Tees Esk & Wear Valleys NHS Foundation Trust v Three Valleys Healthcare Ltd & Anor

A contractual notice required as a condition precedent to termination must satisfy the contract’s express information requirements and be sufficiently clear and unambiguous. Where a funders’ direct agreement distinguishes between quantified amounts owed and wider liabilities or obligations, only the former need be quantified. The notice must identify claims of which the terminating party is aware, having made proper enquiry, but the contract need not require evidence of that enquiry. Unquantified liabilities or obligations may still be notified, although they cannot trigger payment obligations where the agreement makes payment conditional on identified fixed sums.

The claimant NHS Foundation Trust entered into a PFI project agreement with Three Valleys Healthcare Ltd for the construction and operation of a mental health hospital. The Trust and the project company later disputed service failures, and adjudication awards and self-certification established contractual events of default.

The Trust served a termination notice on Bank of Scotland plc under a funders’ direct agreement, followed by a notice under paragraph 3.2.2 identifying amounts owed and other liabilities or obligations. Some claims were quantified and others were marked “TBC”. The Trust sought declarations that both notices were valid and that the contractual period for termination had not expired.

The central issues were the construction of paragraph 3.2.2, the degree of detail required, whether all claims had to be quantified, and whether evidence of proper enquiry had to accompany the notice.

The court granted the declarations sought by the Trust.

1. Paragraph 3.2.2 was a condition precedent to the Trust’s entitlement to terminate. Its purpose was to give the funders sufficient information to decide whether to exercise step-in rights and to identify the fixed sums for which they might become responsible.

2. The provision required four categories of information: quantified amounts owed of which the Trust was aware, and other liabilities or obligations of which it was aware, in each case divided between claims accrued and outstanding at the termination notice and claims falling due by the end of the Required Period.

3. The court construed “amount owed” as referring to quantified sums. “Other liabilities or obligations” was wider and could include financial or non-pecuniary responsibilities. Those liabilities and obligations did not have to be quantified. The payment provisions in paragraph 7.1 concerned fixed sums and did not extend to every liability or obligation.

4. The Trust had a positive obligation to make proper enquiry, but paragraph 3.2.2 did not require it to provide evidence of that enquiry to the funders. There was no express basis for implying such a requirement.

5. The notice gave sufficient details. Its descriptions were brief but sufficiently clear and unambiguous to enable the funders to understand the nature and basis of the claims. Unquantified amounts could not create an obligation to pay or independently support termination, but their inclusion did not invalidate the notice. Any inadequacy in the enquiry would affect the Trust’s entitlement to terminate for non-payment, rather than the validity of the notice itself.

The court applied the principles of contractual interpretation and notice construction stated in [2017] UKSC 24, [2015] AC 1619, [1968] 1 WLR 638, [1948] 1 KB 444, [1983] 1 WLR 195 and [1999] BLR 205.