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GP contracts for financial assistance – a reminder of the importance of precise drafting

The Court of Appeal recently handed down judgment in NHS Commissioning Board v Silovsky and another [2017] EWCA Civ 1389. It demonstrates that the Court uses the same test of contractual construction in the public sector as in the private sector – and there is no "get out" for a public body who has entered into a bad bargain.

The Respondent was a GP practice in Felixstowe. It had entered into a Personal Medical Services Agreement with the Suffolk Primary Care Trust, whose statutory successor was the NHS Commissioning Board.

The NHS can provide financial assistance to GP surgeries for practice premises. This is what occurred in the present case, and the relevant 2007 contract between the GP practice and the Trust set out:

"Premises payments

Rent 77,238 Calendar monthly 15th of each month". 

The figure 77,238 was in an "Annual Value" column and it was agreed that 77,238 represented £77,238 per year.

The Board argued this “rent” was a variable amount which tracked the amounts payable under a bank loan that the GP practice had. This was the provision under a previous 2004 contract (which was the predecessor to the 2007 contract). That 2004 contract made reference to NHS (General Medical Services – Premises Costs) (England) Directions 2004, which governed the amount of payment in relation to premises and varied over time.

The Board said its interpretation was the only one which made commercial common sense, as an obligation to pay a fixed amount, regardless of the practice’s reduced cost of borrowing on the bank loan, made no sense and would grant the GP practice a windfall.

The GP practice argued the £77,238 was a fixed figure. Furthermore, it was a perfectly rational bargain as the Trust would have certainty on future expenditure.

This point mattered because if the price was variable, the GP practice would have been overpaid and would potentially be liable to pay back the overpayment to the Board.

Gross LJ (with whom Flaux LJ agreed) cited the summary of contractual construction as set out in Wood v Capita Insurance Services Ltd [2017] UKSC 24 per Lord Hodge. In short, the court had to "ascertain the objective meaning of the language which the parties have chosen to express their agreement". Both textual and contextual factors were relevant.

In the present case, whilst the word "rent" did not strictly mean the rent being paid, the amount was not intended to be variable. He rejected the assertion that the 2004 directions were somehow incorporated into the 2007 contract because:

  1. The wording of the 2007 contract (unlike its predecessor) did not say anything about the 2004 directions.

  2. The 2007 contract was re-drafted and therefore what the 2004 contract said did not have a bearing on what the 2007 contract said.

  3. The practice’s interpretation that it was a fixed amount did accord with commercial common sense. The agreement was not a “one off” but was entered into with many GP practices. A fixed amount therefore gave the Trust certainty.

Two wider points arise. This case is a reminder that the rules of contractual construction which apply in the private context apply equally in the public context. The context can, though, be relevant. In this case, the fact that it made sense for the Trust to want to fix an amount to control public spending was a relevant factor.

In addition, it emphasises the importance of precise drafting. This case makes clear there is no “get out” where a public body enters into a potentially bad bargain. The contract says what it says.

David Lock QC appeared for the GP practice in this case. He did not participate in the writing of this blog.