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	Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Moray Estates Development Company v Butler & Ors [1999] ScotCS 41 (3 February 1999) URL: http://www.bailii.org/scot/cases/ScotCS/1999/41.html Cite as: [1999] ScotCS 41, 1999 SCLR 447

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The pursuers are the proprietors of Ordies Farm, by Forres. By lease dated 22 May and 8 June 1964 ("the Lease") the pursuers let that farm on the terms and conditions therein set forth. The narrative of the Lease was in the following terms:-

Entry was at Whitsunday 1964. The period of the Lease was twenty years with a break in favour of either party on each of the fifth, tenth and fifteenth anniversaries of the date of entry. In respect of irritancies it was provided:-

In respect of rent it was provided:-

The provision in respect of cultivation provided, among other things, for rights and obligations, in default of agreement, on the tenant's waygoing. These included certain rights in the outgoing tenant to payment, such as for the waygoing grain crop and for grass.

The firm of Messieurs Grigor Butler and Son as constituted in 1964 had been formed by a Contract of Partnership dated 29 November 1957 entered into by Mr Grigor Butler, Mrs Dorothea Butler and Mr Anthony Butler, their son. The headquarters of the business were stated to be at the farm of East Grange, Forres. Under that contract it was envisaged that the partnership would determine on the death of any partner, an option being conferred on the surviving partners to pay to the representatives of the deceased in respect of his or her interest a capital sum fixed by a prescribed formula. The Contract of Partnership was amended on various occasions thereafter. The shares of profits were varied by an Addendum subscribed in 1963. A further variation of profits was effected by an Addendum subscribed in 1977. By an Addendum subscribed in 1980 it was provided:-

Clause SECOND made provision for the payment out of a retiring partner or the representatives of a deceased partner on a prescribed basis. Clause THIRD made provision for the service for income tax purposes of a notice of continuation in the event of the death, retiral, bankruptcy or mental incapacity of a partner or in the event of a notice of termination being given by a partner or of a partner being expelled.

By a further Addendum subscribed on the same date a further variation to the shares of profits was effected.

In 1988 Mrs Dorothea Butler died. A further Addendum to the Contract of Partnership was in 1989 subscribed by Mr Grigor Butler, Mr Anthony Butler, Mrs Eleanor Mary Butler (the wife of Mr Anthony Butler) and James Grigor Butler (the son of Mr and Mrs Anthony Butler). It proceeded on the following narrative:-

Provision was then made in respect of the balance sheet of the amended partnership and for shares in profit. It concluded:-

On 12 December 1997 Mr Grigor Butler died. It is not maintained that the pursuers were aware until after Mr Grigor Butler's death of any of the earlier changes in the constitution of the firm of Messieurs Grigor Butler and Son (whether by the death of Mrs Dorothea Butler or by the assumption of the new partners). Nor was it maintained that the pursuers were aware of the particular terms of the Contract of Partnership or its Addenda.

In this action, which is directed against Mr Anthony Butler, Mrs Eleanor Butler and Mr James Grigor Butler, the pursuers conclude:-

Sir Crispin Agnew for the defenders moved me to sustain their plea to the relevancy of the pursuers' averments and to dismiss the action. The issue being the identification of the Tenant under the Lease, he submitted that, at worst for the defenders, the grant of lease was in favour of the business carried on by the three original partners and continued and continuing for so long as any one or more of them remained a partner, provided that the continuing business was more or less the same; it was immaterial that other persons had been assumed as partners. In the alternative, he submitted that the Lease was to the house of Messieurs Grigor Butler and Son howsoever the partnership comprising that house might be constituted from time to time, it being on that submission irrelevant whether an original partner remained in the partnership.

In relation to the first submission (in effect, that there had been a lease to a qualified house), it was acknowledged that the Court was concerned only with the construction of the Lease; what might have been agreed by the Contract of Partnership or any of its Addenda was irrelevant to that submission. A lease to a partnership, he argued, did not automatically come to an end on the death of an existing partner or on the assumption of a new one. It was a matter of construction whether or not the lease was to a house and, if so, what constituted that house. If there was any element of delectus personae, that was here satisfied by the continued presence of an original partner.

