briefing spring 2011 clarke willmott field talk...the parties effectively set their own agenda and...

Briefing Spring 2011Clarke WillmottAgricultural Law

clarkewillmott.com

Agriculture and food production are amongst the world’s most global businesses - failed rains in Australia led to higher wheat prices for farmers in Wiltshire.

One of the major global economic trends over the past 20 years has been the rise of China to its current position as a huge producer and exporter of consumer goods, with resultant foreign currency earnings from investment outside China. With an awareness of the perceived shortcomings in the Chinese legal and economic systems there is a growing trend to partner with established expertise, to maximise opportunities for growth for all parties.

In agriculture there is a recognition that this sector offers something for China, not only in continued growth in Western markets but also within the Chinese markets, building trust in brands and a culture of safety within the sector. After food safety scandals within China, there has been a lack of trust that a producer will do what it can to keep its customers safe. By comparison that trust is strongly established in the UK.

One of our major aims is to look for opportunities for our clients and, with safe food production, processing and technology a focused and growing trend in China, this presents opportunities for entrepreneurs in agriculture and food production.

For over 4 years we have employed our own Chinese lawyer, Lily Knott, who qualified in the Peoples’ Republic of China. She worked for commercial firms there for many years, but is now married and settled in Bristol. Lily maintains regular contact with China. She receives direct approaches on a regular basis from agriculture and food-focused private equity and capital funds, along with Chinese

companies looking to find partners in the UK, in addition to seeking opportunities and maximising contacts.

Development of all these opportunities allows us to use our expertise and experience to assist our clients in meeting their underlying commercial and financial objectives for growth, whilst addressing financial, regulatory, fiscal and operational requirements.

Joint ventures are an increasingly important way to undertake business activities and projects, particularly in cross border situations. Whilst they enable expansion opportunities that clients would be unable to take forward on a purely independent basis, there can also be sacrifice of control and flexibility. We seek to protect these in the type of business vehicle chosen, whether a limited liability company, limited liability partnership, partnership or contractual co-operation agreement. We can help to protect clients’ interests, both in relation to brand and intellectual property protection, risk sharing and liabilities management structure, regulatory and competition issues, termination and dispute resolution.

For further information please contact:

Jane OaklandPartner0845 209 [email protected]

Kevin KennedyPartner 0845 209 [email protected]

China: Food for thought? Welcometo the Spring edition of our Agricultural Law BriefingApart from the beautiful weather, Spring 2011 has brought with it several interesting legal and political developments concerning regulation in agriculture. The government promised a cutting of red tape and regulation. The recent announcement of a more pragmatic approach being taken to the “problem” Single Payment Scheme cases by DEFRA may well be welcome evidence of this.

By contrast, however, the ongoing prosecution of 21 dairy farmers (14 of whom we represent), accused of taking workers from an unlicensed gangmaster has highlighted how legislation, originally introduced in response to the tragic death of the Morecombe Bay cockle pickers, can catch out those unaware of the ever widening ambit of the rules. Farms entering into contracting agreements should beware and take advice to avoid this risk.

In similar fashion the Proceeds of Crime Act 2002, originally intended to deal with the ill-gotten gains of drug dealers etc, is now used routinely to recover proceeds in a far wider context. If a farming business is in breach of environmental or gangmaster’s legislation, for example, then arguably, under the 2002 Act, all the proceeds from that business are in jeopardy.

Whilst we await the outcome of the gangmaster’s case, the SPS penalties case (see page 2) will provide some comfort that a pragmatic approach is once again supported by the courts.

