B e f o r e :
LORD JUSTICE GROSS
LORD JUSTICE FLAUX
|| NATIONAL HEALTH SERVICE COMMISSIONING BOARD
||- and -
||SILOVSKY & ANOTHER
Jonathan Swift QC and Simon Butler (instructed by Hempsons) for the Appellant
David Lock QC (instructed by Veale Wasbrough Vizards) for the Respondent
Hearing dates : 13 June, 2017
HTML VERSION OF JUDGMENT
Crown Copyright ©
Lord Justice Gross :
- As shown by the facts of this case, in certain circumstances, the NHS provides financial assistance to General Practitioners ("GPs") to meet the cost of providing practice premises. The sole issue on this appeal goes to the true construction of a contractual provision relating to such assistance. On the Appellant's construction, the Respondents have been overpaid; on the Respondents' construction and in the view of the Judge, they have not.
- The Appellant, the statutory successor to the role of the Suffolk Primary Care Trust ("the Trust"), appeals from a judgment of Leggatt J, dated 24th September, 2015 ("the judgment"), acceding to the Respondents' application for summary judgment and dismissing the Appellant's claim.
- The Trust commissioned NHS primary care services in Suffolk. The Respondents are General Practitioners ("GPs") who run a GP practice in Felixstowe. Though it will be necessary to look at the predecessor agreement ("the 2004 agreement"), these proceedings arise out of the Personal Medical Services ("PMS") Agreement, dated 18th December, 2007 governing the relationship between the Trust and the Respondents ( "the 2007 agreement") at the material time.
- In outline, NHS GPs provide primary care medical services to NHS patients. GPs are not, generally, NHS employees. Most NHS general practices operate as private businesses which contract with the NHS to provide services to NHS patients on their practice lists. GPs are under contractual obligations to provide appropriate practice premises from which they deliver primary care services. The 2007 agreement provides, inter alia, for certain payments to be made by the Trust to the Respondents to meet the cost of providing practice premises.
- Schedule 7 to the 2007 agreement was in these terms:
Rent 77,238 Calendar monthly 15th of each month"
The figure 77,238 (obviously representing £77,238) is found in a column headed "Annual Value".
- As already foreshadowed, the sole issue on the appeal is whether, as a matter of the true construction of the 2007 agreement, the sum specified in respect of rent under Schedule 7 was a fixed amount of £77,238 per annum or was a variable sum, broadly intended to track the amounts actually paid by the Respondents under a bank loan. If the latter, then the Appellant's case is that it has overpaid the Respondents and may be entitled (subject to overcoming various defences) to reclaim the amounts overpaid. Dismissing the Appellant's claim, the Judge held that the former view prevailed and that the sum of £77,238 was a fixed amount.
- Although we are considering an appeal from a successful application for summary judgment, it is plain that we must decide the issue of construction finally one way or the other. No useful purpose would be served by leaving any part of the construction argument over for some future trial: see, CPR 24.2.3. If the judgment is upheld, that is an end of the matter. If, per contra, the appeal is successful, then various restitution points would arise for consideration by a trial Judge.
- Something must be said of the procedural history. The Appellant's pleaded case before the Judge focused on implied terms and rectification, as appears from the Case Memorandum and List of Issues, dated 15th September, 2015. The question of construction arose, if at all, as part of the argument as to implication. The essence of the Appellant's argument below was thus that the 2007 agreement, properly construed, did not support its current case – but that it should be rectified in order to do so, or a term (or terms) should be implied to achieve that result. Neither the rectification nor the implied term arguments are pursued on the appeal; the Appellant's case is confined to the true construction of the 2007 agreement, now said to support its case. Forensic points could be and were made for the Respondents in this regard but I would reject the submission, tentatively pursued by the Respondents, that, in the light of the pleadings, we should not entertain the Appellant's construction argument on its merits.
CONTRACTS AND FACTS
- The factual history as such is largely undisputed and can be set out relatively briefly, much of it gratefully adopted from the judgment.
