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Case law: Court clarifies when extrinsic evidence can be used to explain meaning of the words in a contract

Parties varying a contract should ensure that if there is an ‘entire agreement’ clause they fully define all terms used in the variation, or risk disputes over whether the changes are sufficiently certain to be legally binding; and whether extrinsic evidence is admissible to explain what they mean, a recent case clarifies.

October 2019

This update was published in Legal Alert - October 2019

Legal Alert is a monthly checklist from Atom Content Marketing highlighting new and pending laws, regulations, codes of practice and rulings that could have an impact on your business.

Three dentists at separate surgeries provided services to the NHS under a standard form contract (the ‘main contract’). The main contract’s terms:

  • said the NHS could only terminate the contract if the dentists were in default;
  • said the contract could be amended or varied provided this was done in writing, signed by both parties;
  • included an ‘entire agreement’ clause, saying that the contract constituted the entire agreement between the parties in relation to the services.

Subsequently, the dentists entered into a separate 12-month agreement to provide additional Intermediate Minor Oral Surgery (IMOS) services as defined in the agreement. This IMOS agreement was terminable on one month’s notice. After the 12 months had expired the contract continued by conduct.

The NHS proposed a change to the main contract, the stated intention being that ‘all governance arrangements’ under the IMOS agreement should be regulated by the terms of the main contract, rather than the parties entering into a new agreement for the IMOS services. The parties therefore signed a short written Contract Variation Agreement Form (CVAF) which added ‘Providing an Advanced Mandatory Service in the form of an Intermediate Minor Oral Surgery (IMOS) service’ to the services referred to in the main contract.

The NHS later said it was terminating the IMOS services. The dentists argued that the CVAF amounted to a legally binding variation of the main contract, which meant the IMOS services were now provided under that contract. If that was the case, the IMOS services could only be terminated if the dentists were in default of their obligations (which they were not).

The NHS argued that the changes made by the CVAF did not provide sufficient detail on what the IMOS services were, to amount to a valid variation. They were too uncertain. The specific words which the NHS claimed were too uncertain to be valid were ‘an Intermediate Minor Oral Surgery (IMOS) service’. Therefore, the NHS argued, the IMOS services were still being provided under the IMOS agreement, which could be terminated on one month’s notice.

The Court of Appeal disagreed and ruled in the dentists’ favour. It said the variations made by the CVAF had been made in accordance with the variation clause in the main agreement and were valid. The IMOS services were therefore being provided under the main contract, and could not be terminated by the NHS unless the dentists were in default of their obligations.

The court agreed that the key words were uncertain, and also found that the presence of the entire agreement clause in the main contract meant the terms of the IMOS agreement (which defined the key words) could not be treated as incorporated by reference into the main contract. This meant the IMOS agreement could not be relied on to help define what the key words meant.

However, in the dentists’ favour, the appeal court went on to say that where terms used in a contract are ‘unconventional’ (ie, it is not possible to give them a meaning without referring to extrinsic evidence), it is lawful and ‘indeed, vital’ to refer to that extrinsic evidence to help define those terms; and the presence of an entire agreement clause in the relevant contract did not prevent this from happening. The extrinsic evidence did not add to or alter the words used in the main contract – it just explained what they meant.

The court found that the key words the NHS claimed were too uncertain to be valid were unconventional in this sense. It was therefore lawful to look at extrinsic evidence to help determine what they were intended to mean. The IMOS agreement comprised such extrinsic evidence and could therefore be referred to help determine what those words meant.

Operative date

  • Now

Recommendation

  • Parties varying a contract should ensure that if there is an ‘entire agreement’ clause in it, they fully define all terms used in the variation, or risk disputes over whether the changes are certain enough to be legally binding; and whether extrinsic evidence is admissible to explain what they mean.

Case ref: NHS Commissioning Board v Vasant and others [2019] EWCA Civ 1245

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