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Session 1997-98
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| Judgments - Clydesdale Bank Plc v. Davidson (A.P.) and Others (First Appeal) (Scotland) Clydesdale Bank Plc v. Davidson (A.P.) and Others (Second Appeal) (Scotland) (Consolidated Appeals) |
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Lord Hope of Craighead Lord Clyde
(RESPONDENTS)
(APPELLANTS) AND OTHERS (FIRST APPEAL) (SCOTLAND) (RESPONDENTS)
(APPELLANTS) AND OTHERS (SECOND APPEAL) (SCOTLAND) (CONSOLIDATED APPEALS)
LORD GOFF OF CHIEVELEY
My Lords,
I have had the advantage
of reading in draft the speech prepared by my noble and learned friend, Lord Clyde, and for the
reasons he gives I would dismiss this appeal.
LORD JAUNCEY OF TULLICHETTLE
My Lords,
I have had the benefit of
reading in draft the speeches prepared by my noble and learned friends Lord Hope of Craighead and
Lord Clyde. I agree with their reasoning and conclusions that the appeal should be dismissed. I
propose to add only a few words of my own on what appears to me to be the critical issue in this
appeal, namely whether the Minute of Lease of 11 January 1977 is truly a lease which attracts the
provisions of the Agricultural Holdings (Scotland) Act 1991. I start with two general propositions,
namely,:- (1) that each pro indiviso proprietor of heritage has a real right to possession of the whole
subjects jointly with his co-proprietors (Erskine II, vi, 53; Bell's Principles 10th ed.
(1899) paragraph 1072), and (2) that a lease involves putting the tenant into possession of the
subjects and maintaining him there (Rankine on Leases, 3rd ed. p. 200). Unless there is a
specific provision to the contrary there will be implied, if not expressed, a condition entitling the
landlord to terminate the lease and remove the tenant in the event of a material breach of contract
by the latter. The landlord will also have the right to remove the tenant from the subjects at the
expiry of the stipulated period or such further period as has been agreed between the parties
expressly or impliedly or imposed upon them by statute. Rankine (op. cit.) at p. 1 defines a
lease as:
It is in my view implicit in this definition that a tenant's right to possession whether it be of
particular subjects or of rights such as mineral or sporting, derives entirely from the lease granted to
him and terminates on the expiry of that lease.
In Price v.
Watson 1951 S.C. 359 one pro indiviso proprietor of heritable property sought summarily to
eject other pro indiviso proprietors from part of the property. Lord Keith, in a judgment doubting the
need to sist the action of ejection as proposed by the majority of the First Division, but which has
stood unchallenged for 46 years said, at p. 366:-
I consider that Lord Keith's observations are equally applicable to an action of removing as to
the action of ejection before him. The critical matter is that as long as the defender in the action
retains his pro indiviso proprietorship he can only be deprived of possession by an action of division
and sale. It is noteworthy that when Lord Keith refers to one co-owner allowing another to have sole
possession on payment he does not describe the arrangement as a lease, no doubt for the very
good reason that it is not. The appellant relied strongly on Pinkerton v. Pinkerton 1986 S.L.T. 672 in which Lord Mackay of Clashfern, sitting in the Outer House, held inter alia that an agreement by A. to let a farm to himself, his wife and two sons was a valid lease which gave security of tenure. Lord Mackay, at p. 676, after concluding that the Landlord and tenant were sufficiently different for a valid agreement between them to be possible, rejected the pursuer's contention that if it was a valid agreement it was not a lease, holding that a case in which A. was the Landlord and A, B, C and D were the tenants was not inconsistent with the definition of lease given by Professor Rankine in the passage at page 1 to which I have already referred.
My Lords, I consider that Pinkerton can be distinguished from the present case in two material respects, namely:- (1) the right of three of the four persons constituting the tenant to possess the farm derived solely from the agreement, and (2) termination of the agreement voluntarily or by a successful action of removing at the instance of the landlord would return to him exclusive possession of the farm with no possessory rights remaining in the three other persons.