- (1) The Loan: On the 1st April, 1998, the then partners of the practice entered into a 25 year loan agreement with the Royal Bank of Scotland plc ("the Bank"), to which the Respondents subsequently became parties ("the Loan"). In accordance with the terms and conditions of the Loan, the Bank made funding available to the practice, to assist in the purchase of land, the construction of a surgery on the land and the purchase of furniture and fittings for the surgery.
- The Respondents applied to the Trust for financial assistance towards their borrowing costs.
- For an initial period of 10 years from 1st April, 1998, interest on the Loan was charged at a fixed rate of 8.87% per annum, on the sum of £803,000. Thereafter, interest became payable at a variable rate of one percent above the Bank's base rate for the remaining period of the Loan with, in the event, a significant reduction in the Respondents' borrowing costs.
- (2) Types of agreement: Pausing there and as summarised in the judgment:
" 4. …..There are two types of contract made between NHS Commissioners and GPs which are relevant for present purposes. The first type is called a General Medical Services (or GMS) contract. The second type is called a Personal Medical Services (or PMS) agreement. For each type of contract, there are statutory regulations relating to it which require certain terms to be included in the contract, although the regulations do not prevent other terms from being included as well. GMS contracts are the default form of contract which GPs are entitled to have unless they are offered and agree to enter into a PMS agreement."
- As the Judge went on to record, the Secretary of State has power to issue legally binding directions providing for payments to be made to GPs under GMS contracts – and a similar power in relation to PMS agreements. Such directions were made in 2004 in respect of GMS contracts and were in force at all relevant times governing payments to be made in relation to premises. These were the National Health Service (General Medical Services – Premises Costs) (England) Directions 2004 ("the 2004 Directions"). No directions were made providing for premises payments under PMS agreements.
- (3) The 2004 agreement: The 2004 agreement, made on the 1st April, 2004, was itself a PMS agreement. However, under the heading "Payments to the Contractor", cl. 440 provided as follows:
" Where premises costs are payable to the Contractor these are excluded from the annual contract price and paid separately in accordance with the equivalent provisions of the SFE part 5 (existing premises development) and The National Health Services (General Medical Services – Premises Costs) (England) Directions 2004."
Accordingly, the 2004 agreement, though a PMS agreement, expressly linked the calculation of sums payable for the practice premises to the 2004 Directions, made in respect of GMS agreements.
- The 2004 Directions addressed Premises Costs in some detail and in respect of three situations. As helpfully encapsulated in the judgment:
"5. …..If the premises used by the GP practice are rented premises, the directions provide for reimbursement of the rent paid so long as it does not exceed the current market rent for the premises. If the premises are owned by the practice outright without a mortgage, the practice may apply for payments based on a notional market rent. If the practice has borrowed money to purchase or refurbish the premises, it may apply for financial assistance towards meeting the cost of borrowing….."
In shorthand terms, the scheme of the Directions as to financial assistance for GP premises catered for, first, reimbursement of rent (strictly so-called); secondly, notional rent, where no rent or borrowing costs were payable; or, thirdly, as here, meeting the cost of borrowing, namely, cost rent.
- The Payment Schedule comprised Schedule 7 to the 2004 agreement. It recorded a payment due for "Cost Rent (fixed interest rate) 77, 238". This was the amount agreed under the 2004 agreement for premises costs.
- Throughout the currency of the 2004 agreement, it seems clear that the financial assistance provided by the Trust to the Respondents broadly corresponded to the interest payable under the Loan, i.e., cost rent.
- (4) The 2007 agreement: The 2007 agreement replaced the 2004 agreement with effect from 1st April, 2008. As the Judge observed:
" 9. ….The new agreement was in a different form from the previous agreement, having been redrafted by a different firm of solicitors. It is a long document of over 300 pages. Contracts in a similar form were offered at the same time to all GP practices with which the Trust contracted. The terms of the standard contract were negotiated between the Trust and the Suffolk Local Medical Committee, a body with which the Trust was statutorily obliged to consult. "
For completeness, it is to be noted that the Local Medical Committee was not an agent of the Respondents and did not have authority to enter into a PMS contract on its behalf (judgment, at ). Instead, the PMS agreements were presented to GPs on a "take it or leave it" basis: judgment, at .
