Swift and another v Dairywise Farms Ltd and others

Milk quotas –– Security –– Relief –– Milk quotas used as security for loans –– Quotas transferred to third party agricultural tenant –– Third party’s landlord seeking to obtain quota by terminating tenancy –– Liquidators of lender seeking protection of quotas as against third party and landlord –– Whether lender entitled to direct that quotas be transferred to borrowers on repayment of loans –– Whether equity in land sufficient to found a retransfer D was a company set up to lend money to dairy farmers. As security for money lent, the borrowers entered into arrangements under which milk quotas were transferred to an associate company, the first defendant. The first defendant held a tenancy of a holding (Rye Court) owned by certain pension trustees. The milk quotas were registered as accruals to the holding, and the first defendant was the milk producer for the purposes of the Dairy Produce Quotas Regulations 1997. In June 1999 D went into voluntary liquidation. The liquidators feared that they could not require the first defendant to retransfer the milk quotas. They consequently sought directions from the court, under section 112 of the Insolvency Act 1986, as to whether, and if so to what extent, the first defendant was entitled to transfer milk quotas to persons other than the farmers to whom a declaration that the first defendant held the quotas transferred to it as security on trust for D. In November 1999 Jacob J held that milk quotas were capable of being the subject of a trust, and that the first defendant held all the quotas in respect of which it was registered as trustee for D ([2000] 1 WLR 1177). Meanwhile, the pension trustees entered into an agreement, subject to contract, to sell the freehold of Rye Court with vacant possession, in the belief that they would be able to determine the first defendant’s tenancy. They forfeited the tenancy by re-entry in January 2000. The pension trustees, who were subject to an injunction granted in August 1999 not to deal with the land or dispose of quotas, made an application (the sale application) for permission to sell 93 acres of the land. The liquidators made an application for orders that the respondents should take all necessary steps to ensure that all milk quotas should be registered in the names of the liquidators. Jacob J refused the sale application. He ordered that the milk quotas be put under the control of the liquidators, who wereto specify a name in which they could be registered by way of a “safe haven”. The pension trustees appealed. Held: The appeal was allowed in part and only for the purpose of giving effect to the form of the answers given to the questions in issue. D was entitled to direct that the first defendant retransfer the milk quotas to a borrower who had repaid all sums owing under the primary loan agreement, whether or not repayment was effected in accordance with the terms of the primary agreement. If sums remained unpaid at the end of the loan term, the borrower acquired an equitable right to redeem, by way of a right in equity to require a retransfer and the grant of a short lease (for that purpose) on repayment of the moneys secured. If D had a power of sale of the security, namely the transferred quotad, D could direct that the first defendant sell upon terms that the first defendant account for the proceeds so that they could be applied to the credit of the borrower’s account with D. It was inconceivable that a power of sale could be implied for the first defendant to sell the quotas for its own benefit. An interim order was correctly made to protect the milk quotas as D had an interest in the land subject to the tenancy in that it was entitled to require performance of the first defendant’s obligation to grant short leases to give effect to the borrowers’ right to have quotas retransferred. The following cases are referred to in this report. Amalgamated Investment & Property Co Ltd v Texas Commerce International Bank Ltd [1982] QB 84; [1981] 3 WLR 565; [1981] 3 All ER 577; [1982] 1 Lloyd’s Rep 27, CA Bland v Ingram’s Estates Ltd (No 1) [2001] Ch 767; [2001] 2 WLR 1638; [2001] 24 EG 163 Deverges v Sandeman Clarke & Co; sub nom Deverges v Sandeman, Clark & Co [1902] 1 Ch 579 Faulks v Faulks [1992] 1 EGLR 9; [1992] 15 EG 82 Harries v Barclays Bank plc [1997] 2 EGLR 15; [1997] 45 EG 145 Shiloh Spinners Ltd v Harding [1973] AC 691; [1973] 2 WLR 28; [1973] 1 All ER 90; (1973) 25 P&CR 48, HL Taylor Fashions Ltd v Liverpool Victoria Trustees Co Ltd; Old & Campbell Ltd v Liverpool Victoria Friendly Society [1982] QB 133; [1981] 2 WLR 576; [1981] 1 All ER 897; (1979) 251 EG 159 Wachauf v Germany C5/88; sub nom Wachauf v Bundesamt für Ernährung und Forstwirstshaft [1989] 3 ECR 2609; [1991] 1 CMLR 328 This was an appeal by the fourth to seventh respondents, Unicorn Pension Trustees Ltd and others, from a decision of Jacob J granting interim relief in proceedings by the applicants, the joint liquidators of Dairywise Ltd, by way of an application for directions under section 112 of the Insolvency Act 1986. Paul Morgan QC and Stephen Jourdan (instructed by Burges Salmon) appeared for the appellants; Michael Briggs QC and Stephen Davies QC (instructed by Bond Pearce) represented the respondents. Giving judgment, Chadwick LJ said: 1. This is an appeal against an order made on 28 February 2000 by Jacob J in proceedings brought under section 112 of the Insolvency Act 1986 in the liquidation of Dairywise Ltd (Dairywise). The joint liquidators of Dairywise are the respondents to the appeal. 2. Dairywise was incorporated in 1983 under the Companies Act 1948. Its business was, or included, the lending of money to dairy farmers. As security for the money lent, the borrowers entered into arrangements under which a milk quota was transferred to an associated company, Dairywise Farms Ltd (Farms), and was registered as an accrual to the holding in respect of which Farms was the milk producer for the purposes of the relevant regulations –– now the Dairy Produce Quotas Regulations 1997 (SI 1997/733). In this context, “holding” has the meaning given to it by those and earlier regulations. 102 3. Dairywise and Farms are subsidiaries of Dairywise Holdings Ltd, a company controlled by Mr Ivan Randall and his wife, Mrs Helen Randall. Mr and Mrs Randall, their three children and a pensioner trustee company, Union Pension Trustees Ltd, were, at all material times until 20 January 2000, the trustees of a pension scheme known as the Dairywise Executive Pension Scheme. On 20 January 2000 Mr and Mrs Randall retired from that office. The continuing trustees of the pension scheme are the appellants in this appeal. 4. The holding in respect of which Farms was the milk producer comprised, in part, agricultural property at Rye Court, near Malvern in Worcestershire, of which the pension trustees are the freehold owners. That property was let to Farms under a tenancy agreement dated 29 July 1987. The pension trustees are entitled to the reversion expectant upon the determination of that tenancy. It was a term of the tenancy agreement that Farms would not transfer, lease or charge any milk quotas (or any portion of milk quotas) registered in relation to the holding or any part thereof. Further, on the termination of the tenancy, milk quotas registered in respect of the holding (so far as attributable to the land comprised in the tenancy) would pass to the landlord, leaving the tenant with a right to compensation. Milk quotas 5. It is necessary, in considering the issues that arise on the appeal, to have some understanding as to the nature of milk quotas. Milk production within the United Kingdom is controlled by regulations, made in order to give effect to Community legislation introduced in 1984 by Council Regulations 856/84 EEC and 857/84 EEC. The nature of that control was analysed by this court in Harries v Barclays Bank plc [1997] 2 EGLR 15*. It is unnecessary to rehearse that analysis in detail. It is sufficient to mention the basic principles: (i) the control of production is imposed by means of a levy on the amount of milk produced in a period of 12 months (a quota year) that is in excess of a predetermined quantity (milk quota); (ii) milk quotas (or, more accurately, wholesale quotas) were allocated, initially under the Dairy Produce Quotas Regulations 1984, to those engaged in milk production in 1984; (iii) quotas were allocated, and were entered in the register that is maintained for that purpose, to a “producer” in respect of a “holding”; (iv) in that context, “producer” means a person (or group of persons) farming a holding, and “holding” means all the milk production units operated by the producer within the relevant territory; (v) with some exceptions (not material in the present context) quotas cannot exist independently of a producer and a holding; (vi) subject to special provisions that permit the short-term leasing (or temporary transfer) of quotas, quotas are attached to the holding in respect of which they are registered, and cannot be transferred independently of that holding or a part of that holding. * Editor’s note: Also reported at [1997] 45 EG 145 6. The true nature of milk quotas, as a juridical concept, has been explored from time to time in the cases. In Wachauf v Bundesamt für Ernährung und Forstwirstschaft Case 5/88 [1989] 3 ECR 2609; [1991] 1 CMLR 328, the Advocate General (Mr Francis Jacobs QC) referred to “the intangible asset constituted by a milk quota, which can properly be regarded as having an independent economic value”. He went on, at para 25 of his opinion ([1989] ECR 2609 at p2630; [1991] 1 CMLR 328 at p342) to say: In their written observations in this case, both the Commission and the United Kingdom Government have sought to argue that a quota is nothing more than an instrument of market management and cannot be considered