It was important, he argued, that the Lease was expressed as in favour not only of the three then partners as trustees for the firm but also in favour of the survivors and survivor of them as such trustees or trustee. The use of the singular was crucial. As the grant was to a firm (which implied a plurality of partners) the use of the singular envisaged that the survivor would be a trustee for a partnership constituted by himself and persons who had not been original partners. It was also important that this was a transaction with a family; it was to be distinguished from a let of urban property to a commercial organisation. The Lease was for a term of twenty years which was hardly consistent with an intention on the part of the Landlords that it should determine on the possibly early death of one of the original partners. Reliance was also placed on the Lease provision whereby the rent was payable by the individuals and their estates. It was of the essence of a partnership that it involved the carrying on of a business (Partnership Act 1890, section 1(1)) and that a new partner could be admitted into an existing firm (section 17(1)). The principle of a contract with a house was a recognised feature of our law; its application in appropriate cases was to be encouraged (Inland Revenue v Graham's Trustees 1971 S.C. (H.L) 1). The intention of the parties was to be ascertained from the terms of the deed in the context of the surrounding circumstances. The Landlords were protected by the irritancies clause against a last survivor taking only a nominal interest in the business. A transaction with a firm which contemplated a lengthy tract of time pointed to an intention that changes in the constitution of the partnership should not affect the operation of the arrangement provided the business remained essentially the same (Alexander v Lowson's Trustees (1890) 17 R. 571). Jardine-Paterson v Fraser and Others 1974 S.L.T. 93 was distinguishable. Lord Maxwell had, however, seen some force in an argument that the absence of a destination to survivors in the lease there under discussion was significant (p. 96). A clause excluding assignees did not necessarily exclude the assumption of new partners (Walker v McKnights (1886) 13 R. 599, per Lord Shand at p. 603). Reference was also made to the style of lease to a firm given in the Encyclopaedia of Scottish Legal Styles Vol. VI at p. 209.

In relation to his alternative submission Sir Crispin argued that, insofar as it might be material that the firm remain undissolved, it was appropriate to look at the partnership deeds. By section 33(1) of the Partnership Act 1890 dissolution by the death of a partner was subject to any agreement between the parties. There had been such an agreement in the present case. Accordingly, dissolution as had occurred in Walker v McKnights had not occurred in the present case. Section 17(1) of the 1890 Act envisaged assumption of a partner without dissolution of the existing firm. The entity of Messieurs Grigor Butler and Son continued after the death of Mr Grigor Butler and still continued. Reference was made to William S Gordon & Co Ltd v Mrs Mary Thomson Partnership 1985 S.L.T. 122. The Lease was not perpetual but could be brought to an end (subject to the Agricultural Holdings (Scotland) Act 1991) by notice.