- Provision was made for the 2007 agreement to constitute the "entire agreement" between the parties. Thus, Cl. 24 of the 2007 agreement provided that "…it supersedes any and all contractual relationships between the PCT and the Contractor in respect of the provision of primary medical services." Furthermore, under the heading "Entire Agreement", the following provisions are found:
"468. Subject to any variations made in accordance with Part 25, this Agreement constitutes the entire agreement between the parties with respect to the subject matter.
469. The Agreement supersedes any prior agreements, negotiations, promises, conditions or representations, whether written or oral, and the parties confirm that they did not enter into the Agreement on the basis of any representations that are not expressly incorporated into the Agreement….. "
- The payment provisions are contained in Part 17 of the 2007 agreement. Cl. 375 was in these terms:
" Payments to be made to the Contractor (and any relevant conditions to be met by the Contractor in relation to such payments) in respect of services where payments, or the amount of any such payments, are not specified in directions pursuant to clause 374, are set out in Schedule 7 to this Agreement."
In essence, the directions referred to in cl. 374 are directions relating to PMS agreements. As will be recollected, no directions had been made in relation to premises under the statutory power to make directions relating to PMS agreements. Accordingly, it is to Schedule 7 that reference must be made here. Before turning to Schedule 7 itself, it may be noted that cl. 375.2 provided as follows:
" Schedule 7 shall be revised on an annual basis to take account of any agreed variations to the services provided pursuant to this Agreement……"
- In its initial version, covering 1st April, 2008 – 31st March, 2009, Schedule 7 made provision for the payment of "rent" in the manner already set out. Under the same heading of "Premises Payments", rates were deal with similarly:
" Rates 14,088 Calendar monthly 15th of each month"
Separately, under the heading "Core Contract Service Provision", Schedule 7 dealt with "List Size Adjustments" and "Seniority" and, in the Annual Value column, described both those payments as "variable". Notes 1 and 2 explained how those payments were to be calculated. No similar provisions were made for adjusting the figures for rent or rates. In later years, provision was made for changes to payments for rates – for example, in the copies of Schedule 7 placed before us in respect of 2011-2012 and 2012 – 2013 – whereas the wording and the figure for "rent" payments remained unchanged throughout. The 2007 agreement must, however, be construed at the time it was made so that those later changes are irrelevant to its true construction.
- By contrast to cl. 440 of the 2004 agreement, neither cl. 375 of, nor Schedule 7 to, the 2007 agreement made any reference to the 2004 Directions.
- (5) Other matters: The Appellant sought to rely upon its own alleged policy underlying the reasons for changing from the 2004 to 2007 contract, a general change not of course confined to the individual agreement with the Respondents. This aspect of the matter can be disposed of summarily. I am wholly unable to see that the Appellant's internal policy reasons and subjective intention form part of the admissible contractual matrix and so relevant to the true construction of the 2007 agreement. The Judge disposed of these contentions at ,  and  of the judgment (in part when dealing with arguments on rectification) and I agree with him for the reasons he gave. This conclusion is reinforced by the "entire agreement" provisions contained in the 2007 agreement; while such provisions do not impinge on the exercise of construction, including reference to the relevant contractual background or matrix, they do guard against any temptation to range more widely into matters not forming part of that background. I defer for later consideration the remaining arguments advanced as to the contractual background.
- Given that the sole issue on the appeal goes to the true construction of the 2007 agreement, the manner in which the fact that the Respondents were no longer paying fixed rate interest on the Loan came to light is irrelevant. Suffice to say that it was the Respondents who drew this development to the attention of the Appellant in August 2012. Although some comment could be made as to certain prior communications from the Respondents' practice manager to the Appellant (set out at paras. 35 and 36 of the Particulars of Claim), the truly striking feature is the Appellant's conduct after this development became known. As the Judge observed (at ):
" What I find hard to comprehend is why the Trust did not, as soon as it became aware of the problem in late 2012, take the obvious step within its power to remedy the position at least going forward. Under the terms of the agreement, the agreement can be terminated by the Trust on six months' notice. It has therefore been open to the Trust….at any time to terminate the 2007 agreement and offer the defendants a new contract in identical terms, save that it provides for premises payments to be adjusted on the basis of the GMS Premises Directions……. The failure to take this simple step has meant that money continues to be squandered by the claimant."
