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How Limited is that Partnership?

By D

Salvesen and Riddell & Anor v. The Lord Advocate (Scotland) [2013] UKSC 22

It is not common for us to cover Scots Law, or Agricultural Law, here. However, both mores are to be broken in the face of an interesting convention decision from the Supreme Court.

You will have to bear with me as the facts are complex. I promise to keep it simple. Scottish Agricultural tenants have historically had very substantial security of tenure along with very powerful succession rights. Much the same situation has existed in England too at times. This is said to be good for land husbandry but is equally a reflection of post-war concerns about domestic food production. There were theoretically routes to the recovery of possession through the Land Court but this had proven to be a fairly unsuccessful route for landowners and only of use in the most extreme cases where land management had broken down. Over time, a practice had grown up in Scotland which was intended to defeat this security. This operated by new tenancies being granted, not to the farmer, but to a limited partnership. The farmers, or their nominees, would be the general partners while the landowner, or his nominee, would be the limited partner (I am not going to explain Scots partnership law, just trust me on this). This allowed termination of the tenancy at various points by the simple expedient of serving a partnership dissolution notice. The partnership would dissolve and there would accordingly be no tenant to hold the land, problem solved!

All would have continued as normal but for the decision by the Scottish Executive to modernise the position and to create new limited duration tenancies. They also proposed to prevent the future creation of limited partnership tenancies as they would not be necessary. These proposals eventually became the Agricultural Holdings (Scotland) Act 2003 which is the subject of the appeal. As part of the Act a set of anti-avoidance provisions were included in s72 such that if a previous limited partnership tenancy was ended by the limited partner dissolving the partnership the general partners could then serve a notice that they wished the tenancy to continue and they would then become tenants in their own right. There was a power included for the Land Court to allow the termination if it was satisfied the dissolution notice had not been served with the intention of depriving the general partner of rights under s72. There was also a new s73 which allowed for termination of tenancies continued by s72 in an orderly way through the Land Court. It’s details do not concern us.

All good you might think, there is a means of termination and it runs through a properly constituted tribunal. However, it’s not that easy! During the passage of the Bill, landowners in Scotland woke up to what was happening and a rash of partnership dissolution notices were served. The Scottish Executive became annoyed by this and slipped another provision into s72. This provision had the effect of not permitting the use of the orderly process of termination provided by s73 where a dissolution notice was served in a specific window, which was 16 September 2002 (the date the Bill was introduced) and 30 June 2003. In fact it captured notices served until 1 July because s72 was brought into force before s73 was. The provision was therefore retrospective and may even have had an element of punishment to it. The Scottish Minister involved certainly described the actions of landowners who had sought to serve dissolution notices during passage of the Bill as “immoral” on the floor of the Parliament.

So, to summarise, limited partnerships were prohibited by the 2003 Act and notices seeking to dissolve them would give rise to a new tenancy which could then be terminated by the Land Court. Notices served during a specific window gave rise to a new tenancy which the Land Court could not easily terminate. It was this point that ended up being the subject of the appeal as Mr Salvesen had served his notice during the window.

The Protocol Issues
In lower courts the Lord Advocate for the Scottish Government had tried to suggest that Article 1, Protocol 1 was not engaged. By the time he reached the Supreme Court he accepted it was engaged. There is a clear line of decisions from the ECtHR that restrictions on the landlords right to recover possession can amount to an A1P1 breach. The Lord Advocate sought to argue that there is a wide discretion afforded to the legislature in these matters and that A1P1 does allow limitations where these are proportionate in the context being carried out to achieve a legitimate aim. The Supreme Court broadly agreed with this and so turned itself to a consideration of whether a legitimate aim was being achieved here in a proportionate manner.

Article 14
There was also a potential issue under Article 14 as it was suggested that the, fairly arbitrary, exclusion of notices served during a specific period and the deprivation of rights that went with it could be discriminatory. This was even more the case as some of the exclusion period was not caused by a decision of Parliament but rather by delays in drafting the relevant Scottish Statutory Instruments which brought s73 into force. In the end though this issue went away for reasons that will become clear.

The Supreme Court View
It is probably best if I do this section by giving you the most important quotes from the decision. This may be seen as lazy but frankly I could not say it better than Lord Hope!
The Court, having identified the test it had to apply in the A1P1 issue as whether the restriction was proportionate set out the parameters of the test as follows:

An interference must achieve a fair balance between the demands of the general interest of the community and the requirements of the protection of the individual’s fundamental rights

It reminded itself of the substantial discretion allowed to the legislature in this area and its own limits, saying:

Provided that the legislature remains within the bounds of its margin of appreciation, it is not for the court to say whether the legislation represents the best solution for dealing with the problem or whether the legislative discretion should have been exercised in another way.

