Edubase Limited v Minister of Education [2022] NZHC 795 (19 April 2022)

Last Updated: 21 April 2022

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE

CIV-2020-485-484 [2022] NZHC 795

BETWEEN	EDUBASE LIMITED Plaintiff
AND	MINISTER OF EDUCATION Defendant

Hearing:	21-24 March 2022
Counsel:	D M Fraundorfer, R A Rosser (for 21 March only), and J Curtis for Plaintiff M Colson QC and N Fong for Defendant
Judgment:	19 April 2022

JUDGMENT OF CHURCHMAN J

TABLE OF CONTENTS

Introduction

The plaintiff [1]

The lockdown [10]

The childcare scheme [12]

The 2021 lockdown [22]

The parties’ cases

Plaintiff [23]

The defendant [33]

Evidence

David Best [41]

Christopher Downey [75]

Stacey Dunn [81]

Paul Moriarty [92]

EDUBASE LIMITED v MINISTER OF EDUCATION [2022] NZHC 795 [19 April 2022]

Defendants’ witnesses

Colin Meehan	[107]
Siobhan Murray	[123]
Barry Jordan	[149]
Findings of fact Estoppel/affirmation	[165]
Quantum meruit	[193]
Conclusion	[215]

Introduction

The plaintiff

• [1] The plaintiff, Edubase Limited, is a childcare provider specialising in Early Childhood Education (ECE). It is headquartered in Tauranga. It is the second largest licensed provider of home-based childcare in the country.

• [2] The people who actually deliver the childcare/ECE services are referred to as educators. Nationally, Edubase has some 120 educators. These educators care for/educate the children in their own homes. They are permitted to have up to four children in their care at any one time. They may have different children in their care on different days of the week. They may also have children of their own at home.

• [3] In March 2020, Edubase had some 600 children in the care of their educators on a regular basis. All of the educators who actually care for the children are independent contractors.

• [4] Edubase also has a small number of nannies. These people provide services in other people’s homes and work only for a single family. They differ from the educators in that they receive fixed hourly remuneration that does not vary according to the number of children they care for.

• [5] In March 2020, Edubase had some 22 employees known as “Visiting Teachers”. These Visiting Teachers are permanent employees. The regulations

governing ECE¹ require a licensed provider of such services to have Visiting Teachers who undertake vetting, quality control of the educators and their homes, and provide support for the individual educators.

• [6] In addition to the Visiting Teachers, Edubase had a Head Office staff of some 11 people, including five payroll and administrative staff. All of the Head Office staff were employees working either fulltime or close to it.

• [7] The overwhelming majority of Edubase’s income is derived from Government subsidies funded through Ministry of Education ECE funding. The Government provides substantial subsidies for ECE. Edubase takes a portion of every funded hour to cover overheads and profit and pays what is left to the educators. Some educators may also receive payments from parents. Many educators, particularly those who care for only one or two children, make less than the minimum wage. Because they are independent contractors, they are not entitled to benefits such as paid holidays, sick leave, or employer KiwiSaver contributions. They must pay their own ACC levies.

• [8] Ministry funding of those providing ECE services is paid on a “per child per hour” basis. Three times a year the Ministry of Education pays ECE providers by way of a bulk payment calculated at 75 per cent of estimated child attendance for the coming four months. The payment is made in advance. There is a wash-up payment made once the actual enrolment figures are known.

• [9] On 2 March 2020, Edubase had received from the Ministry of Education its bulk 75 per cent payment for the coming four months.

The lockdown

• [10] On 23 March 2020, at the beginning of the COVID-19 pandemic’s outbreak in New Zealand, the Prime Minister, acting on the advice of the Director-General of Health, implemented a nationwide lockdown. As a consequence of the lockdown, schools and early childhood education providers were required to close on 25 March 2020.

¹ The Education (Early Childhood Services) Regulations 2008 (the Regulations).

• [11] Despite the lockdown – people who worked in essential services were still required to attend work. This meant that essential workers with children required new childcare arrangements to enable them to undertake essential work.. On 25 March 2020, the Secretary for Education issued a direction under s 476C of the Education Act 1989 permitting specified education entities to open for children of essential workers. Edubase was one of the specified education entities allowed to open, alongside PORSE and Barnados who were the other two largest ECE providers.

The childcare scheme

• [12] On 25 March 2020, an employee of the Ministry, Mr Colin Meehan, approached Edubase through its Chief Executive, Mr David Best, to see if it was interested in providing childcare for the children of essential workers. There was a telephone call, and two emails. One of the emails contained the following passage:

Prime Minister has announced it, so we are all go. Unfortunately, a draft version of the Bulletin has been distributed to ECAC members but contained errors.

What we are thinking (subject to change, and welcome any thoughts/feedback you have).

We will contract your organisation (and the other two) through a contract for service.

This contract will sit outside other MoE arrangements, so as not to affect other funding arrangements such as the 6 hr maximum for the ECE subsidy (I’m in conversation with MSD to confirm the same).

The figure we are working with is $30 per hour – at this point this is subject to Treasury approval but this is the figure we put forward.

The contract for service would be with the licenses [sic] service, with an expectation that the home educator is appropriately remunerated. The arrangement between licensed service provider and home carer is yours to manage.

• [13] Edubase’s case is that Mr Best reasonably took this email and other comments from Mr Meehan to mean:

(a) that while the terms of payment for the Service were subject to Treasury approval, the Ministry expected to pay providers around $30 per hour per child (typically inclusive of GST);

(b) that these payments would be made to the provider, who was free to contract with individual carers on suitable terms;

(c) that approval was likely to be granted on these terms; and

(d) that the terms of approval may be better than the terms indicated.

• [14] Edubase contends that in reliance on the approach from Mr Meehan and what are said to be his representations, it provided childcare through the educators for children of essential workers between 25 March 2020 and 27 April 2020. Edubase entered into contracts with 105 carers to provide services within the period noted above, as independent contractors. The contracts entered into prior to 1 April 2020 provided for the carers to receive $12.50 per hour per child.

• [15] Prior to the signing of any contract with the Ministry, Edubase says that it incurred liability to the carers for payment for the services that they would provide. In the period in which Edubase was making arrangements to provide the services, it had further contact with Mr Meehan, who was not able to answer all of their questions, but encouraged them to “keep on working to meet the needs of essential workers while the Government was still catching up”.

• [16] On 1 April 2020, the Ministry advised Mr Best that it was prepared to enter into a contract with Edubase. The proposed contract provided that:

(a) the Ministry would pay carers the sum of $25 per hour for providing the services; and

(b) the Ministry would pay Edubase a flat administration fee of $60 plus GST per carer.

• [17] On the same day, Edubase was required to make payments to the carers under their contracts. It did so, paying the carers at the rate of $25 per hour. This resulted in an increase for some carers who were being paid $12.50 per hour per child, and a decrease for some (because they had more than two children in their care).
• [18] Between 1-9 April 2020, further correspondence continued between Mr Meehan and Mr Best, in which Mr Best objected to the contract, and indicated that Edubase were not prepared to accept the administration fee as its total recompense. He also indicated that Edubase was paying some carers over and above the $25 per hour level because they felt obliged to do so. Mr Best asked the Ministry to honour what he said was his understanding of the agreement to pay $30 per child per hour but did not invoice for payments at this rate.

• [19] The Ministry paid the invoices submitted by Mr Best in respect of the carer’s hours. These payments were passed through to the carers. A total of $250,674.39 (excluding GST) was paid (for 18,101 childcare hours, on a ‘per work hour’ basis). Edubase did not invoice the Ministry for the $60 administrative fee.

• [20] Mr Meehan expressed the view that the scheme seeking to provide care during lockdown periods was not intended to be a further business opportunity given that normal ECE funding had been guaranteed and already paid for the period within which lockdown occurred. This meant that home-based ECE providers had already received 75 per cent of their funding in advance for the upcoming four months and none of that funding was going to be clawed back even though no ECE activities could take place during the lockdown.

• [21] Edubase ceased to provide essential services care when New Zealand moved to Level 3 on 27 April 2020, on the basis that their concerns had not been meet.

The 2021 lockdown

• [22] When in August 2021, essential care services were again needed, the Ministry offered a new contract to Edubase with remuneration calculated at a rate of $25 per hour to go to the carer and $10 per hour to the provider. Edubase accepted this

The parties’ cases

Plaintiff

• [23] Edubase submit that the draft written contract it received on 1 April 2020 was materially different from the initial proposal. No agreement could be reached between

the parties on mutually agreeable terms. Edubase’s submission is that, given the initial representations by Mr Meehan, the Ministry is estopped from resiling from express and implied representations it made in emails, phone calls, and Ministry/Government announcements. In the alternative, Edubase seeks to recover a fair price for the services it performed under quantum meruit.

