Milk quota — Mortgage of agricultural holding — Mortgagee in possession — Whether mortgagee entitled to retain rents on leasing quota and benefit of sale of holding attributable to quota
In 1979 the plaintiff granted the
defendant bank a legal charge over his agricultural holding to secure moneys
due to the bank. On April 1 1984 the European Community introduced milk quotas;
919,991 litres of quota were allocated to the holding. Following the
appointment by the bank of receiver, the dairy herd was sold in February 1988.
The bank took possession of the holding under the terms of its charge and had
the milk quota registered in its name. Between April 16 1988 and April 5 1994
the bank entered into ‘leases’ of the quota and received £349,012. The holding
was sold on April 5 1994. By early 1989 the plaintiff made a settlement
agreement with the bank limiting his liability to that which could be realised
from the securities the bank held. The plaintiff’s claims, to the sums received
by the bank from leasing the milk quota, and as to that part of the proceeds of
the sale of the holding attributable to the value of the quota, were dismissed
in the court below. The plaintiff appealed.
the bank took possession of the holding, the plaintiff thereafter had no power
to grant leases of the property which were the necessary vehicle for the sale
of milk quota. Upon the sale of the holding on April 5 1994, it was an
inevitable consequence of article 7 of Council Regulation 3950/92 and regulation
7 of the Dairy Produce Quotas Regulations 1984 that as between the plaintiff,
the bank and the purchaser of the holding, the milk quota then attributable to
the holding was transferred to the purchasers. It was immaterial that milk
quota was not included in the description of the property over which the legal
charge of 1979 was granted. The benefit of the quota was attached to the land
and there was no basis on which the plaintiff could claim such part of the
proceeds of sale of the holding as may be attributable to quota for the whole
sum realised arose from the realisation of existing securities which under the
settlement agreement the bank were entitled to retain. As between the
plaintiff, the lessees of the quota and the bank, the bank was entitled to retain
the rents as one of the products of its possession of the mortgaged property to
which the quota was attached.
The following cases are referred to in
this report.
Cottle v Coldicott [1995] STC 239
Davies v H&R Ecroyd Ltd [1996] 2 EGLR
5; [1996] 30 EG 97
Faulks v Faulks [1992] 1 EGLR 9; [1992]
15 EG 82
Holdcroft (WE & RA) v Staffordshire County
Council [1994] 2 EGLR 1; [1994] 28 EG 131
R v International Stock Exchange of the
United Kingdom and the Republic of Ireland Ltd, ex parte Else (1982) Ltd
[1993] QB 534; [1993] 2 WLR 70; [1993] 1 All ER 420, CA
The Queen v Ministry of Agriculture, Fisheries
and Food, ex parte Bostock Case C-2/92 [1994] ECR I-955
Von Deetzen v Hauptzollamt Oldenburg [1991]
ECR 5119
Wachauf v Bundesamt für Ernährung und
Forstwirtschaft (Case 5/88) [1991] 1 CMLR 328; [1989] ECR 2609
This was an appeal by the plaintiff, Mr
Harries, from a decision of Rattee J, in proceedings against the defendant,
Barclays Bank plc, for an account of moneys received.
Stuart Isaacs QC and Teresa Peacocke
(instructed by Battens, of Yeovil) appeared for the appellant; Joanne Moss and
Emily Windsor (instructed by Lovell White Durrant) represented the respondent.
Giving judgment, MORRITT LJ said:
On December 11 1979 the plaintiff, Mr Harries, as beneficial owner, granted to
the defendant, Barclays Bank plc, a legal charge over the freehold property
known as Bribwll Farm, Llanfyrnach, Dyfed (‘the farm’) to secure all moneys due
from him to the bank. On April 1 1984 the European Community introduced a
scheme known as milk quota to deal with a surplus within the European Community
of milk and other dairy products. Mr Harries was a dairy farmer. In due course
919,991 litres of milk quota were allocated to the holding of which the farm
formed part and registered in the name of JN Harries & Sons.
On November 13 1987 a receiver was
appointed by the bank in respect of two charges over the live and dead stock
granted by Mr Harries to the bank on September 17 and October 17 1985 under
Agricultural Credits Act 1928. The dairy herd was sold by the receiver on
February 13 1988 so that the production of milk on the farm then ceased. On
April 16 1988 the bank took possession of the farm in accordance with the terms
of its charge. On April 20 1988 the milk quota allocated to the holding, which
had been registered in the name of the receiver since March 31 1988, was
registered in the name of the bank. Between April 16 1988 and April 5 1994 the
bank entered into temporary ‘leases’ of the quota and received £349,012 net of
vat and commission therefor. On April 5 1994 the farm was sold by the bank as
mortgagee for £530,000. By an arbitration award made on April 28 1995 717,689
litres of the quota allocated to the holding and registered in the name of the
bank was apportioned to the farm. Subsequently, the apportioned quota was
registered in the name of the purchaser of the farm.