Tim Russ

ContentsBudget 2011

Mediation for farming divorces

Third Party Debt Orders

Employment: The end of retirement as we know it

Westcombe Dairy

Buying or selling a farm

B i r m i n g h a m • B r i s t o l • L o n d o n • M a n c h e s t e r • S o u t h a m p t o n • T a u n t o n B i r m i n g h a m • B r i s t o l • L o n d o n • M a n c h e s t e r • S o u t h a m p t o n • T a u n t o n

Field Talk

clarkewillmott.com02 Field Talk Agricultural Law Briefing Spring 2011

Budget 2011: Beware “The Voyage of Discovery”

B i r m i n g h a m • B r i s t o l • L o n d o n • M a n c h e s t e r • S o u t h a m p t o n • T a u n t o n B i r m i n g h a m • B r i s t o l • L o n d o n • M a n c h e s t e r • S o u t h a m p t o n • T a u n t o n

The combined efforts of The Treasury and Office for Tax Simplification (OTS) in March have produced 400 pages of small print, much of which will be of interest and concern to rural landowners and farmers.

On taxation, the OTS said it was “on a Voyage of Discovery” in its consideration of 1,042 tax exemptions and reliefs, of which 89 relate to Inheritance Tax (IHT).

Its conclusion was, first that capital taxes need a more in depth review; secondly that IHT and Capital Gains Tax (CGT) need to be considered together; and thirdly that it should also review the taxation of trusts.

The OTS does include professionals at the sharp end of family succession planning,

who understand the methods, importance and structuring of

succession planning and how this is achieved in practice. As yet

they do not have a brief as to whether the objective is to

raise more tax – but if it is, then families in a position

to pass assets to the next generation or

into trusts might be well advised

to deal with this before the 2012 Budget.

On a more cheerful note decreasing yields of IHT might point to its abolition - a possibility acknowledged by Vince Cable - but beware of the “Mansion Tax”, or, even more ominously, the “Wealth Tax”, either of which might satisfy political cravings for “fairness”.

George Osborne, in the Budget, announced an intention to amend the tax treatment of mineral royalties, which will now become fully liable for income tax. Currently half of royalty receipts are liable to CGT and half to income tax - an acknowledgement that the payments relate to depreciating capital assets. However, possible 50% income tax is more appealing to an impoverished Treasury than 28% CGT – so what price “fairness” there?

Perhaps ominously in the context of capital taxes, this announcement runs directly contrary to the well reasoned recommendation of the OTS. So when the Chancellor is considering other potential changes to the tax system, even if the OTS review recommends favourable changes to (or abolition of) IHT or CGT, he obviously considers himself free to ignore the OTS review and prioritise balancing the books and increasing the tax take.

For all those considering restructuring or passing assets on, the message is to beware even a favourable OTS review. Make the most of the favourable opportunities that are still available before they are gone for good.


Stuart ThornePartner0845 209 [email protected]

Case NotesFarmer wins SPS “obvious error” case

A Lincolnshire farmer has won a case against the Rural Payments Agency (RPA), which had withheld £14,193 of payments and imposed a fine of £36,300 for putting the wrong start date on his 2007 Single Payment Scheme (SPS) claim.

The RPA initially told Mr Strawson that he could correct the error, however then changed its mind. An RPA appeals panel confirmed the penalties and Mr Strawson then took the case to the High Court.

The judge there ruled that the mistake should have been spotted by the RPA and Mr Strawson should have been allowed to correct it (the “obvious error” argument). He also found that because the RPA had told Mr Strawson he could amend the mistake, he had a legitimate expectation that that should happen. The RPA denied having such a conversation, but Mr Strawson was able to produce phone records in support.

The judge indicated that it should not only be “a mistake that is evident on the face of the application” that is treated as an obvious error, but any that becomes obvious especially during subsequent checking of databases.

This case could provide arguments in other SPS “error” cases. It could also make the RPA more reticent to give guidance on similar matters.


Tim RussPartner0845 209 [email protected]


From the 6 April divorcing couples who wish to make a court application to resolve the financial issues between them first have to attend a mediation assessment.

Mediation for farming divorces

B i r m i n g h a m • B r i s t o l • L o n d o n • M a n c h e s t e r • S o u t h a m p t o n • T a u n t o n

There are a few limited exceptions to this requirement but they will not apply to the majority of couples. The take-up of mediation prior to this rule change has been fairly limited and the Government believes that mediation will reduce the burden on the courts.

