of the
standard quota was 103,849 litres. On December 10 1990 the second respondent
made an interim award in the total sum of £26,469.40 based upon ‘method B’,
this method involves the capitalisation of the value of annual quota leasing,
the second respondent preferring this method to the value which is obtained by
‘method C’, which is based on sales with or without quota of freehold land with
vacant possession. Method C produced a figure of £23,978.73, but the second
respondent found the evidence given for this method to be rather light, whereas
the evidence produced for method B had seemed to him to be stronger. Both
parties appealed against the arbitrator’s award.
After
dismissing the landlord’s appeal, MR RECORDER BURGESS said: The tenant’s
appeal alleges that the arbitrator: (1) erred in law in declining to value the
compensatable litreage of 103,849 litres in accordance with Part A (method A)
of para 14 of the reasons for the award; (2) erred in law in accepting the
legal opinion of Professor Usher as to the matters relevant to method A of para
14; (3) erred in law in declining to hold that any doubt as to the efficacy of
the method A kind of transfers of quotas was already taken into account by
persons bidding for quota in the open market and so the value of the quota was
the price paid for it in the open market; or (4), alternative to (3), the
arbitrator erred in law in failing to resolve the alleged doubt as to the
efficacy of method A transfers of quotas and which should have been resolved by
finding that those transfers or those pursuant to a Gladstone v
Bower’s type of agreement were effective to transfer quota; and, finally,
by (5) alternative to the foregoing that he erred in law in failing to give
proper and adequate reasons for the award.
Ground 5 has
found no favour whatsoever. The arbitrator was asked to state his reasons when
he published his award and did so. The reasons and the legal opinion which
accompanied it are contained in some 31 pages. It may be said that he could
have said more about one aspect of matters rather than another (depending upon
whom is reading the document), but it is clear that a great deal of thought has
gone into the reasons and, upon any view, they are proper reasons and they are
adequate reasons.
The essence of
the tenant’s appeal is that the arbitrator should have accepted method A
because valuation by that method based on
Method A is valuation by reference to sales or transfer of quota from one
producer to another by transactions involving a grazing tenancy or a grazing
licence. At para 13 of his reasons the arbitrator finds that the value he has
to settle is to be assessed by reference to the extent to which the landlord is
better off as a result of the extra quota (in this case 103,849 litres)
contributed by the tenant’s efforts at the date when the tenancy terminated. Mr
Pallett there reminds himself that at that date the landlord has the option of
vacant possession if so desired.
At para 14 he
deals with method A valuation. The parties had agreed that the ‘open-market
value’ of the quota was 33p per litre at termination. His reasons discuss the
deductions which either party had contended for and in the result, deducting
2.7p per litre for rent, he values the quota at 30.3p net, but then says that
having considered the legal opinion of Professor Usher as to this method of
valuation he has decided to disallow such a method. It is therefore necessary
now to consider the advice given by the professor.
The advice
contains a detailed summary of the background to milk quotas, which are
entirely a creature of European Community law introduced in 1984 with the aim
of reducing the then excessive output of milk and milk products in the
countries of the European Economic Community. It imposed a punitive levy on
producers (Mr Carson) or purchasers (the Milk Marketing Board in the United
Kingdom), who exceed defined reference quantities. ‘Producer’ is defined as a
person farming a holding selling milk and a ‘holding’ is defined as all the
production units operated by the producer and located within the geographical
territory of the community. Article 7 of para 1 of regulation 857/84 provides
that where a holding is sold, leased or transferred by inheritance all or part
of the corresponding reference quantity is to be transferred according to
procedures to be determined. Eventually in Wachauf v Bunderesamt fur
Ernahrung und Forstwirtschaft [1989] ECR 2609 it was held that the concept
of a transfer ‘with comparable legal effects’ to a lease to be taken to include
an operation whereby a leased holding reverts to the lessor on expiry of the
lease, as happened between the tenant and the landlord in this case and,
further, that where the allocation of the quota was the result of the tenant’s
own labours, it would be a breach of the tenant’s fundamental rights to deprive
him of the fruits of his labour without compensation. But Wachauf was
not concerned with valuation; that subject was considered, on regulations which
came into effect at a later date, by the European Court of Justice in Case C121/90
Posthumus v Oostewoud. In his submission to the court
Advocate-General Jacobs says at the conclusion of para 22:
It will then
be for the National Court
— viz
the county court in England and Wales —
to determine
what amount of compensation for loss of quota is appropriate in all the
circumstances
— and at the
end of para 23 —
Community law
is concerned with the allocation of quota and the possible requirement of
compensation for loss of quota, but not with compensation for other forms of
loss or for unjust enrichment.