By early 1989 Mr Harries had entered into
an agreement with the bank which limited his liability to the bank, agreed to
be £797,810, to that which the bank could realise from the securities it held.
The effect
liability. Mr Harries then claimed that the milk quota was not subject to any
of the charges in favour of the bank and that the bank had no right or title to
deal with it. This was disputed by the bank. The bank does not rely on the
charges over the live and dead stock but bases its entitlement to the moneys
received in respect of the quota to the effect of the legal charge granted on
December 11 1979, its entry into possession on April 16 1988 and the
registration of the quota in its name on April 20 1988.
On March 31 1994 Mr Harries instituted
these proceedings claiming to be entitled to the sums paid for the temporary
leases of the milk quota received by the bank before the sale of the farm and
that part of the proceeds of sale of the farm attributable to the milk quota
apportioned to the farm. His claim was dismissed by Rattee J on December 20
1995. This is an appeal of Mr Harries from that order. He seeks a declaration
that the milk quota attributable to the farm was not subject to the charge and
an account of all moneys received by the bank under the temporary leases and in
respect of the value attributable to the milk quota on the sale of the farm.
Milk quota was introduced into the
European Community for five years from April 1 1984 by Council Regulation
856/84, Council Regulation 857/84 and Commission Regulation 1371/84. The
Community Legislation was expressed to be directly applicable and was
implemented in the United Kingdom by Dairy Produce Quotas Regulations 1984 SI
no 1087 made pursuant to section 2(2) European Communities Act 1972. The
purpose of these measures was to curb the production of milk and other dairy
products by imposing a levy on production over a pre-determined level, known in
the community as ‘reference quantity’ and in the United Kingdom as ‘milk
quota’. The community legislation permitted member states to choose between a
regime under which the levy was imposed on the producer (formula A) or the
purchaser from the producer (formula B). At that time there was only one
purchaser in the United Kingdom, the Milk Marketing Board, and the United
Kingdom opted for formula B.
The general rules for the imposition of
the levy were contained in Council Regulation 857/84. That regulation fixed the
amount of the levy (article 1), the reference quantity or quota, having regard
to production or direct sales during 1981 (articles 2 and 6) and made provision
for the alternative formulae (articles 3 and 4). The general rule laid down in
article 7 was that:
Where an undertaking is sold, leased or
transferred by inheritance, all or part of the corresponding reference quantity
shall be transferred to the purchaser, tenant or heir according to procedures
to be determined.
Article 12 provided, so far as material,
that:
For the purposes of this Regulation the
following meanings shall apply:
(c) producer: a natural or legal person …
farming a holding located within the geographical territory of the Community …
selling milk or other milk products …
(d) holding: all the production units
operated by the producer and located within the geographical territory of the
Community;
Commission Regulation 1371/84 laid down
more detailed rules. Article 5 provided:
For the purposes of applying Article 7(1)
of Regulation (EEC) No 857/84 … the following rules shall apply to the transfer
of reference quantities granted to producers and purchasers in application of
formulas A and B …
1. Where an entire holding is sold,
leased or transferred by inheritance, the corresponding reference quantity
shall be transferred in full to the producer who takes over the holding
2. Where one or several parts of the
holding is sold, leased or transferred by inheritance, the corresponding
reference quantity shall be distributed amongst the producers operating the
holding in proportion to the areas used for milk production or according to
other objective criteria laid down by Member States. Member States may
disregard transferred parts the area of which used for milk production is less
than a minimum size which they shall determine.
3. The provisions of subparagraphs 1 and
2 above shall also be applicable in other cases of transfer which, under the
various national rules, have comparable legal effects as far as producers are
concerned …
The Dairy Produce Quotas Regulations 1984
were promulgated to implement those council and commission regulations. By
regulation 2, unless the context otherwise required, ‘producer’ had the meaning
assigned to it by article 12 of Council Regulation 857/84 and ‘transferee’
meant a producer who replaced another producer as occupier of a holding or part
of a holding. Schedule 2 contained provisions for the maintenance of a register
by the Minister of Agriculture to include details of the producer, his holding
and the quota allocated to that holding. Part III, which was headed ‘Transfer
of Wholesale Quota’, applied when there was a change of occupation of a
producer’s holding and required the transferee to register the prescribed
particulars. The transfer of the whole or part of the holding to which quota
had been allocated led to a conclusive presumption that the transferee intended
to deliver dairy produce from the holding to the purchasers named and in the
proportions shown in the register: see regulations 18(3) and 19(5).