Any process which avoids the uncertainty of court outcomes is to be welcomed, particularly for farmers, who currently receive a raw deal from the courts on divorce. However, whilst mediation may be preferable in principle, it is important that the mediator selected is an experienced family lawyer, who is used to dealing with the particular issues which arise on farming divorces. Unfortunately, a number of mediators are not legally trained and even those who are rarely have the expertise needed for farming cases.

Farming cases throw up their own unique problems:

• How do you value a tenancy/tenant’s improvements, etc?

• What is the law’s approach to inherited wealth when the farm may have been in the family for generations?

• Are specific farming assets such as single payment scheme entitlements and milk quota understood?

• How will a Judge view the position if one party is in business with another/others in either a partnership or as a shareholder in a limited company, or even in a share farming arrangement?

• Farmers are often “asset happy, income poor” and need to look at diversification and borrowing capacity to pay out the spouse

Clarke Willmott is pleased to offer Felicity Shakespear as a mediator for divorcing couples. Felicity has 25 years’ experience of dealing with farming divorces, including the House of Lords case of White v White.


Felicity ShakespearConsultant0845 209 [email protected]

How does mediation work? Both parties attend a joint meeting with the Mediator. In certain circumstances, they can attend separately, but mediation works best if both parties can sit down round the same table with the Mediator.

The role of the Mediator is to “hold the balance” between the parties, to avoid domination by one party. The parties effectively set their own agenda and priorities can be identified early on.

Each party completes a detailed financial statement identifying all assets, including pensions and income. The Mediator will identify assets which need to be valued and any additional information required. Once full financial disclosure has been made, settlement discussions can commence.

The role of the Mediator then is to assist the parties in reaching an agreement. It is crucial that the Mediator understands the issues and has had extensive experience of contested hearings. The Mediator will then appreciate the likely outcome had the case proceeded to a full contested hearing.

Once an agreement is reached, this can be formalised by solicitors. It can then be approved by the Court, which will make an order that is binding on the parties.


B i r m i n g h a m • B r i s t o l • L o n d o n • M a n c h e s t e r • S o u t h a m p t o n • T a u n t o nB i r m i n g h a m • B r i s t o l • L o n d o n • M a n c h e s t e r • S o u t h a m p t o n • T a u n t o n

Third party debt orders are a useful way of enforcing payment of a judgement debt, if the debtor himself is owed money by others.

How do they work?

Bob owes Jane £10,000. Jane owes Gordon £10,000. Gordon read the Autumn 2010 edition of Fieldtalk and has obtained a judgment against Jane for £10,000.

Gordon does not have to wait for Jane to be paid by Bob. Instead he can make an application to the court for a third party debt order. If successful, he can then go straight to Bob and serve the order on him. The order will require Bob to pay direct to Gordon the £10,000 that Bob owes Jane.

Gordon gets paid without the money ever having to pass through Jane’s hands and Bob is discharged from his debt to Jane.

This can happen between individuals or businesses – for example a positive bank account balance can be subject to a third party debt order, as can monies held by solicitors or agents.

As with all of the more technical methods of enforcement there are a number of rules that apply, but the principle is fairly straightforward. Whether you are a creditor or a debtor, this encourages you to think about who owes money to whom and whether there are funds that may not be held by a debtor, to which a third party debt order can be attached.

Once the third party debt order is in place, there is an absolute ban on the third party disposing of the money without the consent of the court. This can be a neat means of obtaining quick payment from a reliable source – it depends upon information about the debtor, so as with all commercial relationships, the more information you have, the better off you are likely to be if things go wrong.


Kevin KennedyPartner 0845 209 [email protected]

Recovery of Debt: Part 5 - Third Party Debt Orders

This is the penultimate article in a series on Recovery

of Debt. The other topics covered are:

•Distress – See Spring 2010 Edition

•Bankruptcy – Summer 2010

•Court claims generally – Autumn 2010

•Charging orders – Winter 2011

•Warrants of Execution – Next edition

Previous editions of FieldTalk are available at www.clarkewillmott.com/fieldtalk

What can employers do?