In the present case prior to 11 July 1977 the appellant enjoyed a real right to possess the subjects jointly with the other pro indiviso proprietors. The minute of that date neither superseded nor altered that real right. What it did was to confer a personal right on the appellant to enforce the obligation by his co-proprietors to refrain from exercising their rights to joint possession in return for compensatory payments. When the minute ceases to have effect the appellant's right to possession qua proprietor continues unchanged but his co-proprietors are no longer disabled from jointly exercising their possessory rights. An agreement having such effect is not a lease. I would therefore dismiss the appeal.
LORD LLOYD OF BERWICK
My Lords,
I have had the advantage of reading in draft the speech prepared by my noble and learned friend, Lord Clyde, and for the reasons he gives I, too, would dismiss this appeal.
LORD HOPE OF CRAIGHEAD
My Lords,
The question in this case is whether it is possible for the pro indiviso proprietors of heritable property to create a lease over it in favour of one of their own number. As the question has arisen in the context of a dispute with a third party who is seeking to exercise the rights over the heritable property of a heritable creditor, its answer will not be found merely by examining the contractual relationship between the pro indiviso proprietors. Issues of property law are involved here also as, in order to be effective in a question with a third party, the agreement must have conferred on the party in possession who seeks to found upon it the protection of a real right in the subjects as a tenant under a lease: see Leases Act 1449, c.6: Stair Memorial Encyclopaedia, vol. 18, Property, para. 5(5). As Rankine on Leases, 3rd ed., p. 1 states, the contract is in its essence purely personal. But, in order to obtain security of tenure under the Agricultural Holdings (Scotland) Act 1991, he must have acquired what Gill, The Law of Agricultural holdings in Scotland, 2nd ed., paragraph 55 has described as the real right of tenancy. In Millar v. McRobbie 1949 S.C. 1, 5 Lord President Cooper said that the issue in that case was whether the defender's personal right against the former proprietor of the lands with whom he contracted had been perfected by possession so as to be valid in a question with the pursuer, who was the singular successor of the former proprietor. The same test must be satisfied in this case in a question with the Bank as heritable creditor. I have had the benefit of reading in draft the speech which has been prepared by my noble and learned friend Lord Clyde. I agree with it, and for the reasons which he gives I also would dismiss the appeal. But, as there was a difference of view in the Second Division and the point is one of general interest on which views elsewhere have not been unanimous, I should like to add some observations of my own in order to explain why I consider that the Minute of Lease did not create a lease over the subjects which is capable of conferring on the appellant the real right of tenancy. As to the contractual relationship between the pro indiviso proprietors I do not think that the case presents any great difficulty. There is ample authority to the effect that a person cannot enter into a contract with himself: Church of Scotland Endowment Committee v. Provident Association of London Ltd. 1914 S.C. 165; Kildrummy (Jersey) Ltd. v. Inland Revenue Commissioners 1991 S.C. 1. For one individual to grant a lease in favour of himself over his own property is therefore a legal impossibility. But in the present case the agreement does not take that form. Instead what has happened is that three individuals acting together have entered into a contract with one of their own number. There is no doubt that pro indiviso proprietors of heritable property are entitled to agree among themselves about the use and management of the property. As Professor Bell has explained, one of the incidents of common property in which a right of ownership is vested pro indiviso is that the consent of all is required in all acts of management, alteration and disposal: Principles, paras. 1071-1072. Where their consent is given, it must follow that a binding agreement between them is constituted. So I do not think that there can be any objection in principle to the creation of a binding agreement between them by which one of their number is to enjoy the exclusive possession of the property. Each of the pro indiviso proprietors is entitled to assert a right to exclusive possession of the property in a question with third parties on behalf of all the other owners of the common property. But there would seem to be no reason why they should not enter into an agreement among themselves that one of their own number is to be entitled to the exclusive possession of the property in a question with the other pro indiviso proprietors. In Price v. Watson 1951 S.C. 359,366 Lord Keith recognised that a co-owner may have an exclusive right of possession by agreement with his co-owners, whereby he will have the sole natural possession in return for a compensating monetary payment. The relationship between these parties will, for so long as the property remains in their ownership as pro indiviso proprietors and in the absence of an exercise