Mr Creally, junior counsel for the pursuers, moved that the pursuers' pleas be sustained and the defenders' repelled and that decree de plano be granted as concluded for. The Lease, he submitted, was a grant to the firm of Messieurs Grigor Butler and Son as constituted at the time when it was entered into. It came to an end not later than the death of Mr Grigor Butler. The pursuers' primary position was that the Lease came to an end on the death of Mrs Dorothea Butler, any informal arrangement existing between her death and that of Mr Grigor Butler coming to an end on the latter's death. At worst for the pursuers, the Lease was to a partnership as constituted by the original partners or as constituted by two surviving partners. The issue as to who was the Tenant was to be determined by the Lease alone, the terms of any agreement among the partners being irrelevant (Jardine-Paterson v Fraser and Others, per Lord Maxwell at p. 97). Moreover, the identity of the Tenant must be found in the description of the grantee or grantees, not in the consideration given for the grant (Lord Maxwell at p. 95). Here the Lease was to a firm identified by reference to the partners who constituted it at the date of the grant, not to a differently constituted group. Reference was made to Garden, Haig-Scott & Wallace v Prudential Approved Society for Women 1927 S.L.T. 393 and to Inland Revenue v Graham's Trustees, per Lord Reid at p. 20. There were no words in the Lease (such as "howsoever constituted" or "the partners present and future") which might support the notion of a lease to a house. It was more difficult to envisage a contract with a house where the subject matter was a lease of agricultural property, where delectus personae was an important element (Inland Revenue v Graham's Trustees, per Lord Guest at pp. 23-4; Jardine-Paterson v Fraser and Others, per Lord Maxwell at p. 98). The circumstance that the surviving partner and the new partners were of the same family was immaterial (Inland Revenue v Graham's Trustees, per Lord Fraser at p. 11). The Landlords and the Tenant were here at arm's length. The destination-over to survivors or survivor did not assist the defenders. It would, if not expressed, have been implied as a matter of trust law (Menzies on Trustees (2nd Edition) pp. 81-2, Stair Encyclopaedia Volume 24 para 162). An argument from redundancy was seldom entirely secure (Beaufort Ltd v Gilbert-Ash Ltd [1998] 2 All ER 778, per Lord Hoffmann at p. 784). A conveyancing convention had developed of taking leases to partnerships in the name of the partners as trustees (Halliday - Conveyancing Law and Practice (2nd Edition) paras. 37-32 and 4-12, Miller on Partnership (2nd Edition) pp. 401-2, Paton and Cameron - Landlord and Tenant p. 63, and Green's Encyclopaedia Volume 11, para 113), though this convention was perhaps more appropriate for registered leases. It was not intended to have any special significance. It might have some advantage in the winding up of the leasehold interest. In respect of the significance of duration of the lease, Lord Guest's observation in Inland Revenue v Graham's Trustees at p. 24 had been tentative only. In any event, in the Lease there were breaks every five years. The identity of a firm was, from a landlord's point of view, affected by the death of one of the partners (Inland Revenue v Graham's Trustees, per Lord Fraser at p. 12). Apart from the possible exception of Alexander v Lowson's Trustees (which had been a very narrow case - Inland Revenue v Graham's Trustees, per Lord Hunter at p. 5), there was no trace in the law of a "qualified house". The statement in Bell's Commentaries (McLaren's Edition) Volum

In the third speech Sir Crispin submitted that the notion of a qualified house had been recognised (Alexander v Lowson's Trustees; Inland Revenue v Graham's Trustees, per Lord Guest at p. 24). In respect of delectus personae agricultural leases were no different from the majority of other leases. At common law the tenant's interest passed to his heir at law; since the Succession (Scotland) Act 1964 the executor of a deceased tenant had had certain powers to transfer the lease. In normal cases, accordingly, the effective choice available to an agricultural landlord was the selection of a family. The doctrine of delectus personae in leases had survived only for limited purposes (Rankine on Leases p. 157; Paton and Cameron - Landlord and Tenant pp. 149-151). Lord Maxwell's statement in Jardine-Paterson v Fraser and Others at p. 98 that there was "a strong element of delectus personae" in agricultural leases was not supported by other authority. A title to a lease taken in the name of the partners as trustees and the survivors and survivor of them was designed to secure the continuation of the lease notwithstanding the death of a partner (Green's Encyclopaedia Volume 11, para 113, per J Robertson Christie, K.C.; Miller on Partnership pp. 401-2; Halliday - Conveyancing Law and Practice (2nd Edition) para 4-12). If it had been intended that the Lease terminate on the death of a partner, words of survivorship would not have been used. Reference was also made to Lujo Properties Ltd v Green 1997 S.L.T. 225.

Mr Reid, senior counsel for the pursuers, submitted that the argument that a trust title resulted in the continuation of the lease notwithstanding the dissolution of the firm was entirely contrary to the bases of decision in Inland Revenue v Graham's Trustees and Walker v McKnights. It would, if right, also have been a complete answer for the defenders in Jardine-Paterson v Fraser and Others. Lujo Properties Limited v Green was concerned with an assignable lease; Inland Revenue v Graham's Trustees and the present case were concerned with non-assignable leases. The origin of the practice of taking leases to a firm in the name of the partners as trustees for it was somewhat obscure. The only rationale offered for it was given in the article in Green's Encyclopaedia, subsequent textbook writers having followed it without elucidation. It was to be noted, however, that Professor Halliday in the first edition of Conveyancing Law and Practice at para 4-11, while repeating the advice given in Green's Encyclopaedia, had not repeated the apparent rationale for it. It might be that the practice had a practical advantage in relation to assignable leases. If Sir Crispin's argument was correct, it would follow that every lease to a partnership which adopted the convention in relation to title would constitute a lease to a house. That could not be right. It would mean in effect that agricultural leases in such terms were open to perpetual succession. It was inconsistent with the doctrine of delectus personae in agricultural leases (other than those of extraordinary duration) and with the express exclusion of assignees.

