The Court of Appeal has held that the parties agreed a binding variation to incorporate additional services (Intermediate Minor Oral Surgery, or IMOS, services) into a standard form contract for the provision of dental services, so that an earlier contract for the provision of the IMOS services was superseded. That meant that the agreement for the IMOS services could not be terminated without fault by the dentists; the ability to terminate on one month’s notice under the IMOS contract no longer applied: NHS Commissioning Board v Vasant and others [2019] EWCA Civ 1245.

The variation was in writing and signed by both parties, as required by a so-called “no oral modification” clause in the standard form contract. Although the variation was in very brief terms, which did not (in themselves) explain the nature of the services to be provided under the varied contract, the court rejected an argument that it failed for uncertainty.

While the terms of the IMOS contract could not be said to be incorporated into the standard form contract, as they were not expressly incorporated by reference and the standard form contract contained an entire agreement clause, they were admissible as extrinsic evidence for the purpose of explaining the meaning of the relevant expression in the standard form contract.

The decision shows that, even where an earlier contract is superseded and no longer applies, it may be admissible to explain the meaning of an unconventional, or technical, expression in the subsequent agreement. The obvious message for those drafting contracts, however, is that it will almost certainly be preferable to ensure that the meaning of all terms is clear on the face of a contract rather than having to look to extrinsic evidence for that purpose.

Background

The defendants were dentists who provided general dental services to the claimant (the NHS, as successor to Croydon Primary Care Trust) under a General Dental Services Contract (the “GDS contract”) entered into in 2006. This was a lengthy standard form contract which specified the mandatory services each dentist had to provide. Part 10 of the contract, headed “Further Services”, contained a number of clauses which merely stated “Reserved” to indicate that those clauses had no application to the contract.

The GDS contract contained a “written variation” clause, stating that no amendment or variation would have effect unless it was in writing and signed by both parties, as well as an “entire agreement” clause, stating that subject to any such variations the GDS contract constituted the entire agreement between the parties with respect to its subject matter.

In 2007 the parties entered into a 12  month contract for the provision of Intermediate Minor Oral Surgery services under a pilot scheme (the “IMOS contract”). The IMOS contract provided for termination on one month’s notice. The 12 month term expired in November 2008 but the judge held that it continued by conduct.

In April 2009, Mr Butcher of Croydon PCT sent an email to the defendants proposing a clause change to the GDS contract so that “all governance arrangements” for the IMOS services would fall under the GDS contract, rather than the re-signing the IMOS contract. The parties then each signed a one-page Contract Variation Agreement Form (a “VAF”) which described a variation to part 10 “Further Services”, stating that clause 168 was changed from “Reserved” to “Providing an Advanced Mandatory Service in the form of an Intermediate Minor Oral Surgery (IMOS) service”.

The defendants continued to provide IMOS services until 2016 when the NHS purported to terminate the arrangement. The question was whether the VAF amounted to a binding variation of the GDS contract so that IMOS services were provided under that contract, in which case it was common ground that the NHS had no right to terminate without default by the dentist. The NHS argued that the VAF was not sufficiently detailed to amount to a binding variation, and therefore failed for uncertainty. Accordingly, the IMOS services continued to be supplied under the IMOS contract, which was terminable on one month’s notice.

The High Court (Murray J) found that the NHS was not entitled to terminate. The NHS appealed.

Decision

The Court of Appeal dismissed the appeal (Longmore, Lewison and Coulson LJJ, with Lewison LJ giving the lead judgment), but their reasons differed from those of the judge.

Lewison LJ noted that the judge had found that reference could be made to the IMOS contract in relation to the operation of the IMOS services, but that all other aspects were governed by the GDS contract. He had not, however, explained what he meant by this, eg whether some of the terms of the IMOS contract had been incorporated into the GDS contract (and if so which), or whether those terms were an aid to construction of the GDS contract, or something else.

The judge had reached his decision on three bases, none of which could be supported:

  1. Contemporaneous correspondence: The judge referred in particular to Mr Butcher’s email, but this was contrary to the general principle that contemporaneous correspondence is irrelevant and therefore inadmissible for the purposes of interpreting a written agreement.
  2. Oral evidence: The judge relied on the oral evidence of the contracting parties, but that could amount to no more than the expression of subjective intention, which was again irrelevant and therefore inadmissible in interpreting the contract.
  3. Conduct of the parties: The contract was made entirely in writing, as shown by both the entire agreement clause and the written variation clause. Although subsequent conduct may be relied on to identify the terms of a contract which is wholly or partly oral, it is irrelevant and therefore inadmissible in interpreting a written contract.

Lewison LJ noted that it is now established that the courts will in principle enforce a contractual provision regulating how a contract can be amended (sometimes called a “no oral modification”, or NOM, clause) – see MWB Business Exchange Ltd v Rock Advertising Ltd [2018] UKSC 24 (considered here). These, together with entire agreement clauses, are intended to achieve contractual certainty.

The defendants argued that the variation in this case (the VAF) fell outside the scope of the entire agreement clause, because that clause was stated to be “subject to” any variations made under the written variation clause. Lewison LJ rejected that argument. Once a variation had been made in according with the written variation clause (ie in writing and signed by the parties), it was governed by the entire agreement clause. The contract therefore consisted only of what was contained in the GDS contract and the VAF, and it was not possible to read those words as incorporating by reference some or all of the terms of the IMOS contract.

However, the entire agreement clause did not prevent the use of extrinsic evidence, which is admissible to explain the meaning of an unconventional expression in a contract. That principle is not limited to expert evidence, and is not affected by the presence of an entire agreement clause (see eg Proforce Recruit Ltd v Rugby Group Ltd [2006] EWCA Civ 69).

The critical words in the present case were “an Intermediate Minor Oral Surgery (IMOS) service”. In Lewison LJ’s judgment, it was not possible to give meaning to the phrase as a whole without extrinsic evidence – in particular clause 17 of the IMOS contract which explained what the parties meant by an “IMOS service” by reference to the description in Appendix 1 of that contract and its annexes. That material was admissible “and indeed vital” in order to give meaning to the phrase. It did not add to or alter the terms of the GDS contract as varied by the VAF: it merely explained what the words mean.

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