• [24] Edubase submits that Mr Best understood “$30 per hour” to mean what he says such a phrase always means within the ECE industry: an hourly payment rate for each child being looked after. Under this interpretation, they would be entitled to receive

$90 per hour of care in respect of a carer who looked after three children. The care would be provided by independent educators who would receive only $37.50 of a $90 hourly payment or $12.50 of a $30 payment if only one child was cared for. They submit that the Ministry represented that an agreement was likely to be provided on the terms of Mr Meehan’s email.

• [25] Edubase submits that they never accepted the written contract actually provided to them on its express terms, and that the Ministry had actual knowledge of this. Therefore, they contend that a reasonable person would not be able to conclude that Edubase had accepted the Ministry’s offer through conduct.

• [26] In respect of estoppel, Edubase submits that it reasonably formed the belief that the Ministry would provide $30 per child per hour of care, based on statements and conduct of the Ministry, and the industry specific knowledge as to the basis upon which remuneration for ECE services was usually calculated. They say that to now deny payment on this basis would be unconscionable. They say they were enticed to provide services they would not have had they known the Ministry’s true position. To this end, Edubase relies on Villages of New Zealand (Pakuranga) Ltd v Ministry of Health.²

• [27] As to the argument by the Ministry that the representations were not sufficiently unequivocal, Edubase submit that it is not only Mr Meehan’s email that forms the basis of the representation that they would be paid $30 per child per hour,

² Villages of New Zealand (Pakuranga) Ltd v Ministry of Health HC Auckland CIV-2003-404-5143, 6 April 2005.

but rather the broader context of the fast-moving environment, including announcements by the Prime Minister, creating the overall implication that Treasury approval was in the nature of a formality.

• [28] Edubase submit that their reliance on what they understood to be the representations made by the Ministry was reasonable. They say that when interpreting contracts, industry practices are regularly used to justify the insertion of implied terms.

• [29] In respect of detriment, Edubase submits that it suffered financial and time- based losses. During the relevant period they say that they almost entirely redirected their overhead costs towards providing the services required, and that this took up some 70-80 per cent of its workload. They submit that they could have otherwise directed their overhead costs towards other business opportunities, as they assert their industry counterparts that were not providing care under the Scheme were able to do.

• [30] They invite the Court to determine the appropriate relief necessary to achieve a just and proportionate outcome in all the circumstances. Edubase seeks expectation- based relief, based on what they say was the clear representation of the Ministry.

• [31] As to the second cause of action, Edubase submit that this is a classic case for restitution on the basis of quantum meruit. Services were provided to the Ministry outside of a contract. The Ministry requested the services and received the benefits in an emergency scenario in which Edubase was exposed to health risks. Edubase should be fairly compensated for the work it completed, as it would be unjust for the Ministry to receive the benefit without paying on the basis of what was indicated.

• [32] Under the quantum meruit claim Edubase submit that the Court can have regard to evidence of what the fair market value of the services was. Edubase seeks

$316,748 as the fair value for its services, or $265,164 on a ‘business-as-usual’ approach. In the alternative, Edubase seeks equitable damages in the sum the Court deems just to compensate it for the services it provided.

The defendant

• [33] The Ministry denies both liability and quantum. It denies that any representation by the Ministry could be reasonably understood to mean that its proposal offered a payment of $30 per hour per child, and that by continuing to perform the services following the provision of the draft contract, invoicing the Ministry for charges incurred, and receiving payment, Edubase accepted the terms by conduct, performing its core obligations under the contract. The Ministry acknowledges that Edubase has not invoiced for the $60 administration fee which has therefore not been paid.

• [34] The Ministry submits that like all policy development processes, the development of the Childcare for Essential Workers Scheme was iterative. The Ministry emphasised to Edubase at the relevant times that there were matters subject to change, pending approval from Treasury and ultimately Cabinet. They submit that the alleged representations fell far short of being “unequivocal”. The emails in question were replete with qualifiers: “what we are thinking”, “subject to change”, “welcome any thoughts/feedback”, “figure we are working with” and “this is subject to Treasury approval”.

• [35] The Ministry seeks to distinguish its relationship with Edubase from being akin to two commercial parties in a negotiation. To this end, it relies on the fact that the childcare scheme was to be applied consistently across all providers and ultimately was, across a total of 30 other providers. The Ministry submits that what Edubase is claiming amounts to a challenge to Government policy or to a governmental decision, so as to make relevant to their private law claim, the wider public law context.

• [36] A significant feature of the Ministry’s case is their submission that the relationship between Edubase and the Ministry must be viewed in the context of the other Government monies paid to Edubase during the relevant period, in particular, that prior to the development of the scheme, the Ministry had already paid

$1,060,791.24 advance funding (standard ECE subsidies) to Edubase, representing 75 per cent of their funding for providing ECE services from February to May 2020.

• [37] The Ministry made it clear that it would not claw back any of that funding despite the fact that normal ECE services could not be delivered at all during Level 4. Edubase also received a total of $215,088 as part of the COVID-19 wage subsidy. The funding under the Childcare for Children of Essential Workers’ Scheme was specifically excluded from being taken into account in determining eligibility for that wage subsidy. The Ministry submits that these matters go towards showing that there has been no unconscionability on its behalf in relation to the Scheme. Edubase was in the same position before and after the Scheme. If it had received the value of what was claimed to be the original representation, then it would have received a profit in the relevant period far beyond anything it had ever made previously.

• [38] In the Ministry’s view, the dispute focuses primarily on the objective meaning of the communications between the parties. The Ministry submits that it was not reasonable for Edubase to rely on its interpretation of Mr Meehan’s representation that it would be paid $30 per hour per child, given that at that time the ECE subsidies ranged only from $3.94-$9.59 per child per hour. Edubase’s reliance on its interpretation of Mr Meehan’s statements required it to believe something that was simply unrealistic. The Ministry submits that Edubase is merely disappointed by an unfulfilled promise and has not suffered sufficient detriment to raise an estoppel. They contend that expected income not received is not detriment for the purpose of estoppel.

• [39] Finally, the Ministry submit that the $60 administration fee was the reasonable price for the services that were sought to be provided. They contend that any reference to market value is unhelpful because of the unique situation; that there is no definable market, especially given the scheme was of short duration. They say that the best indicator of market price is what other providers were prepared to accept. Thirty other providers accepted the terms offered by the Ministry. They challenge Edubase’s approach to quantifying a reasonable price as being unsound.

Evidence

• [40] The plaintiff called four witnesses:

(a) David Best, who is the director of Edubase and, with his former wife, a 50 per cent shareholder in the business;

(b) Christopher Downey, a chartered accountant in private practice who has prepared the financial accounts for Edubase;

(c) Stacey Dunn, the Business Development Manager of Edubase; and

(d) Paul Moriarty, a chartered accountant and business valuer, engaged by Edubase as an expert witness to provide opinion evidence on various financial matters.

David Best

• [41] Many of the uncontested aspects of Mr Best’s evidence have already been set out. He explained that the ECE services provided by Edubase through some 120 independent contractors was regulated by statute and that one of the requirements for providers was the establishment of a Visiting Teacher network to provide supervision and mentorship of the educators.

• [42] Other benefits provided by Edubase to the independent contractors were cheaper P&L insurance and first aid certification as well as business support with things such as guidance, mentoring and marketing. Assistance to the independent contractors also involved managing funding, bookings, absences, and advertising, as well as collecting and distributing various payments including Government grants and subsidies and some parent payments. Edubase also facilitates the required Police vetting of the educators and the checking of their homes to ensure they meet the Ministry of Education’s requirements.

• [43] Mr Best explained that Edubase’s business model was that it took a portion of every hour of care funded by the Government to cover its costs and make a profit and then paid the balance to educators as a resource grant on a per hour per child rate.

• [44] During the course of the hearing, Mr Best produced an exercise book which had some handwritten notes that he said were made at the times of his discussions with Mr Meehan. Those notes have an entry “$30 +GST Contract for Service”.
• [45] Mr Best says that during a telephone discussion on 25 March 2020, Mr Meehan said that the Ministry was looking at paying a rate of around $30 per hour for the new Scheme. Mr Best does not allege that Mr Meehan said that the rate would be $30 per hour per child, but said that “Because of how Ministry funding usually works, we understood this to be a reference to $30 per hour per child.”