The 1984 Regulations were replaced with
amendments by Dairy Produce Quotas Regulations 1986 SI no 470. The changes
included a change in the definitions of transferor and transferee by reference
to replacing another person as occupier as opposed to another producer as
occupier. Although the primary definition of producer remained that contained
in article 12 of Council Regulation 857/84, for the purposes of regulation 30,
which dealt with the registers to be prepared and maintained by the minister,
subpara (6) provided that:
… and ‘producer’ include a person who has
moved into occupation of land with quota, whether or not that person is engaged
in the sale or delivery of dairy produce.
The basic principles set out in the
community legislation have been subsequently qualified in certain relevant
respects. Thus Council Regulation 590/85 permitted member states to provide for
producers on land transferred to public authorities or outgoing tenants
intending to continue milk production elsewhere to take the quota allocated to
that holding with them. Article 1 Council Regulation 2998/87 provided that:
1a. Member States may authorize, at the
beginning of each 12-month period and for the duration thereof, temporary
transfers of that part of the individual reference quantity which the producer
who is entitled thereto does not intend to use
This power was exercised in the United
Kingdom by the promulgation of the Dairy Produce Quotas (Amendment) Regulations
1988 SI no 534, which provided in regulation 6 that:
… a producer may make a temporary
transfer within one region of part of the wholesale quota registered as his to
another producer for a period of one quota year.
The commission regulations were
consolidated with amendments in Commission Regulation 1546/88 which contained
detailed provisions as to the records relating to purchasers and producers
member states should maintain. Council Regulation 857/84 as subsequently amended
was replaced with Council Regulation 3950/92; the duration of the scheme having
been extended to eight years by Council Regulation 1109/88 was extended by a
further seven years by Council Regulation 3950/92.
Council Regulation 3950/92 recognised the
need for further changes. The preamble noted that:
Whereas the temporary transfer of parts
of individual reference quantities in Member States which have authorized this
has proven to be an improvement to the scheme; whereas this facility should
therefore be extended to all producers; whereas, however, implementation of
this principle should not stand in the way of further structural change and
adjustment, nor fail to take account of the resulting administrative
difficulties;
Whereas when the additional levy system
was brought in in 1984, the principle was established that when an undertaking
was sold, leased or transferred by inheritance, the corresponding reference
quantity was transferred to the purchaser, tenant or heir; whereas this
original decision should not be changed; whereas, however, national provisions
to safeguard the
transfer, where the parties are not in agreement;
Whereas, in order to continue
restructuring milk production and improving the environment, certain
derogations to the principle linking reference quantities to holdings should be
extended, and Member States should be authorized to continue implementing
national restructuring programmes and to organize some degree of mobility for
reference quantities within a given geographical area, on the basis of
objective criteria;
In view of the arguments addressed to
Rattee J and to this court it is necessary to set out parts of articles 5 to 9
(both inclusive). They are as follows:
Article 5
Within the quantities referred to in
Article 3, the Member State may replenish the national reserve following an
across-the-board reduction in all the individual reference quantities in order
to grant additional or specific quantities to producers determined in
accordance with objective criteria agreed with the Commission.
Without prejudice to Article 6 (1),
reference quantities available to producers who have not marketed milk or other
milk products for one of the twelve-month periods shall be allocated to the
national reserve and may be reallocated in accordance with the first
subparagraph. Where the producer resumes production of milk or other milk
products within a period to be determined by the Member State, he shall be
granted a reference quantity in accordance with Article 4 (1) no later than 1
April following the date of his application.
Article 6
1. Before a date that they shall
determine and by 31 December at the latest, Member States shall authorize, for
the 12-month period concerned, temporary transfers of individual reference
quantities which producers who are entitled thereto do not intend to use …
Article 7
1. Reference quantities available on a
holding shall be transferred with the holding in the case of sale, lease or
transfer by inheritance to the producers taking it over in accordance with
detailed rules to be determined by the Member States taking account of the
areas used for dairy production or other objective criteria and, where
applicable, of any agreement between the parties. Any part of the reference
quantity which is not transferred with the holding shall be added to the
national reserve.