On the material before the Court, although the Appellant's position since 2012 has been that the Respondents should repay moneys allegedly overpaid to them, the Appellant was still (voluntarily) making these (ex hypothesi) overpayments in 2017.
THE JUDGMENT UNDER APPEAL
- Under the heading "Construction" (at  – ), the Judge dealt with the Appellant's first way of putting its case, namely the construction or implication of a term. Although the pleaded case went to the implication of a term, on the then state of authority (Attorney-General of Belize v Belize Telecom Ltd  UKPC 10;  1 WLR 1988), the question of whether a term ought to be implied was treated (at ) as an aspect of the interpretation of the contract. That is no longer so (Marks & Spencer plc v BNP Paribas Securities Services  UKSC 72;  AC 742, esp., at  – ) but, hence, the assimilation of the implication and construction arguments in the judgment; indeed, notwithstanding the Appellant's pleaded case, the Judge essentially approached the question as one of construction.
- The Judge treated as equivocal the absence of a clause in the 2007 agreement - corresponding to cl. 440 in the 2004 agreement – making express reference to the 2004 Directions. It could be explained as indicating that the parties intended the 2004 Directions to be inapplicable. Conversely, however, it was also consistent with the view that such a clause was redundant and unnecessary because the 2007 agreement had the effect that premises payments were to be calculated on the basis of the 2004 Directions. However (at ), in the absence of an express clause making reference to the 2004 Directions, the "burden of persuasion" was on the Appellant to show that that was what the parties intended; the "starting presumption" was that if the parties intended premises payments to be calculated on the basis of the 2004 Directions, they would have included words to say so. Continuing, the Judge said (ibid):
" That presumption seems to me all the stronger in relation to what is a detailed, professionally drafted agreement, the form of which was negotiated between the Trust and the Local Medical Committee, and where it is reasonable to assume that the financial terms, including payments that would be made in respect of GP premises, would be a focus of considerable interest and attention for those involved in the preparation and negotiation of the contract."
- The Judge then turned to the meaning of the word "rent" in Schedule 7 (at ):
" I accept that in Schedule 7 the word 'rent' cannot bear its ordinary meaning because the defendants were known not be paying rent for their premises but I see no reason why it should be taken to refer solely to borrowing costs. Indeed, I did not understand Mr Butler ultimately to contend that the expression is so confined because, on his case, the defendants could opt to have payments made on the basis of a notional market rent and Mr Butler accepted that such payments would fall within this item of Schedule 7."
The Judge's key conclusion then followed:
" ….in its context, the word 'rent' would reasonably be understood to encompass any payments made to reflect the cost of providing premises, whether the practice is actually paying rent for its premises or not. What I think clear is that the ordinary and natural meaning of the inclusion opposite the word 'rent' in the column headed 'Annual Value' of the number 77,238 is that the Trust was agreeing to make payments in that amount in respect of premises for each year that the contract remained in force. "
That inference was reinforced by the manner in which Schedule 7 (as already described) treated two of the items under the heading "Core Contract Service Provision" – and not relating to premises – as "variable".
- As it appeared to the Judge (at ), the Appellant's case rested on the contention that an agreement to make fixed annual payments of £77,238 in respect of premises costs was "such an unreasonable intention" to attribute to the parties that it cannot have been the intended effect of the 2007 agreement. That contention had force, if attention was only focused on the Respondents:
" It does seem improbable that in circumstances where (a) a figure of £77,238 had been calculated on the basis of fixed interest payable by the defendants' practice during the initial period of their loan and (b) their cost of borrowing was about to plummet, as was foreseeable when the contract was signed, on the very day when the contract came into effect, the Trust would agree to go on making payments at the old rate and to do so indefinitely. "
Conversely, the Judge recognised that the effect of the Appellant's contention was that the parties' specified figure - £77,238 – not just might change but would never be the applicable figure.