• [46] Mr Best’s evidence detailed a process of ongoing telephone communication and email exchanges between him and Mr Meehan which included advice as to potential details of the proposed scheme and updates on how the proposal was progressing through the necessary Government decision-making procedures.

• [47] In advance of being presented with a written contract, Edubase got underway making arrangements for their educators to provide care for the children of essential workers and, by Friday 27 March 2020, had arranged for some 26 of their educators to provide such care.

• [48] Edubase had signed contracts with these educators for them to be paid at a rate of $12.50 per hour per child on Mr Best’s assumption that Edubase would be receiving

$30 per hour per child, and would be able to retain $17.50 per hour per child to cover administrative expenses and profit.

• [49] Mr Best said that on Monday 30 March 2020, he went back to Mr Meehan noting that the first payment to the educators would be due on Wednesday 1 April 2020. He noted Mr Meehan telling him that Cabinet would be considering funding later that day and that Mr Meehan was hopeful that the “proposed number was going to be better than expected”.

• [50] Mr Best says that mid-afternoon on Wednesday 1 April 2020, Mr Meehan sent an email providing him with details of the funding that had been approved for the scheme. This was that educators were now to be paid a flat rate of $25 per hour with this sum to be paid directly to them without deduction, and that the providers would be paid a one-off $60 administrative fee for each educator.
• [51] Mr Best says that Edubase would never have undertaken the work if they had known that their fee would be $60 per educator placed. His explanation for continuing to provide the services after 1 April when he had become aware of the details of the scheme as finally approved was that, by this time, Edubase “had no option to continue” and that it:

...had already signed contracts with educators, and the Ministry had already told the public that we were one of the providers who could be contacted to provide this care. We were in a position where we had no choice but to continue.

• [52] Once details of payment for the scheme became public, the educators contacted Edubase about the difference between the $25 per hour it had been announced they would be paid as opposed to the $12.50 per child per hour they were receiving. Mr Best notes that the $25 per hour payment was an increase for many but a step backwards for those who had three children in their care. He says, “We felt we had to honour the commitment we had made to educators who were entitled to more than $25 an hour at our own cost.”

• [53] Mr Best was cross-examined on this claim.

• [54] He initially indicated that there was some 13 educators who Edubase continued to pay out of their own funds. However, he was then referred to a copy of an email that he had sent to Edubase’s finance manager enquiring as to whether or not she had “...still claimed time and a half for families with three children, are we paying anyone still at the $12.50 rate for three families?” and had received a reply which said: “There’s only one carer who insisted on being paid $12.50 per hour.”

• [55] In respect of that carer, Edubase had inflated her hours so as to claim “time and a half” from the Ministry (i.e. 62.25 hours as opposed to the 41.5 hours actually worked). Mr Best attempted to downplay that action describing it as an “indiscretion”.

• [56] I find that Mr Best’s claim that Edubase was paying some carers out of their own funds is unsubstantiated. There is no evidence that Edubase was out of pocket at all as a result of paying any carer $25 per hour.
• [57] Between 1 April when Mr Best was notified of the terms of the contract and 7 April when he received a copy of the contract, he had continued to exchange emails with Mr Meehan setting out his contention that the fee being offered to Edubase was too low.

• [58] On 1 April 2020, after receiving the email outlining the details of the scheme, Mr Best called Mr Meehan. He made a file note of that telephone conversation and the relevant part of the note recorded that in light of the proposed funding arrangement “he should just pull out”. This was corroborated in Mr Meehan’s account of this telephone conversation which is set out at [116] below.

• [59] Under cross-examination, Mr Best acknowledged that a letter from the Associate Deputy Secretary of the Ministry that was provided around the time he received the draft contract made it clear that the services that the Government was seeking under the scheme were childminding or babysitting services rather than educational services, and that the provision of those services was not regulated in the way that ECE services were.

• [60] Mr Best also acknowledged that the letter explained the basis upon which a

$60 placement fee had been set was because the normal administration and governance costs were being met by the 75 per cent ECE grant which was not being clawed back.

• [61] In cross-examination, Mr Best was referred to the notes which he said he made at the time, which appeared to indicate that Edubase had the systems necessary to administer the scheme up and running within a couple of days. Mr Best also confirmed that although the salaried staff were very busy over the initial few days, they were not, at any time, paid overtime in relation to work undertaken in connection with the establishment of the scheme.

• [62] Mr Best acknowledged that for the financial year ended March 2020, Edubase had made an overall loss just over $650,000 and in each month of that year had incurred a deficit.
• [63] In April 2020 (the month it provided services under the Scheme), it achieved a net surplus of $117,000, its first surplus in over 12 months. Mr Best accepted that the surplus was assisted by Government COVID-19 wage subsidies payable in respect of salaried staff. Mr Best also accepted that, setting aside a one-off payment from IRD of some $234,000, the underlying average monthly performance for the year ended March 2021 was around a $15,000 surplus per month.

• [64] Mr Best accepted that if Edubase’s claim for payment of $320,000 in respect of the scheme for the month of April was accepted by the Court, that would mean the April result for Edubase would be a net surplus for that month of some $348,000.

• [65] Mr Best’s evidence was that the invoices that were tendered from 9 April 2020 onwards were expressly qualified by Edubase’s contention that it did not accept the administration fee and wanted to continue negotiating on that point.

• [66] Mr Best estimated that during the first two weeks of the scheme, the Visiting Teachers and Head Office staff spent some 80 per cent of their work time on matters to do with the Scheme and, after that, about 70 per cent of their time was related to work connected with the Scheme.

• [67] He says that because of time said to have been devoted to the scheme, Edubase lost the opportunity to do other work such as paperwork which fell to be done during quiet times, and that Visiting Teachers “would have been able to spend more time “connecting” with their existing families and educators and working on resources (both for during lockdown and afterwards)”. It was also said that there was a lost opportunity that would otherwise have existed to direct the salaried staff to take annual leave during this period and thereby reduce outstanding leave balances.

• [68] On 27 April 2020, New Zealand moved to COVID Level 3. Edubase refused to do any further work under the Scheme after that date.

• [69] Mr Best noted that every ECE provider in New Zealand received the benefit of the guaranteed 75 per cent payment during the Level 4 lockdown, and implied that there was some unfairness in that some ECE providers did not participate in the

Scheme but still got the benefit of the non-claw back of 75 per cent payment (and presumably the wage subsidies). No evidence was provided to the Court as to the number or identity of ECE providers who might have been in this position. The three providers with the largest market share clearly were involved with the Scheme and ultimately there was some 31 providers who participated in the Scheme. All ECE providers who participated in the Scheme received the same remuneration offered to Edubase. On that basis, it seems a reasonable inference to draw that most of Edubase’s ECE provider competitors were in the same position as it was.

• [70] Mr Best deposed that in 2021, Edubase was consulted by the Ministry of Education in respect of a new draft contract for the provision of care to the children of essential workers. This proposed Scheme differed from the Scheme that had been in place in April 2020 in two important respects.

• [71] Firstly, in substitution of the $60 administration fee, it offered a $10 per hour administration fee; and secondly, it provided that funding from the scheme would be considered as income when assessing the providers’ eligibility for the wage subsidy.

• [72] New Zealand moved to Level 4 again on 17 August 2021 and the revised scheme involving a payment of $25 per hour for carers and $10 per hour to providers came into effect. Once again, the payment to carers was on a per hour basis not a per child per hour. Edubase chose to participate in the scheme.

• [73] In explanation for why Edubase chose to participate in the scheme, Mr Best said that he considered that the payment offered was less than the work was worth, but, “...the effort that was required to do the work at this stage was significantly lower”.

• [74] This comment appears to be related to the initial period of busyness in late March/early April 2020 with Edubase fielding lots of calls and matching up carers with those needing care.

Christopher Downey

• [75] Mr Downey was the chartered accountant who prepared Edubase’s financial accounts. He indicated that he had been asked by Mr Best in late March 2020 to try and work out how much it would cost Edubase to administer the proposed childcare scheme. Because he was unsure what percentage of Edubase’s work would relate to the scheme, he prepared three different calculations: on a 50/50 allocation, a 70/30 allocation, and 100/0 allocation.

• [76] He said that in normal circumstances, the cost to Edubase of providing an hour of childcare is around $5.31 per hour (without including their profit margin).

