Agricultural Holdings Act–Security of tenure–Whether ‘Contracting-out’ clause in agreement valid and effective–Fixed term–Agreement not to serve counternotice under section 24(1)–Policy of Act–Clause of no effect–Argument based on section 24 (2) (e) self-contradictory–Tenant’s appeal from county court decision allowed
This was an
appeal by the tenant from the decision of His Honour Judge Harrison-Hall at
Warwick County Court, holding in favour of the landlords, in a case stated by
the arbitrator, Edward Righton FRICS, that an agreement to exclude the
operation of section 24 (1) of the Agricultural Holdings Act 1948 was not
contrary to the Act nor against public policy and that a notice by the
landlords under section 24 (2) (e), based on the tenant’s breach of this
agreement, was effective to render section 24 (1) inapplicable.
G B H Dillon
and Derek Wood (instructed by Ellis & Fairbairn, agents for Wright, Hassall
& Co, of Leamington Spa) appeared for the appellant, and P G Langdon-Davies
(instructed by Rotherham & Co, of Coventry) represented the respondents.
Giving the
judgment of the court, MEGAW LJ said: This appeal raises an important question
as to the security of tenure which is provided for tenants of agricultural
holdings by the Agricultural Holdings Act 1948, which we shall call ‘the
Act.’ One of the purposes of that Act is
to provide generally that a tenancy of an agricultural holding, even though by
the agreement creating the tenancy it has been agreed that it shall last only
for a definite number of years, shall nevertheless continue indefinitely after
the expiration of that period, unless an independent body of experts, the
agricultural land tribunal, decides, on one or other of a number of specific
grounds set out in the Act, that a notice to quit, given by the landlord,
should be effective. The question raised by this appeal is, in effect, whether
it is permissible for the parties to agree that that security of tenure shall
not apply, so that the tenancy can, at the wish of the landlord, be made to
terminate on the expiration of the period stated in the tenancy agreement. In
other words, is the Act to be read as permitting its general purpose of
overriding a contractual provision for a fixed term itself to be overridden by
another contractual provision? We say at
once that we think the answer is clearly ‘No.’
The present
landlords of Village Farm, Offchurch, Warwickshire, are the plaintiffs in this
action, Henry Leslie Johnson and Miss Caroline Anne Johnson. Village Farm is a
farm of some 236 acres. It is agricultural land within the meaning of that
phrase in section 1 (2) of the Act. By a lease dated August 11 1967 the
landlords’ predecessors in title granted to the tenant, Samuel Moreton, a
tenancy of the farm for 10 years, the term commencing on January 1 1967. Clause
27 of the lease reads:
The tenant
agrees to give possession of the whole of the farm to the landlords immediately
upon the determination of the term hereby granted and not in any event to serve
a counternotice under section 24 (1) of the Agricultural Holdings Act 1948 or
to take any steps to claim the benefit of any statutory provision granting
security of tenure which may be in force at the time of the determination
thereof.
The intention
of the clause is to deprive the tenant, so far as agreement between the parties
can do so, of the benefit of any statutory provision intended to give an
agricultural tenant security of tenure. The reference to section 24 (1) of the
Act is because that is the vital provision for this purpose in the Act.
In order that
the facts of this case–few and undisputed–may be understood, it is necessary
first to refer to the relevant statutory provisions. We read first section 3
subsections (1), (2) and (4) of the Act:
(1) A tenancy of an agricultural holding for a
term of two years or upwards shall, instead of terminating on the expiration of
the term for which it was granted, continue (as from the expiration of that
term) as a tenancy from year to year, but otherwise on the terms of the original
tenancy so far as applicable, unless, not less than one year nor more than two
years before the date fixed for the expiration of the term, a written notice
has been given by either party to the other of his intention to terminate the
tenancy.
(2) A notice given under the foregoing subsection
shall be deemed, for the purposes of this Act, to be a notice to quit . . . .
(4) This section shall have effect
notwithstanding any agreement to the contrary.
So far, then,
the Act provides, with reference to a tenancy such as that with which we are
concerned, that, although the parties have by their contract agreed that it
shall terminate at the end of a specified number of years, nevertheless the
contract shall not have that effect unless a notice to quit shall have been
given, complying with the timetable in subsection (1). Subsection (4) provides
that this statutory requirement may not be overridden by contract. If this were
all, the effect, as regards security of tenure, would be small. But it is not
all. It is the foundation on which the structure of security of tenure is
built. The Act, having by this section specified the requirement of a notice to
quit, then by section 24 (1) goes on to provide what shall be the effect, if
and when such notice is given. The landlords’ contention in the present case is
that, although the parties cannot contract out of the requirements as to the
giving of notice laid down by the Act, they are nevertheless free to contract
out of the consequences of the giving of that notice, as laid down by the Act.