of rights by their heritable creditors, rest entirely upon contract. The law of obligations will provide an answer to all questions which may arise between them as to the right of the preferred proprietor to continue to enjoy exclusive possession as against the other pro indiviso proprietors and his obligation to pay money to them in exchange for that right. The question as to whether the arrangement between them is a lease in the true sense of that term is of no practical importance, so long as matters remain on that footing and no third party is involved. In order to be effective in a question with a third party such as the Bank, however, the arrangement between the pro indiviso proprietors must have been one which was capable of conferring on the preferred proprietor a real right to continue to occupy the property which was separate from that enjoyed by him as one of the pro indiviso proprietors. Unless the right so created is a separate real right, it will be no more effective in a question with the creditor under a standard security subsequently granted by the pro indiviso proprietors than the right which he already has in his capacity as one of their number over the same property. The only way in which that can be done, short of transferring to him the right of ownership as sole proprietor, is to make him a tenant of the property under a lease. This is a common enough arrangement where the owner of heritable property wishes to confer on another person the exclusive right to occupy the subjects while retaining his own right of ownership. There is no doubt that pro indiviso proprietors may grant a lease in favour of third party in just the same way as a person who is the sole owner of the property. It is much more difficult to see how this can be done where the person to whom the lease is to be granted is one of their own number, and he is to remain at one and the same time both the tenant of the property and one of its pro indiviso proprietors. The fundamental objection to the argument that the arrangement is effective to confer on him a real right as a tenant of the property under a lease is that, as one of the pro indiviso proprietors, he already has a real right in the property as one of its heritable proprietors. The objection arises in this way. In the first place it is not possible for a person to have two real rights in the same property at the same time. This is because of the principle of confusio, by which the lesser right is absorbed into the greater right and is extinguished. The real right of a pro indiviso proprietor extends over the entire property, which is owned by each of the proprietors in solidum: Grant v. Heriot's Trust (1906) 8 F. 647, 658, per Lord President Dunedin. If he were to take possession as tenant he would, on taking possession, acquire a real right over the same property. But that real right cannot exist separately from his right of ownership. As it is the lesser right, it would from the outset have been absorbed into, and be indistinguishable from, the greater right of ownership. On this analysis the only additional rights which the appellant acquired under the arrangement, as he retained his real right in the property as one of the pro indiviso proprietors, were the personal rights which resulted from his contract with the other proprietors. In the second place-although this is perhaps just another way of viewing the same point-an action of removing at the end of the lease would not be effective to terminate his right to continue in occupation of the property. The termination of his right to continue in occupation as the tenant of it would be pointless and ineffective, as he has a right to continue in occupation of it as one of its proprietors. It would not be open to the court to grant an order for his removal from property which he was entitled to occupy as one of the pro indiviso proprietors. The same reasoning would apply to an attempt by the other pro indiviso proprietors to eject him from the property. In Price v. Watson 1951 S.C. 359, 366 Lord Keith said that an action of ejection by one co-owner against another co-owner who had a right to possess flowing from his property title was, in his opinion, a plain impossibility. One of the cardinal elements of a lease is its duration, that is to say the period during which the tenant is to have the exclusive right to occupy the property: Gray v. University of Edinburgh 1962 S.C. 157, 162. In this case the Minute of Lease contained a clause which fixed the duration, but its effect was to specify the duration of the contractual arrangement between the co-proprietors. It did not, and could not, set any limit on the appellant's right to continue to occupy the property, as this depended upon his right of ownership as one of the pro indiviso proprietors. It does not seem to me therefore to be possible to say that the arrangement conferred on the appellant a real right as tenant under a lease of the property, even although it was sufficient to allow the appellant to enjoy the exclusive possession of it in a question with the other pro indiviso proprietors. For these reasons I consider that the appellant is not entitled to claim protection as a tenant under the Agricultural Holdings (Scotland) Act 1991 in answer to the claim made by the pursuers under the standard security.