• [77] Under cross-examination, Mr Downey could not recall whether, at the time he sought his assistance in March 2020, Mr Best had told him that the Ministry had agreed not to claw back the 75 per cent advance payment. He said he was aware that the Government was going to be paying wage subsidies (for businesses whose turnover was down 30 per cent or more as a result of the lockdown). He acknowledged that his calculations as to the cost of providing the service, did not take into account either of these factors.

• [78] Mr Downey also acknowledged that his calculations were based on the cost of operating Edubase’s usual ECE business rather than providing childcare services under the Scheme.

• [79] Mr Downey admitted that his calculations were based on an assumption that Edubase would provide 10,976 hours of childcare rather than the 18,101 hours actually provided over the five-week period. He acknowledged that if the actual number of hours was taken into account, the overhead figure reduced to $11.66 per hour. Mr Downey also agreed that if calculated just on a monthly basis, the hourly figure would be $9.33.

• [80] Mr Downey acknowledged that if the amounts received by way of wage subsidy were taken into account, the figure reduced further to $6.41.

Stacey Dunn

• [81] Ms Dunn was Edubase’s business development manager. She gave evidence that the time following announcement of the Level 4 lockdown in March 2020 was a busy one. Offices had to be closed and staff deployed to work from home. Staff fielded a lot of telephone calls and emails from educators, families to whom they provided services, and Edubase’s own staff about matters such as the wage subsidy. She recorded that, in reality, the management team had only 48 hours to set a system up and this involved liaising with Government representatives, consulting with lawyers, formulating contracts and service agreements, and setting up systems for recording information.

• [82] She said that the administration team of nine took many calls from essential workers wanting childcare. Ms Dunne said that when it became clear that the remuneration was not to be $30 per child per hour, but $25 per hour passed on directly to the carer, plus a set-up fee of $60 paid to the provider, Edubase “...had to revisit all contracts for services and reach agreement with each carer to the amended rate.” She said this was time consuming.

• [83] It is difficult to see why this should be so as, for all but a small number of carers who cared for three or more children, the bulk of the carers would either be better off or no worse off with a $25 per hour payment, and presumably would have been happy to agree to the amended terms.

• [84] Ms Dunn confirmed that the Visiting Teachers were paid their normal weekly salaries, notwithstanding the fact that they were working additional hours. She noted that in addition to discharging their work responsibilities, a number of Edubase employees had their own children to look after during this period.

• [85] Ms Dunn’s evidence was that during the period of lockdown, Edubase provided care to 189 different children and that of those, only 18 were children that Edubase normally provided ECE services to.
• [86] In addition to utilising some of their existing independent contractors, Edubase engaged some 85 new carers who worked only during the 2020 lockdown and did not remain with Edubase after April 2020.

• [87] Ms Dunn also gave evidence as to what was said to be Edubase’s lost opportunity. Her evidence was that, had Edubase not been providing care services under the Scheme, it could have undertaken work such as:

(a) implementing a new policy review cycle;

(b) setting the strategic direction for the organisation for the forward three years;

(c) setting up Professional Learning Development using technology for its people;

(d) undertaking a full financial audit;

(e) administration filing and culling;

(f) engaging with and supporting existing staff and stakeholders through the lockdown period, checking in on wellbeing; and

(g) creating resources and interesting activities for families suddenly confined to four walls for an unknown period.

• [88] No attempt was made to quantify the time that these various tasks might have had devoted to them or to explain why Edubase did not devote the 20/30 per cent of the time they acknowledge was not spent on the Scheme, to undertaking these tasks.

• [89] Under cross-examination, Ms Dunn explained that some of the extra work required was obtaining the bank details from the new carers and providing them to the bank, noting those details in their own accounting system, and preparing timesheets.
• [90] Ms Dunn confirmed that some 162 children from 89 families had been placed with carers by 7 April 2020. Ms Dunn accepted that by 7 April, the vast amount of the matching up exercise had been completed. She said that telephone calls from parents wanting care continued after that date. She was unable to give any evidence as to the total number of phone calls received. I infer that because the bulk of the matching up exercise had been completed by 7 April, the time devoted by Edubase’s staff to the Scheme is likely to have reduced from that point on.

• [91] Of the tasks that Ms Dunn said could have been done during the 2020 lockdown had staff not been working predominantly on the Scheme, Ms Dunn acknowledged in cross-examination that the only one that had been undertaken since then was the completion of the financial audit. During re-examination, Ms Dunn said that some professional learning and development technology had been set up along with what were described as “some good systems” without giving any detail.

Paul Moriarty

• [92] Mr Moriarty is a chartered accountant with expertise in valuation and experience in giving evidence as an expert witness. He said that he had been asked to provide an expert opinion on the value of the plaintiff’s claim regarding the services provided to essential workers during March-April 2020. His opinion was that, in addition to the sums passed through to the carers, Edubase could have expected to receive a further $316,768 to offset the wages of Visiting Teachers and administrative staff, as well as other overheads.

• [93] This figure was arrived at by multiplying the number of hours of childcare delivered over the five-week period (18,101) by the figure of $17.50 per child per hour which was said to have been represented as what Edubase would receive. The actual representation was claimed to be $30 per hour. The figure of $17.50 per hour per child was what was left after the payment to the carers of $12.50 per hour per child.

• [94] Under a “business as normal approach”, Mr Moriarty calculated that the further payment required “to give a standard financial result for the business” was $265,164. He acknowledged that this figure included the wages of Visiting Teachers and administrative staff, as well as other overheads
• [95] Mr Moriarty filed a reply brief responding to the evidence given by the Ministry’s expert witness, Barry Jordan. In his reply brief, Mr Moriarty acknowledged that in respect of the five-week period covered by the claim, Edubase had received

$270,000 of the Government bulk funding on a non-claw back basis and had received COVID-19 wage subsidies for its Visiting Teacher employees and administrative staff for that period of $71,000. He claimed that if these payments were included, Edubase achieved a gross profit in April 2020 consistent with prior months. He said that the net profit (before shareholders’ salaries, subvention, and tax) was slightly improved on prior months.

• [96] Mr Moriarty specifically agreed with Mr Jordan’s analysis of Edubase’s overheads during the lockdown and the conclusion that they did not increase by a significant amount (only some $12,997) as a result of providing care to the children of essential workers.

• [97] Mr Moriarty’s calculations as to what he thinks Edubase should have received were based on his assumption that, had Edubase not provided the services, the Ministry would have had to pay a fair market price to another party for those services. He did not consider that Edubase’s profitability to be a factor in determining the value of its services.

• [98] In cross-examination, Mr Moriarty acknowledged that, in relation to his comments on “business as usual”, he was unfamiliar with what had been provided under the ECE services as compared to the childcare provided pursuant to the Scheme. He acknowledged that he had simply made an assumption that both services were the same. His express words were, “I’ve proceeded on the basis that the service was comparable and therefore would be price consistent with the previous market pricing.”

• [99] He also indicated that he was unaware that the highest hourly rates provided for ECE services prior to COVID was $9.59 per hour per child, and that he had not taken that figure into account in determining what a market value might have been for services under the Scheme.
• [100] Mr Moriarty also conceded that he was unaware that, of the 31 providers who participated in this care Scheme for the children of essential workers, 30 (i.e. everyone other than Edubase), accepted the contract offered by the Ministry on the basis of the

$60 per hour placement fee and the payment of $25 per hour for the carers. He acknowledged that this would be a factor in establishing a market price.

• [101] Mr Moriarty acknowledged that his calculations were not based on evidence of observable market rates but were based on the specific financial characteristics of one participant in the market, which was Edubase.

• [102] Mr Moriarty also acknowledged that he had not factored into his calculations the wage subsidies of $71,000 that were paid to Edubase, or the Government funding of $270,000. He said that the impact of these payments was a legal issue, not an accounting issue, and that he had not been asked to consider that.

• [103] Mr Moriarty acknowledged that the month of April 2020 was the first time that Edubase had turned a monthly profit or surplus for over 12 months.

• [104] Mr Moriarty acknowledged that when he said that, based on the Ministry’s representations, Edubase should have received a $316,000 odd contribution towards its overheads, he should have referred to contributions to the company (including both overheads and profit). He acknowledged that he had not heard the evidence of Mr Downey that the actual overheads of Edubase in full for the month of April 2020 were only $116,000.

• [105] Mr Moriarty conceded that his calculations were based on the fact that historically, approximately half of payments received by Edubase went to the educator and, in the present case, based on the payments received by the educators (the $25 per hour passed through directly from the Government), then the market value of the services provided by Edubase was approximately double that. He confirmed that this approach did not in any way consider the actual cost of providing the services.

