National Health Service Commissioning Board v Silovsky & Anor

Contractual construction cannot be used to repair an unfavourable bargain. In a detailed, professionally drafted agreement, a premises payment described as an annual value was fixed where the agreement contained no wording making it variable or linking it to actual borrowing costs, while other payments were expressly described as variable. An earlier agreement’s incorporation of the National Health Service (General Medical Services – Premises Costs) (England) Directions 2004 did not carry over because the new agreement superseded it and contained no equivalent incorporation clause. Commercial common sense could not supply that omission because a standard-form fixed payment was not obviously irrational. The appeal was therefore dismissed.

The National Health Service Commissioning Board, statutory successor to Suffolk Primary Care Trust, appealed against summary judgment granted by Leggatt J in favour of two GPs. The dispute concerned a 2007 Personal Medical Services agreement and the annual premises payment of £77,238 recorded in Schedule 7. The Board argued that the payment was variable and should track the respondents’ actual borrowing costs under the premises-cost scheme used in an earlier agreement. The respondents contended that the amount was fixed. The appeal was confined to contractual construction; arguments on rectification and implied terms were not pursued. The central issue was whether the 2007 agreement incorporated the earlier premises-cost mechanism or instead fixed the stated annual payment.

Appeal dismissed. Gross LJ gave the judgment and Flaux LJ agreed. Because the construction issue could be decided finally on a summary-judgment appeal, the court determined it rather than leaving it for trial under CPR 24.2.3.

1. Contractual construction is an objective, unitary and iterative exercise. The court must read the disputed language in the agreement as a whole and balance the language, relevant factual background, drafting quality and commercial consequences. Textual and contextual analysis are tools used together. Commercial common sense is assessed at the date of contracting, not with hindsight. An adverse or imprudent result does not permit the court to rewrite the bargain. The court relied on Wood v Capita Insurance Services Ltd [2017] UKSC 24; [2017] 2 WLR 1095 and Arnold v Britton [2015] UKSC 36; [2015] AC 1619.
2. The word rent could not bear its strict ordinary meaning because the respondents did not pay rent. In context, however, it encompassed payments reflecting the cost of providing premises, including notional rent and cost rent. The structure of Schedule 7 showed that £77,238 was a fixed annual amount. Other payments were expressly described as variable, but no equivalent wording applied to rent.
3. The Board’s construction depended on incorporating the complex mechanism in the National Health Service (General Medical Services – Premises Costs) (England) Directions 2004. The 2007 agreement contained no equivalent of clause 440 in the 2004 agreement, which had expressly made that link. The 2007 agreement superseded the earlier agreement and was professionally drafted. Its language and structure therefore provided no legitimate basis for wholesale incorporation.
4. The contractual background and commercial common sense did not alter that conclusion. The agreement was a standard form offered to all relevant GP practices, and a fixed payment could provide certainty by capping the Trust’s liability. Such an arrangement was not obviously irrational, even though it created winners and losers. The court could not infer that incorporation of the Directions was intended to be taken as read.
5. The Board’s internal policy and subjective intention were not admissible parts of the contractual matrix. If the Board had made a mistake, construction could not correct it or compensate for deficient drafting. The £77,238 payment was fixed for each year the agreement remained in force.

• Court of Appeal (Civil Division): [2017] EWCA Civ 1389. Appeal dismissed.
• High Court of Justice, Queen’s Bench Division, Commercial Court: Leggatt J, 24 September 2015. Summary judgment granted to the respondents and the Board’s claim dismissed.