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

A landlord challenged section 72 of the Agricultural Holdings (Scotland) Act 2003, which let general partners of dissolved limited partnership tenancies become tenants in their own right. The Supreme Court held section 72(10) incompatible with A1P1 and outside Holyrood's competence, suspending that finding for 12 months.

Facts

Alastair Salvesen bought Peaston Farm, East Lothian, in 1998. The farm was let to a limited partnership under a 1992 lease, the general partners being John and Andrew Riddell and the limited partner being the nominee of the owner (after purchase, Mr Salvesen’s nominee). Both the lease and the partnership agreement were to endure until 28 November 2008, continuing thereafter from year to year unless the partnership was dissolved or notice to quit was served.

Letting to limited partnerships had become a widespread market response to the effectively indefinite security of tenure conferred on agricultural tenants by the Agricultural Holdings (Scotland) Act 1948 and its 1991 consolidation: dissolution of the partnership left no one who could claim to be tenant (Inland Revenue v Graham’s Trustees 1971 SC (HL) 1; the practice was unsuccessfully attacked in MacFarlane v Falfield Investments Ltd 1998 SC 14). A 2000 Scottish Executive white paper proposed limited duration tenancies and stated that existing limited partnership tenancies would not be affected.

The limited partner served notice of dissolution on 3 February 2003, taking effect 28 November 2008. Mr Salvesen expected vacant possession then, intending to amalgamate Peaston with neighbouring land. However, a stage 3 amendment to the Agricultural Holdings (Scotland) Bill moved the trigger date for the new protective provision back to 16 September 2002, catching his notice. On 12 December 2008 the general partners gave notice under section 72(6) of the 2003 Act that they intended to become joint tenants in their own right. Mr Salvesen applied under section 72(7) for an order under section 72(8) that subsection (6) did not apply. The Land Court refused the application in July 2010 as his averments did not satisfy section 72(9)(a)(i).

The Second Division (Lord Justice Clerk Gill, Lord Osborne and Lord Nimmo Smith) allowed his appeal on construction, reading the words “not simply” into section 72(9)(a)(i), and went on to hold that section 72 violated his Convention rights, being to some extent outside legislative competence. Leave was granted under Schedule 6, paragraph 13 of the Scotland Act 1998. The underlying dispute settled in 2012; Mr Salvesen withdrew, but the Lord Advocate maintained the appeal because of the issue’s general public importance, and advocates to the court were appointed.

Issues

Lord Hope identified the questions as: (i) whether the Second Division’s Convention finding was premature; (ii) whether section 72 is incompatible with article 1 of the First Protocol (A1P1), read with article 14; (iii) if so, whether it could be read compatibly; and (iv) the appropriate remedy, including any order under section 102 of the Scotland Act 1998.

Arguments

For the Lord Advocate, Mr Mure QC argued that the finding of violation was premature and unnecessary because, following the Second Division’s construction ruling, the section 72(8) question remained live before the Land Court. He accepted (departing from the position below) that A1P1 was engaged, but submitted that section 72 had to be seen in its stage 3 context: there had been a mass service of dissolution notices to avoid the Bill’s effects, and urgency justified placing all who served notices during the Bill’s passage in the same category. He denied that the effect of section 72(10)(b)(i) and (ii) was punitive, characterising it as a legitimate policy choice within the Parliament’s margin of discretion, and said the Second Division had placed undue weight on the difference between sections 72 and 73. On remedy he warned that without an order removing retrospectivity, tenants who had invested for a decade on the basis of a 1991 Act tenancy might find their tenancies null and void, and settled commercial arrangements disturbed; he suggested a 12-month suspension.

Mr Wolffe QC, as advocate to the court, emphasised the relationship between sections 72 and 73: striking down section 72 as a whole would deprive section 73, under which many leases now operated, of effect, since “if section 72(10) is not law, that proposition will take section 73 with it”. He also identified categories of case that might be affected by an order limiting retrospective effect.

Judgment

Lord Hope gave the only judgment, with which Lord Kerr, Lord Wilson, Lord Reed and Lord Toulson agreed.

Prematurity

The prematurity objection was rejected for the reasons given by the Lord Justice Clerk. Since the parties had settled, no remit was needed, but the Convention questions were of general public importance and “the sooner any uncertainty as to how they should be answered is resolved the better”.

A1P1

A1P1 was engaged: consistent Strasbourg jurisprudence (Barreto v Portugal; Spadea v Italy (1996) 21 EHRR 482; Gauci v Malta (2011) 52 EHRR 25) shows that restricting a landlord’s right to terminate a lease is control of use under the second paragraph. The court applied the settled proportionality tests (James v United Kingdom (1986) 8 EHRR 123; Sporrong v Sweden (1983) 5 EHRR 35; Mellacher v Austria (1990) 12 EHRR 391), and the fair balance principles restated in Hutten-Czapska v Poland (2006) 42 EHRR 15 and applied in Lindheim v Norway.