Employers are no longer able to use the age of an employee to show that his dismissal was reasonable, to avoid a claim for unfair dismissal. Instead they are left with two options:

• Employer-justified retirement ages will continue to be allowed. Therefore, an employer could choose to have a compulsory retirement age of 65 or over. However, they would have to show that it can be objectively justified – a potentially very difficult task.

Even if it can be shown that the imposition of a fixed retirement age is objectively justified, unfair dismissal law will still apply. Therefore, employers would need to show that a dismissal in line with that retirement age was for a potentially fair reason and would also have to follow a fair procedure. Generally this would include giving sufficient notice, considering any request to continue working as an exception to the general policy and being consistent in respect of treatment.

• The second option is for an employer to deal with employees on a case-by-case basis, using ordinary capability and disciplinary procedures to deal with any age-related drop-off in performance.

Of course, older employees can still retire voluntarily.

Talk it through

Workplace discussions are a good way of raising the issue of retirement with older employees. Whatever the size of the organisation these discussions can be informal and confidential. Regular conversations with all employees, regardless of age, about their performance and future plans are very helpful and worthwhile. Employees should be treated consistently and fairly and no employee should receive more favourable treatment as a result of their age.

Our advice is that employers should review their performance management policies and ensure that if the option of imposing a compulsory retirement age is chosen, this can be justified objectively.


Kate GardnerPartner 0845 209 1420 [email protected]

Employment: The end of retirement as we know it

As highlighted in the Autumn edition of Fieldtalk, from 1 October 2011 the default retirement age of employees was abolished.

clarkewillmott.com


05 Field Talk Agricultural Law Briefing Spring 2011


Case Notes

This case concerned a claim by a campaign group, Wye Valley Action Association Ltd that Herefordshire Council had failed to carry out an environmental impact assessment (EIA) before granting planning consent for polytunnels to be rotated on a 225 hectare fruit farm.

The case hinged on whether the land was “semi–natural” within the definition set out in the Environmental Impact Assessment Regulations 1999. In 2010, the campaign group persuaded the High Court to quash the permission on the basis that an EIA was required by European law.

The Court of Appeal has restored the council’s planning permission for the tunnels, overturning the High Court ruling. Richards LJ ruled that the council had reached a “rational conclusion” and he supported the council’s decision that the extent of the site’s existing cultivation, a mixture of arable and turf production, meant that it was not a “semi–natural area” for the purposes of the regulations. Thus an EIA was not required.


Caroline WallerSenior Associate 0845 209 1814 [email protected]

R (on the application of Wye Valley Action Association Ltd) v Herefordshire Council.

Westcombe Dairy: Diversification in a recession

This has been achieved mainly by renting out surplus cottages and buildings or by adding value to farm produce.

We are a family farming company in Somerset milking about 400 cows. In 1999 we decided that, with the poor return from dairy farming and reliance on milk prices largely out of our control, we would add value to our milk.

Cheese has been made here since 1890 and by the 1990’s we were making mostly block cheddar. We decided to go back to our roots and make cheddar cheese in the traditional way.

At that time there were several farms making farmhouse cheddar in vacuum packed blocks, but we decided to distinguish ourselves by making the cheese by hand and maturing it wrapped in cloth using animal rennet and a variety of starter cultures, which we incubate ourselves.

We also wanted to use raw milk from our cows, as we knew this would give a greater diversity of flavours. The way we feed and look after our cows and the crops we grow has a huge influence on the flavour and texture of our Cheddar.

Making cheese in this way has its fair share of challenges. Our product commands a high market value and is far more quality sensitive than price sensitive. Makers changed from traditional cloth bound cheese to block formed vacuum packed cheese mainly because of high labour

costs and the risk of too much blue veining, which buyers, particularly the supermarkets, rejected.