• [106] Mr Moriarty conceded that he was not aware that in the business’ usual model, most of the ECE educators received below the minimum wage. Mr Moriarty

acknowledged that if Edubase received the $265,000 he claimed it should have, the monthly profit for April 2020 would go from $28,000 to $293,000. He said that he had not cross-checked this number against the underlying company performance over the two-year FY20/21 period.

Defendants’ witnesses

Colin Meehan

• [107] Colin Meehan confirmed that during the relevant period he was the National Manager of Early Childhood Education – Regulations and Planning at the Ministry of Education. He confirmed that on the evening of 23 March 2020 when the Government announced the impending Alert Level 4 lockdown, the Ministry issued a bulletin to ECE providers asking them to remain open for the next two days and notifying them that all ECE early learning services would close from midnight on 25 March. The bulletin also confirmed that Government funding would continue as normal and would not be cut or clawed back. Specifically, it said:

Funding paid on Monday 2 March that was enrolment based may not reflect actual attendance through to Sunday 31 May.

• if actual numbers of children who attend is less than enrolment numbers, you will not be required to pay this back.

• [108] Mr Meehan said that on 24 March, he had been advised that the Government intended to operate a home-based care system for the children of essential workers. Mr Meehan’s research had disclosed that there were 15 home-based providers in New Zealand who held multiple licenses, the largest being PORSE with 53 licences then Edubase with 22 and Barnardos with 19. All three were approached seeking “in principle” commitment and all three indicated their interest.

• [109] Mr Meehan met with the MSD officials via Zoom on 25 March 2020, and learnt they were contemplating a flat fee of $30 per hour. He thought this was a sensible rate for home-based ECE providers because they then had a current “quality” rate for 20 hours ECE home-based care at $9.95 per hour per child, and the New Zealand average was 1.9 children per family. The number of children per family was relevant

because the proposed Scheme limited carers to caring for children of just one essential worker family.

• [110] On 25 March 2020, Mr Meehan sent Mr Best an email outlining what was then current thinking about the proposed scheme. The relevant passages included the statements set out in [12] above.

• [111] Mr Meehan confirmed that from 25 March 2020, he was in contact with all the proposed providers several times a day and constantly reiterated that the details of the scheme were yet to be confirmed.

• [112] In relation to the fixing of the $60 placement fee, Mr Meehan expressed the view that he thought this was reasonable given that the three proposed providers were able to use existing infrastructure and their role in the scheme was principally one of connecting families to carers.

• [113] On 30 March 2020, Mr Meehan emailed Mr Best letting him know that a funding paper was to be considered by Cabinet that day and he was expecting to hear back by 2pm. He said that “All going well, and I think Cabinet will agree, the payment is better than we originally discussed.” He deposed that by using the word “better” he was referring to the $60 administration fee which was additional to the initial discussion.

• [114] On 31 March 2020, Mr Meehan emailed Mr Best saying that the Minister had discussed the funding paper with the Ministry’s Chief Executive and noting that “obviously I can’t promise anything, but the “noises” all sound positive. I will update you the moment we find out.”

• [115] On 1 April 2020, Mr Meehan emailed Mr Best outlining the scheme that had been agreed to by Cabinet namely:

(a) licensed home-based providers in the scheme will paid a flat rate per carer of $60 plus GST as an administration fee;

(b) each home-based carer will be funded at $25 per hour excluding GST;

(c) Ministry of Education ECE subsidies (including 20 hours ECE) cannot be claimed for these hours;

(d) this funding will not impact any eligibility under COVID-19 wage subsidy scheme – note: this is yet to be approved by Cabinet.

• [116] Mr Meehan received a prompt reply from Mr Best who was unhappy with the

$25/$60 arrangement. Mr Best offered to provide Mr Meehan with further information which Mr Meehan was happy to receive. Mr Meehan’s notes of the conversation also record:

Dave said his team are working hard for no reward; that other home-based providers are doing nothing, and that he should just pull out. I told Dave that this was his decision, and he added, this would mean families had no support. I told Dave that I can’t change the decision. If he decides to pull out, then my team need to find another provider.

• [117] Mr Meehan formed the view from emails received from Mr Best, and the Chief Executive of PORSE, that they had not recognised that the proposed care service was not the same as the ECE service previously provided but was essentially a babysitting service. He also noted that the evidence given by Ms Dunn to the Court also demonstrated a misunderstanding of the work required with its suggestion that Visiting Teachers would be devoting possibly 80 to 85 per cent of their time to the scheme.

• [118] Mr Meehan deposed to having conversations with Mr Best and the Chief Executive of PORSE explaining that the care service did not require Visiting Teachers, education programmes and support.

• [119] On 6 April 2020, a letter was sent from the Ministry to Mr Best clarifying expectations. That letter explained that under the scheme, the Ministry was not asking Providers to provide regulated home-based early childhood education, rather:

Essential workers simply need supervision and care for their children ... there is no need for ongoing support other than payment and reporting processing.

• [120] The letter also referred to Edubase having received its guaranteed advance ECE funding subsidy up to 31 May 2020 to support its usual governance, management, and operational costs and administrative function. The letter said that the $60 placement fee was to help cover any additional governance, management, operational and administrative costs in relation to the scheme.
• [121] The additional work was said to include receiving and making phone calls, checking records, collating paperwork, recording information, and managing payment.

• [122] Under cross-examination, Mr Meehan confirmed that the subsidies paid for ECE were typically referred to as a rate per child per hour.

Siobhan Murray

• [123] Ms Murray was a Senior Policy Manager at the Ministry of Education with expertise in the ECE sector including the sector’s funding settings and policies.

• [124] In late March and early April 2020, Ms Murray led the development of the Childcare for Essential Workers Scheme. Ms Murray detailed the Government subsidies that are significant feature of ECE services and confirmed that a provider of ECE services must be licensed to be eligible for Government subsidies.

• [125] ECE services are only available in respect of children who have not yet attained six years of age. In addition to providing care for preschool children, ECE educators are also required to educate the children. The maximum number of children that an ECE educator can provide services to at any one time is four (including any of the educator’s children that may be at home). The providers of ECE services are required by legislation to provide a range of services to support the educator.

• [126] The Regulations require ECE providers wishing to obtain a licence to engage a registered and qualified ECE teacher to oversee the provision of home-based ECE. These teachers are variously referred to as co-ordinators, Visiting Teachers, or programme tutors.

• [127] Regulation 28 stipulates the frequency and the nature of contact that the Visiting Teacher must have with the educators. Licensed home-based ECE providers (such as Edubase) are responsible for ensuring that the education and care provided by the educators meets regulatory standards.
• [128] The main regulatory tasks are obtaining Police vets of all people aged 17 and over in the home where the education and care is to be provided, to ensure that the home meets health and safety standards, and that the safety checking requirements of the Children’s Act 2014 are met in respect of educators and Visiting Teachers.

• [129] Many ECE providers also provide services to educators beyond those mandated by the legislation including such things as arranging play groups, collecting fees paid by parents, and providing educational resources such as books and toys to educators. It is clear from this evidence that ECE services provided in accordance with the Regulations, imposed many more obligations on the providers that the babysitting type service implemented by the Scheme.

• [130] As at March/April 2020, there were a range of rates of subsidy paid to educators for the provision of home-based ECE. There were variations according to whether the child or children were under or over the age of two, and also a distinction between a “standard” rate and a “quality” rate. To get the quality rate, the educator had to hold certain educational qualifications and a Visiting Teacher was required to be on duty for specified hours. The purpose of having a quality rate was said to be to encourage home-based ECE services to provider higher quality education. The subsidy rates ranged from a low of $3.94 per hour (the standard rate for children aged two and over), to a high of $9.59 per hour for “quality” care.

• [131] Ms Murray referred to a review that she and her team had undertaken in 2018 which arose from the fact that a number of the larger ECE providers were retaining all of the Government subsidies, obliging the educators to seek payments from the parents of children in their care.

• [132] That review produced a Cabinet paper which said that ECE providers were externalising much of the cost of providing home-based ECE which impacted on the educators’ working conditions and stated:

Educators typically receive a rate per child and depending on the rate, it is possible for them to earn less than the minimum wage unless they are caring for four children. Furthermore there have been instances where educators have received vouchers instead of money.

• [133] Ms Murray deposed that issues highlighted in the review informed her thinking when developing the funding structure for the Scheme.

• [134] Ms Murray detailed that, once the COVID-19 Ministerial Group had, on 25 March 2020, agreed to directly fund Government subsidised providers to provide childcare for the children of essential workers, she had discussions with both the Ministry of Education about home-based ECE providers and the Ministry of Social Development about its Out-of-School Care and Recreation (OSCAR) programme.