- However (at ), this was not a "one-off" contract:
" ….The same form of agreement was used by the Trust for all agreements which it offered to GPs and the terms were negotiated with the Local Medical Committee. In these circumstances, Mr Lock suggested that the Trust could, for example, have taken the view that the sums paid for premises costs should be fixed at whatever was their current level. On this basis, the Trust would have certainty as to its future expenditure in respect of premises costs and would also know that for as long as the agreements remained in effect the amount of expenditure would not increase. For the GPs, there would be winners and losers from such an approach but the winners would not complain and the losers were in no position to negotiate different terms for themselves, since the agreements were presented on a take it or leave it basis."
- In the Judge's view (at ), an agreement to "continue making premises payments in the amount current when the contract was made without provision for future alteration upwards or downwards" was "not an obviously irrational arrangement". After reference to Chartbrook v Persimmon  UKHL 38;  AC 1101 and Arnold v Britton  UKSC 36;  AC 1619, the Judge (at ) thought that the question came to this:
" …would reasonable people who entered into a contract in the terms these parties did have thought it so obvious that the sum specified to be payable for premises costs was intended to be subject to alteration by reference to the GMS Premises Directions that there was no need to say that in this detailed and complex agreement it could simply be taken as read? "
The Judge's clear answer to that question was "No". It was not possible:
"….by some process of creative interpretation to make up for the deficiency in the drafting in omitting to include any clause equivalent to clause 440 of the 2004 agreement. "
- Accordingly, the Judge concluded (ibid) that, on the proper construction of the 2007 agreement, the amount payable annually for premises costs was a fixed sum of £77,238 and there was no implied term that the sum would change to reflect whatever sum the Respondents would have been entitled to receive had their entitlement been determined in accordance with the 2004 Directions.
- Thereafter, the Judge went on to dismiss the Appellant's alternative cases on rectification for common mistake and rectification for unilateral mistake. We are not concerned with those issues so no more need be said in that regard.
THE RIVAL CASES ON THE APPEAL
- For the Appellant, Mr Swift QC (who did not appear below) submitted that the amount payable as "rent" in Schedule 7 to the 2007 agreement must track whatever funding method was applicable. Accordingly, so much of the mechanism of the 2004 Directions as was required to deal with the three classes of payment – whether rent payments (strictly so-called), notional rent or cost rent – was incorporated into Schedule 7 of the 2007 agreement.
- As the Judge had accepted, "rent" could not mean rent strictly so-called. The meaning of "rent" could only be understood in context. That context was linked to the scheme of the 2004 Directions and the mechanisms those Directions furnished. The context – and the meaning of "rent" – could not be uncoupled from the 2004 Directions. It was neither here nor there that the 2007 agreement did not contain a clause corresponding to cl. 440 in the 2004 agreement; the same "end point" was reached.
- Accordingly, the figure for "rent" in Schedule 7 must be understood to represent whatever amount was required to meet the actual amount payable by the Respondents to meet the cost of the Loan from time to time. The amount stated (£77,238) was not a fixed amount, a maximum amount or a minimum amount. The Judge's conclusion in this regard ignored the relevant background, including the 2004 agreement, the purpose of premises payments, the expectation that GP practices would inform the Trust of any reduction in the interest payable on such loans and that in the period leading up to the 2007 agreement there was no suggestion of any change to be made to the basis on which such payments were made. Commercial common sense strongly favoured the construction advocated by the Appellant; an enduring obligation to pay a fixed amount, regardless of the Respondents' reduced cost of borrowing, made no sense at all and simply conferred a windfall on the Respondents.
