In David Krebs v NHS Commissioning Board (As successor body to Salford Primary Care Trust) [2014] EWCA Civ 1540 The Court of Appeal ruled that the NHS Commissioning Board (NHSCB) had not acted unreasonably in terminating a contract for securing dental services.

The use of the word "reasonable" in the contract should not be read in a strict public law sense, as laid down in AP Picture Houses v Wednesbury Corporation [1948] 1 KB 223, even where a public body was party to the contract. The dentist's public law claims were rejected and he was confined to contractual private law remedies. The court also held that he had failed to show that any goodwill associated with his practice constituted a "possession" for the purposes of Article 1 of Protocol 1 to the European Convention on Human Rights (ECHR).

Dr Krebs, a dentist, appealed against a first instance ruling that the NHSCB was entitled to terminate his contract for providing dental services.

Clause 10 of the contract said that the NHSCB "must act reasonably and in good faith and as a responsible public body". Clause 11 said that clause 10 did "not relieve either party from the requirement to comply with the express provisions of [the] contract and [that] the parties are subject to all such express provisions". Clause 197 said that Dr Krebs must comply with the requirements of the National Clinical Assessment Service (NCAS).

The NHSCB initially raised concerns in 2008 about Dr Krebs' performance, in particular regarding: (i) poor diagnosis, treatment and treatment planning; (ii) poor record keeping; and (iii) excessive claims for remuneration. In 2012, the NHSCB terminated the contract as Dr Krebs had failed in his obligation to co‑operate with an assessment of his practice by the NCAS. However, the NHSCB then wrote to him in November 2012 (the November Letter) saying that it did not intend to terminate his contract until the dispute had been resolved. In April 2013, the NHSCB issued a termination notice following his refusal to undergo the NCAS assessment.

Dr Krebs brought proceedings against the NHSCB seeking a private law remedy for breach of contract and a public law remedy, and/or a remedy under Protocol 1, Article 1 to the ECHR which provides for the right to peaceful enjoyment of possessions. At first instance the judge found against him. In his appeal, Dr Krebs submitted that:

• the November Letter had cancelled the termination, meaning that, unless a fresh termination notice was served, the contract was still legally alive. There could be no fresh termination as Dr Krebs had subsequently agreed to an NCAS assessment or, alternatively, that the dispute had been resolved;
• the notice of termination was in breach of the NHSCB's obligation to act reasonably and as a responsible public body. It was perverse of the NHSCB to terminate his contract on the basis that he had initially declined to co-operate in an assessment;
• he was entitled to pursue public law remedies because the NHSCB was a public body that had acted unreasonably and disproportionately; and
• he could rely on Article 1 of Protocol of the ECHR because the goodwill attached to his practice was a possession of which he had been wrongly deprived.

Appeal dismissed

His appeal was dismissed. The Court of Appeal held that the parties had agreed that the contract had come to an end in October 2012. In the November Letter, the NHSCB agreed to postpone Dr Krebs' termination until the dispute was resolved. The effect was no more than a concession that the NHSCB would, temporarily, not act on the termination. In any event, the NHSCB had issued a "remedial notice" requiring Dr Krebs to give it access to his records. This notice had not been complied with and the NHSCB had been entitled to, and did, terminate on the grounds of non-compliance by way of a fresh notice of termination served in April 2013.

Clause 11 of the contract made clear that a contracting dentist had to comply with the express provisions of the contract, and clauses 10 and 11 together meant that Dr Krebs had to co-operate with NCAS even if he considered that its action was unreasonable or in bad faith or not in accordance with a responsible public body's duties.

Longmore LJ said that if contracts between private parties require either party to act reasonably in a particular respect, the courts were traditionally reluctant to import principles of public law as a guide to construction. The courts therefore assessed reasonableness in such contracts without regard to Wednesbury considerations. Whether, as Dr Krebs alleged, the NHSCB acted unreasonably or other than as a responsible public body in seeking to terminate his contract raised the question of whether the breach of the obligation under clause 10 had to be assessed using the Wednesbury test. In effect, this would have meant deciding whether the NHSCB had to be assessed as having acted in a way no responsible or reasonable public body would, or whether "reasonably" could imply a different standard.

Longmore LJ held that the word "reasonable" in clause 10 did not have to be read in a Wednesbury sense even though the contract was with a public body and even though clause 10 referred to the concept of a responsible public body.

On the facts, the NHS had not acted unreasonably. Indeed, Dr Krebs himself had belatedly accepted the need for an NCAS assessment. This showed that the NHSCB had been right to require him to co-operate with an NCAS assessment in the first place.

The same findings of fact satisfied the requirements of proportionality. It followed that Dr Krebs was confined to his private law remedies. If he could not show a breach of contract by the NHSCB, that was the end of the matter – there could be no relevant remedy under the ECHR for a contract which had been legitimately terminated.

COMMENT

The concept of reasonableness is central to English law in, for example, crime, tort and in many contracts (for example obligations to use "reasonable endeavours"). It is also assumed to be the hallmark of the "man on the Clapham omnibus".

However, it is a word of highly variable meaning – for example, in self-defence, the standard relates to decisions made "in the agony of the moment"; in the context of decisions made by company directors, it relates to what a director with his or her particular experience and qualifications might reasonably decide. In contract, "reasonable endeavours" has a specific, judge-made definition. Elsewhere it may be a more objective standard of rationality, but in civil cases it is, ultimately what is reasonable in the eye of a particular beholder – the judge.

In this case, the court acknowledged the distinction between the specific, and stringent, standards of the test of reasonableness in the Wednesbury sense, and those applicable to contract.

The courts are prepared to dilute the Wednesbury test where the context dictates and also to differentiate between the meaning of reasonableness in a private law context and its meaning in the Wednesbury sense, which applies to actions by bodies subject to public law. In this context, the Court of Appeal's decision may seem surprising, as the contract specifically stated, in clause 10, that the NHSCB had to act as a "responsible public body". However, this did not relieve Dr Krebs of his obligations under clause 11 to comply with the express provisions of the contract. The court recognised that the interaction between clauses 10 and 11 was a "difficult" and "important" question, but, as the NHSCB had followed the termination provisions correctly, questions of reasonableness did not arise. The court's thinking on whether a public, or private, law standard of reasonableness would be applicable to the contract, is not entirely clear. Its conclusion seems to have been that, as the NHSCB had acted properly in accordance with the contract, there was no need to consider potentially different tests for reasonableness.

The apparent oddity of Dr Krebs being obliged to comply with his obligations when, if he was right, the NHSCB had wrongfully purported to terminate the entire contract was resolved, in the specific circumstances, by the fact that there had been an order that the contract was to be treated as continuing until the matter had gone to trial. It is unclear whether the court would have reached the same decision if Dr Krebs had not been allowed to continue in practice.

In this instance, the court was reluctant to import principles of public law into contracts between private parties as a guide to construction unless public concepts are deliberately introduced into the contract. However, it may not always be entirely clear, when a contract is being negotiated, whether the public or private law test should apply. On this basis, a party which is contracting with a body which may be subject to both private and public law regimes may want to ensure that the criteria by which reasonableness and proportionality will be assessed are clearly specified.