as a kind of intangible asset in which property rights can arise. In my view, while this might correspond with the intention of the Community legislation, it does not reflect economic reality. If one considers the nature of quota from the point of view of the producer, then it is plain that what the quota amounts to is a form of licence to produce a given quantity of a commodity (milk) at a more or less guaranteed price without incurring a penalty (the additional levy). In a market which has been effectively ossified by the introduction of quotas, such a “licence” is bound to acquire an economic value. In Faulks v Faulks [1992] 1 EGLR 9* at p15D-E, I suggested that it was not correct to describe quotas as “a form of licence to produce a given quantity of a commodity (milk)”. I said: The true position, at least in England and Wales, is that a producer does not require a licence to produce milk and will not necessarily incur any liability as a consequence of production. It is in respect of his potential liability that he enjoys an immunity from Formula B contribution by virtue of, and to the extent of, the register entry of an amount of wholesale quota in his name. Nevertheless, the appellant is entitled to point to the Advocate-General’s view that, as a matter of economic reality, milk quota is to be regarded as an intangible asset having an intrinsic value. * Editor’s note: Also reported at [1992] 15 EG 82 In Harries v Barclays Bank plc, Morritt LJ (with whose judgment the other members of this court agreed) doubted whether “a consideration of the somewhat metaphysical question as to the true nature of the benefit of milk quota was a helpful starting point”. He said at pp18M-19A: Milk quota is the creation of the legislation both European and domestic to which I have referred. In determining where the benefit of it lies and how it got there it is necessary to apply that legislation to the facts of the case. I do not find it helpful in that context to seek to label or categorise milk quota as an asset or as an asset of a particular description, not least when the description is one of English law which may not be recognised by the domestic laws of other member states. 7. Whatever the true nature of milk quotas and, in particular, whether they can properly be regarded as assets within any existing category recognised by English domestic law, there is no doubt that they are widely perceived as something that has an economic value independent of the land comprised in the holding in respect of which it is registered, and which is capable of being traded, in practice, independently of that holding. Trading in milk quotas may take one of two forms. First, short-term leasing (or temporary transfer) of the quota itself, permitted under Article 1 of Council Regulation 2998/87, and introduced in England and Wales with effect from 31 March 1988 by regulation 6 of the Dairy Produce Quotas (Amendment) Regulations 1988 (SI 1988 534). Second, permanent transfer of the quota to another producer for registration in respect of another holding. The way in which that is done was described in Harries v Barclays Bank plc at p18B-D, in a passage taken from the judgment of Rattee J in that case. The passage originates, I think, in Gregory and Sydenham, Essential Law for Landowners and Farmers (3rd ed) (1990) at para 8.4: “Transfer of Quota”. It is convenient to set out that description: It has become common practice that, where farmer A has quota in respect of his holding but no longer wishes to carry on a dairy farming business and, therefore, wishes to dispose of his quota without the land, he will grant a short lease for, say 11 months, of his holding to farmer B, who wishes to acquire farmer A’s quota. It will be a term of the arrangement that the land let by farmer A to farmer B shall not be used for dairy production. On taking the lease farmer B will be registered as the holder of what was farmer A’s quota in respect of the holding comprised in the lease. Farmer A’s land and farmer B’s land will thereafter during the continuance of the lease form one holding for the purposes of the quota regulations. As a result, when the lease in respect of farmer A’s land terminates, an apportionment will have to be made of the quota enjoyed during the term of the lease in respect of the composite holding, and that apportionment will fall to be made according to the use made of the two parts of that composite holding. Since farmer A’s land will not have been used during the lease for dairy farming, the whole of the quota will be apportioned to farmer B’s land, which will have been used for dairy farming. Thus farmer A recovers his land, leaving farmer B with the quota previously enjoyed by farmer A in respect of that land. 8. It is a matter of no surprise, therefore, that entrepreneurial ingenuity turned towards devising a scheme by which the value of milk quotas could be used, independently of the land comprised in the holding in respect of which it was registered, to provide security for lending to the farmer who held that quota. The present appeal arises out of a scheme103 devised by Mr Ivan Randall with advice from solicitors, Burges Salmon, whose expertise in this field is well known. Lending scheme 9. The scheme involved the two companies, Dairywise and Farms, to which I have already referred. Each was controlled, in practice, by Mr Randall. Dairywise was the lending company. It made loans to dairy farmers out of funds that it borrowed for that purpose from banks and other institutional lenders. The other company, Farms, was used to take the security. It could be used for that purpose because it was, itself, a milk producer. It carried on business as a dairy farmer on its own account on land (including, but not limited to, the land at Rye Court) that it held as tenant. As a “producer”, registered in respect of a “holding”, it was a person to whom milk quotas could be transferred by the method described in the passage that I have set out. 10. Loans made by Dairywise fell into one of three categories, determined by the purpose for which the loan was to be used. The loan agreements are described as “cattle hire purchase agreements”, “standard loan agreements” or “milk quota hire purchase agreements”. In each case, the loan documentation included an explanatory letter from Dairywise and Farms, a loan (or hire purchase) agreement between Dairywise and the borrower, a milk quota transfer agreement between the borrower and Farms, and Intervention Board forms MQ1 and MQ3. 11. It is convenient, first, to examine the documentation in respect of a standard loan agreement, that is to say, a loan agreement under which the borrower is free to use the moneys lent for whatever purpose he chooses. I take, as an example, the documentation used in respect of a loan of £7,000 made in November 1998, which is exhibit MW3 to an affidavit sworn in these proceedings. The explanatory letter is on the headed paper of Dairywise. It is addressed to the borrowers; it is signed “For Dairywise Ltd and Dairywise Farms Ltd”; and it is countersigned by the borrowers. It is in these terms: The purpose of this letter is to explain in outline the proposed agreement between us. 1. You require Dairywise Ltd to advance money to you in the amount of £7,000.00 2. Dairywise Ltd is prepared to make such advance pursuant to a loan agreement or other agreement in the standard form used by the company. A copy of the agreement is attached. 3. The loan agreement provides for the advance of approximately £7,000.00. The loan agreement will commence on completion of the documentation. 4. In addition to the loan agreement, Dairywise Ltd requires further security by way of 45,000 litres of your milk quota presently registered [giving the names and Intervention Board Number]. 5. What is proposed with regard to the milk quota is as follows: 5.1 You will enter into a milk quota agreement (the Milk Quota Transfer Agreement), with Dairywise Farms Ltd which will be completed simultaneously with the loan agreement referred to in para 3 above. 5.2 On completion of the Milk Quota Transfer Agreement you will transfer 45,000 litres of milk quota (the Milk Quota), being the milk quota described in para 4 above, by way of security to Dairywise Farms Ltd. 5.3 The Milk Quota will remain registered with Dairywise Farms Ltd until all sums due to Dairywise Ltd under the Loan Agreement or otherwise have been settled (the Loan Term). 5.4 At the end of the Loan Term Dairywise Farms Ltd agrees to retransfer the Milk Quota) subject to any cuts arising from national reductions and alterations to the butterfat base or other constituents) to you. 5.5 If the sums due to Dairywise Ltd remain unpaid the Milk Quota shall be forfeit without payment of compensation. 5.6 During the loan term Dairywise Farms Ltd shall in each marketing year lease the milk quota to you in accordance with the terms of the Dairy Produce Quotas Regulations. To confirm your acceptance of the terms of this letter please sign and date the duplicate of this letter. The proposed agreement set out in this letter will not be completed and will not be legally binding until seven days after the date of this letter to enable you to take professional advice with regard to what is proposed or otherwise cancel the proposed arrangements between us. 12. The loan agreement is on a form headed “Credit Agreement regulated by the Consumer Credit Act 1974”. “The Security” is defined in these terms: The Security: (1) An assignment (the Sale Contract Assignment) in the form given to you [the borrowers] for execution with this agreement which assigns to us [Dairywise] all sums which are now or may in the future become due to you under your contract for the sale of milk to Milk Marque Ltd. (2) The execution of an agreement (The Milk Quota Transfer Agreement) which will be completed at the same time as this loan agreement whereby the milk quota referred to in the Milk Quota Transfer Agreement will be transferred on the terms set out therein. Amount of loan: £7,000.00 Amount of interest: £2,240.00 equivalent to an APR of 31.2% Total amount payable £9,240.00 by 24 instalments of £385.00 the first payable one month after the date of this agreement and the remainder payable at consecutive monthly intervals thereafter. together The Security”. Condition 4 of the loan agreement required that “you shall execute the security identified above to secure the money you owe us under this agreement”. There were then set out terms applicable to the Milk Quota Transfer Agreement, which reflected those in paras 5.3 to 5.6 of the explanatory letter. 