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Nothing to smile about: Dentists’ contract dispute highlights potential pitfalls for commercial parties

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30/09/2019

Gwendoline Davies, Head of Commercial Dispute Resolution at Walker Morris, offers practical advice for commercial contracting parties following the Court of Appeal’s decision in NHS England v Vasant [1].

Why is this case of interest?

This recent case involved the application and interaction of ‘no oral modification’ clauses and ‘entire agreement’ clauses – both of which are common (or, ‘boilerplate’) clauses within commercial contracts. The cases also considers the requirement for certainty within contracts, as well as the test for implying terms. It highlights a number of potential pitfalls for parties and commercial contract practitioners.

What practical advice arises?

  • Parties should not take boilerplate clauses for granted. All such provisions have particular legal meanings and purposes and can therefore have a significant practical effect on parties’ dealings throughout the duration of a contractual relationship. Parties should ensure that they understand and assess the impact of boilerplate clauses before completing their commercial contracts.
  • For example, some parties will prefer the certainty that an anti-variation/no oral modification clause can provide; whereas others working in today’s fast-paced commercial world will require the flexibility to quickly and easily agree contractual variations without restriction or formality.
  • If a contract does contain any anti-variation conditions, restrictions or requirements, then parties seeking to agree subsequent contractual variations must ensure that they comply fully with those provisions.
  • The fundamental law of formation of contract (that is, in the absence of any anti-variation/no oral modification provisions) does not require any particular formality. As a matter of general good practice, therefore, negotiations, whether oral or in writing (including via e-mail) should clearly record whether any contractual arrangement or amendment that is intended to have legal effect has been reached, or whether the parties require any such agreement to be documented and signed by the parties before it has contractual force.
  • Commercial parties should also be aware that the lack of any legal requirement for formality means that contracts can be formed by conduct as well as orally or in writing. It is therefore important that parties should not act in any way that is inconsistent with their contractual intentions.
  • If a contract contains an entire agreement clause, the parties should take care to check that the contract comprehensively contains or expressly incorporates all required elements.
  • As regards the operation of entire agreement clauses, parties should be aware of their potential limitations. For example, where an entire agreement clause is not expressly stated to operate “subject to” any variation provisions, disputes can arise as to the effect or precedence of any subsequent or extraneous agreements.
  • If and when any aspect of a business relationship changes, parties should consider whether to draft and complete a fresh contract, rather than to risk possible unintended consequences which may arise from trying to alter or incorporate new elements into existing arrangements.

What happened in NHS England v Vasant?

Key contractual provisions

The NHS Commissioning Board (known as NHS England) had contracted, in 2006, with a number of dentists under a Government Dental Services contract (the GDS contract). The relevant terms in the GDS contract were the ‘no oral modification’ provision at part 22, which provided that no amendment or variation would have effect unless made in writing and signed by both parties; and the ‘entire agreement’ clause which provided that, subject to any variations validly made in accordance with part 22, the contract constituted the entire agreement between the parties.

  • No oral modification (or, NOM) clauses are a form of anti-variation clause and prohibit parties from varying contracts unless they comply with specified requirements. The purpose is to preserve the integrity of the contractual terms and to achieve certainty, by preventing informal or inadvertent amendments [2].
  • An ‘entire agreement’ clause attempts to provide that the contract constitutes the entire agreement between the parties such that it supersedes any prior or extraneous agreements, negotiations, or heads of terms.

In 2007 the parties entered into a separate contract pursuant to which the dentists would provide Intermediate Minor Oral Surgery services (the IMOS contract). The IMOS contract allowed NHS England to terminate on one month’s notice.

In 2009 the parties completed a contract variation form which sought to bring Intermediate Minor Oral Surgery services within the scope of the GDS contract (and to vary the GDS contract accordingly). The form was in writing and signed by both parties, but did not contain information about the nature of the Intermediate Minor Oral Surgery services, nor related remuneration.

Termination dispute

In 2016 NHS England purported to terminate the contractual arrangement relating to the dentists’ provision of Intermediate Minor Oral Surgery services. It argued that the contract variation form was not sufficiently certain to amount to a binding contractual variation and that it failed for uncertainty. NHS England therefore contended that the GDS contract and IMOS contract entered into in 2006 and 2007 respectively remained in effect as originally drafted, and that the IMOS contract could therefore be terminated on notice.

Court of Appeal conclusion

The Court of Appeal’s judgment addresses a number of key contractual concepts. The following essential points arise:

  • When it comes to the interpretation of contractual arrangements, the starting point is the wording of the contracts. It is not correct to rely on pre-contractual correspondence or negotiations; on the parties’ subjective intentions; or on parties’ post-contract conduct.
  • Anti-variation/NOM clauses and entire agreement clauses are intended to achieve contractual certainty and are recognised as legally valid.
  • In this case the entire agreement clauses was stated to operate “subject to” any variation made in accordance with the NOM clause at part 22. The contractual variation form was in writing and signed by both parties – it therefore complied with part 22. The interaction of the entire agreement clause, the NOM clause and the contractual variation form therefore meant that a valid variation had been made to bring IMOS services within the scope of the GDS contract. The GDS contract (as varied) therefore constituted the entire agreement between the parties. As to the subsequent question of whether the variation was nevertheless void for uncertainty, that depended on whether terms could be implied to fill in the gaps as regards the nature of the services and remuneration.
  • In order for a term to be implied it must be necessary to give business efficacy to the contract; it must be obvious; capable of clear expression; and must not contradict any express term of the contract. In addition, the recent case of Wells v Devani [3] illustrates that a court should be reluctant to find that the parties have failed to make a contract because of their omission to specify particular terms.
  • In this case, neither the NOM clause nor the entire agreement clause precluded the implication of terms and the entire agreement clause did not prevent the admission of extrinsic evidence which might help the court to understand the meaning of any uncertain provisions. Definitions and fee provisions from the IMOS contract were, therefore, admissible and enabled the court to understand that nature of the IMOS services in question, and remuneration relating thereto. All of those factors meant that it was possible for the court to imply IMOS services definitions and fee provisions into the varied GDS contract.

In light of all of the above, the parties were bound by the GDS contract as varied, and NHS England was not entitled to terminate.

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[1] NHS Commissioning Board v Vasant [2019] EWCA Civ 1245
[2] For further information and advice about anti-variation and NOM clauses, please see our earlier briefing.
[3] [2019] UKSC 4.  For further information and advice about the Wells v Devani case and implying contractual terms, please see our earlier article, published in Commercial Litigation Journal.

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