Tenant farmers’ compensation appeal over human rights breach dismissed

Six limited partnerships raised judicial review proceedings alleging that they had suffered loss as a result of the making of the Agricultural Holdings (Scotland) Act 2003 Remedial Order 2014, but the Inner House of the Court of Session upheld a decision of the Lord Ordinary to reject their claims over how compensation should be calculated.

Remedial Order

The Remedial Order, which came into force in April 2014, was passed by the Scottish Parliament following the UK Supreme Court ruling in the case of Salvesen v Riddell [2013] UKSC 22, in which court held that certain provisions in section 72 of the Agricultural Holdings (Scotland) Act 2003, which affected limited partners who served dissolution notices in relation to a limited partnership tenancy between September 2002 and June 2003, were contrary to the European Convention on Human Rights.

The Lord President, Lord Carloway, sitting with Lord Menzies and Lord Drummond Young, heard that the petitioner Richard McMaster, a general partner of a limited partnership which carries on the business of farming on tenanted land, together with the general partners of five other limited partnerships, raised proceedings for judicial review against Scottish Ministers, alleging that the making of the Remedial Order without express provision for the assessment and payment of compensation to the petitioners was in breach of the their rights under article 1 of the First Protocol (A1P1) to the European Convention, and was accordingly outwith the powers of Scottish Ministers or the Scottish Parliament in terms of section 57(2) of the Scotland Act 1998.

The petition and answers proceeded to a hearing before the Lord Ordinary, who on 31 May 2017 pronounced an interlocutor which deleted substantial elements of the petition.

In particular, the Lord Ordinary sustained the respondents’ pleas-in-law challenging the relevancy of the claims made by the limited partnerships and the limited partners and the interest of limited partnerships and limited partners to bring the present proceedings - the result of which was that only the claims made by the general partners remained.

The Lord Ordinary further deleted the petitioners’ claims in so far as they were based on an alleged “legitimate expectation” that following the passing of section 72 of the 2003 Act in its original form they would in due course acquire a secure 1991 Act tenancy.

But the petitioners reclaimed against the Lord Ordinary’s decision.

‘Legitimate expectation’

It was submitted that the Lord Ordinary ought to have had regard to the reality of the situation, which is that the general partner obtained a “possession” for the purposes of article 1 of the First Protocol on the coming into force of section 72 on 27 November 2003.

The general partner was the farmer who possessed the major part of the capital in the limited partnership and initially the possession was a legitimate expectation linked to the general partner’s right to obtain a secure 1991 Act tenancy.

In due course this possession was converted into a secure 1991 Act tenancy and thereafter the general partner had a possession, in the sense of the secure tenancy.

The reality of the situation was that all along the general partner had the secure tenancy as a possession, and his actings in reliance on that possession from 27 November 2003 onwards had been compromised by the Remedial Order, and in that way loss and damage was caused to him, for which he should be compensated.

It was also argued that the tenancy and the “family farming business” conducted on the tenanted land were “interrelated”.

The general partner was granted a secure 1991 Act tenancy which was taken away by the Remedial Order, which deprived the general partner of a valuable asset, namely the tenancy with the farming business associated therewith.

The general partner was entitled to compensation for the loss of that asset, because the state is required to compensate for loss occasioned by its error, and consequently the value of the tenancy and the farming business should not have been disallowed at this stage, but should have been considered along with other factors in determining the level of compensation that would provide just satisfaction.

‘Correct decision’

However, the appeal judge held that the Lord Ordinary reached the “correct decision”

The court noted that, as the Lord Ordinary observed, the Scottish Ministers did not contend that no compensation was payable to general partners in consequence of the making of the Remedial Order, and the primary question that arose in the present case was the circumstances in which such compensation was payable and how it should be calculated.

Delivering the opinion of the court, Lord Drummond Young said: “In particular, a critical question is whether compensation should be payable in respect of the value of the secure 1991 Act tenancies that were enjoyed by the general partners as a result of section 72(6) of the 2003 Act, or whether compensation should be confined to losses sustained by the general partners in consequence of their reliance on having been awarded such a tenancy.

“It is not in dispute that the 1991 Act tenancies created by section 72 were possessions of the general partners and as such protected by article 1. The Lord Ordinary nevertheless held that the purpose of the Remedial Order was to correct an unlawful feature of the 1991 Act tenancies, namely that they could not be converted into limited duration tenancies subject to section 73 of the Act.

“The general partners in question had not given any value for that benefit. Consequently the Lord Ordinary held that the striking of a fair balance did not require compensation to be paid in respect of the value of the 1991 Act tenancies conferred in consequence of section 72(6). We agree with that conclusion.”

The judges concluded: “We are of opinion that the Lord Ordinary reached the correct decision in the present case. This applies in particular to his refusal of the petitioners’ claims for the value of the purported secure 1991 Act tenancies, his rejection of claims based on the concept of the ‘family farming business’ and legitimate expectations, and his decision that the claims made by the limited partnerships were irrelevant.

“We are further of opinion that the Lord Ordinary’s general approach to compensation was correct. We agree that it is necessary that the general partners should provide greater specification of their claims for compensation for losses incurred through reasonable reliance on the apparent secure 1991 Act tenancies conferred by the 2003 Act, as specified in the interlocutor of 31 May 2017… For these reasons the reclaiming motion must be refused.”

The judges remitted the case to the Lord Ordinary to proceed in accordance with his interlocutor.