13. The milk quota transfer agreement was made between the borrowers (described as “landlord/contractor”) and Farms (described as “purchaser/farmer”). It provided for a lease to Farms of 2.650ha of the borrowers’ land for a term of eight months at a rent of £1.00. It contained a restriction that the land leased should be used only for the purpose of grazing by sheep or cattle other than dairy cattle, and that it should not be used for the purposes of milk production. The borrowers (as contractors) were engaged during the term to carry out on the land leased “such works of husbandry agreed between the farmer and the contractor”. 14. The Intervention Board form MQ1 is an application to register the permanent transfer of milk quotas with land. The borrowers are named as the transferor; Farms is the transferee. Their respective Intervention Board numbers are given, as are the names and Intervention Board numbers of their respective milk purchasers. The Intervention Board form MQ3 is a notification of temporary transfer –– reflecting the lease-back arrangements for which para 5.6 of the explanatory letter provides. 15. The loan documentation used for a cattle hire purchase agreement, or a milk quota hire purchase agreement, was not materially different from that used for a standard loan agreement. I take as examples: (i) the documentation used in respect of a loan of £21,500 made in October 1998 for the purpose of purchasing cattle (MW2 to the same affidavit); and (ii) the documentation used in respect of a loan of £54,000 in March 1997 (MW1) for the purpose of purchasing milk quotas. The explanatory letters are in substantially the same form, save that the purpose of the loan, “purchasing dairy cattle” or “purchasing wholesale milk quota”, as the case may be, is set out in para 1. In particular, the terms of para 5 of the explanatory letters (proposals as to milk quotas) are the same. The milk quota transfer agreements are in the same form, save that they each include a recital that “the landlord [meaning the borrowers] has agreed to transfer the quota to the tenant [Farms] pending repayment of all monies owed to Dairywise Ltd under the terms of the Primary Agreement”, and that they each include an additional clause (numbered 4) in these terms: Transfer The Landlord will transfer to the Tenant the Quota as security for the Primary Agreement on the terms of this Agreement to the intent that upon registration by the Intervention Board the Quota will be amalgamated with and for part of the milk quota now registered in the tenant’s name. In that context, “the Primary Agreement” is, in the case of cattle purchase, the hire purchase agreement made between the borrowers and Dairywise, and, in the case of milk quota purchase, a non-regulated loan agreement in a form similar to (but not the same as) that used in a104 standard loan case. They show: (i) in the case of the cattle purchase agreement, that the loan was for 24 months at an APR of 32.1%; and (ii) in the case of the milk quota purchase agreement, that the loan was for 60 months at an APR of 21.8%. 16. The commercial objectives of the documentation are clear enough. They may be summarised as follows: (i) the borrowers obtained an advance at a rate of interest that may be taken to reflect their inability to raise funds from their own bankers; (ii) the advance was repayable by monthly instalments of capital and interest over a fixed term; (iii) the monthly instalments were to be met out of the monthly milk cheque receivable in respect of the borrowers’ production of milk, that is, the effect of the sale contract assignment referred to in the documentation; (iv) the advance was “secured” by the transfer by the borrowers to Farms of an amount of milk quota, which amount, it may be assumed, was not arbitrary, but related in some way to the amount of the advance; (v) the transfer was effected by the artificial device of a short-term lease to Farms of part of the borrowers’ own land, in accordance with the “common practice” already described; (vi) the land leased was not to be used for milk production during the term of the short lease; (vii) the land leased would revert to the borrowers on the expiry of the short lease, but (because it would not have been used for milk production during the term of that lease) the milk quota would have become attributable to milk production on other land comprised in the holding in respect of which Farms was the producer, and so would remain with Farms as part of the quota registered in respect of Farms’ holding; (viii) the borrowers’ ability to sell milk without becoming subject to levy (both during the period of the short lease and after its expiry) was preserved by the temporary transfer, or leaseback, to the borrowers of an amount of quota equal to the quota transferred to Farms under the arrangements permitted by the Dairy Produce Regulations to which I have referred; (ix) when all sums due to Dairywise under the relevant loan or hire purchase agreement had been paid, an amount of quota equal to the quota transferred to Farms by way of security was to be retransferred to the borrowers; and (x) there would come a time when, “if the sums due to Dairywise Ltd remain unpaid”, the borrowers would lose the right to have milk quotas retransferred to them –– “the Milk Quota shall be forfeit without payment of compensation”: para 5.5 of the explanatory letter. 17. So much appears on the face of the documentation. What is not spelt out in the documentation is: (a) how the milk quota was to be retransferred to the borrowers when and if the obligation to retransfer arose; (b) in what circumstances it was intended that the event “sums due to Dairywise Ltd remain unpaid” was to be treated as having occurred, so that the right to have a retransfer was to be lost; and (c) what was to be the position as between Dairywise and Farms if the right to a retransfer was lost and the quota was “forfeit without payment of compensation” –– in so far as the law would give effect to that provision in para 5.5 of the explanatory letter. Those are matters to which it will be necessary to return later in this judgment. Liquidation of Dairywise 18. Dairywise lent substantial sums of money in the course of its business. By May 1999, there were some 75 borrowers owing an amount that totalled in excess of £2m. The company was indebted to its bankers in a corresponding amount. But arrangements for the collection of moneys out of the monthly milk cheques, paid to the borrowers by the wholesale purchasers, were in place, and seem to have been working satisfactorily. At least, the banks do not appear to have been pressing for payment. In May 1999, however, Dairywise suffered a judgment against it, on a claim in respect of commission, that it was unable to satisfy. A petition for winding up was threatened by the judgment creditor, and Dairywise was advised that it could not continue to trade. 19. It was in those circumstances that Dairywise commenced creditors’ voluntary winding up by a resolution passed at an extraordinary general meeting of the company held on 14 June 1999. On the same day, Mr Duncan Swift and Mr Michael Gerrard, licensed insolvency practitioners and partners in the firm of Grant Thornton, were appointed joint liquidators of Dairywise. It was contemplated that an orderly realisation of the moneys owing to the company through the arrangements for monthly payments that were already in force would continue. To that end, the joint liquidators made an immediate application in Bristol District Registry for sanction, under section 166(2) of the Insolvency Act 1986, to the continuation of the existing arrangements pending confirmation of their appointment at a creditors’ meeting. 20. A meeting of creditors was held on 25 June 1999. The appointment of the joint liquidators was confirmed. But, by the beginning of July 1999, it had become apparent that the existing arrangements for the collection of moneys from borrowers could not continue without the co-operation of Farms, as the person in whose name the quotas were then registered. The co-operation of Farms was necessary to transfer a quota back to a borrower on payment off of his borrowing. If the joint liquidators were unable to give borrowers an assurance that, on repayment of the money borrowed, they would receive back an amount of quota equal to the quota that they had transferred by way of security for the borrowing, there was an obvious risk that some borrowers would decide to make no further payments. Proceedings 21. These proceedings were commenced by the issue on 7 July 1999 of an originating application in Bristol District Registry. The respondents to that application were Farms, Mr Ivan Randall and Mrs Helen Randall. The joint liquidators sought directions, under section 112 of the Insolvency Act 1986, whether, and, if so, to what extent, Farms was entitled to transfer milk quotas held as security for the company’s lending to persons other than the farmers to whom the loans had been made; and a declaration that Farms held the milk quotas transferred to it as security on trust for Dairywise. 