The question of whether a term should be implied into a contract arises when an instrument does not expressly provide for what is to happen when some event occurs – and is now seen as an aspect of interpreting the parties’ agreement. The question for the court is whether the words to be implied spell out what the contract would reasonably be understood to mean, even though the contract does not say this expressly: Attorney-General of Belize v Belize Telecom Ltd [2009] UKPC 10.
In NHS Commissioning Board v Silovsky [2015] EWHC B19 (Comm); [2015] PLSCS 306 the court was asked to consider an agreement made between an NHS trust and a medical practice that provided for payments to the practice in respect of its premises. The trust claimed to have mistakenly paid larger sums than the practice was entitled to receive under the contract. Alternatively, it claimed that the contract should be rectified because it provided for the payment of a fixed annual sum, instead of a variable sum calculated by reference to the cost of financing the acquisition of the premises. The amount at stake was £428,000, and was increasing.
The problem arose because the parties had updated their contract and, when doing so, the trust had omitted to include a provision that would have entitled it to reduce the annual payments when interest rates fell. The trust stated that it had intended to include the relevant provision. However, subjective intentions are irrelevant and must be disregarded when ascertaining what a contract means.
So the trust argued that it could not reasonably have been contemplated that the practice should go on receiving financial assistance on the basis of costs that it was no long incurring because interest rates had fallen. This would make no commercial sense and would produce an undeserved windfall for the practice, which could not have been intended.
The judge began with the presumption that, if the parties had intended the payments for the premises to vary, they would have said so – especially as they had signed a detailed, and professionally drafted agreement. The trust’s arguments might appear persuasive, when considered solely from its point of view. However, the arrangement was not obviously irrational.
The question was: would reasonable people who entered into such a complex agreement have thought it so obvious that the sum payable for the premises was to be subject to alteration that there was no need to say so – and that this could be simply taken as read? The clear answer to that question was “no”, and the court was unable to compensate for the deficiency in drafting by creative interpretation. The agreement provided for a fixed annual payment and it was not possible to imply a term that the payment was variable. Nor was it possible to rectify the agreement on the grounds of common or unilateral mistake (ie that either one, or both, of the parties had been mistaken) because there was no evidence to support this.
The answer was to take advantage of a clause in the contract that enabled the trust to bring it to an end on six months’ notice and then enter into a different agreement with the practice.
Allyson Colby is a property law consultant