Parties are agreed that the central issue for determination is the true character of the Tenant in whose favour the Lease was granted. That issue is one of interpretation of the language of the Lease read in its context. Private dealings among the partners of Messieurs Grigor Butler and Son as it may have been constituted from time to time after 1964 are irrelevant to that issue - though changes in constitution might in some circumstances have consequences of significance. At the extremes of parties' positions the rival candidates for "Tenant" are, for the pursuers, the partnership of Messieurs Grigor Butler and Son as and only as constituted in 1964 (namely, Mr Grigor Butler, Mrs Dorothea Butler and Mr Anthony Butler all being partners and being the only partners) and, for the defenders, a house comprising the partnership of Messieurs Grigor Butler and Son howsoever that might be constituted from and after 1964 (that is, whether or not any of the original partners ceased to be a partner or a new partner or partners were assumed), provided only that the character of the business carried on by the firm remained essentially the same. Each party has a less extreme position which would in either case suffice for the determination of the present action. The pursuers' less extreme position would allow the Tenant to include also a partnership constituted by two surviving original partners (but no others); the defenders' less extreme position would qualify the house by restricting it to one which retained as a partner at least one of the original partners. Although a decision on the narrower positions would suffice, it is convenient as a matter of legal analysis to examine the more extreme positions.

There is a doctrine (though it has been questioned) that feudal property cannot be held by a partnership. This has led to a practice whereby the title to heritable subjects acquired as partnership property is commonly taken in the name of the partners as trustees for the firm. Although a lease is not feudal property, a further, though not universal, practice has developed of taking a leasehold interest acquired by a partnership likewise in the name of the partners as trustees for the firm. The origins of that further practice are, at least insofar as drawn to my attention at the debate, obscure. It is, however, illustrated by the terms of the mineral lease discussed in Walker v McKnights; and the author of the article on Partnership in Green's Encyclopaedia (1931) Volume 11, para 113 (Mr J Robertson Christie, K.C.), while recognising that in the case of a firm with a social name it is not essential to do so, recommends that the practice of taking a lease in the name of trustees be followed. I shall return to the observation which he makes in that connection. His recommendation has been adopted, without further comment on its rationale and consequences, by subsequent textbook writers (Paton and Cameron - Landlord and Tenant p.63, Miller on Partnership (2nd Edition) pp.401-2 and Halliday - Conveyancing Law and Practice (1st Edition) para. 4-11). The editor of Halliday -Conveyancing Law and Practice (2nd Edition) at para 4-12 adds a comment similar to that made by Mr Christie, K.C. The result is that, where this practice is followed, the title to such a leasehold interest is regulated by the law of trusts.

As the title to trust property is joint and indivisible, on the death of one of several trustees his title and interest accrues to the survivors or survivor (Menzies on Trustees (2nd Edition) pp. 81-2; Oswald's Trustees v City of Glasgow Bank (1879) 6 R. 461). Such accrual would, if not expressed, be implied as a matter of law; but in deeds constituting such a trust holding it is common to express it.