The same provisions shall apply to other
cases of transfers involving comparable legal effects for producers …
Article 8
With a view to completing restructuring
of milk production at national, regional or collection area level, or to
environmental improvement Member States may …
–authorize, upon application by the
producer … the transfer of reference quantities without transfer of the
corresponding land, or vice versa, with the aim of improving the structure of
milk production at the level of the holding or to allow for extensification of
production …
Article 9
For the purposes of this Regulation:
…
(c) ‘producer’ means a natural or legal
person or a group of natural or legal persons farming a holding within the
geographical territory of the Community:
…
(d) holding means all production units
operated by the single producer and located within the geographical territory
of the Community;
Commission Regulation 563/93 replaced
Commission Regulation 1546/88 and contained yet more detailed provisions for
the records and verification required of member states. By regulation 14 Dairy
Produce Quotas Regulations 1993 SI no 923 the United Kingdom exercised the
power conferred by article 6 Council Regulation 3950/92 so as to permit a
temporary transfer of the whole (as compared with a part only as permitted by
the 1988 Regulations) of a wholesale quota. That regulation provides:
14–(1) For the purposes of Article 6 of the
Council Regulation (which deals with the temporary transfer of quota) and
subject to paragraph (2) below, a producer who has wholesale quota registered
as his which constitutes part of the purchaser quota of a purchaser may, before
a date to be determined by the Minister in each quota year, make a temporary
transfer of all or part of that wholesale quota for a period of one quota year
to any other producer whose wholesale quota constitutes part of the purchaser
quota of that same purchaser.
(2) Where there is an agreement to make a
temporary transfer of quota pursuant to paragraph (1), the transferee shall
notify the Minister in writing of the agreement and of such particulars at such
time as the Minister may reasonably require.
Those regulations were replaced by Dairy
Produce Quotas Regulations 1994 SI no 672 which were in force at the time the
bank sold the farm. So far as material regulation 2 provided that, unless the
context otherwise required:
Council Regulation means Council
Regulation (EEC) No.3950/92 … [as amended]
…
‘holding’ has the meaning assigned to it
by Article 9(d) of the Council Regulation;
…
‘occupier’ includes, in relation to land
in respect of which there is no occupier, the person entitled to grant
occupation of that land to another person;
‘producer’ has the meaning assigned to it
by Article 9(c) of the Council Regulation;
…
‘transferee’, means —
(a) where quota is transferred with land,
a person who replaces another person as occupier of a holding or part of a
holding; and
(b) in any other case, the transferee of
quota;
‘transferor’, means —
(a) where quota is transferred with land,
a person who is replaced by another person as occupier of a holding or part of
a holding; and
(b) in any other case, the transferor of
quota;
Regulation 7 provided as follows:
(1) For the purposes of Article 7 of the
Council Regulation (which deals with transfer of quota when any holding is
sold, leased or transferred by inheritance), on a transfer of any holding or
part of a holding, other than a transfer of a kind to which paragraph 6 or 7
refers, the transferee shall submit to the Intervention Board —
(a) no later than 28 days after the
change of occupation of the holding or part of the holding, and in any event no
later than seven working days after the end of the quota year in which the
transfer takes place, a notice of transfer in a form from time to time prescribed
for this purpose by the Intervention Board; and
(b) such other information relating to
the transfer, and within such time, as the Intervention Board reasonably may
require.
Regulation 7(4) provided that, where
there was a transfer of part of the holding, an apportionment of the quota
relating to the holding should be carried out in accordance with regulation 10.
Regulation 7(6) provided that no person should transfer quota on a transfer of
a holding or part of a holding in certain circumstances, in particular in the
case of the grant of a licence to occupy land, or a tenancy of any land under
which a holding, or part of a holding, in England or Wales is occupied for a
period of less than 10 months. Regulation 10 provided that where there was a
transfer of part of a holding the apportionment of quota should be by agreement
or arbitration.
Regulation 13 provided for the transfer
of quota without the transfer of land comprised in the relevant holding in
limited circumstances where the transfer was ‘with the aim of improving the
structure of milk production at the level of the holding’.
Regulation 14 provided as follows:
(1) The national reserve shall comprise
such wholesale and direct sales quota as is not for the time being allocated to
any person, including any quota withdrawn pursuant to regulation 33 or 34.
(2) The Minister may make allocations
from the national reserve in accordance with the Community legislation and
these Regulations.
Regulation 15 provided:
(1) For the purposes of Article 6 of the
Council Regulation (which deals with the temporary transfer of quota), a
producer may agree with any other producer to make a temporary transfer, other
than a temporary transfer of a kind to which paragraph (4) below refers, of all
or part of any unused quota registered as his for a period of one quota year to
that other producer.
Regulation 33(2) provided that, pursuant
to article 5 of the council regulation (which deals with the confiscation and
restoration of quota), the Intervention Board should notify any producer who
appeared not to have made deliveries or direct sales of milk or a temporary
transfer of quota under regulation 15 during the previous quota year, that his
quota had been taken into the national reserve.
