by J Muir Watt
The output of case law on agricultural holdings since the last review was published at (1986) 280 EG 1318 has not been large. Decisions are still awaited on parts of the rent arbitration formula in the Agricultural Holdings Act 1986, section 12 and Schedule 2, which have given rise to differences of interpretation. It is hoped that some enlightened litigants will be prepared to spend their money in the interests of legal education.
Agricultural holding, “substantiality” test: section 1 of 1986 Act
Short v Greeves
In his judgment in this case, reported at [8] 08 EG 109, Dillon LJ mentioned that counsel were agreed in the county court and Court of Appeal that the point in issue, whether the land in question was an agricultural holding, had to be decided under the 1986 Act. He himself had “considerable reservations” on this point, having regard to Schedule 13 to the 1986 Act, but he did not think it made any real difference to the outcome. He went on to cite Howkins v Jardine [1951] 1 KB 614 on the interpretation of section 1 of the 1948 Act. It is submitted, with respect, that Dillon LJ’s reservations were justified. The specific transitional provision as to notices to quit served before the commencement of the 1986 Act in para 3(1) of Schedule 13 should be preferred to the more general provision in section 98(1). The interesting thing is that Dillon LJ evidently considered that, on the question of the substantiality test for an agricultural holding, there was no difference between section 1 of the 1948 Act, as interpreted in such cases as Howkins v Jardine, and section 1 of the 1986 Act. This is something of a relief, although Dillon LJ’s comment does not amount to a decision. One had hoped that the courts would not regard section 1 of the 1986 Act as throwing doubt on the principle that the substance of the matter must be looked at to “see whether, as a matter of substance, the land comprised in the tenancy, taken as a whole, is an agricultural holding. If it is, then the whole of it is entitled to the protection of the Act. If it is not, then none of it is so entitled”: per Jenkins LJ in Howkins v Jardine at p 628.
Apart from the above point, the main interest in Short v Greeves is that the question whether a tenancy is in substance a tenancy of an agricultural holding is not to be determined by an arithmetical test of proportion of turnover. In Short v Greeves the tenancy was of a horticultural enterprise, a garden centre, in which over the years the proportion of bought-in articles (garden seats, paving, sheds, tubs, hanging baskets, electric propagators and produce such as eggs and potatoes) increased at the expense of the homegrown flowers and conifers. The trial judge found that the bought-in products had come to represent more than half the turnover; he put the proportions as roughly 40% home-grown and 60% bought-in. Nevertheless, he decided, and the Court of Appeal agreed, that the turnover figures were not conclusive; a “not insubstantial” part of the business still consisted of horticulture. The holding remained, looked at as a whole, in substance an agricultural holding. “Substantial”, therefore, is not equivalent to “principal” in the phrase “only or principal source of livelihood” in section 36(3)(a) of the 1986 Act: see Wilson v Earl Spencer’s Settlement Trustees [5] 1 EGLR 3 (equal to 51%). Is it then more akin to “considerable, solid or big” in “substantial part of the whole rent” in section 7(2) of the Rent Act 1977, according to the interpretation in Palser v Grinling [1948] AC 291 at p 317? It would appear to mean something more than this. The word “predominantly” is sometimes used, but this does not carry the matter much further. The two judgments in Short v Greeves are not of much help in determining the criterion. Both the county court judge and the two members of the Court of Appeal accepted that the tenancy had passed the substantiality test although the home-grown horticultural content represented only 40% of the total turnover. Dillon LJ said: “Although the sales of bought-in plants and other goods have increased, it is still based on the sale also of Mr Short’s roses” (italics added). What does “based on” mean? Is there some essence, not capable of being expressed in mathematical terms, which is determinative of the character of the tenancy? This seems to reduce the matter to a subjective judgment, variable like early Equity with the length of the chancellor’s foot. It is to be regretted that the court did not pursue the analysis further in order to provide the guidance which is needed. It is not enough to say that “the court is not lightly to treat a tenancy as having ceased to be within the protection of the Agricultural Holdings Act” (Dillon LJ).
