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Agenda item 2 is evidence on the Agricultural Holdings (Scotland) Act 2003 Remedial Order 2014 mediation and compensation process. I welcome the Cabinet Secretary for Rural Affairs, Food and Environment, Richard Lochhead, and his officials. Paul Cackette is deputy solicitor and head of group 2 in the directorate for legal services, and Trudi Sharp is deputy director for agriculture, rural development and land reform. Good morning to you all.
I invite the cabinet secretary to make an opening statement.
Thank you very much, convener.
I want to make a short opening statement to set out the Scottish Government’s position in a number of areas that relate to mediation and compensation. Those areas have been covered in more detail in correspondence with the committee so far, most recently in my letter to the committee of 17 September.
The issue that we are discussing is, of course, of importance to many tenant farmers in Scotland and, indeed, to landlords. It relates to changes to one category of tenancy agreements between landlords and tenants. Prior to 2003, limited liability partnerships could be dissolved with minimal notice, which potentially exposed tenants to the risk of their tenancy agreements being revoked at very short notice. The Agricultural Holdings (Scotland) Act 2003 sought to protect the position of those tenants and transferred their tenancies into Agricultural Holdings (Scotland) Act 1991 tenancies—long-term heritable tenancies with security of tenure and succession rights.
Ten years later—on 24 April 2013—the Supreme Court issued its judgment in the case of Salvesen v Riddell, which involved a dispute between a landowner and a tenant over the dissolution of a limited partnership. In its judgment, the court held that section 72(10) of the 2003 act was outside legislative competence, as its effect breached landlords’ European convention on human rights property rights. The court provided the Scottish Government with 12 months to put right the defect. The Agricultural Holdings (Scotland) Act 2003 Remedial Order 2014 is the legal remedy that was put in place to address the defect. The order came into force on 3 April 2014.
The remedial order sought to balance the respective ECHR rights of landlords and tenants and allows landlords a means of recovering vacant possession through section 73 of the 2003 act. To bring tenancies to an end, landlords must serve conversion notices. The remedial order contained a cooling-off period in which those notices can be served. That period ends in a few weeks’ time, on 28 November 2015. The cooling-off period and notice provisions in section 73 of the 2003 act ensure that tenants who are served with dissolution notices are afforded four and a half years of extra tenure under the remedial order. That means that that runs until 28 November 2018.
The remedial order places such tenants in a better position than they would have been had the 2003 act’s provisions not violated the rights of the landlords. In that event, the tenancies would have ended with the dissolution of the limited partnership or shortly thereafter through the operation of section 73. Under the remedial order, the tenant has three further years of tenancies under sections 72A and 73, as I have said.
Landlords and tenants have been and are free to agree private arrangements. If landlords take no action by 28 November this year, the tenancies that are converted under the 2003 act will remain as 1991 act tenancies.
We understand that around 350 notices were served on the night of 3 February 2003. However, only seven cases now remain unresolved to our knowledge. For those remaining seven cases, we have proposed and do propose mediation to encourage and secure positive working relationships between affected landlords and tenants and to find appropriate solutions to support the on-going viability of the affected holdings. The Government initially proposed a two-stage mediation process, with stage 1 focusing on sharing information and clarifying facts and stage 2 offering the possibility of a negotiated solution if appropriate, in the light of the particular circumstances of each case.
In practice, it is fair to say—and I think that the committee accepts—that the Government’s proposed procedure has not materialised in the way we had envisaged. We asked any party that wished to engage in mediation to clarify whether they wished to claim against the Scottish Government and the legal basis of such a claim before entering into mediation. That was so that we could assess the matter and confirm our position, in order that any participation in mediation by the Scottish Government would be on an open and understood basis about liability.
The offer of mediation was taken up by the tenant and landlord associated with just one farm. That tenant was one of seven who took their claims to court against the Government, however, by raising a petition in the Court of Session in March 2015. The landlord in the case intimated a claim only on 17 August 2015.
The Scottish Government’s position on compensation has always been that we could not comment on or commit to the payment of compensation in individual cases until the basis of such claims had been made known to us. That was the position during the passage of the remedial order, and was reiterated when I wrote to the committee on 5 December 2014.