Rattee J observed that those regulations
preserved the principle that quota runs with the holding with certain limited
exceptions, one of which was the power in article 15 for a producer to make a
temporary transfer or lease of quota to another producer for one quota year. He
continued:
However, it is clear that a market has
developed in quota as a valuable commodity apart from the holding to which it
relates, in the following way. 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 be apportioned to farmer B’s land, which
will have been used for dairy farming. Thus farmer A recovers his land, leaving
farmer B with the quota previously enjoyed by farmer A in respect of that land.
By such artificial means permanent transfers of quota are apparently frequently
made. It follows that by this means a permanent transfer can be effected of
quota without the land comprised in the holding to which that quota was
originally attached, whereas no permanent transfer can be made of the land,
leaving the quota in the original owner’s enjoyment.
It seems to me that the original scheme
for the imposition of the levy and its associated milk quotas and its
subsequent development reveal certain general principles. First, quota was
originally allocated to producers in respect of holdings as, in each case,
defined: articles 6 and 12 Council Regulation 857/84. Second, quota so
allocated and so long as it subsisted followed the holding except in so far as
the scheme specifically provided otherwise: article 7 Council Regulation
857/84, article 5 Commission Regulation 1371/84, article 7 Council Regulation
3950/92. Such exceptions were limited to former occupiers of holdings
transferred to public authorities or tenants whose leases had expired (article
1(4) Council Regulation 590/85), temporary transfers (article 1 Council
Regulation 2998/87 and article 14 Council Regulation 3950/92), transfers
pursuant to article 8 Commission Regulation 3950/92 in those member states
where such procedures were adopted. One or more of these provisions might be
used to effect a permanent transfer of quota as described by Rattee J. Third,
the quota, as originally allocated, and its subsequent devolution was recorded
in the registers the scheme required to be kept.
In these circumstances two issues arose.
First, was the bank, having sold the farm and with it the benefit of the
associated milk quota for £530,000 entitled to retain in discharge of the
outstanding debt of Mr Harries such part of the total price as might be attributable
to the value of the milk quota? Second, was the bank, as the mortgagee in
possession of the farm, entitled between 1988 and 1994 to lease the quota and
retain in discharge of the indebtedness of Mr Harries the aggregate sum of
£349,012 it had received?
Common to both of these questions is a
consideration of the nature of milk quota and its relationship with the land.
This was considered by the Advocate-General in Wachauf v Bundesamt
für Ernährung und Forstwirtschaft [1989] ECR 2609. He said, in paras 25 and
26:
25. 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 to the intention of the
Community legislation, it does not reflect economic reality. If one considers
the nature of the 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. This value will primarily translate into higher rental and capital
values for dairy holdings. But that a quota can also have an intrinsic value is
shown by the practice of ‘quota leasing’, ie the temporary transfer without
land of unused quota from one producer to another, a practice authorized by
Article 5c (1a) of Regulation No 804/68, as amended …
26. Community legislation has not
resolved the issue of ownership of quota, possibly because it was not
considered desirable to admit — for fear of creating a market in quota — that a
quota could be owned at all. The issue is not an easy one. On the one hand, the
fact that the transfer rules in principle require the quota to follow the land
suggests that these attach to the land and should therefore be regarded as the
property of the landowner. On the other hand, the existence of Article 7(4) of
Regulation No 857/84 and the recent authorization of ‘quota leasing’ indicate
that attachment to land is not absolute. Moreover, the quotas are allocated to
a person, the individual producer, who may of course be a tenant, on the basis
of his production in a given reference year, rather than to a holding. These
considerations in my view suggest that it is possible for either a landlord or
a tenant to have a proprietary interest in a quota.
The Court of Justice passed no comment on
these observations. Indeed, in two later cases it referred to the benefit of
the quota as being an ‘advantage’. Von Deetzen v Hauptzollamt
Oldenburg [1991] ECR 5119 at para 27; The Queen v Ministry of
Agriculture, Fisheries and Food, ex parte Bostock [1994] ECR I-955 at para
19.
In Faulks v Faulks [1992] 1
EGLR 9 Chadwick J reviewed the European legislation and the United Kingdom
regulations which implemented it. In the context of a partnership dispute he
concluded that milk quota could not properly be regarded as property or a right
or interest in property separate and distinct from the holding. In Cottle
v Coldicott [1995] STC 239 the special commissioners, in the context of
capital gains tax, decided that milk quota is a personal asset of the producer,
is not part of the holding but is incorporeal property for the purposes of the
legislation dealing with capital gains tax. In Davies v H&R
Ecroyd Ltd [1996] 2 EGLR 5 Blackburne J considered, in the context of a
partnership dispute, that though milk quota might become severed from the land
with which it would otherwise run the fundamental principle is that milk quota
attaches to and passes with the land to which it relates.
