Tenant farmers evicted on basis of ‘defective legislation’ entitled to compensation

The Court of Session held that the state should compensate the individuals for loss arising from “defective legislation” passed by it.

The petitioners averred that the passing of section 72 and in particular section 72(10) of the Agricultural Holdings (Scotland) Act 2003, where notices terminating their limited partnerships had been served, gave them a “legitimate expectation” that they would obtain a secure Agricultural Holdings (Scotland) Act 1991 tenancy of their holding when they came to serve a section 72(6) notice on their landlord.

However, in the 2013 case of Salveson v Riddell the UK Supreme Court ruled that the provision was “flawed” and declared that section 72(10) of the 2003 Act was “incompatible” with the landlord’s rights under Article 1 of Protocol 1 of the European Convention on Human Rights and hence was outside the legislative competence of the Scottish Parliament.

The Agricultural Holdings (Scotland) Act 2003 Remedial Order 2014 was enacted in order to rectify defects in the 2003 Act identified by the Inner House and the Supreme Court, but as a result of the Remedial Order the landlords took up their rights to terminate the tenancies and therefore the petitioners claimed they had been a deprived of their tenancy, or that there had been a devaluation of the tenancies resulting in a deprivation of property.

The petitioners argued that the enactment of the Remedial Order, without the Scottish Parliament making provision in it for the assessment and payment of compensation, and the subsequent refusal by the Scottish Ministers to meet their claims for compensation, violated their rights under A1P1.

But the respondents argued that the petitions argued that there was no breach of the petitioners’ A1P1 right to property and that the petitions should be dismissed.

The judge held that the Remedial Order itself did not violate the petitioners’ rights as there was no deprivation of property, but added that they were entitled to some compensation.

In a written opinion, Lord Clark said: “I am of the view that even although the issue lies within the field of social or economic policy and that is of relevance in determining whether the Remedial Order itself can be impugned, I cannot give weight to a decision reached by the legislature not to include a scheme for compensation in the Order in deciding whether the separate and later decision by the Scottish Ministers not to meet the compensation claims strikes a fair balance.

“In my opinion, in these circumstances it was within the area of discretion afforded to the legislature to leave the question of compensation to be determined by the ‘assessment processes’ to be applied by the Scottish Ministers rather than to create a scheme for the assessment of compensation within the Remedial Order itself.”

He added said that in striking a fair balance and identifying principles to be applied over compensation the ministers would have to take into account various considerations.

He continued: “These include the contractual background and the legislative changes and their effect, including the acquisition by the qualifying general partners of secure 1991 Act tenancies without giving value or consideration and the enjoyment by them of several years of tenancy beyond what would otherwise have been the termination date.

“The considerations would also include the fact that the qualifying general partner petitioners had, through no fault of their own, been placed in a position where they might have made expenditure in reasonable reliance upon the unlawfully given right, which they would not otherwise have made, and may also have suffered frustration and inconvenience.”

But the striking of a fair balance “did not require the vast bulk, in monetary terms, of the petitioners’ claims to be met,” the judge added.

Lord Clark concluded: “Having regard to all of these factors, the principles which ought to have been established are that compensation would be paid in respect of specific losses directly caused to the qualifying general partners as a consequence of reasonable reliance by them upon having a secure 1991 Act tenancy and for frustration and inconvenience, subject to the counterbalancing effect of setting off the value of the benefits obtained by the qualifying general partners arising from the extended period of tenancy which was enjoyed.

“While I have concluded that there was no deprivation of property in this case, but rather that it involved a control of use, for the reasons discussed above the principles I have identified should have been applied, given the facts and circumstances of this case, whether the consequences of the Remedial Order amounted to a deprivation of property or a control of use.

“In view of the conclusion I have reached as to the principles upon which compensation should be based, and not having been addressed on the actual claims, I am obviously not able at this stage to decide whether the application of those principles will or will not give rise to a sum being due to the qualifying general partners. When that decision is reached it will also determine whether or not there has been a violation of the A1P1 rights of the qualifying general partner petitioners. I therefore reserve my judgement on that matter until the next stage in these proceedings.”