The current position is that seven tenants have raised a multimillion pound court action against the Government, seeking compensation. The action has been sisted until 19 October and liability has been repudiated. The Scottish Government’s position on liability has been consistent from the start: we cannot pay compensation in settlement of a claim that has no legal or factual basis. We have acknowledged that the remedial order may be only part of the solution and have said that the Scottish Government is, and always has been, open to considering all claims presented to us.
At the time of the committee’s consideration of the order in 2014, we did not know the basis of any claim that might be brought against the Government in the future. In evidence to the committee, we confirmed that any future case would be considered on its merits, in the light of the particular facts and circumstances. There was clearly never intended to be a blank cheque to pay compensation regardless of liability, and nor could there have been.
Our position remains that, should a claim against the Scottish Government be presented and we take the view that legal liability will arise, we will of course consider the claim in that context. However, in the light of the committee’s concerns and those of the tenant farmers, and no doubt of the landlords and their agents, I give the commitment to the committee that I am determined to resolve this quickly if at all possible, provided that we can persuade the landlords and tenants to come into the mediation process.
Given that the next few weeks will be crucial in doing that, we will redouble our efforts to try to make that happen.
Thank you very much, cabinet secretary. I invite members to ask questions of the cabinet secretary.
Thank you for the statement, cabinet secretary, and good morning.
I do not think that it will serve any great purpose to rake over too much of what has happened in the past, but I could not help but notice that you mentioned the importance of sharing information throughout this process. In the evidence that we have been given, it is quite clear that the process that the tenants and their representatives, and indeed the committee, thought had been agreed effectively ground to a halt after the court cases were tabled, if that is the correct expression. Whether or not that should have had an impact on the mediation process—you say that it has, and I do not dispute that—that information was clearly not shared with the tenants and their representatives. They have been left in an information vacuum since early April, until, as far as I can see, the committee raised the matter with you during the summer recess to kick start the process again.
In previous discussions that we have had, it seems that all the Scottish Government and Scottish Government officials’ actions that have been taken since the end of March have been entirely reactive. Can you give us an absolute assurance that you and your officials will now get on the front foot and become proactive in bringing this pretty sorry mess back to the table to try to reach a satisfactory conclusion?
10:30
I certainly assure the committee that we will redouble our efforts to resolve the issue. We are as keen as anyone else is to see a just outcome for those who are involved in the six or seven cases that are still on the table.
Without going back over old ground, I note that there have been a couple of milestones in the process that have affected the pace of reaching a resolution. First, we had to wait for the basis of the claims to be presented to us before the mediation process could start, and that took some time. I will certainly investigate the evidence that has been presented to the committee on the Government’s role in contributing to the slow progress. I am concerned by that because it was clearly a contributing factor.
Secondly, when we learned that a court action had been lodged against the Government for substantial sums of money, that changed the environment in which we were operating, and also what we could say and when we could say it. There is a live court action against the Government from the tenant farmers who are involved. That happened in March, and it clearly played a role in the pace of getting the matter resolved.
However, I give you the commitment that I mentioned.
I hear what you say about the court case in March, but the point that I was trying to make is that nobody told the tenants’ representatives that it would have an impact on the pace of the mediation process. You talked about the importance of information sharing and I absolutely agree with you, but information stopped being shared once those court cases came into being. Your officials need to move this on proactively. However, I think that you have given some assurance that they will do so.
We are dealing with a case that goes back to 2003. We put forward the remedial order in the Parliament and we felt, under the circumstances, that it gave the best possible outcome for the tenant farmers, particularly given the minimum period of four and a half years that they would have to remain in their farms. However, we are discussing the matter against a complex backdrop of both legislation and legality. Agents were appointed by the tenant farmers and we have dealt with them over that period. If that has not worked in relation to the sharing of information, that causes me concern, as I said. I will certainly look into that.
Good morning, Mr Lochhead. I am trying to get to the bottom of why there has been a change. I have had evidence from tenants who have, unfortunately, been involved in this sorry mess. Mediators who were appointed by Government officials were working with them, but that suddenly stopped overnight and the tenants could not communicate with them in any respect whatsoever.
It seems that the Scottish Government made a change almost overnight. When you gave evidence to us—this is mentioned in our report of 7 February 2014—there was recognition that some compensation may come forward, but even so, at that stage, you were committed to funding mediation. You stated that it would cost an estimated £40,000, and I remember that we thought that that figure was quite low, because it was for all the cases. You said that, if the cost went above £40,000, you would cover it.