22. In an affidavit sworn in these proceedings on 19 July 1999, Mr Randall set out particulars of the holding in respect of which Farms was registered as producer for the purposes of the Dairy Produce Quotas Regulations 1997. It was said to comprise: (i) the agricultural tenancy granted by the pension trustees on 29 July 1987 (to which I have already referred) in respect of 144 acres at Rye Court; (ii) an oral tenancy or licence (also, it seems, granted by the pension trustees) over land at Payford Bridge, Redmarley, Gloucestershire, comprising approximately 63 acres; (iii) a written tenancy dated 1 January 1999 over land at Chapel Farm, Redmarley, comprising approximately 135 acres; and (iv) an agricultural tenancy or licence granted by Mr and Mrs Randall over a further 51.5 acres at Rye Court. Mr Randall disclosed that the milk quota registered in respect of that holding as at 1 January 1999 was 4.02m litres. He went on, at para 4 of the affidavit: On 21 June 1999 Farms orally surrendered (or purported to surrender) its tenancies, and licences if appropriate, in respect of the land mentioned at: (i); (ii); and (iv) above. There was no written documentation evidencing the same, as the surrender was simply a decision taken by myself and my wife Helen Randall and my son John Edward Randall. The parties to the surrender were officially Farms with the trustees of the Dairywise Executive Pension Fund as the freehold owner of the land mentioned at: (i) and (ii), and my wife and I as the freehold owners of the land at iv) above. There was no express transfer of milk quota but I understand from my past experience in dealing with milk quota that the quota will be owned by the freehold land as a result of the surrender 23. The application came before Judge Weeks QC, sitting as a judge of the High Court in the Chancery Division, on 22 July 1999. He gave permission to add the other pension trustees –– the three children of Mr and Mrs Randall and Union Pension Trustees Ltd –– as additional respondents. The application was adjourned on undertakings by all the respondents that there would be no dealings with the milk quota (or with any land in respect of which it was registered). There was a further round of evidence. That included an affidavit sworn by Mr Ivan Randall on 30 July 1999, in which he asserted that, as a director of Farms, he would do everything in his power to ensure that Farms discharged its contractual obligations under the milk quota agreements to which it was party, and that, so far as he was aware, there were sufficient quotas registered in the name of Farms to enable it do so. He did not explain105 how that was to be done in the circumstances that, as he had deposed in his earlier affidavit of 19 July 1999, Farms had surrendered its tenancy of the Rye Court land (and of other land) to the pension trustees. At para 22 of the affidavit of 30 July 1999 he said: So far as the Pension Fund Trustees are concerned, I have been advised that there is a potential conflict of interest between their interests and those of Farms and also myself. The beneficiaries under the Pension Fund are myself and my wife, and also my children. It is for that reason that they are to be separately represented and I and my wife have offered not to participate in their deliberations relating to the 144 acres at Rye Court and land at Payford Bridge. 24. The application came before Judge Weeks again on 19 August 1999. He directed that there be a trial of a preliminary issue in these terms: (a) whether the applicants [the joint liquidators] can have recourse to the Milk Quota by directing a sale or other realisation of it in the event of default by the farmer or a request for early redemption under a Milk Quota Agreement; (b) who is entitled to the Milk Quota or the proceeds of sale or realisation thereof if a farmer has defaulted under the terms of a Milk Quota Agreement; (c) who is entitled to the Milk Quota or the proceeds of sale or realisation thereof if there is an early redemption by the farmer under the terms of a Milk Quota Agreement. The fourth to seventh respondents, that is to say, the pension trustees other than Mr and Mrs Randall, did not appear and were not represented at the hearing on 19 August 1999. Nor were any undertakings offered on their behalf. In those circumstances, the judge ordered that the pension trustees should not, save at the written request of the joint liquidators, dispose of, or deal with, the milk quotas or any land in respect of which they were registered, and that, until the determination of the preliminary issue or further order, in the meantime should join with the joint liquidators, Dairywise and Farms, in performing milk quota agreements by transferring to farmers (named in the order) the amounts of quota set against their names. 25. Further evidence, directed to that preliminary issue, was filed by Mr Randall on behalf of the joint liquidators. In particular, Mr Randall filed an affidavit, sworn on 5 October 1999, in which he described the three forms of lending arrangement between Dairywise and its “customers”, to which I have already referred. In para 10 of his affidavit Mr Randall explained: The key to lending in all cases was that the farmers assigned to [Dairywise] the milk revenue from their milk purchaser, thereby ensuring that [Dairywise] had a regular (usually monthly) income stream from a third party and was able to deduct from it the amount owing by the farmer and return the surplus directly to the farmer. However, it was still possible for the milk revenue to either stop coming through to [Dairywise] or to continue but be insufficient to cover the amount owing by the farmer. There were many reasons why this might happen and consequently it seemed that farmers should be given an incentive in an attempt to ensure that their milk revenue arrive with [Dairywise]. Therefore other assurance was looked for. This other assurance would be by recourse to physical assets such as cattle or in the form of an agreement to transfer milk quota to Farms. Milk quota was rarely transferred under Cattle Hire Purchase Agreements, but was commonly transferred under Standard Loan Agreements or Quota Hire Purchase Agreements. 26. The fourth to seventh respondents appeared before Judge Weeks at a case management conference on 7 October 1999. It was formally conceded on their behalf, and is recorded in the order made by the judge on that day, that the pension trustees would not seek to rely upon any surrender of the 29 July 1987 tenancy of the Rye Court land that, as Mr Randall had asserted in his affidavit of 19 July 1999, had been effected orally on 21 June 1999. But it appears that neither the judge nor the joint liquidators were told, on that occasion, that the pension trustees (through their solicitor, Burges Salmon) had given notice to Farms on 31 August 1999 that they intended to re-enter on the grounds of non-payment of rent due on 29 July 1999. 27. On 11 October 1999 the pension trustees made an application to discharge the injunctions that had been granted against them in the order of 19 August 1999. 28. The preliminary issue, and the application made by the pension trustees on 11 October 1999, came before Jacob J in Bristol on 2 and 3 November 1999. He delivered a written judgment on 17 November 1999, now reported at [2000] 1 WLR 1177. He held that: (i) a milk quota was capable of being the subject matter of a trust; and (ii) upon the facts, Farms held all the quotas in respect of which it was registered as trustee for Dairywise. Those conclusions led him to answer the first of the questions posed by the preliminary issue in the affirmative, and to give the answer “Dairywise” to the second and third of those questions: see [2000] 1 WLR 1177 at p1186F. The judge declined to discharge the injunction granted against the pension trustees on 19 August 1999. He acknowledged that he saw difficulties in establishing some of the causes of action alleged against the pension trustees, but went on to say, at pp1188G-1189B: But I think, without finally deciding the point, that there is a strong case for holding that the liquidators are entitled to relief against the trustees, consequential upon my finding that Farms holds the quota on trust for [Dairywise]. Farms can be compelled to assign the quota to [Dairywise] (assuming it acquires a euroholding) or to dispose of the quota and account for the proceeds. The trustees at all time knew that Farms was acquiring this trust property and the basis of it. The trustees knew that the whole lending system depended upon their acquiescence and co-operation in it. For instance the trustees never complained of any breach of the tenancy agreement when Farms sold quota or granted an underletting as part of the machinery of assignment. Further, the trustees never even claimed an interest in the land as they were supposed to do on the Intervention Board Form for registration of the permanent transfer of quota. The trustees knew that the farmers were putting up security and that [Dairywise] was acquiring security. It seems to me that the trustees were, in the circumstances, sufficiently “mixed up” in the transactions that equity will compel them to do all such acts as are necessary to enable farmers to redeem their loans and [Dairywise], in the case of defaulting farmers, to enforce its security. They are likewise under a duty to refrain from doing any act that puts it out of their power to do those positive acts that I have just identified. 