• [135] A Cabinet paper of 24 March 2020 had indicated that only OSCAR providers and home-based ECE providers would be eligible to participate in the proposed scheme. OSCAR providers differed from ECE providers as they delivered before school care, after school care, and school holiday programmes for school-aged children up to, and including, those aged 13. Unlike ECE providers, there was no education component in the OSCAR programme and it was not subject to the regulations that prescribed how ECE was to be delivered.

• [136] OSCAR providers did not receive the 75 per cent payment in advance like ECE providers, and also differed from ECE providers in that they typically employed their own staff thereby carrying all employment related obligations including providing annual leave, sick leave, paying ACC levies, and KiwiSaver employment contributions. Unlike ECE providers, OSCAR providers were obliged to continue to pay their carers during the lockdown, notwithstanding that the carers were unable to work.

• [137] Ms Murray explains that, in drafting the terms of the Scheme, the fact that ECE providers had already received 75 per cent of their funding in advance for the coming four months, and that this funding was not going to be clawed back, was an important policy consideration, as was the objective of ensuring that the educators would actually receive the benefit of the proposed Government funding.

• [138] Another relevant policy consideration was the need to ensure that the educators taking part in the Scheme were paid on a similar basis to the OSCAR caregivers.
• [139] Ms Murray explained the policy reasons why remuneration for the Scheme was not set at a per child per hour rate but at an hourly rate. She referred to the 2 April 2020 Cabinet paper, a relevant passage of which said:

Each carer be funded at $25/hour excluding GST. This is consistent with the rate likely to be paid to OSCAR in-home carers. It is common for educators to charge a per child per hour fee to parents varying from $5 to $10, depending on the ability of parents to pay. This is likely to be uneconomic where educators are restricted to a single family ...

Home-based providers be paid a flat rate per carer of $60 as an administration fee. This is a lower rate than for OSCAR providers to reflect that home-based educators are contracted by home-based providers [footnote: MSD expects OSCAR providers will retain $5-6 of the $30 per hour to cover their costs]. OSCAR providers employ carers, and therefore face costs such as ACC levies, sick leave, annual leave, and superannuation contributions. Home-based providers do not pay these costs for educators.

• [140] Ms Murray commented in relation to Mr Best’s claim that he was under the impression that the funding rate was to be $30 per hour per child rather than $30 per hour, saying that such an hourly per child rate would be substantially higher than the per child per hour subsidies ranging from $3.94 to $9.59 as at March 2020, and that, if it was a per child per hour rate, it would be more than twice as high as nannies typically receive to care for a family of two children, and three times as high as they would receive for caring for a family with three children.

• [141] She noted that the remuneration system for the Scheme was deliberately designed so as to permit participants to still be able to apply for the COVID-19 wage subsidy scheme in order to ensure that there was no disincentive for providers to participate in the Scheme.

• [142] She said that Edubase claimed a total of $215,088 for the wage subsidy scheme in 2020 in relation to 31 staff. Ms Murray noted that the requirements on providers under the Scheme were substantially less than in respect of home-based ECE with the Scheme only providing supervision and care and having no obligation to provide education or deliver a curriculum.

• [143] Ms Murray says that she assumed that, in calculating the $60 administration fee, that the administration costs for the Scheme would be covered by the ECE subsidies that the Government had already paid, and that the care would be provided

by educators who had already been safety-checked and Police vetted as part of their engagement as a home-based educator, and that their homes had already been checked by the provider. In other words, they were “sunk costs” that had already been incurred and covered by the 75 per cent advance payment.

• [144] She expressed the view that the Scheme would only require some upfront administration from the provider in matching educators and families, and paying educators using their existing payment systems.

• [145] Ms Murray noted that, based on information received by way of feedback from providers, that most of Edubase’s claimed costs related to work done by its Visiting Teachers undertaking tasks such as verifying the educators “Police vet and [Health and Safety] checks”; staying “in communication, offering help, educational programs, support”; and work on programs “remotely to keep both children, families and educators involved”.

• [146] Ms Murray’s views in relation to the claims involving Visiting Teachers, as expressed to Mr Meehan, were:

We are not asking VTs [Visiting Teachers] to support educators as part of this offering. If services choose to use their VTs to provide support that’s nice, but it’s not necessary. This is supervision and care only ...

• [147] In relation to setting the remuneration payable under the revised Scheme implemented in 2021, Ms Murray said that the change from a $60 placement fee to a

$10 per hour payment was not based on a robust assessment of the providers’ genuine costs relating to the Scheme because the Ministry did not have that information. She deposed that it was based on Mr Meehan’s judgement that the $10 per hour would provide sufficient incentive for providers to participate in the revised Scheme. She also noted that the change to classifying income received pursuant to the revised Scheme as being included in calculating eligibility for the wage subsidy, was part of the package recommended to the Government.

• [148] During cross-examination, Ms Murray rejected the suggestion that Visiting Teachers would be able to organise activities that they normally would, such as play

groups during the lockdown because such groups involved multiple children from multiple families, which was not permitted pursuant to the then current restrictions.

Barry Jordan

• [149] Mr Jordan is an independent financial accountant. He had been instructed to review and comment on Edubase’s various calculations of the quantum of its claim. He noted that Edubase had advanced four different and alternative calculations to quantify what it had claimed was a fair price for the services it provided. These were:

(a) $316,768 plus GST (based on the assumption that Edubase had been told they would receive $30 per hour per child of which they would be able to keep $17.50 per hour per child with this figure being multiplied by a total 18,101 childcare hours);

(b) a sum of $278,574 (plus GST) which is calculated by applying 70 per cent to Edubase’s overheads as being attributable to undertaking the childcare arrangement;

(c) $209,662 (plus GST) calculated by applying 10 per cent of Edubase’s annual running costs; and

(d) $265,164 (plus GST) which was said to be based on a “business as usual” approach.

• [150] Mr Jordan calculated that on the basis of the 105 carers that Edubase says that it contracted to provide childcare services under the Scheme, the flat fee of $60 plus GST for each carer produced a total of $6,300 plus GST.

• [151] Unlike Mr Moriarty, in calculating the additional overheads costs incurred by Edubase in providing the service, Mr Jordan took account of the fact that Edubase had already received in advance a four-monthly payment of $1,060,791 of bulk funding in respect of ECE services that it did not have to provide during the period of the lockdown, such payment being intended to allow it to meet direct/indirect and

overhead costs. He also factored in that Edubase applied for, and received, COVID- 19 Wage Subsidy Support payments for the relevant period of the claim.

• [152] Mr Jordan analysed Edubase’s financial accounts for the Financial Year 2021 (FY21) and also for the years FY19 and FY20. He noted that in the FY19 and FY20 years, Edubase reported annual losses of $188,000 and $651,000 respectively. He noted that as at 31 March 2020, Edubase’s accumulated losses were approximately

$1,005,000.

• [153] Mr Jordan noted that, at Mr Best’s request, Edubase’s Hamilton landlord offered a 50 per cent COVID lockdown related rent reduction on the premises Edubase operated from there and that was accepted.

• [154] Mr Jordan noted that Edubase’s financial performance in FY21 increased substantially on prior years. A significant component of this result was the receipt of two one-off payments: firstly, the COVID-19 Wage Support payments; and secondly, receipt of a GST refund of $235,000.

• [155] Mr Jordan expressed the view that, immediately prior to entering into the Essential Worker Childcare Scheme, Edubase was experiencing financial distress; had negative working capital (the ability for Edubase to pay current liabilities from the cash generated from its current assets); and negative net assets of approximately $1 m.

• [156] Mr Jordan was of the opinion that, as a result of the Government decision to continue to provide the ECE bulk funding without any risk of claw back and making access to the COVID-19 Wage Support subsidy available, Edubase was, in financial terms, at least in no better or no worse position and it would have been, had the lockdown and the need for the Scheme not occurred.

• [157] Mr Jordan’s analysis of Edubase’s financial accounts produced a calculation that, at best, Edubase might have incurred additional costs of $12,997 over and above its normal business as usual costs, in order to deliver the Scheme. Significantly, Mr Moriarty did not challenge this figure.
• [158] In relation to Edubase’s claim for $316,768, Mr Jordan said that the $17.50 per childcare hour claimed did not represent contribution to additional overhead expenses actually incurred but simply went to profit. He said that the profit amount this generated would have been considerably greater than any profits that Edubase had been generating, or would generate, from its normal business.