Seasonal grazing licence again
Watts v Yeend
This case, reported at [7] 1 WLR 323; [1987] 1 EGLR 4; (1986) 281 EG 912, was a decision under the 1948 Act, section 2(1) proviso, now section 2(3)(a) of the 1986 Act. The provisions now enshrined in the 1986 Act are set out more clearly than in 1948. The case shows the familiar pattern of initial friendly, informal relations subsequently deteriorating. There are three points to be noted.
No specific starting or terminal dates
The tenant in this case seemed, rather surprisingly, to challenge an established line of authority, from Reid v Dawson [5] 1 QB 214 onwards, including the important Scottish case of Mackenzie v Laird 1959 SC 266, that a licence or letting for “the grazing season”, or words to the like effect, without specific reference to starting or terminal dates, was a sufficiently “specified period of the year”, provided that the duration so named was identifiable in farming circles. The court had no difficulty in rejecting any attempt to undermine this doctrine.
Burden of proof
Previous cases had shown that the burden of proof to establish that this exception from full protection applies was on the landlord or licensor and this rule was applied by the judge in Watts v Yeend. There was an attempt to criticise the judge for not stating the rule as clearly as he might have done, but the criticism was rejected by the court.
Evidence
The most interesting point was as to the evidence on which the judge mainly relied for his conclusion that this was a seasonal grazing licence. There had been no written agreement or correspondence between the parties bearing on the matter. The evidence which convinced the judge consisted of entries as to seasonal grazing in agricultural returns which the landowner made to the Ministry of Agriculture, Fisheries and Food. The fact that the returns were made by the owner was consistent with a seasonal grazing arrangement; if it had been a tenancy the tenant would have been the person to make the returns. The returns included references to lettings for seasonal grazings to the appellant, Yeend. There was also some evidence that the appellant had requested payment for certain work which he carried out on the land, such as hedging, ditching and drainage; if he had been a tenant he would have done the work without asking for payment.
Succession: “only or principal source of livelihood”
Bailey v Sitwell
This decision, reported at [6] 2 EGLR 7; (1986) 279 EG 1092, was an appeal by case stated under the Agriculture (Miscellaneous Provisions) Act 1954 by a son from a determination by an agricultural land tribunal dismissing the son’s application for a new tenancy by succession on the death of his father. The decision was under section 18(2)(b) of the Agriculture (Miscellaneous Provisions) Act 1976 (now section 36(3)(a) of the 1986 Act). The tribunal were held to have been in error in their consideration of the appellant’s “only or principal source of livelihood”. They looked at the whole of the seven years ending with the father’s death instead of the five years within that period which the applicant selected and was entitled to select. Some confusion resulted from the fact that the appellant and his father had only one bank account, which was both a farm account and one into which the father’s pension, attendance allowance and sums from a deposit account were paid. The father had been disabled by a stroke in 1978 and died in 1983. In his application to the tribunal the appellant elected to rely, for the purposes of section 36(3)(a), on the five-year period 1977-81, but the respondents persuaded the tribunal to base their decision on an analysis of the accounts provided by the applicant from 1977 to 1983. This showed a deteriorating position from 1981 to 1983 after net profits in 1977 to 1980.
In 1981 there was a loss of £14,000. The appellant drew £889.52 in that year and it was said that this was derived not from his agricultural work but from the father’s pension, attendance allowance and deposit account. The unfavourable results continued in 1982 and 1983, the year in which the father died. The tribunal rejected the appellant’s application for a tenancy on the ground that he had failed to satisfy the livelihood condition.
Hodgson J held that the tribunal had acted incorrectly in basing their decision entirely on the analysis of the accounts for the seven years 1977 to 1983 instead of on the five-year period which the appellant had chosen and was entitled to choose. In addition, the tribunal had not carefully disentangled the expenditure of the applicant and the father during the material five years. The case was sent back to the tribunal for reconsideration. Applicants and their advisers should be warned by this case to ensure that the tribunal base their decision on the period specified by the applicant in his application.
