Compensation for milk quota — Termination of agricultural tenancy — Arbitrator’s award — Meaning of para 6 of Schedule 1 to the Agriculture Act 1986 — Dispute concerned calculation of ‘standard quota’ as defined in para 6 of Schedule 1 to the 1986 Act — The tenant contended that the ‘standard quota’ is determined by multiplying the relevant number of hectares by the prescribed quota per hectare — The council contended that para 6(2) of Schedule 1 to the 1986 Act applied
The following
case is referred to in this report.
Grounds v Attorney-General of the Duchy of Lancaster [1989] 1 EGLR
6; [1989] 21 EG 73, CA
Christopher
Priday QC (instructed by the solicitor to Surrey County Council) appeared for
the applicant council; Andrew Densham, of Burges Salmon, of Bristol,
represented the first respondent, James Baird Main; the second respondent, the
arbitrator Mr Richard Arthur Law, did not appear and was not represented.
Giving
judgment, JUDGE SLOT said: An arbitration had been conducted by Mr
Richard Arthur Law FRICS FAAV under the provisions of para 11 of Schedule 1 to
the Agriculture Act 1986 between Surrey County Council as landlords and James
Baird Main as tenant, and was concerned with the assessment of the amount of
compensation payable by the council to Mr Main for milk quota, as provided by
that Act. In the event, the arbitrator accepted the tenant’s submissions made
in the course of the arbitration and awarded Mr Main the sum of £63,290.48 as
the statutory compensation due to him under the scheme set out in the Act.
Mr Main became
the tenant of the council under a tenancy from year to year from September 29
1980 of an agricultural holding, named Holmlea Farm at Horne, near Horley,
Surrey. He surrendered that tenancy in March 1987 by agreement and served a
notice claiming compensation for milk quota pursuant to the statute. He claimed
a sum in excess of £72,000. The council did not challenge his right to
compensation, but the sum could not be agreed, so that the matter went, in
accordance with the scheme set out in the statute, to arbitration. Mr Law was
appointed the arbitrator in October 1988, but, for reasons with which I am not
concerned and about which no
made on March 21 1991. The council applied to set aside the award by an
application to this court dated April 10 1991. The tenant’s answer was filed on
May 3 1991. The court gave directions on June 18 1991 and the matter was heard
on July 30 1991, this judgment being delivered on August 12 1991. It is
irrelevant, but satisfactory, that the court, despite the many pressures on it,
has been able to deal with this substantial matter a great deal more quickly
than the arbitrator was able to do.
Judge Slot
said that compensation for milk quota was a comparatively new concept in the
law and was the child of statute. In March 1984 a system of milk quotas was
agreed, whereby each member state of the EEC was allocated, and agreed to
produce no more than, an agreed national quota of milk, the plan being that, as
the years went by, the national quota would gradually be reduced, so that the
quantity of milk produced in the community would become lower.
In England and
Wales each milk producer was allocated a quota expressed in litres of milk per
base year, the base year being the calendar year 1983: and the quota was tied
to the land occupied by the producer, so that, if the occupier of the land
changed, the quota, and the right to produce and sell the quantity of milk
contained in the quota, was transferred to the newcomer, while the outgoing
farmer took no right with him. This was seen as being of little concern to
farmers who owned the freehold and could buy and sell as they chose. But in
1986 Parliament took the view that a tenant dairy farmer who left his land and
his quota behind with his landlord would thus suffer hardship, for which he
should be compensated by the landlord. This compensation was first provided by
the Agriculture Act 1986, which set out the right to compensation for milk
quota and the method by which it was to be calculated.
The method of
calculation of the compensation payment in this case is set out in para 5(2)(a)
of Schedule 1 to the Act and involves mathematical calculations and the use of
specific statutory terminology. For this case it provides:
The amount of
the payment . . . shall be an amount equal . . . to the value of the sum of —
(i) the tenant’s fraction of the standard quota,
and
(ii) the amount of the excess;
The excess is
the amount by which ‘the allocated quota exceeds the standard quota for the
land’.
The terms
‘tenant’s fraction’, ‘allocated quota’ and ‘standard quota’ are all statutory
terms with specific statutory meanings and each has to be calculated in
accordance with the statute. In this instance the calculation of the ‘tenant’s
fraction’ creates no difficulty. It has been agreed at 9.5%. Likewise in this
case there is no difficulty in calculating the amount of the ‘allocated quota’.