It is against that background of law and practice that one ought, in my view, to address the title formulation adopted when the Lease was granted in favour of Messieurs Grigor Butler and Son. While at first sight the survivorship provision might appear inconsistent with an intention that the Lease as granted terminate on the death of any one of the named partners, on reflection such apparent inconsistency is not, in my view, sufficient to negative such an intention. In the first place, once the trust formulation had been adopted, such language was conventional. In the second place, on termination of the Lease, consequential rights and obligations potentially arose (such as claims for the waygoing grain crop and for grass and liabilities for back rent etc) which would properly be vested in the surviving trustees or trustee. Moreover, it was not inevitable that on the death of one (or even two) of the partners the subjects would be taken back into possession by the Landlords. Assignees were by the Lease expressly excluded but that in substance and effect meant that they were excluded except with the consent of the Landlords. On the death of a partner followed by the continuation of the business by the surviving partners in partnership, the Landlords might then consent (expressly or implicitly) to the leasehold interest coming to vest in the entity continuing the business; whether such substitution would technically be by assignation or novation or otherwise it is unnecessary to enquire. In that event, the surviving trustees might conveniently hold the interest for the new tenant. Conceivably, consent to such an arrangement might also be given by the Landlords after the death of a second partner. I am, accordingly unable to accept that the survivorship clause points compellingly away from the pursuers' contention that the Lease was in favour exclusively of the partnership as constituted in 1964 or compellingly towards the defenders' contention that it was in favour of a house, qualified or unqualified.

Mr Robertson Christie, K.C., in his article in Green's Encyclopaedia, Volume 11, para. 113 states:-

I doubt whether the observation contained in the final clause of that passage is accurate insofar as it may suggest that the taking of leasehold property in the name of the partners as trustees will of itself obviate the risk of lapse of the lease on dissolution of the firm. If the dissolution which subsequently occurs is one whereby the partnership ceases to exist and the proprietors refuse to consent to a transfer to any other person (as occurred on the sequestration of the firm in Walker v McKnights), the taking of a non-assignable lease in the name of trustees will not prevent the lease coming to an end in such circumstances. If, on the other hand the lease is expressly or impliedly assignable or (as in Lujo Properties Limited v Green) in substance and effect assignable, it may, whether or not the title is taken in name of trustees, survive dissolution of the firm and be capable of being passed to an assignee. Moreover, if the lease is appropriately framed as a lease to a house, it may, whatever the form of the title, survive changes in the persona of the tenant such as the death or retiral of individual partners or the assumption of new partners.

The concept of a contract with a house is recognised but somewhat undeveloped in our law. It is mentioned in Bell's Commentaries (McLaren's Edition) Volume II, pp. 525-6 in the context of a discussion of contracts and of bonds of indemnity or credit which may endure notwithstanding an alteration in the constitution of a partnership. Bonds in favour of certain types of banking companies and contracts for the sale of goods are given as illustrations of circumstances in which an alteration in constitution will not affect the relative obligation. Whether or not a contract does extend to the house under all the circumstances it may undergo is a matter of construction, Professor Bell observing that "the intention of the parties will be studied in the decision of such cases...".

The concept of a contract to a house was discussed in Inland Revenue v Graham's Trustees where Lord Reid at p. 20, after referring to the statement in Bell's Commentaries II p. 526, observed that it

Lord Guest at p. 24, after referring to the same statement in Bell's Commentaries and to certain decided cases, continued:-

Both judges found it impossible to construe the contract there under discussion as giving rise to a lease to a house. The judges in the Lands Valuation Appeal Court had reached the same conclusion (see, in particular, Lord Hunter at pp. 5-6 and Lord Fraser as pp. 11-12).

The concept of a contract with a house was again discussed in Jardine-Paterson v Fraser and Others in the context of an agricultural lease to a partnership. Lord Maxwell, approaching the issue again as a matter of intention, held that the lease was in favour of the partnership as constituted at the time of the inception of the lease in its then current form (by the 1949 assignation) and not to the partnership as it might be constituted from time to time (pp. 97- 8).