Before we come
to section 24 we should refer briefly to section 23, although it is of no
direct relevance to the present case. The landlords rely on the fact that it,
in conformity with section 3 but in contrast with section 24, contains express
words overriding inconsistent contractual provisions. The opening words of
section 23 (1) are: ‘A notice to quit an agricultural holding or part of an
agricultural holding
of the holding) be invalid if it purports to terminate the tenancy before the
expiration of 12 months from the end of the then current year of tenancy.’ There follows a proviso which sets out
circumstances in which the general provision as to the expiry date of the
notice shall not apply. They include, among others, cases where a receiving
order has been made against the tenant and cases where a public utility
authority or a government department or a local authority require possession of
the land for use for certain purposes.
Then comes the
vital section, section 24, which is marginally noted ‘Restrictions on operation
of notice to quit.’ This, as we have
said, is the effective enactment in the scheme of the Act for providing
security of tenure. Section 24 (1), amended, reads:
(1) Where notice to quit an agricultural holding
or part of an agricultural holding is given to the tenant thereof, and not
later than one month from the giving of the notice to quit the tenant serves on
the landlord a counternotice in writing requiring that this subsection shall
apply to the notice to quit, then, subject to the provisions of the next
following subsection, the notice to quit shall not have effect unless the
agricultural land tribunal consents to the operation thereof.
It will be
remembered that clause 27 of the lease in the present case, in addition to its
opening words, which are plainly and admittedly of no effect because of the
Act, and in addition to its closing words, which purport to override any
statutory provision granting security of tenure, specifically refers to section
24 (1) in these words: ‘The tenant agrees . . . not in any event to serve a
counternotice under section 24 (1). . . .’
Section 24 (2)
then specifies in subparagraphs (a) to (g) certain circumstances in which
section 24 (1) shall not apply. We propose to quote only subparagraph (e):
(2) The foregoing subsection shall not apply
where . . . (e) at the date of the giving of the notice to quit the interest of
the landlord in the agricultural holding to which the notice relates had been
materially prejudiced by the commission by the tenant of a breach, which was
not capable of being remedied, of any term or condition of the tenancy that was
not inconsistent with the fulfilment by the tenant of his responsibilities to
farm in accordance with the rules of good husbandry, and it is stated in the
notice that it is given by reason of the matter aforesaid.
Section 25
then sets out the specific and limited circumstances in which the agricultural
land tribunal may allow the notice to quit to be effective.
Against this
background of the relevant provisions of the Act we can summarise briefly the
undisputed facts and the proceedings which have led up to this appeal by the
tenants. We have already at the outset of this judgment mentioned the relevant
terms of the lease of August 11 1967. The 10 years specified in it would expire
on December 31 1976. The landlords desired to recover possession on that date.
For that purpose they initiated what we would describe as a ritual dance. The
landlords’ first step was to serve a notice (in fact, three notices, but that
complication may be disregarded) on November 27 1975. These were notices
properly given under section 3 (1) of the Act, notifying the tenant of the
landlords’ intention to terminate the tenancy on December 31 1976. So section
24 (1) of the Act came into operation, unless, at any rate, its operation was
effectively excluded by the terms of clause 27 of the lease. The tenant then,
acting or purporting to act under section 24 (1), on December 16 1975 served
the counternotice contemplated by that subsection, invoking its operation. On
December 22 the landlords took their next step in the ritual by serving another
notice on the tenant. This second notice purported to be given under section 24
(2) (e) of the Act. We quote from it (page 33 of the bundle of documents):
. . . for the
following reasons: That at the date of the giving of this notice the interest
of the landlords in the above mentioned holding has been materially prejudiced
by the commission by you of a breach, which is not capable of being remedied,
of a term or condition of the said lease being a term or condition which is not
inconsistent with the fulfilment of your responsibilities to farm in accordance
with the rules of good husbandry, namely serving a counternotice contrary to
clause 27 of your said lease.
So the
landlords were saying: ‘You, the tenant, have bound yourself by contract not to
serve a counternotice under section 24 (1). Your action in serving the
counternotice is a breach of that term of the tenancy, and it is a breach which
has all the characteristics, positive and negative, specified in section 24 (2)
(e). Therefore section 24 (1) does not apply. Therefore your purported
counternotice is ineffective.’ This
reasoning is not sound unless (i) the relevant part of clause 27 is an
effective, legally binding, contractual term, despite the provisions of the
Act; and (ii) the counternotice is a breach of the terms of the tenancy such as
is contemplated by, and covered by, section 24 (2) (e). We think neither of
those conditions is fulfilled.