For the material year, it is agreed at 379,317 litres.
The problem in
this case lay in the calculation of the ‘standard quota’: and that term is
defined in para 6 of Schedule 1 to the statute. For material purposes that
paragraph provides:
6(1) . . . the standard quota for any land shall
be calculated by multiplying the relevant number of hectares by the prescribed
quota per hectare . . .
(2) Where by virtue of the quality of the land in
question or climatic conditions in the area the amount of milk which could
reasonably be expected to have been produced from one hectare of the land
during the relevant period (‘the reasonable amount’) is greater or less than
the prescribed average yield per hectare, then sub-paragraph (1) shall not
apply and the standard quota shall be calculated by multiplying the relevant
number of hectares by such proportion of the prescribed quota per hectare as
the reasonable amount bears to the prescribed average yield per hectare; and
the Minister shall by order prescribe the amount of milk to be taken as the
average yield per hectare for the purpose of this sub-paragraph.
As Glidewell
LJ has observed in the leading case of Grounds v Attorney-General of
the Duchy of Lancaster [1989] 1 EGLR 6; [1989] 21 EG 73, subpara (2) read
at speed does not sound very clear. What is clear, though, is that subpara (2)
provides for an entirely different calculation from that set out in subpara (1)
when one comes to calculate the amount of the ‘standard quota’, a calculation
necessary if the compensation is to be quantified: and whether one applies
subpara (1) or subpara (2) the first essential is to ascertain ‘the relevant
number of hectares’, which is a multiplicand common to both methods of
calculation. In this case, the ‘relevant number of hectares’ has been agreed at
24.
The
‘prescribed quota per hectare’, which is the multiplier in the calculation
under subpara (1), is defined in the relevant statutory instrument, in this
case the Milk Quota (Calculation of Standard Quota) Order 1986, and is there
quantified at a figure of 8,000.
The tenant
contended that the ‘standard quota’ in this case is simply calculated by
multiplying the relevant number of hectares (24) by the prescribed quota per
hectare (8,000), which produces a figure of 192,000, from which must be
deducted a sum referable to the ‘development quota awarded but not allocated’
of 36,764. On this calculation, which the tenant put forward and the arbitrator
found to be correct, the standard quota is 155,236 litres.
The landlord,
however, argued that para 6(2) applied, so that the standard quota was at a
higher figure of 208,484 litres, which reduced the excess by which the
allocated quota exceeded the standard quota and thus reduced the amount
qualifying for compensation. It was to be noted in this context that the higher
the standard quota is, the lower the compensation will be, since the excess
(the amount by which the allocated quota exceeds the standard quota), which is
the principal element in the compensation calculation in this case, will
decrease as the standard quota rises.
The judge said
it was therefore necessary to determine whether the standard quota should be
calculated in accordance with para 6(1) of the Schedule or para 6(2). The
arbitrator made his calculations on the basis of para 6(1) and this is the
error of law on the face of the award on which the landlord relied.
The issue
turned on the proper construction of para 6(2) and, in his judgment, its
meaning was clear. It provides that, if a certain state of affairs exists, the
alternative method of calculation, set out in para 6(2), must be adopted. That
state of affairs exists where, by virtue of the quality of the land in
question, the amount of milk reasonably expected to be produced from 1 hectare
of that land (‘the reasonable amount’) differs from the statutorily prescribed
average yield per hectare. That state of affairs also exists where, by virtue
of the climatic conditions in the area, the reasonable amount differs from the
prescribed average yield per hectare. It is only, as he read it, if one or
other such state of affairs exists (or both) that the para 6(2) calculation
comes into play. If neither exists, then the para 6(1) calculation comes into
play.
The judge
said, in his judgment, for either state of affairs to exist, the difference
between the reasonable amount and the prescribed average yield must have been
caused either by the quality of the land (it may be particularly rich land, or
particularly poor land, or something of the kind) or by the climatic conditions
in the area (it may be particularly rainy, particularly sunny, or particularly
liable to frost or something of the kind). The words ‘by virtue of’ mean ‘by
reason of’ or ‘because of’: and unless the difference between the reasonable
expected yield and the statutorily prescribed average yield is brought about by
one of the two specified causes, then para 6(2) does not come into play.