29. Following his judgment of 17 November 1999, but before any order consequent upon that judgment had been entered, two further applications were made to the judge in these proceedings. Each was made by a notice dated 31 January 2000. One (the sale application) was an application by the pension trustees for an order varying the injunctions granted on 19 August 1999 so as to permit the transfer on sale of some 93 acres of the land at Rye Court then, or formerly, subject to the tenancy agreement of 29 July 1987. The other (the quota application) was an application by the joint liquidators for an order requiring the respondents (meaning, in this context, Farms, Mr and Mrs Randall and the continuing pension trustees) to sign such documents and give such consents as should be necessary to ensure that all milk quotas then registered in the name of Farms (said to be 2,778,318 litres) be transferred to, and registered in, the name of a dairy farmer nominated by the joint liquidators. 30. The background to those further applications was the respondents’ assertion that, by reason of events subsequent to the judgment of 17 November 1999, the tenancy of the Rye Court land had determined. If that contention were correct, then the effect of the community legislation and the Dairy Produce Quotas Regulations 1997 was that the pension trustees had become entitled to have such part of the quotas registered in respect of the holding of which Farms had been the producer as was attributable to the land held under the tenancy registered in their names, or (perhaps more accurately) in the name of the producer (if any) who was taking over milk production on that land: see Article 7 of Council Regulation 3950/92 EEC. It is necessary, therefore, to refer to the circumstances that were said to give rise to the determination of the tenancy of the Rye Court land. Tenancy of the Rye Court land 31. I have already mentioned that it had been conceded on behalf of the pension trustees that they did not seek to rely upon any surrender of the tenancy of the Rye Court land which, as Mr Randall had asserted in his affidavit of 19 July 1999, had been effected orally on 21 June 1999. But notice was given to Farms on 31 August 1999 that the pension trustees intended to re-enter on the grounds of non-payment of rent due on 29 July 1999. That notice of intention to re-enter106 provided for re-entry on or after the expiry of two months from the date upon which it was given, that is to say, for re-entry on or after 1 November 1999. 32. It appears that the pension trustees were sufficiently confident that re-entry would be effected without opposition from Farms that they felt able to agree (subject to contract) on 27 October 1999 to sell 93 acres of the Rye Court land on the basis that “vacant possession is available at any time on completion which shall take place as soon as possible”. But neither the joint liquidators, their solicitor, nor Jacob J were told about that at or before the hearing at the beginning of November 1999. The first time the sale was mentioned to the joint liquidators was in a letter to their solicitors from Burges Salmon dated 20 December 1999. Mr Peter Williams, a partner in that firm, wrote: “Our clients have received an approach to purchase part of the Pension Fund land. We are instructed that the price negotiated is a very good one and that the transaction is time critical”. The reader of that letter could be forgiven if he did not appreciate that the sale had been agreed (subject to contract) some two months earlier. 33. Re-entry onto the land that was the subject of the tenancy is said to have been effected on 14 January 2000. The joint liquidators were notified of that by a letter to their solicitors dated 18 January 2000. 34. The decision to forfeit the tenancy of the Rye Court land by re-entry without notice to the joint liquidators is surprising in the circumstances that, on 24 December 1999, Mr Williams, of Burges Salmon, had written to the solicitors for the joint liquidators “for information” in these terms: we confirm that on 22 December 1999 a Notice to Quit was served by the Pension Fund trustees upon Dairywise Farms Ltd terminating the tenancy of 29 July 1989 on 28 July 2001 consequential upon the failure of Dairywise Farms Ltd to pay the rent due to the Pension Fund trustees on 29 July 1999 and to comply with a Notice to Pay Rent dated 11 October 1999. The reader of that letter would understand that steps had been taken to bring the tenancy of the Rye Court land to an end on 28 July 2001. He would not think that the pension trustees intended to bring the tenancy to an end by re-entry in three weeks time. 35. The decision to forfeit the tenancy of the Rye Court land by re-entry without notice to the joint liquidators is the more surprising in the light of correspondence passing between counsel at the relevant time. Counsel were concerned to agree the terms of the order that was to be made following the judgment that Jacob J was to deliver on 17 November 1999, a draft of which (in the usual way) they had seen in advance. On 16 November 1999 counsel for the joint liquidators had sent to leading counsel for the pension trustees (who was not counsel who appeared on this appeal) a draft order that contained, at para 5(b), a restraint on the pension trustees taking any steps to forfeit or terminate the tenancy. It is clear, therefore, that counsel for the joint liquidators thought that that had been the effect of what Jacob J had decided. In the light of the passage from his judgment to which I have already referred, it is not difficult to understand why counsel took that view. Leading counsel for the pension trustees replied on 17 November 1999. There was a further exchange of correspondence between them on 24 November 1999. Counsel for the pension trustees wrote: “I do not wish to debate the form of the order in correspondence. Ultimately the judge will have to decide”. He went on to deal with the question of whether there should be restraint on forfeiture. He wrote: if Farms ceases to pay rent… I do not see why [the pension trustees] should have to go back to court to vary the injunction before taking action to terminate the tenancy. It is inherent in taking security on a lease that the landlord may legitimately terminate the tenancy. The judge did not mention this kind of restriction, yet your draft contains it. The point was in issue. The judge was to be asked to resolve the issue in the light of the judgment that he had already given. The action taken by the pension trustees, in forfeiting the lease by re-entry on 14 January 2000, had the effect (whether calculated or not) of pre-empting any consideration of the point by the judge. Order of 28 February 2000 36. The sale application and the quota application came before Jacob J on 28 February 2000. He addressed those matters on the basis that it was unnecessary for him to decide whether the re-entry had been effective to determine the tenancy of the Rye Court land. As he put it: “For practical purposes I do not think it matters who at the moment is holding the milk quota”. He went on: The first and most important question is whether I should accede to the proposal by the liquidators that the quota, which I think is still registered in the name of Farms but which is said now to have, by virtue of the re-entry, passed to the trustees, should now go to “a safe haven”: whether in short, it should be put under the control of the liquidators by an order requiring the relevant parties to do such acts as are necessary to put the quota in the name of a dairy farmer who has been nominated by the liquidators. I think that is the best course. 37. It is clear that the judge took the view that that question had to be resolved in circumstances that he had not decided, and was not required to decide, who, as between the liquidators and the pension trustees, was entitled to the benefit of the milk quotas. He was clearly impressed by the fact that, as between the liquidators and the pension trustees, the real issue (to be decided, as he thought, at a later hearing) was for whose benefit should the value of the quotas be realised: there was nothing to suggest that either the liquidators or the pension trustees were themselves likely to engage in milk production. Whatever the true nature of milk quotas, the issue between the liquidators and the pension trustees could ultimately be resolved by an order for the payment of money. In particular, the liquidators were prepared to offer an unlimited cross-undertaking as to damages, and there was no fear that any order made under that cross-undertaking would not be satisfied. The practical need was to ensure that quotas could be re-transferred to borrowers who had paid off their borrowing; and that, in so far as it was not required for that purpose, it could be realised to best advantage. That these practical considerations were in the judge’s mind appears from the following passage in his judgment: My main reason for making this order is that the correspondence and discussion between the parties has become wholly and completely disproportionate. It is quite clear that if there are to be more dealings between these parties it will continue to be disproportionate from what I have seen so far. It is going to cost more than any other way. By taking the quota out of the hands of the Respondents those dealings and that correspondence will stop. 38. Having reached the conclusion that, on the liquidators’ application of 31 January 2000, he ought to make what has been described as a “safe haven” order, the judge held that the application by the pension trustees to sell part of the Rye Court land ought to be refused. The effect of a sale of some 93 acres out of the total of 144 acres without the benefit of quotas (as was proposed) would, or might, be that the “quota density” in respect of the remaining land would be unacceptably high, so that the Intervention Board would not approve the transfer, effected by a short lease of the remaining land, of quotas to the “safe haven”. It is clear that the judge took the view that, until the “safe haven” order had been complied with, there should be no sale of any substantial part of the land in the hands of the pension trustees to which the quota had, or might have, become attached. 