In WE & RA Holdcroft v Staffordshire
County Council [1994] 2 EGLR 1 the Court of Appeal considered the effect of
the surrender of a tenancy which had ceased to be used for the production of
milk before the surrender, a change in the composition of the partnership
occupying the holding and the meaning of the word transfer as used in the
relevant legislation. The court held that the surrender of the lease was a
transfer of the holding notwithstanding that it was not at the time used for
producing milk because it was apparent from Wachauf v BEF that ‘a
farm is perfectly capable of being a holding even if the cows have all gone’.
The court also held that the word ‘transfer’ as used in the Dairy Produce
Quotas Regulations 1989 and article 7(3) Commission Regulation 1546/88 referred
to changes in the identity of the occupant of the holding and not changes in
the holder of the legal title. In the light of that construction they held that
the change in the composition of the partnership amounted to a transfer.
In the instant case Rattee J having
considered the authorities to which I have referred, except Davies v H&R
Ecroyd Ltd which had not by then been heard, 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 for answering the questions to be
determined in this case. I agree with his approach. 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
description is one of English law which may not be recognised by the domestic
laws of the other member states.
I turn to the first issue I described
earlier. The reason why Rattee J concluded it in favour of the bank appears
clearly from these passages from his judgment:
when the bank took possession of the farm
in April 1988, the appropriate part of the quota previously enjoyed by the
plaintiff in respect of his farming operations on the farm necessarily, by
virtue of the regulations, followed possession of the farm into the bank’s
hands. In other words, the transfer of quota from the plaintiff to the bank was
an inevitable consequence of the transfer of possession. It was impossible,
under the regulations, for the benefit of quota to remain in the hands of the
plaintiff while the land itself passed into the possession of the bank …
When in due course in 1994 the bank came
to sell the farm in exercise of its powers as chargee, the benefit of quota in
respect of the farm passed to the purchaser together with the farm. That was a
necessary and inevitable consequence of regulation 7(1) of the 1994
Regulations. The effect of the regulations was that the bank could not, even
had it so wished, have transferred the farm without the benefit of quota. What,
in my judgment, the bank received on the sale was not, as to part, proceeds for
the sale of the farm and, as to another part, proceeds of the sale of quota,
but was the proceeds of sale of a farm whose sale necessarily had the effect of
transferring the relevant quota to the purchaser of the farm. As such, in my
judgment, they were proceeds of a sale of the farm which the bank was entitled
to retain and apply towards satisfaction of the debt secured by the legal
charge.
In the written argument advanced on
behalf of Mr Harries it was submitted that the judge was wrong because the
right to the milk quota was not a part of ‘the freehold property’ comprising
the farm, which alone had been charged to the bank by the legal charge dated
December 11 1979, nor was it included in the charge by virtue of section 62 Law
of Property Act 1925. As neither of these submissions was disputed by counsel
for the bank the argument advanced for Mr Harries at the hearing was different.
The submission at the hearing was that
the judge had failed to distinguish the land and charge, on the one hand, from
the benefit of the quota, on the other. It was suggested that if Mr Harries had
simply ceased milk production he could have sold the quota, failing which it
would have fallen into the national reserve. It was contended that an incoming
occupant who is not farming cannot merely by being registered become entitled
to deal with the quota. It was submitted that prior to the bank being
registered in respect of the quota Mr Harries could have dealt with it, that
the bank should have permitted him to do so and could not by failing to do so
bring within the scope of the legal charge that which was not included within
it.
This was disputed by counsel for the
bank. She submitted that after the bank went into possession of the farm on
April 16 1988 Mr Harries was not able to sell the quota, for he then had no
power to grant the requisite lease of part of the farm, with the inevitable
consequence that it passed to the purchasers on the subsequent sale.
I prefer the submissions for the bank.
Though by clause 4 of the legal charge the parties purported to exclude the
statutory power of Mr Harries as a mortgagor in possession to grant leases of
the farm that provision was invalidated by Agricultural Holdings Act 1948
Schedule 7 para 2 and Agricultural Holdings Act 1986 Schedule 14 para 12. Thus
it is true that initially Mr Harries might have disposed of the quota
notwithstanding the legal charge he had granted to the bank by means of the
procedure described by Rattee J which I quoted earlier. However, when the bank
took possession of the farm on April 16 1988 the statutory power of the
mortgagor in possession ceased and the power to grant leases vested in the bank
as mortgagee in possession. Law of Property Act 1925 section 99(1) and (2). By
that date Mr Harries had not sold or otherwise disposed of the benefit of the
milk quota and thereafter had no power to grant leases of the farm which were
the necessary vehicle for such a sale.