It was argued
for the landlord that the para 6(2) test always comes into play, if for no
other reason because one cannot tell whether there is a difference between the
reasonable expected yield and the statutorily prescribed average yield, unless
one makes the calculation: and, unless one knows that there is a difference and
what that difference is, one cannot ascertain what its causes may be. The judge
disagreed. It may well be open to the arbitrator to make the para 6(2)
calculation, see if there is any material difference and then look to see if
the difference is due, wholly or in part, to the quality of the land or the
climatic conditions. But he need not do so if he is satisfied, on the evidence
without more, that the quality of the land and the climatic conditions are not
so unorthodox that they would affect the milk yield either way. After all, the
skill and pertinacity of the farmer, the nature of the artificial feed which he
gives to his stock, and the natural productivity of the cows he places on the
land are just as likely, if not more so, to cause the milk yield to rise or
fall on ordinary grazing land in ordinary grazing country as anything else: and
these other factors were, in his view, specifically excluded from
consideration, when the choice is made between the para 6(1) and the para 6(2)
methods of calculation.
It seemed to
the judge, furthermore, that there was sense in this. Whether the compensation
system is wise or unwise, fair or unfair, the object of the scheme is to
compensate the departing tenant farmer by giving him recompense for the things
he leaves behind him when he goes. When he goes he takes with him his farming
skills, his ability to work hard, his experience with artificial feeds and all
his knowledge as to how to make a dairy farm productive. He also takes with
him, in all probability, his cattle, whether they be high-yielding stock or low-yielding
stock. He needs and deserves no compensation in respect of
quota. He also leaves behind the land, with its good characteristics and its
bad characteristics. He also leaves behind the climatic conditions of the area,
be they helpful or unhelpful. These elements, which he leaves behind, redound
to the benefit or disadvantage of the landlord and are the elements which the
departing tenant farmer has, by departing, lost. If Parliament has decided that
his compensation is to be altered from the orthodox para 6(1) computation in
certain special circumstances, it seems sensible that those special
circumstances should arise from the things of which the farmer’s departure has
deprived him, rather than from the things which he has taken with him.
There are two
further arguments in favour of the tenant, which seemed to him to be
irresistible. The first is that, if the landlord’s argument is correct, the
para 6(1) test will never come into play at all, unless by chance the
reasonable expected yield and the statutorily prescribed average yield happen
to coincide. There would be no purpose in including para 6(1) in the Schedule
at all, let alone in putting it before para 6(2), if this argument were right:
and half the figures in the statutory instrument would be nugatory also.
The second
argument is that, if the landlord’s case is right, the first 17 words of para
6(2) have no effect at all. The landlord’s argument, perhaps oversimplified, is
that one must always make the para 6(2) calculation, ascertain the difference
between the reasonable expected yield and the statutorily prescribed average
yield, take into account all the circumstances which have brought that
difference about, including the quality of the land and the climatic conditions
in the area, and then apply the para 6(2) test to calculate the standard quota.
It might be a sensible way to calculate the compensation. It might (he simply
did not know) sometimes be a fairer method of doing it. But it is simply not
what the statute provides.
Reference had
been made in the argument to the decision of the Court of Appeal in Grounds
v Attorney-General of the Duchy of Lancaster: and the judge was
comforted by the fact that, in paraphrasing para 6(2), Glidewell LJ considered
the words ‘by virtue of’ effectively to be synonymous with ‘by reason of’, a
conclusion, in his judgment, incontrovertible as a matter of grammar. But,
apart from this, the judge did not consider that decision to be helpful on the
issues he had to decide. The Court of Appeal in that case was looking at an
entirely different problem: and it would be inappropriate, in his view, to
latch on to odd phrases in the leading judgment and apply them to the issues in
this case, which are a long way away from the issues which they were
considering.
In this case
the arbitrator had found, as a fact, that the land was good- to
moderate-quality agricultural land and that the climatic conditions in the area
were close to the 30-year mean and that this grassland on this farm was
classified as average in terms of its soil type and summer rainfall. So far as
the judge could see, there was no evidence before the arbitrator which could
lead to any other conclusion.
In the judge’s
judgment, this case turned on the ordinary construction of the ordinary words
used in para 6(2): and on that issue the arbitrator and the tenant were right.
It followed
that there was, in the judge’s view, no error on the face of the award: and the
application to set aside the award on that ground was dismissed.
