No contract – no worries? Contractor entitled to payment despite no contract

It may surprise some readers that, even when a contract has not been agreed, a claimant may be entitled to payment for services they have provided. The applicable legal doctrine is known as quantum meruit, and a useful illustration is the Court of Appeal's recent judgment in Edubase v Minister of Education [2024] NZCA 430.

Quantum meruit

Latin for the term 'as much as one deserved', quantum meruit relates to a claim to recover a reasonable amount for services provided from one party to another.

A quantum meruit claim can be based on a contract between the parties where there is no express method to determine the price. Quantum meruit can also apply where there is no contract between the parties, but it would be unjust to deny a party remuneration for their work.

A claim in quantum meruit will be established if:

• Party A has provided services to Party B;
• Party A clearly communicated their expectations of being paid; and
• Party B freely accepted or allowed the services to be provided to them by Party A.

In these circumstances, Party A may be entitled to a fair remuneration for its services. The courts will typically determine the amount by considering the market value of the services provided but they will also look at the specific commercial relationship in question.

Edubase v Minister of Education [2024] NZCA 430

The Court of appeal recently upheld a quantum meruit claim and ordered the Ministry of Education to pay a reasonable amount to Edubase for its carer services over the first COVID-19 lockdown.

Edubase is a provider of home-based childcare which receives subsidies from the Ministry of Education.

In March 2020, Edubase was providing home-based childcare to approximately 600 children. This arrangement was interrupted on 25 March 2020 when New Zealand was placed into a nationwide lockdown in response to the COVID-19 pandemic. The government recognised that home-based childcare would still be required for the children of parents working in essential services and introduced a scheme to provide and fund the necessary care. It approached Edubase to participate in the scheme.

Edubase began providing its services from 27 March 2020, contracting educators at a rate of $12.50 per child per hour based on its understanding that it would be funded $30 per child per hour. However, on 1 April 2020 it was advised that the scheme would fund the carers $25 per hour and providers like Edubase would receive a $60 placement fee per carer to cover administration costs. This model meant that Edubase received far less funding than expected.

Edubase continued to provide its services, but communicated that it was seeking different terms for the arrangement. Edubase had never signed a contract with the Ministry of Education, nor had it invoiced the Ministry for the administration fees. On 27 April 2020, Edubase withdrew from the scheme after a failing to secure an improvement to the terms.

Edubase brought proceedings in the High Court to recover what it believed to be fair remuneration for its services. The High Court dismissed their claim, so Edubase appealed to the Court of Appeal.

Court of Appeal decision

The Court of Appeal noted that Edubase never agreed to the terms offered by the Ministry of Education. It had expressly reserved its rights to continue negotiating terms, including the administration fee. The fact that it continued to provide its services and invoice the Ministry for the carer rates did not, in the Court's view, amount to a finalised contract between the parties. The Ministry continued to accept the services knowing the parties were yet to agree on the fee. It therefore could not argue that Edubase had affirmed the contract and intended to continue on the terms provided.

The Court was then required to determine a reasonable price that a person in the Ministry's position would have to pay for the services. The market value of Edubase's services was the amount that would see Edubase in substantially the same position that it would have been in providing its usual services. This meant the advanced bulk funding and wage subsidy should be included in what a reasonable fee was.

However, the Court acknowledged that a reasonable purchaser of Edubase's services would have appreciated that more administrative work would have been required to implement the new scheme.

Key takeaway

The absence of a contract, or clear contractual terms to determine payment, may not prevent a contractor from getting paid. However, it is always best to have a clear agreement in place to avoid the risk of a dispute. Disputes are time consuming and expensive to resolve. Contact a member of our team if you would like help drafting a contract or navigating a contractual dispute.

This article was written with the assistance of Jori Whitfield-Topp, Solicitor in the Wellington Litigation team

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