Arbitration: error of law on face of award
Burton v Timmis
Procedure
This case, (reported at [7] 1 EGLR 1; (1986) 281 EG 795), was an appeal to the Court of Appeal from the decision of a county court judge holding that an arbitrator’s award should be varied on the ground of error of law on the face of the award. It will be recalled that since 1972 (section 15(1) of the Agriculture (Miscellaneous Provisions) Act 1972) the original jurisdiction of the High Court in regard to errors of law has been transferred to the county court, but the Court of Appeal have appellate jurisdiction in this as well as other agricultural holdings matters. It will also be recalled that by amendments introduced by the Agricultural Holdings Act 1984 (Schedule 3, para 28(9)), now embodied in the 1986 Act (Schedule 11, para 28(1), (2)), the county court may, instead of setting an award aside for error of law, remit it to the arbitrator for reconsideration; or the court may vary the award by substituting for the erroneous part such award as the court consider proper.
In the present case the county court judge exercised the jurisdiction to vary the award and the tenant appealed to the Court of Appeal.
The error of law
The error of law, which was apparent on the face of the award, was that the arbitrator treated obligations (by the tenant to pay rent and by the landlord to carry out works), which on a correct construction were independent of each other, as interdependent. He accordingly decided that it was a condition precedent to the tenant’s obligation to pay a specified amount of rent that the landlord should have carried out the works. As he had not done so, the notice to pay rent misstated the rent due and the notice to quit based on it was invalid. The county court judge held that the arbitrator’s construction of the obligations as interdependent was erroneous. He then exercised his jurisdiction to vary the award by substituting a finding that the notice to quit was good. The Court of Appeal dismissed the tenant’s appeal against this decision.
Whether failure to resolve an issue is misconduct
A subsidiary allegation which was made but did not have to be decided was that the arbitrator had been guilty of misconduct by failing to deal with an issue which had arisen, namely, a conflict of evidence.
The county court judge appears to have been of the opinion that this did constitute misconduct, but Kerr LJ said: “I am not at the moment convinced that failure to resolve an issue is misconduct.” It is suggested that in some circumstances it could be, depending on the importance of the issue.
Milk quota cases
It may be useful to note here the cases so far reported on milk quotas.
Lee v Heaton
Unlike the other cases mentioned below, which were High Court or Court of Appeal decisions, this was a decision of the Dairy Produce Quota Tribunal [7] 2 EGLR 12; (1987) 283 EG 1076. The chairman was Lord Grantchester QC and it decided a point of importance for the drafting of agricultural tenancy agreements. The relevant covenants in the tenancy agreement were as follows:
(i) Not without the landlord’s consent in writing to permit or suffer any basic quota under a marketing scheme to lapse or be reduced through any failure to produce on the holding a sufficient quantity of any produce now or hereafter the subject of a marketing scheme which is or has been produced on the holding or which is normally grown in the district.
(ii) Not to dispose of the whole or any part of any basic quota under a marketing scheme allotted to the holding or to the tenant in respect of the holding.
(iii) On the termination of the tenancy to nominate the landlord or the incoming tenant as his successor in respect of any basic quota under a marketing scheme in respect of which the tenant has the right of nomination.
Covenants of the above type have commonly been included in agricultural tenancy agreements to deal with quotas under marketing schemes within the Agricultural Marketing Acts. In the above case an arbitrator, on a reference under the Milk (Community Outgoers Scheme) (England and Wales) 1986, assumed that the tenant’s covenants in regard to quota were effective for the purposes of milk quota under the outgoers scheme. This decision (which would have had the effect of depriving the tenant of compensation for discontinuance of milk production) was challenged by the tenant and reversed by the quota tribunal. They held, it is submitted correctly, that the milk quota which was the subject of the outgoers scheme, and which implemented part of the common agricultural policy of the EEC, was not “basic quota under a marketing scheme” pursuant to the United Kingdom Agricultural Marketing Acts. The provisions giving effect to the EEC Council and Commission regulations did not establish a marketing scheme but imposed a European levy on the disposal of milk products with a view to curbing the growth of milk production in the community.