39. Those matters, as well as the matters that were before him in November 1999, are the subject of the order that the judge made on 28 February 2000. By that order, he answered each of the three questions posed by the preliminary issue in favour of the liquidators; he dismissed the application of 11 October 1999; and he dismissed the sale application of 31 January 2000. He gave directions for transfer of the quotas to a safe haven substantially in the form sought by the quota application of 31 January 2000; and he gave all the respondents permission to appeal against that order. Orders sought on the notice of appeal 40.The fourth to seventh respondents (the pension trustees) gave notice of appeal on 24 March 2000. It is that appeal (under Court of Appeal reference 2000/0316) that is before us. The pension trustees seek an order setting aside the whole of the judge’s order and declarations that:107 (i) Dairywise “is not entitled to have recourse to the Milk Quota by directing a sale or other realisation of it”, in the event of a default by the farmer or a request for an early redemption under a milk quota agreement; (ii) Dairywise “is not entitled to the Milk Quota or the proceeds of sale or realisation of it” if the farmer has defaulted under the terms of a milk quota agreement; and (iii) Dairywise “is not entitled to the Milk Quota or the proceeds of sale or realisation thereof” if there is early redemption by the farmer under the terms of a milk quota agreement; an order that the pension trustees be released from their undertakings and dismissed from these proceedings; and an order for an inquiry as to the damages that the liquidators ought to pay under the cross-undertaking that they gave on obtaining the order of 28 February 2000. 41. The grounds upon which that order is sought may be summarised as follows: (i) the judge was wrong to hold that milk quotas were capable of being the subject of a trust; (ii) if milk quotas were capable of being the subject of a trust, the judge was wrong to hold that they had become subject to a trust on the facts of the present case –– in particular, he was wrong to disregard the fact that it was plainly contemplated that quotas transferred by farmers would be amalgamated with quotas held by Farms for its own benefit; (iii) the judge was wrong to grant any injunction against the pension trustees in circumstances that he did not, and could not, identify any cause of action maintainable against them at the suit of Dairywise; and (iv) in any event, the order made for the transfer of milk quota to a safe haven was disproportionate and wrong. Events subsequent to the notice of appeal 42. The first, second and third respondents (Farms and Mr and Mrs Randall) gave notice of appeal on 28 March 2000. That appeal (to which reference 2000/0353 was allotted) was abandoned by Farms on or about 11 August 2000, and has not been pursued on behalf of Mr and Mrs Randall. They state, in a letter dated 11 August 2000, that “we do not intend to participate at any stage and agree to be bound by the outcome of the appeal”. The decision to abandon (or not to pursue) the appeal under reference 2000/0353 may not be unconnected with the fact that, following the order of 28 February 2000 (in which Jacob J also gave directions for the further progress of the proceedings), discovery took place, in the course of which there was a more thorough examination by staff of the joint liquidators of the statutory books of Dairywise. That examination uncovered a minute, dated 24 July 1996 and signed by Mr Randall, in these terms: It is hereby resolved that any milk quota held by Dairywise Farms Ltd pursuant to loan agreements between Dairywise Ltd and Dairywise Ltd’s customers, is held by Dairywise Farms Ltd on trust for Dairywise Ltd and as security for those loan agreements. Dairywise Farms Ltd shall not take any action in respect of the transfer or charge of the quota or otherwise deal with such quota without the consent of Dairywise Ltd and will transfer or lease such quota at the direction of Dairywise Ltd. The minute, unlike other minutes in the statutory books of Dairywise, was in an envelope marked “Confidential”, which was not itself fixed to the minute book. There is nothing on the face of the minute (other than its contents) that indicates whether it was a minute of Dairywise or of Farms, nor whether it is a board minute or a minute of a general meeting. Be that as it may, the existence of such a minute, signed by Mr Randall, the authenticity of which he has not challenged , makes his assertion, in para 29 of his affidavit sworn on 5 October 1999, that “I never treated [Farms] as a trustee or agent of [Dairywise]” impossible to sustain. 43. The question of whether the tenancy of the Rye Court land has determined does not end with the re-entry on 14 January 2000. On 4 April 2000 the joint liquidators issued proceedings, in the name of Dairywise, in Bristol District Registry (claim BS050215) against the pension trustees, seeking: (i) a declaration that the forfeiture was of no effect; and (ii) in the alternative, relief from forfeiture. The claim was amended on 18 May 2000 to add Farms as a defendant. The pension trustees served a defence to that claim on 24 May 2000. So far as I am aware, those proceedings remain pending. In the meantime, however, the pension trustees have commenced further proceedings in Worcester County Court (claim WR002818) seeking possession on the ground of non-payment of rent on 29 July 1999 and 29 January 2000. 44. Paragraph 3 of the order of 28 February 2000 required that the respondents (meaning, in that context, Farms, Mr and Mrs Randall and the continuing pension trustees) should sign and execute such documents, and give such consents, as should be necessary to ensure that the 2.7m litres of milk quotas then registered in the name of Farms be transferred to, and registered in, the name of the “safe haven” nominated by the liquidators. Paragraph 6 provided that if the respondents or any of them failed to sign or execute any document in compliance with the requirement in para 3, then Mr Swift (one of the joint liquidators) was empowered to do so, pursuant to section 39 of the Supreme Court Act 1981, to the intent that any document signed by Mr Swift should have effect as if signed by the person originally directed to sign it. We were told that that was what happened: see para 27 of the skeleton argument advanced on behalf of the joint liquidators. It is said that the quotas are now registered in the name of a safe haven, and are being dealt with at the direction of the liquidators pursuant to the scheme. Issues for decision on this appeal 45. Counsel for the joint liquidators, in para 1 of their skeleton argument, invited the court to view this appeal as “a challenge to the ability of English law (and in particular of equity) to adapt itself to the ever-changing and developing categories of economically valuable rights, and to the natural desire of businessmen to deal with them.” If there were, indeed, a challenge to the ability of equity to adapt to commercial needs consequent upon the introduction of novel concepts, I would hope, and expect, that that challenge would be met. But I do not, myself, see the present case as one in which the court is required to engage in the ground-breaking role that counsel suggest we should be eager to embrace. I think the issues can be resolved by the application of familiar principles. 46. The order made by Judge Weeks on 19 August 1999 posed three questions for trial as a preliminary issue. Events have moved on since that order was made. It is, I think, convenient now to restate those questions in a modified form: (a) was Dairywise entitled to direct Farms to retransfer milk quotas to a borrower who had repaid all sums owing under the primary loan agreement; (b) was Dairywise entitled to direct Farms to sell milk quotas in a case where a borrower was in default under the primary loan agreement; and (c) if so, who was entitled to the proceeds of sale in such a case? In the light of the answers to those questions, and in the events that have happened, it is necessary to address the additional question: (d) was Jacob J right to make the “safe haven” order on 28 February 2000, directing the transfer of all quotas held by Farms to a third party nominated by Dairywise. (a) Was Dairywise entitled to direct Farms to re-transfer quotas to a borrower who had repaid all sums owing under a primary agreement? 47. The starting point, as it seems to me, is to analyse the terms upon which Farms became registered as the person entitled to milk quotas (transferred quotas) that were transferred by borrowers to whom Dairywise had lent money. Those terms appear in the explanatory letter (to which Dairywise, Farms and the borrower were signatories) and in the milk quota transfer agreement. Those documents have to be read and understood in the light of the community and domestic regulations, which require (subject to exceptions that are not material in the present context) that milk quota is held by a milk producer in respect of a holding comprising one or more production units. 