- For the Respondents, Mr Lock QC's submissions were straightforward. First, for the reasons given by the Judge, the treatment of £77,238 in Schedule 7 to the 2007 agreement as a fixed amount did not in any sense give rise to an irrational or uncommercial bargain. Secondly, Mr Lock made considerable play of the changes in the Appellant's case. It had not been contended below (as already recorded) that "rent" in Schedule 7 was intended to track the actual amount payable by the Respondents. Instead the Appellant had contended for rectification or an implied term. Subsequently, the Appellant's Replacement Skeleton Argument for the appeal had resisted the incorporation of the 2004 Directions provisions relating to "notional rent" – but that argument had now given way to the incorporation of the entire mechanism of the 2004 Directions as to premises payments into the 2007 agreement. The Appellant needed to go that far because, under the 2004 agreement and the 2004 Directions, there was no simple correspondence with the amounts paid by the Respondents under the loan; the calculation had turned on the complicated formula/ae in the 2004 Directions. Thirdly, the process of construction simply could not go so far as to incorporate the entire mechanism of the 2004 Directions relating to premises payments into the 2007 agreement. The word "rent" would not bear the weight the Appellant sought and needed to put upon it. Fourthly, if windfall there was to the Respondents, the Appellant had the power to deal with it; as was clear on its face, Schedule 7 was revised annually, so permitting the Appellant to address the question of overpayment, if overpayment for any period of time there had been. But the Appellant had not done so.
THE LEGAL FRAMEWORK
- Two observations suffice as to the legal framework.
- First, although the principles of contractual construction have received repeated attention from the House of Lords and Supreme Court in recent years, it is unnecessary to re-trace now familiar ground. Instead, with respect, the most helpful synthesis furnished by Lord Hodge JSC in Wood v Capita Insurance Services Ltd  UKSC 24;  2 WLR 1095, at  –  is much to be welcomed – furnishing, as it does, a summary of the position overall and emphasising the continuity in the law's approach. In Lord Hodge's words:
"10. The court's task is to ascertain the objective meaning of the language which the parties have chosen to express their agreement. It has long been accepted that this is not a literalist exercise focused solely on a parsing of the wording of the particular clause but that the court must consider the contract as a whole and, depending on the nature, formality and quality of drafting of the contract, give more or less weight to elements of the wider context in reaching its view as to that objective meaning. In Prenn v Simmonds  1 WLR 1381, 1383H -1385D and in Reardon Smith Line Ltd v Yngvar Hansen-Tangen  1 WLR 989, 997, Lord Wilberforce affirmed the potential relevance to the task of interpreting the parties' contract of the factual background known to the parties at or before the date of the contract, excluding evidence of the prior negotiations……
11. Lord Clarke of Stone-cum-Ebony JSC elegantly summarised the approach to construction in the Rainy Sky case  1 WLR 2900, para 21f. In the Arnold case  AC 1619 all of the judgments confirmed the approach in the Rainy Sky case…. Interpretation is, as Lord Clarke JSC stated in the Rainy Sky case (para. 21), a unitary exercise; where there are rival meanings, the court can give weight to the implications of rival constructions by reaching a view as to which construction is more consistent with business common sense. But, in striking a balance between the indications given by the language and the implications of the competing constructions the court must consider the quality of drafting of the clause….; and it must also be alive to the possibility that one side may have agreed to something which with hindsight did not serve his interest….
12. This unitary exercise involves an iterative process by which each suggested interpretation is checked against the provisions of the contract and its commercial consequences are investigated…… To my mind once one has read the language in dispute and the relevant parts of the contract that provide its context, it does not matter whether the more detailed analysis commences with the factual background and the implications of rival constructions or a close examination of the relevant language of the contract, so long as the court balances the indications given by each.
13. Textualism and contextualism are not conflicting paradigms in a battle for exclusive occupation of the field of contractual interpretation. Rather, the lawyer and the judge, when interpreting any contact, can use them as tools to ascertain the objective meaning of the language which the parties have chosen to express their agreement The extent to which each tool will assist the court in its task will vary according to the circumstances of the particular agreement or agreements. Some agreements may be successfully interpreted principally by textual analysis, for example because of their sophistication and complexity and because they have been negotiated and prepared with the assistance of skilled professionals. The correct interpretation of other contracts may be achieved by a greater emphasis on the factual matrix, for example because of their informality, brevity or the absence of skilled professional assistance. But negotiators of complex formal contracts may often not achieve a logical and coherent text because of, for example, the conflicting aims of the parties, failures of communication, differing drafting practices, or deadlines which require the parties to compromise in order to reach agreement. There may often therefore be provisions in a detailed professional drawn contract which lack clarity and the lawyer or judge in interpreting such provisions may be particularly helped by considering the factual matrix and the purpose of similar provisions in contracts of the same type. The iterative process….assists the lawyer or judge to ascertain the objective meaning of disputed provisions.
