Scottish Court of Session Decisions

Dugald Macintyre and John Macintyre, farmers, joint-tenants of the farm of Garmony on the estate of Torosay, Mull, claimants, claimed compensation for being compulsorily ousted from their farm by the Board of Agriculture, respondents, who proposed to form small holdings thereon under a scheme sanctioned by the Scottish Land Court.

The arbiter (Blair) appointed to assess the compensation payable to the claimants proposed to award under Head I of the Claim—“Loss of profits on working farm for 16 1 2 years, the unexpired period of the claimants' lease, at £450 per annum, £7425”—£1995. He added the following

Note.—“Having thus fixed the annual profit, the question remains upon what principle must compensation be awarded for the loss of that profit, or, in other words, how many years' purchase am I to take as the multiplier? The claimants contend ( a) that as it has been proved in evidence that there is no intention on the part of either party to break the lease, compensation should be given for the full unexpired period of 16 years; or alternatively ( b) that such compensation should be given subject only to a small deduction for the improbable contingency of a break taking place. In support of this contention the claimants cited the well-known case of Fleming v. District Committee of Middle Ward of County of Lanark, 23 R. p. 98, 33 S.L.R. 83.…

“Now that case is distinguished from the present case in two respects—( a) that whereas in this arbitration the whole of the farm is taken, in the case cited only a small part of the farm was taken; and ( b) that the arbitration in the case cited was under the Lands Clauses Act, whilst this arbitration is under the Small Landholders Act. As to the first point of difference, it is manifest that (apart from the question of a break) where only a small part of a farm is taken, the tenant being tied to the remainder for the unexpired period of the lease, an irresistible claim arises both in equity and law for compensation for the whole unexpired period, not only in respect of loss of profit upon the portion taken, but also in respect of loss arising through the general derangement of the whole farm caused by the severance of a part. On the other hand, where a whole farm is taken the tenant may in time be able to secure another holding, and thus utilise his capital and minimise his loss. Then as to the second point of difference, the important legal question arises whether the judgment in the case of Fleming, decided upon a Land Clauses Act arbitration, is binding in an arbitration under the Small Landholders Act.…

It appears to me … that whilst the case cited must be followed in a Lands Clauses arbitration, it is not a precedent in an arbitration under the Small Landholders Act, and that the arbiter in the latter case should apply the general principle that it is for the person who is damnified to minimise his loss as far as he can ( e.g., by taking another farm), and that such an obligation upon him must be taken into account in assessing what is due to him in respect of compensation.

As I have already said, a question of general importance is here raised, the determination of which will seriously affect not only the present claim but all future claims for compensation by tenants whose lands are taken under the powers of the Act of 1911. That the Board attach considerable importance to the subject is evident from

Page: 317↓

a reference to their Third Report to the Secretary for Scotland….

Now, before I offer any opinion upon the question at issue, it is necessary that I should state my proposed findings upon the facts. Assuming the Board's entry to the farm to be at Martinmas 1915, there will run a period of four years between that term and the first break, and eleven years to the second break, which occurs at Martinmas 1926. Well, it goes without saying that the tenants are not likely to seek to break such a profitable contract, and their evidence is of course to that effect. I also hold, as I am bound to do upon the evidence, that the proprietrix is unlikely to exercise the option, not only because of the probability in such an event of a claim by the tenants for unreasonable disturbance, but also because she gave the most positive testimony that she was satisfied with her tenants and desired them to remain on the farm to the end of their lease. It ought, however, to be observed that whilst it is practically certain that the first break will not be taken advantage of, the chapter of accidents has to be reckoned with in estimating what may happen eleven years hence. The proprietrix may before that time be dead or the estate may change hands. These I hope and believe to be remote contingencies, but they are possible, and as the Lord President said they form a proper subject of valuation, and some allowance must therefore be made for them. I do not profess, nor do I suppose it to be possible, that an exact actuarial value can be put upon them, but applying to the best of my ability the principle laid down in the case of Fleming, I should not value the remote contingency of a break taking place at more than two years' profits. In that event the compensation under this head would amount to 14 years' profits or £2800, which sum being discounted at 5 per cent. for a payment at Martinmas next amounts to £1995. On the other hand, if I were unfettered by the decision referred to, I should be disposed to allow only one-half the last-mentioned sum, as I consider that if the tenants were compensated for loss of profits for seven years, they would within such a period have ample time to secure another farm similar in character and rent to Garmony. In order to make a test case, counsel for the respondents invited me to give an alternative award under this head of the claim, but I cannot competently do so unless of consent, and as the claimants object I regret that I cannot give effect to the Board's suggestion.