Lord Hope accepted that the Parliament enjoys a broad discretion in social and economic policy, and that a measure to counter the mass service of dissolution notices while the Bill was under debate pursued a legitimate aim; retroactive legislation is not as such prohibited (Bäck v Finland (2005) 40 EHRR 48; MA v Finland). Ministerial statements suggesting a punitive purpose had to be treated with caution, following Lord Nicholls’s warning in Wilson v First County Trust Ltd (No 2) [2003] UKHL 40, [2004] 1 AC 816, and competence turned on what the section provides. Lord Hope nevertheless observed:

As a minority group landlords, however unpopular, are as much entitled to the protection of the Convention rights as anyone else

The decisive defect lay in section 72(10). Section 73 gave landlords of continuing tenancies a significant counterweight to the general partner’s benefit under section 72(6) — the ability to terminate by notice to quit at a time of the landlord’s choosing. Section 72(10)(b)(i) and (ii) denied that benefit where the notice was served, or the specified thing occurred, before the relevant date of 1 July 2003. That excluded landlords who had served notices from 16 September 2002 onwards, even though existing limited partnership tenancies were then unaffected by the Bill’s proposals, and also produced an arbitrary window of one month and eight days between the commencement of sections 72 and 73:

The penalisation of this group appears to be entirely arbitrary.

Rejecting the urgency justification, Lord Hope concluded:

The difference in treatment has no logical justification. It is unfair and disproportionate.

He agreed with the Lord Justice Clerk that section 72 did not pursue an aim reasonably related to the aim of the legislation as a whole. No separate issue arose under article 14, which merely informed the A1P1 analysis; the substance of the incompatibility lay in A1P1 itself, given “the punitive effects of section 72(10)(a) read together with section 72(10)(b)(i) and (ii)”.

Compatible construction

Section 3(1) of the Human Rights Act 1998 was the proper starting point (DS v HM Advocate [2007] UKPC 36), ahead of section 101(2) of the Scotland Act, but any such reading must “go with the grain of the legislation” (Ghaidan v Godin-Mendoza [2004] UKHL 30, [2004] 2 AC 557, Lord Rodger at para 121). Sections 72(10) and 72(9) were expressed in clear and unequivocal language and could not be read otherwise; the “not simply” gloss adopted below did not protect landlords unable to satisfy the test.

Severance and remedy

The incompatibility was confined to section 72(10), so as not to disturb accrued rights or destroy section 73; the Second Division’s finding about section 72 as a whole was recalled and replaced. The whole section and its relationship with section 73 needed reconsideration, including policy choices which “the court must leave to the democratic process”. Applying section 102, and noting the legal certainty principle recognised in Marckx v Belgium (1979) 2 EHRR 330, Walden v Liechtenstein and Cadder v HM Advocate [2010] UKSC 43, the court declined an order under section 102(2)(a), because a purely prospective order would itself be incompatible with the Convention rights of prejudiced landlords and would breach section 6 of the Human Rights Act. Instead the effect of the decision was suspended under section 102(2)(b) for 12 months, or such shorter period as needed, with liberty to the Lord Advocate to apply to the Court of Session for further orders.

Implications

The decision is a rare example of the Supreme Court holding a provision of an Act of the Scottish Parliament outside legislative competence for incompatibility with a Convention right. It confirms that A1P1 is engaged by statutory restrictions on a landlord’s ability to recover possession, that retrospective and anti-avoidance agricultural holdings legislation may pursue a legitimate aim, but that differential treatment of similarly placed landlords by reference to arbitrary trigger dates may fail the fair balance test. It also illustrates judicial technique: incompatibility findings should be confined to the offending provision, ministerial statements are relevant to purpose but do not determine competence, and section 3 readings cannot override clear statutory language.

Practically, the decision mattered to landlords and general partners of former limited partnership tenancies, many with cases pending in the Land Court. The court expressly left to the Scottish Parliament, advised by Ministers and after consultation with both sides of the industry, how to correct the defect for the past as well as the future; the position of tenancies already governed by section 73 and the treatment of closed transactions were left unresolved. The judgment therefore does not itself determine the fate of individual tenancies, and its reasoning is tied to the specific arbitrariness of the 1 July 2003 relevant date rather than to the legitimacy of agricultural holdings reform generally.

Verdict: Appeal allowed. The Supreme Court recalled the Second Division’s interlocutor finding that Mr Salvesen’s A1P1 rights were violated by section 72 of the Agricultural Holdings (Scotland) Act 2003 and substituted a finding that his A1P1 rights were violated by section 72(10), which is outside the legislative competence of the Scottish Parliament. The court declined to make an order under section 102(2)(a) of the Scotland Act 1998 removing or limiting retrospective effect, but made an order under section 102(2)(b) suspending the effect of that finding for 12 months (or such shorter period as required for the defect to be corrected), with permission to the Lord Advocate to apply to the Court of Session for any further orders needed in the meantime.

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