• [159] In relation to the second claim ($278,574), Mr Jordan noted that all that Mr Downey had done to reach this figure was to rely upon what Mr Best had told him, namely that 70 per cent of the activity of the staff of Edubase in the five weeks was devoted to the Essential Worker Childcare Service, and that Mr Downey had simply calculated what 70 per cent of overheads for normal business activities would be to achieve a derived rate of $15.39 per hour which Mr Downey had then multiplied by 18,101 hours.

• [160] Mr Jordan described this calculation as flawed in many respects, noting that:

(a) there was no factual or analytical basis for the 70 per cent figure which underpinned the calculation;

(b) that Mr Downey’s calculations appear to have been based on a figure of 10,976 hours rather than the actual 18,101 hours;

(c) it assumes that all business costs over a 12-month period, irrespective of their nature could simply be reallocated across the business’ normal ECE service and the Essential Worker Childcare Service, and took no account of the fact that the Essential Worker Childcare Service was a short project nothing like the business as normal activity; and

(d) the calculation made no adjustment for the costs already met by the bulk ECE funding revenue and the calculation made no attempt to quantify the actual additional costs that the new activity might incur.

• [161] As to the third claim for $209,662, Mr Jordan says that this represents 10 per cent of Edubase’s total annual costs of $2,096,622 for FY21. He said that

Edubase had simply proceeded on the basis that five weeks was approximately 10 per cent of the year and had divided total annual costs by 10 per cent.

• [162] Mr Jordan noted that he could not match up the claimed total annual costs of

$2,096,622 with the actual figures he had been supplied, but also noted that this approach assumed that, for the five weeks during which the Scheme was delivered, 100 per cent of Edubase’s resources were devoted to it, whereas even Mr Best suggested only about 70 per cent were.

• [163] As to the final claim of $265,164, Mr Jordan said that what Mr Moriarty had essentially done in calculating this figure was to derive an hourly cost rate from Edubase’s “business as normal” activities (i.e. its ECE activities rather than the childcare activities under the Scheme), and added a 19.5 per cent uplift on the “business as normal” position to reflect the uniqueness, urgency, and criticality of the required services.

• [164] Mr Jordan notes that this approach also ignores what additional costs were actually incurred by Edubase and the fact that by a combination of the guaranteed bulk funding and wage support subsidy, Edubase’s actual overhead costs had been met. Mr Jordan notes that Edubase’s staff were paid no overtime or other additional payments for what was said to be the extra hours they had worked; that Edubase had actually received a significant reduction in one overhead cost being the 50 per cent abatement from one landlord during the lockdown periods and that, in reality, all that this approach produced was a significant windfall profit for Edubase.

Findings of fact

Estoppel/affirmation

• [165] The first issue is whether the Ministry made a clear and unequivocal representation to Mr Best that the remuneration to be offered for participation in the Scheme was on the basis of $30 per hour per child. It is also necessary to establish that it was reasonable for Edubase to rely on the alleged representation and that they

relied on it to their detriment so that it would be unconscionable for the Ministry to resile from the alleged representation.³

• [166] It is clear that Mr Meehan did not ever use the words “$30 per hour per child”. I accept Mr Meehan’s evidence that in the phone call of 25 March 2020 to Mr Best, he said that the Ministry was “looking at paying a rate of around $30 per hour”. That wording is confirmed by the notes made at the time by Mr Best in his exercise book where he said that Mr Meehan had “indicated $30 hr” to him.

• [167] It is therefore necessary to consider whether there are other factors which justify Mr Best concluding that what was being offered was a payment of $30 per child per hour rather than an hourly rate of $30.

• [168] I accept that, in the ECE industry (other than in respect of nannies), subsidy payments provided by the Ministry are commonly calculated on a per child per hour basis. However, there are a number of factors which go to the question of whether it was reasonable for Mr Best to have assumed that this was what was being offered in this case rather than a straight payment of $30 per hour.

• [169] The first of these is that such a payment would be vastly different to the amount of subsidies paid by the Ministry for ECE services at the time which ranged from $3.94 to $9.59 per child per hour. If Mr Best’s interpretation was correct, then the Government would have been offering to pay $120 per hour plus GST in respect of a carer who provided care for the maximum of four children.

• [170] In an industry where educators often actually receive less than the minimum wage, such an interpretation would produce a startling result which, in itself, should have caused Mr Best to wonder whether his interpretation was correct.

• [171] The unreasonableness of Mr Best’s interpretation is compounded by the fact that the services to be provided under the Scheme were simply childcare services which did not involve the education components of ECE services, notably not

³ See Wilson Parking New Zealand Ltd v Fanshawe 136 Ltd [2014] NZCA 407; [2014] 3 NZLR 567 as to the elements required to establish an estoppel.

requiring Visiting Teachers (a significant overhead component in relation to the provision of ECE services), or compliance with the prescriptive regulations governing the provision of ECE services.

• [172] I find as a fact that, as a result of the announcement made by the Ministry in its bulletin to all early learning services on 23 March 2020, Mr Best would have been aware on that date that all early learning services were to close as at midnight 25 March 2020, and that normal ECE Government funding (including the payment already received by Edubase on 2 March 2020 for the forthcoming four months) was not to be clawed back. I find that a reasonable person, knowing that their overhead expenses were already going to be met in this way, would also have wondered why, in these circumstances, the Government might have been offering remuneration rates so much higher than the rates normally paid for the provision of ECE services.

• [173] The second relevant matter in considering whether a clear and unequivocal representation was made, involves looking at the actual language used by Mr Meehan.

• [174] The words “looking at paying a rate of around $30 per hour” are tentative, as are the words “What we are thinking (subject to change, and welcome any thoughts/feedback you have)”, and “the figure we are working with is $30 per hour – at this point is subject to Treasury approval but this is the figure we put forward”. I find that Mr Best was aware that, as at the time when Mr Meehan first contacted him to gauge his interest in the potential Scheme, that the details had not been settled, and that the terms of the Scheme, as at 25 March, still needed ministerial and political approval.

• [175] Mr Meehan clearly kept Mr Best apprised of the progress of the proposal and of its need to be considered and approved by Cabinet. Mr Best put some store on the fact that Mr Meehan had, by email of 30 March 2020, suggested to him “... all going well, and I think Cabinet will agree, the payment is better than we originally discussed.” Edubase’s pleading asserts that the reference to “better” is a representation on which it relied.
• [176] Mr Meehan explained that the reason he used the term “better” was his view that the package as a whole that finally went to Cabinet was better than the initial proposal because it included an administration fee on top of the hourly rate payment that had been originally discussed. The reference to the word “better” would not seem to assist, one way or another, Mr Best’s claim that he reasonably understood the reference to $30 per hour as being to $30 per child per hour.

• [177] It is also difficult to see what reliance Edubase could have placed on this reference given that it was mentioned in an email of 30 March 2020 and the contents of the Scheme as approved by Cabinet were conveyed on 1 April 2020. Edubase’s own evidence was that the bulk of their work in matching up carers with families needing care, had actually been done in the first few days following 25 March 2020.

• [178] Standing back and looking at all of the facts, I find that it was not objectively reasonable for a person in Mr Best’s situation to have assumed that, notwithstanding the fact that Mr Meehan had referred to a payment of $30 per hour (plus GST), he had actually meant a payment of $30 per child per hour.

• [179] In addition, the language repeatedly used by Mr Meehan made it clear that what was being proposed was not final, was subject to change, needed Treasury approval as well as a decision by Cabinet. These facts are inconsistent with Edubase’s claim that it acted on a clear and unequivocal representation.

• [180] The broad justification for estoppel is to:⁴

...prevent a party from going back on his word (whether express or implied) whether it would be unconscionable to do so.

• [181] If a person makes a representation and another relies on that representation to their detriment, then the person who made the representation is prevented from acting contrary to it.⁵

⁴ National Westminster Finance NZ Ltd v National Bank of NZ Ltd [1996] 1 NZLR 548 (CA) at 549.

⁵ Butler (ed) Equity and Trusts in New Zealand (2^nd ed, Thomson Reuters, Wellington) at [29.1.2].

• [182] In the context of assessing unconscionability, it is necessary to firstly examine what detriment Edubase suffered. I accept the evidence of Mr Jordan that Edubase was essentially no better or worse off financially by participating in the Scheme than it would have been had it elected not to do so. Its additional expenditure beyond business as normal was nominal.