As the controversy between the parties has raised a purely legal question, I have naturally been advised and guided by my legal assessor. Acting upon such advice, I have come to the conclusion that the decision in the case of Fleming is applicable to the present arbitration and is binding upon me, and that it is my duty to follow it. In reaching this conclusion I have relied upon the following considerations—( a) that the provisions of the Lands Clauses Act and the Small Landholders Act respectively do not differ in substance so far as conferring upon a tenant under a lease for more than a year a right to compensation in the event of his farm being taken under compulsory powers, and in particular there is nothing in either Act to show whether in a lease with a break the tenant is entitled to compensation for the whole unexpired period of the lease or only for part of such period; and ( b) that there is nothing in the Lord President's judgment in the case of Fleming which might lead one to infer that the decision would have been different had the whole farm been taken instead of only a part. Indeed, whether the whole or part were taken appears to be an irrelevant consideration. Practically the only question discussed was, what was the arbiter's duty in assessing a tenant's compensation in a lease for years with a mutual break? Now the answer of the Lord President was that the tenant was entitled to compensation for the full unexpired term, subject to a deduction in respect of the contingency of the break. That is a plain ruling, delivered by a Judge of great eminence, and therefore as at present advised I cannot see my way to disregard it. But in view of the considerable sum involved in the present case, as well as of the general importance of the question raised, I shall be prepared on the motion of either party to state a special case for the opinion of the Court, so that I may have the advantage of a judicial opinion before I issue my final award.”

The Case stated—“5. Representations were lodged on behalf of the claimants against the arbiter's proposed findings, and the arbiter heard counsel for the parties thereon on 6th August 1915. Before issuing his award the arbiter, at the request of the respondents, has stated this Case for the purpose of getting the opinion of the Court upon the first question hereinafter stated.

6. A further question has arisen regarding the expenses of this case upon which the arbiter respectfully desires the opinion of the Court. By section 7 (11) of the said Act of 1911 it is provided that ‘the Second Schedule to the Agricultural Holdings (Scotland) Act 1908 (8 Edw. VII, c. 64) shall apply to any such arbitration, with the exception of paragraphs 1, 5, 10, 11, and 16 thereof, and with the substitution of the Lord Ordinary for the Sheriff and the Auditor of the Court of Session for the Auditor of the Sheriff Court; and provided further that in the event of the scheme not being proceeded with the expenses of parties reasonably incurred in connection with the arbitration as the same may be allowed by the Auditor of the Court of Session shall be paid by the Board.’ The said schedule which prescribed the rules as to arbitrations provides (rule 9) that the arbiter may at any stage of the proceedings state a special case for the opinion of the Court upon any question of law arising in the course of the arbitration, and (rule 14) that the expenses of and incidental to the arbitration and award shall be in the discretion of the arbiter, who may direct to and by whom and in what manner those expenses or any part thereof are to be paid,

Page: 318↓

such expenses to be subject to taxation, which shall be subject to review by the Court.

7. The arbiter understands that in special cases heretofore stated under the Act of 1911 the liability for expenses has been decided by the Court in the ordinary way, it having apparently been assumed that the Court had power to determine the question of expenses. Notwithstanding this practice the arbiter has been advised that it is doubtful whether the Court has such a power. The schedule referred to confers no power upon the Court to determine the question of expenses, but on the contrary rule 14 specifically provides that ‘the expenses of and incidental to the arbitration shall be in the discretion of the arbiter’ It has been decided that the answers of the Court to the questions submitted in a special case do not constitute a judgment in the ordinary acceptation of that term, but only an opinion, and therefore it appears to the arbiter that the special case is merely a step in the arbitration proceedings. If that view be sound, then the expenses of the Case would be ‘incidental to the arbitration,’ and would fall to be determined not by the Court but by the arbiter, in whom the jurisdiction to determine such a question is specifically vested by the statute. Upon a question of law the arbiter may consult his legal assessor, take the opinion of counsel, or state a special case for the opinion of the Court, and whichever of these courses he may adopt it would appear that the expenses thereof are ‘incidental to the arbitration,’ and therefore within his exclusive jurisdiction.