In the present case the intention of the parties, as ascertained from the terms of the Lease read in its context, was not, in my view, that the grant be in favour of a house, whether qualified or not. While the expression "delectus personae" may be used (accurately or otherwise) in more than one sense (see Inland Revenue v Graham's Trustees, per Lord Reid at p. 21), a landlord who lets agricultural subjects to a partnership is (or at least in 1964 would have been) closely concerned with the individual partners (Inland Revenue v Graham's Trustees, per Lord Fraser at p. 12). I also accept as accurate, notwithstanding Sir Crispin's criticisms of it, Lord Maxwell's statement in Jardine-Paterson v Fraser and Others at p. 98 - "An agricultural lease excluding assignees obviously has a strong element of delectus personae". The fact that statutory provisions concerning agricultural holdings have in certain circumstances restricted the capacity of landlords to prevent transmission of leases to others than the original tenant does not, in my view, diminish the accuracy of those statements. In relation to the assumption of one or more new partners in the firm comprising the other party, a landlord of agricultural subjects is likely to have a more immediate concern than, say, a client of a large firm of solicitors engaged in an ongoing conveyancing transaction or a customer of a commercial partnership with which he has a contract for the sale or for the purchase of goods. Each case requires to be considered in its own circumstances; but an agricultural lease is not, as subject matter, a very obvious candidate for a contract with a house.

In the present case there is, in my view, an absence of indicia which one might have expected if a lease to a house had been intended. There is no reference to "partners present and future" (cf. the terms of the mineral lease in Walker v McKnights) nor to any other words of succession (as in the altered terms of the lease in Lujo Properties Limited v Green), save only for the survivorship clause which, for the reasons earlier given, I do not consider points in favour of a lease to a house. Nor do I regard the duration of the Lease as, in the present circumstances significant. Duration might in some cases be a factor (Inland Revenue v Graham's Trustees, per Lord Guest at p. 24) - for example, in a lease of extraordinary endurance as discussed in Rankine on Leases (3rd Edition) pp. 173-4; but a duration of 20 years with mutual breaks at five yearly intervals does not, in my view, give rise to an implication that changes in the constitution of the tenant partnership were contemplated. The circumstance that the partners as individuals are, with their respective estates, held liable to the Landlords for the rent appears to be a conventional provision (Encyclopaedia of Scottish Legal Styles Volume 6. p.209); it does not point to succession in the character of tenant. The irritancies clause is concerned only with nominal possession under arrangements in insolvency.

Alexander v Lowson's Trustees has been described as "a very narrow case" (Inland Revenue v Graham's Trustees, per Lord Hunter at p.5). Certainly, the Lord Ordinary (Lord Kinnear) and the judges of the Second Division reached strikingly different conclusions; and Lord Young in delivering the leading opinion stated (at p. 578) - "We have all found this case to be a very difficult one, the considerations being perplexing". Although both Lord Kinnear and the Second Division approached the matter as one of ascertaining intention, Lord Kinnear considered the question to be one which depended primarily on a contract made after the testator's death (p. 575) while the Second Division concentrated (it seems as a result of a different approach in the argument) on the terms of his will (p. 578). Nonetheless, I see no reason to doubt the soundness of such general principles as are stated (or restated) in that case. The decision, however, of the Second Division appears to turn substantially on the surrounding circumstances of that case (Inland Revenue v Graham's Trustees, per Lord Fraser at p. 11) and on a reluctance to construe the testator's intention as requiring the calling up of the loan on the death of one of his sons who was a partner or on the assumption of another son as a partner (per Lord Young at pp. 579-80). The considerations which affect the arrangements which a testator may make for the deployment of his trust estate in the interests of surviving members of his family may be significantly different from those which may affect parties acting, as here, at arm's length. I find nothing in Alexander v Lowson's Trustees inconsistent with my approach to the solution of the present problem.

In the whole circumstances I am satisfied that, as a matter of interpretation of the Lease, the Tenant entitled to possession under it did not include a partnership into which there had been assumed persons who were not partners as at 1964. The circumstance that the partners in fact assumed were themselves related, by marriage or by blood, to the original partners does not, in my view, affect that conclusion; nor does the circumstance that one of the original partners is a partner in the presently constituted firm.

In these circumstances I reject the submission made by Sir Crispin in both its alternatives. It is unnecessary for the purposes of this case to decided whether the Lease determined on the death of Mrs Dorothea Butler in 1988, though I am of the view that it did. If it survived that death, it determined on the death of Mr Grigor Butler (if not earlier on the assumption of the new partners).

In the whole circumstances I shall sustain the pursuers' pleas-in-law, repel the defenders' pleas-in-law and grant decree de plano in terms of the first conclusion of the summons.