There is no doubt that the sale of the
farm by the bank on April 5 1994 in exercise of its power as mortgagee was
effective to transfer to the purchasers the title to the farm and the right to
possession and occupation of it. In my judgment, it is an inevitable
consequence of article 7 Council Regulation 3950/92 and regulation 7 Dairy
Produce Quotas Regulations 1994 that as between Mr Harries, the bank and the
purchasers, the benefit of the milk quota then attributable to the farm was
transferred to the purchasers. The fact that the quota was not included in the
description of the property over which the legal charge had been granted on
December 11 1979 and was not comprised in those rights which pursuant to
section 62 Law of Property Act 1925 pass without express mention on a
conveyance by way of charge of the relevant land is immaterial; the benefit of
the quota was attached to the land by and to the extent specified in the
European and domestic legislation to which I have referred. There is no basis
on which Mr Harries may claim such part of the proceeds of sale of the farm as
may be attributable to the benefit of the milk quota for the whole of the sum
realised by the bank arose from ‘the realisation of existing securities’ which,
in accordance with the settlement agreement, the bank was and is entitled to
retain. Accordingly, on the first issue I would dismiss the appeal.
I turn then to the second issue. In
relation to the leasing of the milk quota by the bank Rattee J said:
when the bank took possession of the farm
in April 1988, the appropriate part of the quota previously enjoyed by the
plaintiff in respect of his farming operations on the farm necessarily, by
virtue of the regulations, followed possession of the farm into the bank’s
hands. In other words, the transfer of quota from the plaintiff to the bank was
an inevitable consequence of the transfer of possession. It was impossible,
under the regulations, for the benefit of quota to remain in the hands of the
plaintiff while the land itself passed into the possession of the bank.
The bank, however, at that stage was
unable to effect the sale of the farm, because it did not have possession of
the farmhouse. It made temporary transfers of quota, pending a final sale of
the farm. The bank was able to make such transfers by virtue of the
registration in its name of quota as an inevitable consequence of its taking
possession of the farm. The ability to make such temporary transfers was,
therefore, in my judgment, an incident of possession of the farm to which the
bank had become entitled under the legal charge. This being so, the bank became
entitled to retain the proceeds of such temporary transfers and apply the same
in part satisfaction of the plaintiff’s debt, in just the same way as it would
have been entitled to apply the proceeds of any lease of the land itself. Such
proceeds were a product of the possession of the farm taken by the bank
properly in exercise of its rights under the legal charge.
In seeking to avoid that conclusion
counsel for Mr Harries had relied on regulation 15(1) Dairy Produce Quotas
Regulations 1994 and its predecessors in the same terms for the proposition
that the power thereby conferred was not available to the bank as it was not a
producer, as defined. In dealing with this submission Rattee J said:
In my judgment, the only sensible
construction of regulation 15(1) of the 1994 Regulations, as well as of its
predecessors, is that it enables any person who occupies land in respect of
which he is registered as the holder of quota to make a temporary transfer of
quota to another such person, despite the more restrictive terms of the
definition of producer imported from the EC Council Regulations, which is no
doubt applicable to other provisions of the Regulations.
In any event, I am not convinced that,
even if this conclusion on the proper construction of regulation 15(1) of the
1994 Regulations and its predecessors is not correct, this affords any support
for the plaintiff’s claim to be entitled to the proceeds of the temporary
transfers made by the bank. For the fact remains that the bank, rightly or
wrongly, found itself able to make such transfers by reason of the registration
of quota in its name. As I have already said, such registration was a necessary
and inevitable consequence of the bank’s taking possession of the farm, to
which it was entitled under the legal charge. The ability to make the temporary
transfers of quota made by the bank was, therefore, it seems to me, an incident
of the exercise by the bank of its undoubted right to possession of the farm.
It must, in my judgment, follow that the bank is entitled to retain the
proceeds of those temporary transfers by way of part satisfaction of the
secured debt.
It is convenient to deal first with the
proper construction and application of regulation 15(1) Dairy Produce Quotas
Regulations 1994 and its predecessors. During the period in which the bank was
leasing the milk quota these regulations conferred the power to do so. The
regulations were warranted by article 1 Council Regulation
by Council Regulation 857/84 article 12 or Council Regulation 3950/92 article 9
as the case might be. For Mr Harries it is contended that the bank never was
and never could have been a producer within the definition because it never was
‘farming a holding … selling milk’. Indeed the milking herd had been sold
before the bank had taken possession of the farm.
The bank accepts that it did not produce
milk so that, if ‘producer’ is confined to one who is producing milk at the
time the definition is to be applied, it was not a producer at any relevant
time. But it contends that the word ‘producer’ is not to be so narrowly
construed. It is pointed out that the construction advanced on behalf of Mr
Harries would exclude personal representatives, trustees in bankruptcy and
landlords in relation to the reversion on an agricultural tenancy. Reliance is
placed on the provisions of articles 5 and 6 of Council Regulation 3950/92
where the word producer is evidently used to include those who are not
currently engaged in milk production. It was submitted, as it had been to
Rattee J, that the interrelation of regulations 15, 25 and 33 of the Dairy
Produce Quotas Regulations 1994 demonstrated that the word ‘producer’ must
include one who intends to lease the whole of his quota and is apt to cover one
who at the time of the lease has not commenced production, if only because
otherwise the system of verification could not work.