8. Certain further questions have arisen which the claimants have desired the arbiter to include in this case. These arise as follows:—(1) In estimating the net annual profits of the farm the arbiter has deducted from the gross receipts, inter alia, a sum of £80 as representing the value of the labour expended by the two claimants themselves upon the farm. The respondents claimed that the deduction under this head should be much greater than £80, but the figure of £80 was put forward as a suitable deduction by two of the principal witnesses for the claimants, and the arbiter adopted their figure. The whole ordinary work of the farm was done by the claimants personally, and the only labour charges contained in the farm accounts were items of £18 for maid's Wages and £3 for bracken cutting. The claimants now maintain that the foresaid deduction of £80 is not a competent deduction for the arbiter to make in estimating the net profits of the farm, in respect that no separate allowance has been made to them to cover any loss arising through their being deprived of their situations. The claimants are aged respectively 72 and 42. The arbiter has difficulty in seeing how any question of law arises in this connection. He has been asked to award compensation for loss of profits on working the farm, and in so doing it has been necessary for him to estimate, as a fact, the amount of profit derivable from the working of the farm. He has made such an estimate, and has difficulty in seeing how any question of law is involved in the process, but at the request of the claimants he has stated question No. 3 for the opinion of the Lord Ordinary in the event of the Lord Ordinary holding that it raises a question of law. The respondents maintain that it does not raise a question of law and is not a competent question. (2) The arbiter has deducted from the annual profits of the farm a sum of £85, representing interest at five per cent. on the capital of the claimants invested in the farm—amounting to about £1700. As this sum represents the entire capital belonging to the claimants, the question arises whether it is competent to deduct interest on capital at all in these circumstances, and alternatively, if any deduction is competent, whether it should not be at about bank deposit-receipt rates. It should be noted, however, that the skilled accountant who gave evidence for the claimants admitted that in estimating the profits of the farm it was necessary to debit the accounts with interest upon the capital invested in the farm. The arbiter is of the same opinion, and again has difficulty in seeing how any question of law arises. As regards the percentage of interest suitable as a debit, the claimants' skilled witness suggested four per cent. and the arbiter has taken five per cent. This also seems to the arbiter to raise no question of law, but at the request of the claimants he has stated question 4 for the opinion of the Lord Ordinary under the same conditions as affect question 3. The respondents maintain that question 4 is not competent in respect that it does not involve any point of law. (3) The arbiter has disallowed the claim of £241 in respect of loss on the realisation of the stock. Upon this matter the claimant put forward the following contentions:—The scheme of the Board of Agriculture has necessitated this realisation, which is a forced sale. The date when the Board of Agriculture propose to enter upon the farm is not yet determined. At the proof the Board undertook that in the event of the scheme proceeding their term of entry would be Martinmas 1915, and they have since lodged a minute in the process giving formal effect to this undertaking, but they have not yet decided whether in point of fact they have to go on with the scheme or not. The date of the claimants' outgoing is thus also not fixed. They do not know now and do not know when they will be informed whether the Board proposes to enter at Martinmas or not. They must therefore take the risk either of not taking steps to realise their stock now with the possibility of having to do so at great loss and inconvenience to themselves at Martinmas on short notice, or of realising their stock now and finding themselves in the position at Martinmas 1915 of having to restock the farm at the most disadvantageous time of the year. In these circumstances they contend that the arbiter is bound to compensate them in respect of loss on realisation of stock on the footing that they will require to realise at short notice at a date most disadvantageous for them. On the other hand, the respondents contend that

Page: 319↓

the arbiter is right in proceeding on the footing that Martinmas 1915 is fixed as the date of the Board's entry, and assessing compensation accordingly. It is assumed, as the foundation of the present arbitration, that the scheme will be proceeded with, and the arbiter's award is given on that hypothesis. If the scheme is not proceeded with the present proceedings fall to the ground, and the arbiter has no jurisdiction to award compensation. But if the scheme is proceeded with the Board have bound themselves to take entry at Martinmas. The contingency that affects the date of entry affects also the whole arbitration proceedings, and is purified in the one case as in the other. The respondents accordingly contend that the arbiter is right in assessing compensation on the footing that Martinmas is the date of entry, because in no other event has he any jurisdiction to assess compensation at all. With reference to the question of loss arising from the ‘forced’ character of the sale of stock, the arbiter has stated in his said note the following—‘As regards the live stock it is apparent to anyone having a knowledge of market conditions, that far from suffering any loss, the claimants will be able to realise their stock at a considerable profit.’”

The questions of law were—“(1) In determining the compensation payable to the claimants under head 1 of the said claim, was the arbiter bound to adopt the principle laid down by the Court in the case of Fleming cited in said note? (2) Has the arbiter exclusive jurisdiction in determining liability for the expenses of this Special Case? (3) In estimating net profits was the arbiter entitled to deduct a sum of £80 from gross receipts in respect of the value of the claimants' own labour without awarding any separate sum to cover any loss arising through the claimants being deprived of the opportunity of utilising their labour in conjunction with their capital and agricultural skill? (4) In estimating net profits was the arbiter entitled to debit interest at 5 per cent. on the claimants' capital in the farm? (5) In the circumstances stated was the arbiter bound to award compensation under head 2 of the claim on the footing that the stock would be realised at a date most disadvantageous to the claimants, and in any case was he bound to make an allowance for expense of realisation and for the sale being a forced sale?”