The tenant
then, on December 23 1975, served a further notice on the landlords, stating
that, without prejudice to the question whether the landlords’ second notice is
bad in law, he, the tenant, wishes to contest the reason given in the notice,
and he requires the question to be determined by arbitration under the Act. So
issue was joined. An arbitrator was appointed. His task was an easy one. The
parties agreed that he should state a special case for the opinion of the court
in accordance with paragraph 24 of the 6th Schedule to the Act, without hearing
evidence. The terms of the special case and the question for the court were
agreed between the parties or their advisers. No material facts are stated in
the special case beyond those which we have mentioned. The contentions of the
parties were set out. The question of law was stated as: ‘. . . whether on the
agreed facts of this case the said reason’ (that is, ‘the reasons’–so described
in the plural–in the landlords’ second notice, which we have already quoted)
‘is good or not.’
The special
case was argued before Judge Harrison-Hall. On October 13 1976 he gave his
decision in a full and careful reserved judgment. He held in favour of the
landlords, taking the view that it was not contrary to the express or implied
words of the Act, nor against public policy, that the parties should agree to
exclude the operation of section 24 (1); and that the provisions of section 24
(2) (e) were applicable, so that the service by the tenant of the counternotice
operated as a breach of contract under that paragraph, so that section 24 (1)
did not apply.
The tenant
appeals. Broadly, his submissions are, first, that it is clear from the terms
of the Act that any contractual term purporting to exclude the operation of
section 24 (1) is of no effect; and, secondly, that, even if that were not so,
section 24 (2) (e), on which the landlords rely as an essential part of their
case, can on its own wording have no application so as to exclude the operation
of section 24 (1).
On the first
issue the landlords contend, as they contended successfully in the county
court, that there is nothing in the Act, whether by its express terms or by
implication, or on any ground related to the policy of the Act or public
policy, why the parties’ express contractual agreement, that section 24 (1)
should be excluded, is ineffective. They rely upon the principle, stated in
various authorities and textbooks, that it is open to a party to a contract to
exclude by a contractual term a statutory provision which has been enacted for
his benefit, provided that the intended exclusion does not prejudice the rights
of other persons and provided that it is not inconsistent with the policy of
the Act or public policy. The landlords also rely, as an indication of the true
meaning and effect of the Act, in relation to this question of
such as ‘notwithstanding any agreement to the contrary’; whereas such
stipulations are expressly included in section 3 by subsection (4) thereof, in
section 11 (1), in section 15, section 23 (1) and in section 65 (1). The
landlords rely on such cases as Premier Dairies Ltd v Garlick
[1920] 2 Ch 17 and Kennedy v Johnstone 1956 SC 39, in which, in
relation to other provisions of the Act, it was held that they could be
excluded, validly, by contractual terms. In the latter case it was a provision,
referable to Scots law, in the corresponding Agricultural Holdings (Scotland)
Act 1949. The landlords also rely on Gladstone v Bower [1960] 2
QB 384. In that case this court held that it was unable to fill in a gap in the
Act, even though it was satisfied that the gap had been left inadvertently by
the legislature, which, if it had noticed the gap, would have filled it. We are
told that the legislature has not, in fact, done anything since then about the
supposed gap: and it is suggested that this may show that the court was wrong
in its supposition regarding the policy of the Act as to security of tenure.
In answer to
these submissions, the tenant, in addition to maintaining his own primary
submission that it would make nonsense of the security of tenure provisions of
this Act if the parties were able by their agreement to exclude section 24 (1),
relied upon certain other authorities, such as Salford Guardians v Dewhurst
[1926] AC 619, as defining the general principle. The tenant also submitted
that the express inclusion in other sections of the Act of ‘notwithstanding any
agreement to the contrary’ carried no inference that the legislature intended
that section 24 (1) could effectively be rendered inoperative by agreement
between the parties. The tenant submitted that the true test was as stated by
Streatfeild J in Coates v Diment [1951] 1 All ER 890 at p 896/C.
The tenant also relied on what he claimed was the analogy of the Rent
Restrictions Acts, where, he asserted, contracting out of the provisions of the
various Rent Acts plainly was not permitted, even though there were no express
stipulations to that effect in the relevant Acts. To this argument, the
landlords replied that the Rent Restrictions Acts provide no true analogy; for
the right to contract out of the security of tenure provisions of these Acts
is, indeed, expressly precluded by the wording of the Acts, even though it is
not done in the form of a stipulation saying ‘notwithstanding any agreement to
the contrary.’ The tenant for his part
further submits that Gladstone v Bower is not relevant: there is
here no gap in the legislation.