By using raw milk the skill of the cheese-maker is tested as every day the milk needs to be handled slightly differently and this has to be determined more by the feel of the curd and the milk than by larger production methods.

In time of recession there seems to be a two tier market where a really good quality niche product with volumes just short of market demand is not particularly price sensitive. At the other end of the market, quality needs to be adequate, but price is very competitive and therefore high volumes are very important. We believe the middle ground of this scenario is a very dangerous place to be.

We are confident that by concentrating on quality and by constant monitoring of market demand we can survive this recession.

Over the past few years many farmers have diversified to increase income and to protect their businesses from the variable returns from traditional farming.

In this edition of Fieldtalk we are delighted to invite Richard Calver, MD of Westcombe Dairy to explain how his food business is facing the challenges of the current economic climate

clarkewillmott.com


06 Field Talk Agricultural Law Briefing Spring 2011

If you would like to receive future editions of Field Talk by email please contact Martha Harley: [email protected] articles in this briefing are not intended to be definitive statements of the law but instead provide general guidance. Clarke Willmott LLP is a limited liability partnership registered in England and Wales with registration number OC344818. Regulated by the Solicitors Regulation Authority. Authorised and regulated by the Financial Services Authority.

Buying or selling a farm can be a tricky business.

For many years issues such as water supply, access, planning, milk quota, employees, farm cottages, growing crops etc have made farm sales some of the most complex real estate transactions. As farm businesses continue to diversify, so the complexity of the matters facing sellers, buyers and their professional advisors increases. We consider a few of the more topical issues:

Single Payment Scheme (SPS) and CAP reform

With entitlements to transfer and SPS claims to protect for both seller and buyer, completion of any sale must be timed very carefully to ensure subsidies are not lost. Transfer forms must be submitted in compliance with strict deadlines. Due diligence checks of SPS data and cross compliance obligations need to be made on behalf of the buyer and Rural Land Register maps should be compared to the actual land. Warranties to protect both parties must be tailored to the case and should be drafted to take account of the impending reform of the Common Agricultural Policy, due to come into effect in 2014.

Environmental Stewardship, Woodland and other schemes

Most Rural Development Plan schemes offer subsidies for a fixed period under the terms of a contract made with the landowner. If the farm is sold part way through the contract period, the buyer must usually either take over the existing contract or sign a new contract, if the seller is to avoid a reclaiming of all the payments made to him. The mechanics of the transfer of the contract must be addressed and appropriate warranties drafted to protect both parties from loss.

Overage and Solar panels

Most farmers are familiar with the concept of overage payments, imposed on a sale to allow the seller to share in any potential development value. The recent outcrop of solar photovoltaic systems, which are being developed, is adding complication to overage clauses. These now need to be drafted even more carefully to ensure payments are triggered when intended (eg on completion of the agreement with

the developer; on the grant of planning consent; on completion of the works; or on receipt of a capital payment?) and are based on the correct sum: rent payments by the developer or capital payments?

Miscanthus and other industrial crops

Over the last few years it has become quite commonplace to find farms being sold with the benefit of “cropping licences” granted to various manufacturers. What buyers may not appreciate is that such agreements may in law constitute business tenancies protected under the Landlord and Tenant Act 1954, rather than true licences or FBTs. This is, first, because it is difficult to show that the owner of the crop is truly only enjoying shared rights of occupation rather than exclusive rights. Secondly, such crops are often grown for industrial purposes and this use may not constitute “farming” or “use for agriculture”, necessary for the arrangement to be a farm business tenancy under the Agricultural Tenancies Act 1995.

If issues such as these are to be addressed in a manner which protects the parties without upsetting or delaying the deal, sellers and buyers will need professionals on board who have the specialist knowledge and experience to find solutions.


Guy HurstPartner 0845 209 [email protected]

Rod Lloyd-JonesPartner 0845 209 1743 [email protected]

Buying or selling a farm: Beware the modern complexities!

briefing spring 2011 clarke willmott field talk...the parties effectively set their own agenda and...

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