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

How much detail must be included within a termination notice?

The background
Tees Esk & Wear Valleys NHS Foundation Trust entered into a funders direct agreement (FDA) with the defendants and later served notice under the FDA. The giving of such notice was a condition precedent to terminating a private finance initiative (PFI) project agreement.

The Trust's right to terminate the project agreement was not disputed. However, a condition precedent was the provision of various notices to funders in accordance with the FDA, so that the funders could decide whether to step-in to the project company's place. The funders alleged that the Trust had failed to comply with its obligation under paragraph 3.2.2 of the FDA to serve a notice. The paragraph read:

"…containing details of any amount owed by Project Co to the Trust, and any other liabilities or obligations of Project Co of which the Trust is aware (having made proper enquiry) which are: (a) accrued and outstanding at the time of the Termination Notice; and/or (b) which will fall due on or prior to the end of the Required Period, under the Project Agreement."

The decision
The judge held that:

• whilst the notice listed some liabilities that were unquantified (marked "TBC"), the Trust was not required to provide quantum details of claims that did not give rise to an obligation to make payment or where the quantum had not yet been ascertained. The funders' liability to make payment if it stepped-in was limited to amounts that had been quantified;
  
  
• the Trust was not obliged to provide evidence of having made "proper inquiry". In any event, the impact of inadequate inquiries would have been to deprive the Trust of its right to terminate based on non-payment rather than to invalidate its notice under paragraph 3.2.2.
  

Why is this important?
This case highlights the potential implications of a notice provision being subject to a particular level of detail, when ultimately, such details may not be available at the time that notice is given. Such circumstances could then have unintended consequences and render other terms ineffective.

Any practical tips?
Parties negotiating step-in provisions must balance the need for detailed information regarding liabilities against the difficulty of ascertaining those amounts with any certainty at the time of the notice or within a limited timescale.