In his reply counsel for Mr Harries
accepted that the word ‘producer’ was used in some parts of the European
legislation to embrace those who were not currently engaged in milk production.
He submitted that at the lowest the proper construction of the word was a
matter of doubt such as to warrant a reference to the European Court of
Justice. The approach to be applied by this court in considering whether or not
to make a reference was stated by Sir Thomas Bingham MR in R v International
Stock Exchange of the United Kingdom and the Republic of Ireland Ltd, ex parte
Else (1982) Ltd [1993] QB 534 at p545 to be:
… if the facts have been found and the
Community law issue is critical to the court’s final decision, the appropriate
course is ordinarily to refer the issue to the Court of Justice unless the
national court can with complete confidence resolve the issue itself. In
considering whether it can with complete confidence resolve the issue itself
the national court must be fully mindful of the differences between national
and Community legislation, of the pitfalls which face a national court
venturing into what may be an unfamiliar field, of the need for uniform
interpretation throughout the Community and of the great advantages enjoyed by
the Court of Justice in construing Community instruments. If the national court
has any real doubt, it should ordinarily refer.
Neither counsel was able to suggest a
construction which accommodated the extended meaning of the word apparent in
article 5 Council Regulation 3950/92 and the various anomalies suggested by
counsel for the bank. In those circumstances, bearing in mind the
considerations to which Sir Thomas Bingham MR referred, I would refer the
question to the European Court of Justice if it were critical to our decision
on the second issue. To determine that question it is necessary to consider the
other ground on which Rattee J found in favour of the bank on the second issue.
The reasoning of Rattee J involved three
steps. First, he concluded that when the bank took possession of the farm there
was a transfer within the meaning of the Dairy Produce Quotas Regulations which
entitled the bank to be registered in respect of the quota. Second, in
consequence of the fact that Mr Harries had not disposed of the quota before
the bank took possession it followed the land into the hands of the bank and
could not and did not remain with Mr Harries. Third, the resultant ability to
make temporary transfers was an incident of possession of the farm to which the
bank had become entitled under the legal charge.
In my view, the first proposition is
indisputable. The decision of this court in WE&RA Holdcroft v Staffordshire
County Council shows that what matters for the purposes of the Dairy
Produce Quotas Regulations is a change in the identity of the occupier. If
there is such a change then particulars of the transferee must be entered on
the register; if those particulars are entered then the transferee is able, in
practice, to enter into a temporary lease of the quota. In my judgment, the
second proposition is also indisputable and a necessary consequence of my
conclusion on the first issue. The third proposition is made good by the fact
that the bank did manage to enter into temporary leases of the quota and
receive the sums to which I have referred.
In these circumstances it appears to me
to be irrelevant whether or not those leases were authorised by regulation
15(1) Dairy Produce Quotas Regulations 1994 and its predecessors. The facts are
that the leases were concluded, the rents therefore were paid by the lessees to
the bank, the benefit of the quota was enjoyed by the lessees thereof, no
lessee now seeks to set any of them aside and they have all now expired.
A mortgagee of land, which is not a
dwelling-house, is entitled to possession of the land by virtue of his legal
estate and irrespective of any default on the part of the mortgagor. On going
into possession he is entitled to take the rents and profits of the land. In
consequence he is accountable to the mortgagor on the footing of wilful
default, that is to say for the rents and profits he would but for his own
wilful default have received in addition to those he did receive. Taking
possession of the mortgaged property pending its sale is a step in the
realisation of the security. Accordingly, as between Mr Harries, the lessees of
the quota and the bank, the bank is entitled to retain the rents as one of the
products of its possession of the mortgaged property to which by force of the
European and domestic legislation the benefit of the quota was attached.
Accordingly, in my judgment, Rattee J was
right on the second issue also. Consequently, it is not necessary to the
decision of this court to reach a conclusion as to the meaning of the word
‘producer’ and a reference of that question to the European Court of Justice is
not warranted.
In summary, there is no principle of law
or equity by which the bank can be called on to account to Mr Harries, save as
mortgagee in possession, in respect of the quota as claimed, either as an asset
in its own right or as some notional proportion of the value of the holding or
the proceeds of sale. I would dismiss this appeal.
PILL and POTTER LJJ agreed.
Appeal dismissed.