Puncknowle Farms Ltd v Kane
This was an important High Court decision, reported at [5] 2 EGLR 8; (1985) 275 EG 1283, on the meaning of “areas used for milk production” in connection with the apportionment of quota in the event of the division of a “holding” in the EEC sense. A suggestion that the expression was confined to an area used to support animals which were actually lactating was rejected by the court in favour of a broader interpretation, to cover areas used to support the dairy herd, and accordingly included dry cows during the interval between lactations, heifers necessary to secure the continuance of milk production and dairy bulls bred to enter the production herd and not for sale. It should be noted that “areas used for milk production”, as so defined, must be distinguished from two somewhat similar expressions which are used in respect of standard quota (land used “for the feeding of dairy cows kept on the land” in the Agriculture Act 1986, Schedule 1, para 6) and the tenant’s fraction (land used “for the feeding, accommodation or milking of dairy cows kept on the land” in Schedule 1, para 7).(*)
R v Dairy Produce Quota Tribunal for England and Wales, ex parte Atkinson
This, like the two succeeding cases, was an application for judicial review. In this case, [5] 2 EGLR 10; (1985) 276 EG 1158, the applicants challenged the rejection by the Dairy Produce Quota Tribunal of the applicants’ claims for a share in the regional wholesale reserve of quota under the “exceptional hardship” provisions. The challenge succeeded, the court holding that the tribunal had taken too restrictive a view of the requirement that a claimant had to be a “producer” by a certain date in order to qualify. The applicants, although not yet carrying out dairy farming on newly purchased farms by the critical date, qualified as partners in another farm which was an active dairy farm to which a primary quota attached. The applicants should not have been excluded from pursuing their claims and would be entitled to do so before another tribunal.
R v Dairy Produce Quota Tribunal for England and Wales, ex parte Davies
In this case, reported at [7] 2 EGLR 7; (1987) 283 EG 463, the tribunal’s decision was quashed on the ground of inadequate reasons, but the indication was that the inadequacy of the reasons might well have concealed an error of law. The applicant had put forward a development claim for secondary wholesale quota. This was a special case claim in respect of capital investment calculated to result in a substantial increase in milk production. To the applicant’s surprise the tribunal arrived at a secondary wholesale quota claim calculated on the basis of an increase of only 13 milking cows, although it was common ground that at the end of the development there would be a total of 60 milking cows. It appeared that the tribunal might have exaggerated the number of milking cows in existence during the base period by applying a standardised yield of 5,000 litres per cow mentioned in general guidance given to local panels. The decision was quashed “on the basis that reasons were not adequately given and that it is possible that had they been adequately given they would have exposed an error of law”.
R v Dairy Produce Quota Tribunal for England and Wales, ex parte Wynn-Jones
In this case, reported at [7] 2 EGLR 9; (1987) 283 EG 643, the applicant for judicial review failed before the Queen’s Bench Divisional Court to substantiate his challenge to the decision of a local panel of the tribunal. He put forward a special case claim for revision of the base year for the allocation of quota. He relied on bad weather as constituting a “serious natural disaster” adversely affecting his milk production in 1983. However, apart from other weaknesses in his claim, he was unable to satisfy the requirement that his production must be shown to have been reduced by weather conditions by not less than 15%. The relevant EEC regulation was Art 3(3) of Council Regulation (EEC) 857/84. May LJ commented that he was in any case “far from satisfied, having regard to the phraseology of the EEC regulation, that the weather and its effect, complained of in this case, constituted ‘a serious natural disaster’ which is the requirement of the EEC regulation”.
R v Dairy Produce Quota Tribunal for England and Wales, ex parte Hall & Sons (Dairy Farmers) Ltd
This decision by McCullough J, reported at [8] 11 EG 79, is notable for resulting in a reference under RSC Ord 114 to the Court of Justice of the European Communities for rulings on the interpretation of provisions in EEC regulations affecting milk quotas. The jurisdiction of the European Court to give such rulings is derived from Article 177 of the Treaty of Rome. The issue involved was as to whether, in calculating the applicants’ direct sales quota, sales of milk which were not derived from their own cows but were bought in from other producers could properly be taken into account. The Dairy Produce Quota Tribunal, upholding the views of the Minister of Agriculture, Fisheries and Food, answered no to this question. McCullough J was of the same opinion, but in view of the importance of the point and a possible ambiguity in the wording of Art 6(1) of EEC Council Regulation 857/84, he considered that the matter should go for interpretation to the European Court. While we wait for the answer practitioners should perhaps remind themselves of the additional weapon in their armoury, or from a different point of view the additional source of frustration and delay, constituted by the machinery for reference of construction points to the European Court.
(*) See on these different expressions Milk Quotas Law and Practice (Farmgate Communications Ltd), paras 4.07, 8.10 and 8.15.