The Court noted the negative statements of the Scottish Minister involved and the conclusion that might be reached that the provisions were punitive. However it dismissed this with:

one must be careful not to treat a ministerial or other statement as indicative of the objective intention of Parliament. It should not be supposed that members necessarily agreed with the minister’s reasoning or his conclusions.

More interestingly, a warning was given by the Court as to how the ECHR operates. The Court said:

A reader of what the deputy minister said during that debate might be forgiven for thinking that it displayed a marked bias against landlords. If there was, this was a regrettable attitude for a minister to adopt in a system where both the legislature and the executive are required to act compatibly with the Convention rights. As a minority group landlords, however unpopular, are as much entitled to the protection of the Convention rights as anyone else:

One cannot help but think that this is a warning to a Minister who works somewhat further South and who may be seeking the assistance of the Supreme Court in the near future!

The fact that the legislation was retroactive and slightly punitive was not necessarily a problem for the Supreme Court:

it must be open to the legislature to take measures affecting the further execution of previously concluded contracts in order to attain the aim of the policy that was being adopted. Legislation which is retroactive is not necessarily incompatible with A1P1…The question is whether the retrospective application of section 72 imposed an unreasonable burden on landlords who had served notices before 1 July 2003, and thereby failed to strike a fair balance between their interests on the one hand and preserving the integrity of the legislation on the other.

The Court then acted to limit the scope of its consideration and effectively gave a flag as to where it was headed. Instead of considering all of s72 as the appeal to it asked it limited itself to considering just one subsection, s72(10). It was this subsection that actually had the effect of permitting or denying the ability to go to the Land Court under s73 to seek termination of the tenancy when a dissolution notice has been served and it was this same subsection that acted to prevent that option where the dissolution notice had been served in the window. Without this section the benefit that was gained by the farmer of having his tenancy continued was counterbalanced by the ability to serve a further notice to seek termination of the continued tenancy. With the section this counterbalance was denied to a group of landlords on a fairly arbitrary basis. To use the words of the Court again:

The difference in treatment has no logical justification. It is unfair and disproportionate. It is no answer to this criticism to say that there was an urgent need to meet the problem that had been identified. The legislation was intended to have an effect which was permanent and irrevocable.

The subsection was therefore contrary to A1P1 in itself as it was interference which was not a proportionate means of achieving a legitimate aim. Article 14 was irrelevant because the decision was made on the basis of A1P1 alone.

The Supreme Court was not able to read the subsection in a compatible manner but I will not go into this further as it is a function of the stark way it has been worded as opposed to disclosing any useful point of law.

The Order
This was a bit complex. The appeal was allowed and an order made that s72(10) was incompatible with the Convention and therefore unlawful. However, this created a new problem. Making it unlawful would mean that tenants who had gained security of tenure by way of the sub-section and had spent money on their holdings in consequence would be disadvantaged. However, if the decision did not have retrospective effect it would be largely pointless. The need for certainty was considered and a solution was found in decisions of the ECtHR which allow the Court to suspend its order to allow for alternative legislation to be enacted. This the Supreme Court duly did and it has made a declaration of incompatibility which it has then suspended for 12 months while the Scottish Executive consults on how to deal with the issue.

While this is a Scots case it was a unanimous decision by five Supreme Court judges and so must be taken to be the clear position of the Court on A1P1 on both sides of the border. The Court reaffirmed the right of the legislature to take steps which would appear to limit a landlord’s rights under A1P1 but also set out the parameters by which it would consider a balance. The key point is that where a right is removed there must be a balancing benefit or ability to have the issue considered by an independent Tribunal and this cannot be arbitrarily denied to one group of landlords on the basis of a narrow window of dates or some other category.

So, appeal denied and the decision of the Court of Session upheld.

D is a solicitor specialising in landlord and tenant matters with a London firm.

1 Comment

  1. Malcolm Combe

    Thanks for the post, although one dynamic what was important to the landowners “waking up” was the fact that a right to buy was mooted for agricultural tenants as what became the Agricultural Holdings (Scotland) Act 2003 was rumbling through the Scottish Parliament at Holyrood. Rather than have to face up to the prospect of losing ownership, some landowners sought to (perfectly legitimately, in terms of their documentation) simply end the limited partnerships and thus the tenancies. As it happens, the 2003 Act does contain a right to buy, but it is pre-emptive, rather than absolute (so a first refusal, rather than a compulsory acquisition), but the uncertainty as to what might be legislated led many landowners to take action.


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