The Act lays
down no bar to a smallholdings authority selling their land with vacant
possession if they considers it meet to do so. Indeed, section 49(4)
specifically reserves the authority’s powers under section 165 of the Local
Government Act 1933 to sell land and I, therefore, agree with Professor Usher
that any increase in the land’s value as the result of the tenant’s efforts
must be treated as being the same as the increase of value in the hands of any
other owner of land. Thereafter, he reviewed the operation of markets in quota
in the light of the arguments raised by both parties concerning transactions
relating to the sale or transfer of grazing tenancies and grazing licences and
what are now known as the Gladstone v Bower’s type of tenancy. In
the result he doubted (a) whether grazing licences or tenancies had the effect
of transferring quota by virtue of Article 7, para 1 of regulation 857/84 or
(b) whether a licence or a tenancy for less than one marketing year could have
the effect of transferring quota and (c) reminded the arbitrator that land
which the producer could not use for milk production, in the way many of the
short-term licences or tenancies prohibit, does not constitute part of the
holding under regulation 857/84. The nub of the doubts expressed as (a) and (b)
above might have been resolved by general evidence of entries in the register
(or the absence of such entries) maintained by the board or the ministry.
Evidence as to whether short-term quota transactions are or are not recognised
for registration purposes will no doubt be produced on some other occasion, but
that is not a matter for the court on this appeal.
The reasons
for this legislation are well summarised in Wachauf’s case, where, at
para 17 of the judgment, it is said:
Fundamental
rights form an integral part of the general principles of the law, the
observance of which is ensured by the Court . . .
(18) The . . . rights recognised by the Court are
not absolute, however, but must be considered in relation to their social
function. Consequently restrictions may be imposed on the exercise of those
rights . . . so that they do not constitute, with regard to the aim pursued, a
disproportionate and intolerable interference, impairing the very substance of
those rights. Having regard to those criteria, it must be observed that
Community rules which, upon the expiry of the lease, had the effect of
depriving the lessee, without compensation, of the fruits of his labour and his
investments in the tenant holding would be incompatible with the requirements
of the protection of fundamental rights in the Community legal order.
At para 21 it
is said:
However that
conclusion does not preclude the possibility for a departing lessee to obtain
compensation calculated on the basis of all or part of the relevant reference
quantity when that is justified by the extent of the lessee’s contribution to
the building-up of milk production on the holding.
From this it
is quite clear that the compensation one is considering is not concerned with
sums paid by farmers or graziers, possibly in urgent need of additional grazing
or pasture, who may be prepared to pay very much ‘above the odds’ for
short-term licences or grazing agreements or Gladstone v Bower’s
type tenancies. The compensation is to go to those tenants who have been
concerned with the building-up of milk production on the holding. In the light
of the plain guidance there given by the court, it is clear that the arbitrator
is not to be concerned with valuations which have been found by the method A
type of valuation. He was therefore right to give little weight to the
calculations he himself had ascertained and to ‘disallow this method of
valuation’ as he expressed himself in para 1 on p16 of the reasons for the
award.
In those
circumstances, reviewing para 2 of the tenant’s grounds for appeal set out in
his notice, I am satisfied that there were no errors of law as contended at
subparas (1), (2), (3) or (4). As to (1) and (3), the arbitrator did not err in
declining to value in accordance with method A. As to (2), the doubts that
Professor Usher expressed were properly expressed, but, in my view, there is no
doubt that the law is there to compensate for what is being surrendered ‘the
building-up of the holding’ — not to give, as Advocate-General Jacobs was to
exemplify in the Posthumus case ‘unjust enrichment’. Subpara 3 says that
the value of quota was the price paid for it in the open market — that is true
for that type of quota — but the type of quota here being valued is concerned
with compensation for the ‘building up of milk production on the holding’ — a
different thing entirely. It is for that reason that the alternative ground in
(4) cannot be sustained.
In all the
circumstances, I find myself unable to accept the arguments put forward on the
late Mr Carson’s behalf and his appeal will therefore be dismissed.