14. On the approach to contractual interpretation, the Rainy Sky and Arnold cases were saying the same thing.
15. The recent history of the common law of contractual interpretation is one of continuity rather than change. One of the attractions of English law as a legal system of choice in commercial matters is its stability and continuity, particularly in contractual interpretation."
- Secondly, the purpose and limits of contractual interpretation must be underlined. The task of the Court is to identify and give effect to the agreement of the parties; it is not for the Court to make some different bargain because it thinks that the parties or a party would have been wiser to do so. As Lord Neuberger of Abbotsbury PSC observed in Arnold v Britton (supra), it is therefore first necessary to strip out hindsight:
"19. …..commercial common sense is not to be invoked retrospectively. The mere fact that a contractual arrangement, if interpreted according to its natural language, has worked out badly, or even disastrously, for one of the parties is not a reason for departing from the natural language. Commercial common sense is only relevant to the extent of how matters would or could have been perceived by the parties, or by reasonable people in the position of the parties, as at the date the contract was made."
Matters do not, however, rest with eliminating hindsight. Lord Neuberger continued as follows:
"20. ……while commercial common sense is a very important factor to take into account when interpreting a contract, a court should be very slow to reject the natural meaning of a provision as correct simply because it appears to be a very imprudent term for one of the parties to have agreed, even ignoring the benefit of wisdom of hindsight. The purpose of interpretation is to identify what the parties have agreed, not what the court thinks that they should have agreed. Experience shows that it is by no means unknown for people to enter into arrangements which are ill-advised, even ignoring the benefit of the wisdom of hindsight, and it is not the function of a court when interpreting an agreement to relieve a party from the consequences of his imprudence or poor advice. Accordingly, when interpreting a contract a judge should avoid re-writing it in an attempt to assist an unwise party or to penalise an astute party."
- For my part, I am amply satisfied that the Judge was right. In a nutshell and however unfortunate for the public purse, the Appellant's case seeks to stretch the process of construction beyond its proper limits. My reasons follow.
- As to the word "rent" in Schedule 7 to the 2007 agreement, it clearly cannot mean rent, strictly so-called. Both parties were well aware that the Respondents were not paying rent. But, in agreement with the Judge, I am persuaded that "rent" could extend to cover both notional rent and cost rent. Further, as it seems to me and again in agreement with the Judge, the word, in context, would reasonably be understood to "encompass any payments made to reflect the cost of providing premises". I therefore reject the Appellant's submission that the word "rent" must here be confined to "cost rent" (i.e., borrowing costs). But even if wrong about that, I can see no reason why, as a matter of the natural meaning of the language used, the amount was intended to be variable and to track the actual amount paid by the Respondents in respect of their premises.
- To the contrary, on the wording and structure of Schedule 7 to the 2007 agreement, it seems plain to me that the amount of £77,238 stipulated for rent per annum was intended to comprise a fixed amount, representing (as the Judge expressed it) the payment the Trust agreed to make to the Respondents in respect of premises for each year that the agreement remained in force. There is nothing whatever in this agreement to suggest that the sum was intended to be variable. The wording simply does not say so, by stark contrast with other amounts in the Schedule - for Core Contract Service Provision - which are expressly designated as variable.
- The Appellant therefore needs to contend that the 2007 agreement incorporated the 2004 Directions. It is only by that route that a foundation can be laid for the argument that the sum was intended to be variable, tracking the actual amount of cost rent paid by the Respondents. Perhaps understandably, the Appellant's pleaded case drew back from advancing this contention as a matter of construction and, to my mind, the difficulties in its way are insuperable.