Is it the cost that has arisen from the mediation that made you change your mind on helping people with the mediation, or is that a reaction to what you knew would happen—that some tenants would look for compensation from the Government?
It is not the cost of the mediation. We told the committee that we would make £40,000 available for the mediation process. Part of that has been used up and part of it is still available, so clearly it is not a cost issue.
On compensation, no one wants to be caught up in messy court actions. We do not want tenant farmers to find themselves in that position and the Government does not want to end up in the courts in relation to an action from tenant farmers due to something that happened back in 2003, which we are doing our best to fix in a just way. We have to remember that the Supreme Court found in 2014 that the landlords were the injured party. Therefore, there are not just the tenant farmers to consider in terms of compensation, but the landlords as well.
The mediation process would therefore have to involve both tenant farmers and landlords, as well as the Government, and we are unable to put ourselves in the legal position of going into that environment with an open cheque book, so that has clearly been a sticking point. We need the mediation process to work in such a way that we do not have an open cheque book backed by the public purse to pick up any compensation costs for both tenant farmers and landlords who have been found to be the injured party by the Supreme Court and who are seeking compensation. The purpose for which I said that the Government was willing to keep compensation on the table is simply that, if there is a legal liability for the Government, rather than fight it through the courts with the tenant farmers, it would be in everyone’s interests to reach a settlement through the mediation process. That is why I was willing—and remain willing—not to take compensation off the table; it would clearly be a better alternative in some circumstances than fighting a messy action through the courts.
I appreciate that answer, but we are talking about two different things. The mediation is between the tenant and the landlord, and we must ensure that that continues. I appreciate that the Scottish Government may now have had second thoughts and may be concerned about mediating in case it leaves itself open to compensation claims, but what we really need—I had hoped that the minister would be able to come to the table today with something—is a solution that allows mediation to continue, which might involve bringing in independent mediators, rather than stopping help with mediation overnight, which seems to have happened several months ago.
We now find ourselves, even in the past few days, in a better position in terms of mediation. I hope that we will be able to move forward, as we have had an intimation from the tenant farmers that they are willing to take part in the mediation process. I am keen for that to happen, and for it to happen as soon as possible.
As far as I can see from the letters that I get from tenant farmers, they have always been keen to participate in mediation.
The judgment in the Supreme Court recognised that any adverse effect on the rights of tenants resulting from the decision would need to be resolved via a “fair and constructive” process agreed by the Parliament and guided by the Scottish ministers. When the committee reported on the remedial order, it made two points that are germane to that. It said that the Government must accept liability for anyone who is financially and/or personally disadvantaged by the remedy put in place, and for any stress suffered by those involved. It went on to say that it was important that the enactment of the proposed draft order did not lead to a drawn-out compensation process and should be concluded as timeously as possible.
The situation now is that all three of those objectives are in some danger of not being achieved. What I would be looking for, what the tenants are looking for and what I imagine the committee is looking for is an assurance—which, to be fair, the cabinet secretary has given, although I want to be explicit about it—that the Government is still committed to the fair and constructive process, that it accepts, by negotiation, that there is liability for those who are financially or personally disadvantaged, and that it is committed to doing something about the process, because it seems to me that the process has gone badly wrong.
Whatever the reason for that is—it is not what we are here to talk about—it means that tenants are now unsure about the future and what lies ahead. Some may have the prospect of another three years, but they are not sure of the process. They need information, the legal process needs to be speeded up, and there needs to be a commitment in public that the issue will be resolved within the parameters that were set by the Supreme Court and accepted by this parliamentary committee and by the Parliament when the report was given. The parts of the report that I have cited are not just observations; the report was accepted by the Parliament, as were the remedial order and the judgment, so those are commitments that need to be honoured.
I give the committee the commitment that I will do my utmost to resolve the issue in an equitable and fair manner and that I will review the process that will help to achieve that. I am not saying that, in the chain of events that has got us to where we are, the Government is completely blameless, and if there are issues with the process or with communication, I will investigate those concerns. However, it is clear that a sequence of events that were outwith our control has also influenced the pace of progress.
The Government’s approach has always been twofold. First, there was the remedial order itself. We went to great lengths to ensure that we were not in a situation where tenant farmers would have to leave their farms quickly. The remedial order has allowed four and a half years of extra tenure than may otherwise have been the case, including the 18-month cooling-off period. Other than one well-documented case, my understanding is that no notices to quit have been served. We still have the few weeks left until the conversion deadline that the landlords have the opportunity to take advantage of.
