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Contractual interpretation and variation

In NHS v Vasant, the Court of Appeal considered no oral modification (NOM) and entire agreement provisions to uphold a contractual variation.

The effect, in the circumstances, was that there were no relevant grounds upon which the NHS could terminate contractual arrangements for the supply of certain dental services. It is also of interest that the use of extrinsic evidence was permitted to discern the meaning of a technical term in the contract.

Background

The NHS Commissioning Board (NHS) was a party to two contracts with three dentists (the Dentists). The first, for general dental services, was entered into in 2006 (the General Contract) and included:

  • a NOM clause specifying that variations should be in writing and signed by the parties;
  • an entire agreement clause stating that, subject to any valid variations, the contract constituted the entire agreement, superseding any prior agreements; and
  • provisions specifying when the General Contract could be terminated.

The following year, the parties entered into a second contract relating to intermediate minor oral surgery (IMOS) services (the IMOS Contract). The IMOS Contract was entered into for a 12 month term but once this period expired, it was held to have continued to operate on its terms. The IMOS Contract included a provision permitting termination on one month’s notice.

In 2009, the parties signed a variation agreement form (VAF) purporting to vary the General Contract to bring IMOS services under it. The description of the variation was with reference to the provision of “an Intermediate Minor Oral Surgery (IMOS) service” without providing any explanation as what those services were. The Dentists continued to provide the IMOS services until 2016 when the NHS purported to terminate the arrangement.

It was common ground that there was a contract in place between the NHS and the Dentists - either the General Contract or the IMOS Contract but the question was: which? The root of the issue was the contractual effect of the purported variation to the General Contract. Had the variation validly varied the General Contract such that IMOS services were provided under it? It was further common ground that the NHS had no right to terminate the General Contract without default by the Dentists.

The NHS argued that the VAF was too vague to be a valid variation of the General Contract; it was ineffective; and the IMOS services were supplied under the IMOS Contract which was terminable on a month’s notice.

The Dentists argued that the VAF had validly varied the General Contract to bring the IMOS services under it and the NHS had no right to terminate without default by the Dentists.

The first instance judge held in favour of the Dentists and the NHS appealed.

Judgment

The Court of Appeal agreed with the Dentists and upheld the first instance decision (although the reasoning differed).

Interpreting the General Contract, the court’s view was that the entire agreement clause was subject to any variations that complied with the terms of the NOM clause. The court noted that variations to the General Contract were required to be in writing and signed by the parties. The VAF satisfied both of these requirements and was therefore valid. Further, once the variation was made, the General Contract (as varied) was governed by the entire agreement clause (which was subject to any valid variations). The General Contract terms therefore consisted only of the General Contract itself and the VAF.

The court agreed with the NHS that it was not possible from the words in the VAF alone to discern the services that fell within the expression “an Intermediate Minor Oral Surgery (IMOS) service”. The court noted, however, that extrinsic evidence is admissible to explain the meaning of unconventional expressions in a contract. The fact that the contract contained an entire agreement clause did not affect that principle. In discerning the meaning of the term in the General Contract (as varied), the entire agreement clause did not preclude the use of relevant extrinsic evidence in the IMOS Contract. Noting that the expression was in a written document signed by both parties, the court stated that “such evidence does not add to or alter the terms of the [General Contract] as varied by the VAF: it merely explains what the words in the VAF mean”.

It was held that the NOM clause was satisfied; the IMOS services were provided under the General Contract; and the only termination provisions that applied were those of the General Contract. In the circumstances, there was no right for the NHS to terminate without default by the Dentists. The NHS’s appeal was dismissed.

Comment

Referring to Rock Advertising v MWB, the judgment acknowledged that it is now established that NOM clauses are, in principle, enforceable.

The case reaffirms that NOM clauses assist with certainty and are worth including. It also highlights the importance of clarity when varying a contract. The judgment shows that even where an earlier contract no longer subsists, it may be used as extrinsic evidence to explain the meaning of a technical or unusual term in another agreement. It is preferable that variation clauses are drafted with clarity to avoid disputes such as this. 

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at December 2019. Specific advice should be sought for specific cases. For more information see our terms and conditions.

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