LORD CLYDE
My Lords,
On 11 January 1977 the
appellant Alexander George Davidson and his parents executed a deed described as a Minute of
Lease between the three of them (referred to as "the Landlords") and the appellant
(referred to as "the Tenant"). It bore to relate to the farms and lands of Corsekelly and
Gowanhill and lands known as Cooper's Croft. It began with a narrative that the appellant had
occupied the lands in question for a number of years as Tenant of the Landlords. It then purported
to let the lands to the appellant for three years from Whitsunday 1976 at a rent of £4000 per
annum. It further reserved to the Landlords the right to shoot game, wild fowl, hares and rabbits, all
angling rights, all mineral rights subject to compensation and subject to payment for damage to
crops, all plantations and trees with right to cut and remove them subject to paying for damage, and
a power to resume land for various purposes.
The lands referred to
had formerly been owned by a partnership which consisted of the appellant and his parents. By
virtue of a Minute of Agreement dated 25 March 1969 the partnership was dissolved with effect from
1 June 1968. The lands were thereafter conveyed to the appellant and his father and mother as pro
indiviso proprietors in the proportions of one half to the appellant and one quarter to each of his
father and his mother.
On 24 February 1977
the appellant together with his parents granted a Standard Security in favour of the Clydesdale Bank
over the lands of Gowanhill of which they were the pro indiviso heritable proprietors. In 1985 they
granted a further Standard Security in favour of the Bank over the farm of Corsekelly and certain
other lands, including the lands known as Cooper's Croft. Each of these Standard Securities was
granted in security of sums due to the Bank by virtue of a Bond which the appellant had granted in
its favour. On about 26 October
and 30 November 1988 the Bank served on the appellant calling-up notices in respect of each of the
Standard Securities. The appellant failed to make full payment of the sums then demanded and
was accordingly in default under Condition 9(1)(a) of the standard conditions set out in
Schedule 3 to the Conveyancing and Feudal Reform (Scotland) Act 1970 which applied to the
standard securities. The Bank was then entitled to exercise its rights under the securities,
including the right to sell the lands. On 22 February 1989 the estates of the appellant were
sequestrated. A Permanent Trustee was appointed on his sequestrated estates on 17 March 1989
and since then the Trustee has been in possession of the lands and managing the farms. In about
September 1989 the Bank raised two actions in the Sheriff Court craving in each case, firstly, a
declarator of its right to enter into possession of the lands covered by the two respective standard
securities and, secondly, an order ordaining the appellant and others to remove from the respective
lands. In his defences to both actions the appellant maintained that he was entitled to continue to
occupy the farms and lands in question as an agricultural tenant under the Minute of Lease. One of
the two actions, namely the one relating to Corsekelly, has been for convenience taken as the lead
action. The Sheriff, the Sheriff Principal and the majority of the Second Division have held the lease
to be a nullity. The appellant has appealed to your Lordships' House. The single question thus
raised in the case is easy to formulate, but not altogether easy to answer. There is no doubt but
that co-proprietors may together grant a lease of the lands which they own in common to a third
party. But can a valid lease of lands be constituted by co-proprietors in favour of one of their
number? Differing views have been expressed on this question. Professor Reid (in the Stair
Encyclopaedia Volume 18 paragraph 28) and Professor Gordon (Scottish Land Law,
paragraph 15-15) have suggested that such a lease might be validly constituted. Lord Gill in The
Law of Agricultural Holdings in Scotland (2nd ed.) para 35 states that such a lease is probably
invalid. In Bell's Executors v. Inland Revenue 1987 S.l.T. 625 Lord President Emslie, with
whose opinion the other members of the court agreed, regretted that in that case that the Inland
Revenue had decided at the outset not to argue the point that the lease was a nullity because, as
his Lordship observed, "the point may well be sound." The question raises
issues relating to the law of contract and issues relating to the law of property. It is important to
make that distinction and examine separately both aspects of the problem. I turn first to the
contractual aspect. It arises in this way. Any one of the common proprietors may enjoy the use of
the whole extent of the property along with the others. He can do that by virtue of his right and title
as a co-proprietor. But it is argued that he cannot obtain an exclusive right of occupation through a
contract with his other co-proprietors because that would involve him contracting with himself. That
consideration forms part of the reasoning which led the majority of the judges in the court below to
regard the purported lease as a nullity.
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