In an application for dispute resolution (SHA/16033), the Family Health Services Appeal Unit (FHSAU) has recently upheld a decision of a PCT to terminate a contract for general dental services (the contract) following a contractor’s sentence to 20 months imprisonment for defrauding the NHS.

On 4 October 2010, the contractor was convicted of defrauding the NHS and sentenced to 20 months imprisonment. There was no dispute as to whether the PCT had a legitimate right to terminate the contract, the substance of the dispute focused on:  

  1. whether the discretion to terminate was exercised fairly and in good faith; and
  2. if so, whether Notice of Termination was effective.  
  1. Was the Discretion to Terminate Exercised Fairly and in Good Faith?

The contractor submitted that in seeking to exercise its right to terminate, the PCT did not act in accordance with clause 10 of the contract which requires the PCT to act in good faith and as a reasonable public body in discharging its functions on the basis that: it was not in the public interest to terminate the contract, the practice was a busy NHS dental practice performing an important service to the community, the offence of fraud was committed prior to the contract and at a different practice, patient safety had never been at risk, there had been no suggestion of failure to comply with any substantive points of the contract and termination would cause substantial disruption to the patients and staff of the surgery including the loss of jobs. In addition, the contractor also asserted that the contract would transfer to a partnership contract, he would leave the partnership and therefore would have no involvement with the practice and all property will be transferred to the new partner.

It was held that the PCT had exercised its discretion reasonably in accordance with clause 10 of the contract for the following reasons:  

  • the timing and location of the offences was irrelevant for the purposes of determining whether the PCT acted reasonably and in good faith;
  • if by virtue of regulation 4 National Health Service (General Dental Services (Contracts) Regulations 2005, the PCT cannot contract with a contractor who has been convicted of a criminal offence and sentenced to a term of imprisonment of more than six months, it must therefore be reasonable to terminate the contract in the same circumstances;
  • it was reasonable for the PCT to have concluded that as a result of the conviction, the PCT had no trust in the contractor and did not wish to remain in contractual relationship with him, notwithstanding the fact that the conviction related to offences that pre-dated the contract and related to a different practice;
  • the reasonableness of the PCT’s actions should be judged against the totality of the information it had about the contractor at the time the termination notice was served; the subsequent assertions made by the contractor as to divestment of property and his position as employer should therefore be disregarded;
  • the interests of the PCT in providing a public service must weigh more heavily in the balance than the effect of termination on the contractor and his staff; and
  • the argument that termination was unreasonable and not in the public interest as it would cause substantial disruption to patients and staff was not accepted on the basis that the PCT could ensure continuity and quality of service through tendering of the contract.  
  1. Notice of termination - was this effective?

Having determined that the PCT did have discretion to terminate and that that discretion was exercised reasonably in accordance with clause 10; the FHSAU then considered whether that termination was effective. The contractor sought to argue that the contract ought not to be terminated as it had been validly transferred to a partnership contract at the time the termination notice was issued. The PCT argued that the contract had not been transferred as it was not satisfied that the partnership notice complied with the requirements under regulation 62 and clause 293, more specifically that there was ambiguity as to whether the partnership would be a general or a limited partnership and therefore the PCT was not satisfied as to the accuracy of the information provided or whether the partnership was a genuine partnership. Therefore, the PCT argued that it was not obliged to permit the contractor to practise in partnership until it was so satisfied.  

It was held that:  

  • The ambiguity as to whether the partnership was intended to be a general or limited partnership was not in itself sufficient to contest the accuracy of the matters contained in the partnership notice, as the partnership would in fact become one form of the two. However, coupled with concerns as to whether there was any legal and valid substance behind the partnership or whether it was intended to be a “sham” partnership, that did support concerns as to the accuracy of the information provided in the partnership notice;
  • It was reasonable for the PCT to await the contractor’s sentencing before being able to determine the accuracy of the partnership notice and provide a formal response. The PCT was therefore not in breach of the contract terms by failing to respond to the contractor with a formal notice of acceptance within the 28 day period requested;
  • The termination notice was therefore correctly served on the contractor on the grounds that he was in breach of clause 324.5.2, by virtue of his conviction on 4 October 2010; and
  • Even if the contractor was acting in partnership at the time the termination notice was issued, the PCT would still have been entitled to terminate the contract pursuant to clause 323.2 which provides for termination in the case of a contract with two or more individuals practising in partnership, where any individual falls within clause 324 during the existence of the contract.