Bank mortgagee taking possession of farm having benefit of milk quota – Whether bank accountable to borrower for proceeds of subsequent leases and eventual sale to extent proceeds attributable to quota – Whether quota a property concept – Borrower’s appeal dismissed
In 1979 the plaintiff charged his farm in Llanfyrnach, Dyfed, in favour of the defendant bank. Some years later he was allocated 920,000 litres of milk quota under a scheme introduced by EC council regulations in 1984 and implemented in the same year by UK regulations. In February 1988 the plaintiff’s dairy herd was sold by a receiver appointed by the bank whereupon milk production on the farm ceased. On April 16 1988 the bank took possession of the farm and having procured the registration of the quota in its name, entered into a number of temporary “leases” of the quota, receiving some £349,000 net of commission and VAT over a period of six years. On April 5 1994 the bank sold the farm for £530,000 following which the greater part of the quota was apportioned to the farm by an arbitration award, and thereafter registered in the name of the purchaser. In subsequent high court proceedings the plaintiff claimed that the charge over the farm did not extend to the quota and, consequently, the bank was accountable to him: (i) for so much of the sale price as was attributable to the quota; and (ii) the proceeds of the leases. Both claims failed and the plaintiff appealed.
Held The appeal was dismissed.
1. At the time of the sale by the bank, the relevant EC regulations had been replaced by Council Regulation 3950/92, the material parts of which were implemented by the Dairy Produce Quotas Regulations, SI 1994/672. There was a discernible principle attaching the quota to the land (see Wachauf v BEF [1989] ECR 2609, ECJ), but that principle was far from absolute, as instanced by the provisions allowing for temporary leasing. For that reason the bank could not succeed simply on the basis that the quota was an incident of land ownership which passed with the land. Moreover, given the need to apply EC regulations to a variety of domestic legal systems, it would be inappropriate for the court to pronounce on the question whether a quota should be seen as an item of property or a mere privilege.
2. However, the fact that the plaintiff could himself have severed the quota from the land by the use of an artificial short lease device did not assist him once the bank had taken possession, since from that moment leasing powers vested in the mortgagee by virtue of section 99 of the Law of Property Act 1925. As the transmission of the quota to the final purchaser via the bank took effect under the regulations, it was immaterial that the quota was incapable of passing under section 62 of the 1925 Act.
3. Equipped with its statutory power of leasing, it was trite law that the bank could apply the rent from the land against the mortgage debt. The ability to offer those leases with the benefit of the quota, registered in the name of the bank, stemmed from the regulations. Now that the moneys had been so applied, it was unnecessary to rule on the plaintiff’s argument that the regulations did not allow the bank to lease the quota because it was not engaged in dairy farming, a question turning on the true meaning of “producer” as somewhat inconsistently used in the regulations. If that question had been material it would have been necessary to refer it to the ECJ.
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) appeared for the respondents.