48. The first key provision, as it seems to me, is that contained in para 5.3 of the explanatory letter: “The Milk Quota will remain registered with Dairywise Farms Ltd until all sums due to Dairywise Ltd under the Agreement or otherwise have been settled (the ‘Loan Term’)”. Construed literally, and in isolation of the other provisions in the explanatory letter, that might (at first sight) suggest that the loan term continues for so long as there are any moneys owing by the borrower to Dairywise under the related loan or hire purchase agreement, so that the period of the loan term would continue108 indefinitely, notwithstanding that the borrower was in default under the primary agreement. But that would, I think, produce a result that the parties cannot be taken to have intended. Assume a case in which the borrower becomes bankrupt. Dairywise proves in the bankruptcy and is paid a final dividend. There is nothing more that the borrower can be required to pay. But there are moneys outstanding under the primary loan agreement. If the transfer of milk quotas to Farms was intended to be “security” for the payment of moneys under the loan agreement –– as the documents repeatedly assert –– it must have been intended that there would come a time when that security could be enforced. That is made clear by para 5.5 of the explanatory letter: “If the sums due to Dairywise Ltd remain unpaid the Milk Quota shall be forfeit without payment of compensation”. In my view, it is necessary, in order to make commercial sense of the agreement that the parties have made, to reject a construction under which the loan term continues indefinitely, until all moneys due from the borrower to Dairywise under the primary agreement have been paid. 49. A more sensible construction –– and the one that I think accords with the provisions of the explanatory letter as a whole –– is to treat the “Loan Term” as the contractual term of the loan, having in mind that the primary loan agreement provides for early termination either: (i) by settlement of the amount outstanding before the end of the contractual term; or (ii) on demand for immediate repayment of the whole, following failure to pay an instalment. I am conscious that we have not heard argument on behalf of any borrower. The view that I express must be provisional, in the sense that borrowers will not be bound thereby. But, subject to that caveat, I would hold that the loan term is coterminous with the contractual term of the loan unless, in the meantime, there has been an early repayment of the whole amount outstanding, or there has been a demand for immediate repayment following default. 50. During the continuance of the loan term, the milk quotas that have been transferred to Farms by the borrower are to be, and remain, registered in the name of Farms. The milk quota transfer agreement is the means by which that objective is achieved. When registered, the quota transferred by the borrower becomes, necessarily, part of the quota held by Farms in respect of the holding in relation to which Farms is registered as the milk producer. It no longer has any separate identity. 51. It was agreed, at para 5.6 of the explanatory letter, that, for the duration of the loan term, Farms would lease the transferred quota back to the borrower for each successive quota year. A temporary transfer of quotas, without any concurrent transfer of any part of the holding, is permitted under regulation 13 of the Dairy Produce Regulations 1997. It is, plainly, to a temporary transfer of that nature that para 5.6 of the explanatory letter refers. It follows that, during the continuance of the loan term, Farms could not deal with transferred quotas for its own benefit. 52. What, then, is to happen when the loan term comes to an end? There are two distinct factual situations to be considered. First, the end of the loan term may coincide with the payment off of amounts due under the primary loan agreement. That may be the result of an early repayment, or the result of a due performance of the contractual terms of the primary agreement. For the purpose of analysis, it does not matter which. In either case, Farms is required to retransfer an equivalent amount of quota (subject to any alteration in the butterfat base that may have affected quotas held by Farms during the loan term) to the borrower. The agreement does not spell out how that is to be done. But it is plain enough that the parties must have expected, and intended, that it would be done by a milk quota transfer agreement in a form similar (mutatis mutandis) to that used to transfer the quota from the borrower to Farms at the beginning of the loan term. In other words, by agreeing to retransfer a milk quota to the borrower at the end of the loan term, Farms undertook to grant to the borrower a short-term lease of some land within its own holding to which the appropriate amount of quota could be attached. It seems plain enough, also, that that is an obligation that was enforceable both by the borrower and by Dairywise. The agreement evidenced by the explanatory letter is tripartite, and each of the borrowers and Dairywise has an interest in requiring Farms to perform its obligation to retransfer. 53. The second factual situation is that, at the end of the loan term, there will be an amount outstanding under the primary loan agreement. It is inevitable that that will be the consequence of a default under the primary agreement. That default may have given rise to a demand for immediate repayment, or Dairywise may have been content to allow the agreement to run its full contractual term. Again, it does not matter which. The intention –– as it appears from the explanatory letter –– was that, if there were an amount outstanding at the end of the loan term, the milk quota should be forfeit without payment of compensation. Paragraphs 5.4 and 5.5 of the explanatory letter must be read together. Paragraph 5.4 is directed to the position where, at the end of the loan term, the loan has been paid off; para 5.5 is directed to the position where, at the end of the loan term, the loan has not been paid off. 54. The parties must have intended that the means by which effect would be given to the provision in para 5.5 that “the Milk Quota shall be forfeit” was that Farms should thereupon cease to be under any obligation to retransfer that milk quota to the borrower. It would follow that Farms would no longer be, or become, under any obligation to grant the borrower a short lease of land comprised within Farms’ holding as a means of effecting a retransfer of a quota. The borrower’s contractual rights to have a short lease and a transfer of a quota upon repayment of the loan would determine. But nothing would pass to Farms, or to Dairywise, upon “forfeiture”. In particular, there would be no change in the particulars on the register of quotas maintained by the Intervention Board. 55. It is important to keep in mind, however, that the agreement for the transfer and retransfer of quotas were made for the purpose of providing security for the repayment of a loan. This is made clear not only in para 5.2 of the explanatory letter, but also, in the case of the cattle hire purchase agreement and the milk quota purchase agreement, in clause 4 of the relevant milk quota transfer agreement. It has long been established that equity will give relief from forfeiture where that is necessary to give effect to the underlying intention that the right to forfeit was taken as part of an arrangement for the provision of security: see Shiloh Spinners Ltd v Harding [1973] AC 691 at pp722-723, and, in particular, the passage in the speech of Lord Wilberforce at p723G-H: it remains true today that equity expects men to carry out their bargains and will not let them buy their way out by uncovenanted payment. But it is consistent with these principles that we should reaffirm the right of courts of equity in appropriate and limited cases to relieve against forfeiture for breach of covenant or condition where the primary object of the bargain is to secure a stated result which can effectively be attained when the matter comes before the court, and where the forfeiture provision is added by way of security for the production of that result. In my view, there can be no doubt that, in principle, relief from forfeiture would be available to a borrower who had entered into a loan or hire transaction under the terms of the explanatory letter. 56. The position, therefore, was that, notwithstanding that the borrower’s contractual right to require a retransfer of a quota, together with the short-term lease of part of Farms’ holding that was necessary to effect such a transfer, determined in circumstances that sums owing to Dairywise remained unpaid at the end of the loan term, the borrower thereupon acquired an equitable right to redeem –– that is to say, a right in equity to require a retransfer and the grant of the short lease (for that purpose) on payment off of the moneys secured. That was a right to which, as it seems to me, Farms was required to give effect at the direction of Dairywise. 57. It follows that, in answer to the first question, I would hold that Dairywise was entitled to direct Farms to retransfer a milk quota to a borrower who had repaid all sums owing under the primary loan agreement, whether or not repayment was effected in accordance with the terms of the primary agreement. (b) Was Dairywise entitled to direct Farms to sell milk quotas in a case where a borrower was in default under the primary loan agreement? 109 58. The exercise of a power to sell the security has the effect of extinguishing the borrower’s equitable right to redeem. The equitable right to redeem can be extinguished by an order of the court directing foreclosure or sale –– see, generally, paras 24.45-24.54 in Snell’s Equity (30th ed) (2000) at pp492-495, where the principles are explained. But so far as I am aware, there have been no orders for foreclosure or sale in the present case. It follows that the existence of a power of sale, binding on the borrower and extinguishing his equitable right to redeem, depends, in the present case, upon the terms of the tripartite agreement between the borrower, Dairywise and Farms. As it was put by Williams LJ at p588 in Deverges v Sandeman Clarke & Co [1902] 1 Ch 579: Now, the defendants, being mortgagees, have in equity, notwithstanding their title to the shares, no estate sufficient to enable them to sell, and thus exclude the mortgagor from his equitable right to redeem unless there is either an express or an implied power of sale in the mortgage. Vaughan Williams LJ took a different view from the other members of the court (Stirling and Cozens-Hardy LJJ) on the question of whether a power to sell ought to be implied on the facts of that case, but the principle is not in doubt. Absent an express or an implied term in the bargain by which security is provided that the secured creditor is to have power to sell the security, and thereby to extinguish the right to redeem, a sale will be inconsistent with the borrower’s right to redeem. 