The second stage of the process is finding a way of resolving the issue so that we do not have a situation where farmers feel vulnerable and face leaving their farms, if that can at all be helped.
They presently feel in that position, as you know. Getting that remedy within a very short timescale is what is required. I am sure that the committee will want to hear back from you over the next few weeks that the timescale has been observed.
The final comment that I want to make in response to Michael Russell is that I will do that, but clearly there are other parties in the process. There are the landlords, who, under the Supreme Court judgment, are the injured parties, as well as the tenant farmers and the Government. Hopefully, we can all play a constructive role in getting us to where we want to get to.
Good morning, cabinet secretary. The clarification that you have given will be helpful to everybody, because the confusion that has preceded has not been in the interest of anyone, whether landlord or tenant.
I want to highlight the case of one constituent, without going into any detail about it, simply because there is a notice to quit by 28 November of this year.
Can we be very careful about matters that may be sub judice?
Thank you for that reminder, convener.
I appreciate that it is a complex case and that it is not appropriate to discuss it here but, given the timescale, it would be helpful for that tenant to have a commitment from the Scottish Government to at least look into the case urgently, even if it might not be possible to resolve it satisfactorily, to see whether anything can be done to support the family, who face an eviction order.
I will look at the details of the case and whether there is any prospect of a role for the Government. I understand that an offer of mediation has been made in that particular case. For obvious reasons, I will not go into detail, but the circumstances around the case do not relate directly to the remedial order that we are discussing today. However, it is a sensitive case and, therefore, I will look at it.
I appreciate that. Thank you.
Alex Fergusson talked earlier about proactivity in the process. The cabinet secretary said a few seconds ago that we need the landlords to engage in the mediation process as well. Will Government officials proactively approach the landlords concerned to encourage them to engage, rather than simply sit back and see whether the landlords are prepared to do so?
Yes, we will do that. A lot of the communication at the moment is going through legal agents on behalf of the various parties but, in light of today’s comments in the committee, we will redouble our efforts to make sure that communication is good.
I heard mention of a commitment to get the mediation going again. Can the cabinet secretary forecast a timetable for that process to occur? Is that a possibility at this stage?
The email to which I referred arrived only yesterday—sorry, it was in the past 48 hours. We will respond to that email and try to push things forward as quickly as possible. On the overall timescale, I indicated earlier that the next few weeks are crucial. The sooner we get that going the better.
10:45
I have just a quick question. Where does the policy lie now, and will the Government’s intention in that regard be addressed in the Land Reform (Scotland) Bill, which the Parliament is currently scrutinising? After all, the policy in the 2003 act failed, and since then there has been the remedial order. What is next as far as policy development is concerned?
A couple of issues arise out of that question, the first of which is the sensitivity that we need to show with regard to ECHR and property rights. Clearly, that is what the Supreme Court judgment was based on, and the matter should give us all pause for thought with regard to future legislation. After all, I do not want to end up in a few years’ time with the forthcoming land reform legislation, which contains provisions on agricultural holdings, putting us in the same position that we are in now as a result of the 2003 act. I have to be conscious of that matter in taking forward the policy.
The second point is that more work will have to be done on limited partnerships, which is an issue in which the committee has taken an interest. However, the situation has been made complicated by the fact that the agricultural holdings provisions in the Land Reform (Scotland) Bill focus on other dimensions and not specifically on limited partnerships.
On a point of clarification, I understand that the petition for judicial review that was lodged in March is one of the reasons for the failure to move forward. Will its existence impede the mediation and compensation process that we have been discussing? I am not quite sure what has changed in that respect.
My understanding is that the petition impedes the process, in as much as we have to be careful about the extent to which compensation can be discussed in the mediation process. Any admission of liability in the mediation process will impact on the court action. In layman’s terms, if there were a multimillion-pound court action in the background and we were to admit any kind of liability during the mediation process, that would influence the Government’s defence in the court action.
As there are no more questions, I thank members, the cabinet secretary and his team for the discussion. We have explored the communication issues between the parties. The committee’s work has, I hope, helped to bring some clarity to the process of Government. I hope that we can bring about an effective and timeous remedy to a matter that all of us, particularly the parties concerned, feel very aggrieved about.
I suspend the meeting to allow for the changeover of panels.
10:48 Meeting suspended.