- First, the wording of the 2007 agreement says nothing about any such incorporation. If the intention to incorporate the 2004 Directions is to be attributed to the parties, it is surprising that it did not. The "model" for such a clause was furnished by the 2004 agreement; but the 2007 agreement contained no equivalent to cl. 440 in the 2004 agreement. In the absence of a rectification argument, there can be no question of treating such a clause as included to correct a mistake, whether common or unilateral. As a matter of construction of the wording and structure of Schedule 7, the failure to include an equivalent to cl. 440 in the 2007 agreement, points one way: namely, there was no intention to incorporate the 2004 Directions. In all this, it is to be recollected that the 2007 agreement was a lengthy, complex and professionally drafted agreement (Wood v Capita). Moreover, incorporation would be no simple matter; it would need to extend to the complex scheme, covering a variety of payment mechanisms, as found in the 2004 Directions. With respect to Mr Swift's submission, it is not a question of "uncoupling" the word "rent" from the scheme of the 2004 Directions; the issue goes instead to establishing a legitimate basis for linking the word "rent" to the 2004 Directions, so warranting the introduction of those Directions into the 2007 agreement. In my judgment, as a matter of the language of the 2007 agreement and in the absence of an express term (such as cl. 440 of the 2004 agreement), the foundation for such wholesale incorporation is absent. There remains, however, the iterative process (Woods v Capita) of ascertaining whether the contractual background or commercial common sense require a different conclusion.
- Secondly, in my judgment, the contractual background is underwhelming and falls well short of assisting the Appellant to make good its submission as to the incorporation of the 2004 Directions into the 2007 agreement. Reduced to its essentials, this submission hinges on the 2004 agreement incorporating the 2004 Directions and thereby the intention that premises payments were to track the Respondents' borrowing costs. However, this submission founders on the fact that the 2007 agreement in terms superseded the 2004 agreement (see cll. 24 and 469, above) and, as the Judge observed, was different from it, re-drafted as it had been by different solicitors. In these circumstances, it does not at all follow that because the 2004 agreement had a particular meaning, the 2007 agreement must have the same meaning. So too, the absence of any suggestion that there was to be a change to the basis on which premises payments were made, begs the question as to the true construction of the 2007 agreement. Finally, pre-contractual letters from the Trust, calling on GP practices to inform it of any reduction in borrowing costs, strike me, with respect, as no more than a makeweight – incapable of bridging the gulf between the wording of the 2007 agreement and the incorporation of the 2004 Directions for which the Appellant contends.
- Thirdly, commercial common sense will not avail the Appellant here. As explained by the Judge, the Appellant needed to submit that reasonable people who entered into a contract in the terms of the 2007 agreement would have thought "it so obvious that the sum specified to be payable for premises costs was intended to be subject to alteration" by the 2004 Directions, so "that there was no need to say that in this detailed and complex agreement and it could be simply taken as read…". The Judge firmly and, in my judgment, rightly, rejected this submission. As he had earlier observed, this was not a "one-off" agreement between the Trust and the Respondents. The same form of agreement was offered by the Trust to all GPs with whom it was dealing. On this footing, the terms of the 2007 agreement gave certainty; the Trust had capped its liability for premises payments at the level then current. By way of illustration, had the Respondents' borrowing costs increased (because of a rise in interest rates) subsequent to the entry into the 2007 agreement, the Respondents would have been confined to £77,238 per annum; so too, mutatis mutandis, in respect of the Trust's payments to other GP practices. Viewed from the perspective of GPs, there would be winners and losers from such an approach. Accordingly, the Judge concluded that it was not "obviously irrational" for the parties to have contracted on the basis of no provision for future alteration upwards or downwards in premises payments. Accordingly, it was impossible to infer that the incorporation of the 2004 Directions could be taken as read, absent any suitable language of incorporation.
- Pulling the threads together, whether construed "textually" or "contextually" (Wood v Capita), the 2007 agreement meant that the sum specified for "rent" in Schedule 7 was a fixed not a variable amount. If mistake there was on the part of the Appellant in entering into such an agreement, it is not a mistake which, as a matter of construction, the Court can or should correct. As already underlined, there are limits to the role of the Court when construing a contract; that role is to identify and give effect to the bargain agreed by the parties – not, as the Judge put it, to indulge in "some process of creative interpretation to make up for the deficiency in the drafting" in omitting any equivalent to cl. 440 of the 2004 agreement, or to re-write the bargain "so as to relieve a party from the consequences of his imprudence or poor advice" (Arnold v Britton).
- I would dismiss the appeal.
Lord Justice Flaux :
- I agree.