59. It is not, I think, self-evident that it was intended, as between the borrower and Dairywise, that Dairywise should have power to direct a sale of the transferred quota. There is nothing in the explanatory letter or in the other documentation that so provides. This is not a case in which a power of sale is to be implied under section 101(1) of the Law of Property Act 1925. Nevertheless, there are circumstances in which a power of sale will be implied at common law –– as the decision of this court in Deverges v Sandeman Clarke & Co shows. It may be that this is such a case. Neither the joint liquidators nor the pension trustees were concerned, on this appeal, to argue that it was not. It is unnecessary to decide the point, and it would be inappropriate to do so in the absence of representations from any borrower. What can be said with confidence, and I would so hold, is that if a power of sale is to be implied in the present case, then it must be a power for Dairywise to direct a sale by Farms upon terms that Farms will account for the proceeds of sale so that they can be applied to the credit of the borrower’s account with Dairywise. If it were intended that Dairywise should have power to direct a sale, then it is plain, as it seems to me, that Farms could have been required to give effect to that power by complying with a direction to sell. (c) Who was entitled to the proceeds of sale? 60. As I have already indicated, if a power of sale is to be implied in the present case, it must be a power for Dairywise to direct a sale by Farms upon terms that Farms will account for the proceeds of sale so that they can be applied to the credit of the borrower’s account with Dairywise. It is, to my mind, inconceivable that a court would imply a power for Farms to sell for its own benefit. (d) Was Jacob J right to make the “safe haven” order on 28 February 2000? 61. Clause 13(c) of the agricultural tenancy agreement dated 29 July 1987, under which Farms held the Rye Court land from the pension trustees, was in these terms, so far as material: Not to transfer surrender lease or charge any milk quota registered in relation to or applicable to the holding or part thereof or any portion of such quota and not to enter into any scheme by which such quota may be so transferred surrendered leased or charged in whole or in part… The order of 28 February 2000 is, of course, inconsistent with the due performance of that obligation. Further, when completing Intervention Board form MQ/1 (application to register the permanent transfer of a milk quota with land) pursuant to that order, the transferor was required to declare that it had obtained the consents of all persons with an interest in the holding. 62. The judge made the order he did without deciding whether the tenancy had determined by reason of re-entry by the pension trustees on 14 January 2000. So far as I am aware, that question remains undecided. As I have already indicated, it is the subject of pending proceedings –– in which (in the alternative) Dairywise seeks relief from forfeiture. It is convenient, therefore to consider the position, first, on the basis that the tenancy had not determined, either because there was no effective re-entry or because relief from forfeiture would be granted. 63. On that basis, as it seems to me, the question is whether the judge was entitled to make the order he did, notwithstanding that compliance with that order might involve an interference with the contractual rights of the pensions trustees as landlords in respect of part of the holding. It is important to keep in mind that the order was made for the purpose of protecting the position of the borrowers, Dairywise and the pension trustees until trial. It was made on the basis that any prejudice suffered by the pension trustees, by reason of the transfer of quotas to a safe haven, was capable of being compensated by an award of damages against the joint liquidators on their cross-undertaking. It is important, also, to recall that the judge had held, in the passage at [2000] 1 WLR 1177 at p1188H that I have already set out, that: “The trustees knew that the whole lending system depended on their acquiescence and co-operation in it”. It is said that there was no material upon which the judge could reach that view, but that is to overlook the fact that Mr Randall, as the promoter and operator of the scheme, was also one of the pension trustees. As the judge himself recognised, the view that he expressed was provisional, in the sense that the extent of the pension trustees’ knowledge remained to be determined at trial. In my view, the judge was plainly entitled to take the view that he could proceed on the basis that there was a good arguable case that the relevant knowledge would be established. 64. If the pension trustees did, indeed, know that the whole lending system depended upon their acquiescence and co-operation in it, then the judge was entitled to hold –– in the context of deciding what interim order should be made to protect the position of the borrowers and Dairywise –– that the pension trustees were estopped from relying upon the restriction in clause 13(c) of the tenancy agreement. In Taylor Fashions Ltd v Liverpool Victoria Trustees Co Ltd [1982] QB 133, as a note to Amalgamated Investment & Property Co Ltd v Texas Commerce International Bank Ltd [1982] QB 84, Oliver J, at p155C-D, described the inquiry that he had to make as “whether, in all the circumstances of this case, it was unconscionable for the defendants to seek to take advantage of the mistake which, at the material time, everybody shared”. In the present case, the test can be rephrased: “whether, in all the circumstances –– including the circumstance that they knew that the whole lending scheme depended on their acquiescence and co-operation and were content that it should proceed on that basis –– it would be unconscionable for the pension trustees to seek to take advantage of the restriction in the tenancy agreement which they now invoke”. 65. The pension trustees contend, however, that the tenancy of the Rye Court land had determined before Jacob J made the safe haven order, and that, as a result, they had become entitled to have registered in their names the milk quotas (or a substantial part of them) transferred by the borrowers to Farms as security for loans made to them by Dairywise. They submit that, in those circumstances, there was no basis upon which an order for retransfer could be made against them. As it is put in the skeleton argument advanced on their behalf on this appeal, the risk that, on the termination of Farms’ interest as tenant of land comprised in the holding in respect of which it was registered as a milk producer, the milk quotas attributable to that land would pass to the landlord was inherent in the scheme; that is what has occurred, and there is no reason why, as landlords, they should not take advantage of what might be seen as a windfall. They point out that section 13 of, and Schedule 1 to, the Agriculture Act 1986 provide a statutory scheme for the payment of compensation in respect of milk quotas that pass on the termination of a tenancy. 66. If the tenancy had, indeed, determined before Jacob J made the safe haven order on 28 February 2000, and if there were no power in the110 court to grant relief from the consequences of a forfeiture of that tenancy, there might well be force in that contention, however unattractive it might appear when advanced by trustees who had known of, and acquiesced in, the lending scheme. But it is unnecessary to decide the point on the present appeal. The relevant question is whether the judge was entitled to make an interim order on the basis that, if forfeiture by re-entry had occurred on 14 January 2000, there was power in the court to give relief from that forfeiture at the suit of Dairywise. For the reasons that I have sought to explain, I am satisfied that Dairywise has an interest in the land subject to the tenancy, in that it was entitled to require performance of Farm’s obligation to grant short leases of that land in order to give effect to the borrowers’ right to have quotas retransferred. In those circumstances, it is plainly arguable that Dairywise is a party that, in proceedings to which Farms and the pension trustees are parties, is entitled to seek an order that the tenancy be restored: see the decision of this court in Bland v Ingram’s Estates Ltd* unreported 21 December 2000. * Editor’s note: Reported at [2001] 24 EG 163 67. It follows that I would hold that Jacob J was right to make the safe haven order that he did. Conclusion 68. For the reasons that I have given, I would answer the questions posed by the preliminary issue in the following manner: (a) the joint liquidators can direct a transfer of a quota to a borrower on early redemption, and (without prejudice to the right of any borrower to contend otherwise) can direct a sale of a quota in the event of default; (b) the proceeds of sale are payable to Dairywise for the account of the borrower; (c) the person entitled to a quota on early redemption is the borrower. I would allow the appeal and vary the order of 28 February 2000 so as to reflect those answers, but to that extent only. Save to that extent, I would dismiss this appeal. Hale LJ and SIR MARTIN NOURSE agreed and did not add anything. Appeal allowed in part.