We think that
the tenant is right on the first issue, and this appears without the necessity
of reference to authorities or analogies. It is simply a matter of the plain,
commonsense meaning and effect of the Act, apparent on its own terms. The point
is essentially a simple one. Sections 3 and 24 must be looked at together.
Their purpose is, we should have thought, beyond dispute. They apply to cases
in which the landlord and the tenant have, by their private contract, purported
to agree that the tenancy which they are agreeing to create shall end after a
specified number of years. For simplicity, let us take the present case: after
10 years. The whole purpose of section 3 and section 24, read together, is to
provide that, notwithstanding the purported agreement of the parties, the
agreement shall not necessarily and automatically end after 10 years,
whatever notice may have been given. It would make nonsense of the legislation
if it were to be read as providing that: (i) although the parties may have
agreed that the tenancy shall end after 10 years, that agreement shall not
have effect: nevertheless (ii) the parties may, validly and effectively, agree
that the provision that the tenancy shall end after 10 years shall have
effect.
Whatever
subtleties may be canvassed, the clear and simple fact remains: if the
landlords are right in their submission, there was no real purpose in the
enactment of sections 3 and 24. Parliament might just as well have left matters
alone. On that basis the parties can agree that the tenancy shall end after 10
years, and that term of the contract shall be binding and effective. Why go
through the elaborate farce of legislation which appears in the first instance
to prevent the parties from making a binding and effective agreement limiting
the tenancy to 10 years, if, at the same time, it is open to the parties, by
another clause in the self-same agreement, to achieve the very thing which they
are supposed to be prevented from achieving?
The answer, surely, must be that the operation of section 24 (1) cannot
be excluded by agreement, and the provision of clause 27 of the lease on which
the landlords rely is, indeed, of no effect.
Having reached
that conclusion on that simple ground, which is in no way affected by any of
the authorities cited, either as establishing general propositions of
construction or in relation to this particular Act, we do not propose to
discuss at any great length the other detailed and elaborate submissions which
were put before us. It will, we hope, be clear that, if we are right in our
view on the main issue, there was no reason why section 24 should have included
any express words, even if as a matter of drafting it would have been
practicable, such as ‘notwithstanding any agreement to the contrary between the
parties.’
However, we
should add that in our opinion it would be impossible to hold–the second
proposition which the landlords have to establish in order to succeed–that
section 24 (2) (e) is applicable so as to exclude the operation of section 24
(1). For the landlords, as we understand it, it is admitted–indeed, we believe
it is put forward as an essential part of their submissions–that, even though
(as they contend) clause 27 is a perfectly valid and effective contractual
provision which would be recognised by the courts as binding on the tenant,
nevertheless the tenant cannot be stopped from serving his counternotice under
section 24 (1). The counternotice is in breach of a valid contractual
provision; but, since the Act says that the counternotice may be given, it may
be given. If that part of the landlords’ submission is right, we should have
thought that it was the end of their case. For if section 24 (1) applies, all
its consequences must follow. It cannot both apply and at the same time not
apply. Yet this is what the landlords’ argument appears to involve. Assume,
however, in favour of the landlords, that we are wrong in that view: section 24
(1) having applied, the landlords then treat the tenant’s counternotice as a
breach of contract. They then serve a further notice under section 24 (2) (e).
If this is a valid, proper and effective notice under section 24 (2) (e), the
effect of it is that, by reason of the opening words of section 24 (2), section
24 (1) ‘shall not apply.’ Having
applied, it shall, so it appears to be submitted, as a result of its
application, ‘not apply.’ But section 24
(2) (e) includes as one of its requirements that the breach committed by the
tenant’ (in this case, it is said, the service of the counternotice) ‘was not
capable of being remedied.’ If the
landlords’ argument were right, so that they were entitled to succeed in this
action, the breach committed by the tenant was, indeed, ‘capable of being
remedied.’ It was capable of being
remedied by the simple procedure adopted by the landlords: the service of a
second notice, which, if the landlords were right in all other respects, would produce
the result that section 24 (1) ‘shall not apply.’ The argument goes round in a circle.
There are
various other difficulties which we think would face the landlords, if they
reached the stage of establishing ‘a breach of a term of the tenancy’ (namely,
of the provision of clause 27, purporting to prevent the tenant from serving a
counternotice under section 24 (1)). But we do not propose to lengthen this
judgment by pursuing them. We allow the appeal and answer the question stated
in the special case in these terms:
‘The reason
stated in paragraph 11 of the special case is not a good reason.’
The appeal
was allowed with costs in the Court of Appeal and below. Leave to appeal to the
House of Lords was refused.