• [183] Regard must also be had to the fact that the setting of the remuneration terms for the service was part of a suite of Government initiatives including the non-claw back of the sums already paid to meet normal overheads, and the exclusion of sums received pursuant to the Scheme from the calculation of eligibility for the COVID Wage Subsidy Support payments.

• [184] These two factors resulted in Edubase having by far the best monthly financial performance in April 2020 that it had had for several years. In that context, there is no discernible unconscionability.

• [185] In relation to Edubase’s claim that what it had actually lost was the opportunity to utilise its staff to do other tasks during the lockdown period when they were not able to deliver ECE services, there was no attempt by Edubase to put a financial value on those tasks. It also seems that very few of them were ever actually undertaken when Edubase did have an opportunity to do so.

• [186] In circumstances where, as a direct result of the suite of measures implemented by the Government, Edubase had, in April, its best financial result for the period at least two years before and the year following, it is untenable to claim that an unconscionable result was produced.

• [187] The Ministry has raised a defence of affirmation. Factual findings therefore need to be made on the relevant conduct. Here, the exchange between Mr Meehan and Mr Best on 1 April 2020 is relevant. By this point, Mr Best knew that the actual terms of the proposal were different to what he had thought they were going to be. He knew that he had the opportunity, at this point, of pulling out. He articulated the possibility of doing so and received the response from Mr Meehan that if that occurred, Mr Meehan would have to find another provider. Mr Best says that he had no option

but to continue. He points to the fact that he had already signed contracts with the educators and that the Ministry had already told the public that Edubase were to be one of the providers.

• [188] The contracts that Edubase had signed with the educators did not compel Edubase to continue. All but one of the educators were happy to enter into contracts consistent with the finalised terms and, in respect of the one who did not wish to do so, Edubase falsified the hours they claimed from the Ministry for their work so that Edubase was no worse off. In respect of the public announcement that Edubase was to be one of providers under the Scheme, Mr Best acknowledged that Edubase sought to take advantage of the goodwill and reputational enhancement that could be obtained from this.

• [189] Edubase engaged a PR firm, The Shine Collective, to help maximise the marketing value of their involvement in the Scheme and Stacey Dunn, the Business Development Manager, undertook an interview with the New Zealand Herald for a similar purpose.

• [190] Ultimately, it seems that Edubase made a commercial decision that the potential reputational enhancement to be obtained from continuing with the Scheme was more valuable to them than the benefits of withdrawing from the Scheme as at 1 April.

• [191] There is no doubt that Mr Best was unhappy with the $60 flat administrative fee and kept trying to persuade Mr Meehan that it should be changed. However, the fact that a party may be unhappy and purport to reserve rights does not preclude the Court from finding that they have nonetheless affirmed contract by their conduct. This matter was recently considered by the UK Court of Appeal who held:⁶

...where a party makes an unconditional demand of substantial contractual performance of a kind which will lead the counterparty and/or third parties to alter their positions in significant respects, such conduct may be wholly incompatible with the reservation of some kinds of rights, even if the party demanding performance purports at the same time to reserve them.

⁶ SK Shipping Europe Ltd v Capital VLCC 3 Corp [2022] EWCA Civ231 at [74].

• [192] The findings I have made on the contract issue effectively dispose of the case. However, I will go on and address the quantum meruit cause of action.

Quantum meruit

• [193] A claim in quantum meruit can be established:⁷

...where the defendant asks the plaintiff to provide certain services or freely accepts services provided by the plaintiff, in circumstances where the defendant knows (or ought to know) that the plaintiff expects to be reimbursed for those services, irrespective of whether there is an actual benefit to the defendant.

• [194] The Ministry accepts that Edubase was asked to provide services for which it expected to be paid and that it received the benefit from those services.

• [195] The real issue in this case is determining what a “reasonable” price for the services provided should be. In Worldwide NZLLC v NZ Venue and Event Management Ltd, the Supreme Court said:⁸

What is clear, however, is that quantum meruit involves claims for reasonable compensation to be paid for services where the level of remuneration has not been agreed and that this compensation is fixed by the Courts: see Harrison v Franich [2007] NZCA 538 at [32]; and Benedetti v Sawiris [2013] UKSC 50, [2014] AC 938 at [17] per Lord Clarke, Lord Kerr and Lord Wilson.

• [196] The test is an objective one. In other words, what would a reasonable person in a defendant’s position have to pay for the services.

• [197] The context of the present case is relevant to an objective assessment of reasonable market value. The present circumstances differ somewhat from two commercial parties engaging in a traditional arms-length fashion. There is an overlay of public law in this case. The Ministry was responding to a sudden and unique event. Government policy was being hastily developed. There was no prior experience or established practice to draw on. The concept of their being “market price” for the services covered by the Scheme is therefore somewhat artificial. The childminding

⁷ Morning Start (St Lukes Garden Apartments) Ltd v Canam Construction Ltd CA90/05, 8 August 2006 at [50].

⁸ Worldwide NZLLC v NZ Venue and Event Management Ltd [2014] NZSC 108; [2015] 1 NZLR at [27].

service that the Scheme implemented was substantially different from the services delivered by ECE providers. It is therefore not possible to assume that remuneration under the Scheme should be the same as remuneration for providing ECE services.

• [198] I accept the criticism advanced by Mr Jordan of what seemed to be the assumptions made by Edubase’s expert witnesses to the effect that the childcare services were the equivalent of the ECE “business as usual” services provided by Edubase.

• [199] To the extent that there is a “market”, it must be the market for basic childcare services existing in March/April 2020. Often the market value of a service will be defined as being what an objectively reasonable purchaser would pay an objectively reasonable provider of the services. The best evidence of that is commonly evidence of market transactions.

• [200] In the present case, we know that there were 31 participants in the “market” to provide childcare services for the children of essential workers in April/March 2020 and all 31 were paid remuneration on the same basis. That fact (as acknowledged by Mr Moriarty, Edubase’s expert witness and set out at [100] above) supports an inference that the remuneration specified in the Scheme was in fact the market rate.

• [201] Another aspect where the public context is important is the fact that the Government implemented a number of policy settings to ensure that the benefit obtained by Edubase was reasonable.

• [202] I accept Ms Murray’s evidence that the relevant policy considerations that guided the setting of the remuneration terms included the fact that a policy decision had been made that the advance funding provided for ECE services would not be clawed back notwithstanding that during the lockdown no such ECE services could be provided, and that the payments received under the Scheme would not be counted when assessing applications for the COVID-19 Wage Subsidy.
• [203] The test in establishing the monetary value of services involves determining what a reasonable person in the position of the defendant would have agreed to pay for those services.⁹

• [204] A reasonable person in the position of the defendant would, on the facts of this case, be entitled to have regard to the fact that Edubase’s governance, administration and general overheads were already being covered by the lump sum 75 per cent payment and the availability of the COVID support top-up.

• [205] I accept the evidence of Ms Murray that these factors were expressly considered in setting the $60 administration fee. I also accept as accurate Ms Murray’s view that providers of the service such as Edubase would not incur any significant additional expenditure beyond their “business as usual” costs by entering into the Scheme.

• [206] By way of cross check against these factors relevant to an assessment of a reasonable price, it is useful to assess the level of profit that was able to be generated from the price paid. Some caution needs to be taken with such an approach as profitability can vary considerably according to factors subjective to each market participant. We know that, as a result of the suite of policy initiatives implemented by the Government, that Edubase achieved a level of financial performance in April 2020 substantially better than it had done in the two prior years (where it did not make a profit in any month) or the balance of the FY21 year.

• [207] If the plaintiff’s market price claims are correct, it would achieve a further super profit of some $316,768 for that period.

• [208] The approach of determining what a reasonable person in the position of the defendant would pay for a service, articulated by the UK Supreme Court in Benedetti v Sawiris¹⁰ is consistent with the approach taken by Miller J in Cassels v Body Corporate 86975¹¹ where he said the following principles are relevant for determining “reasonable price”:

⁹ Benedetti v Sawiris [2013] UKSC 50 at [100].

¹⁰ Benedetti v Sawiris, above n 7.

¹¹ Cassels v Body Corporate 86975 (2007) 5 NZConv 194; 466, (2007) 8 NZCPR 740 at [51].

(a) the starting point is the market price;

(b) the Court should always be influenced by a price that the person receiving the services has agreed to pay for them;

(c) the Court must consider the special position of the parties and the value that the services may have for them. That is particularly so where there is no readily definable market value;

(d) the reasonable price can be determined by reference to what other persons paid for the same services.

• [209] As noted, the market price, to the extent that there was a market, is best reflected by the fact that all of those providers who contracted with the Ministry to provide services under the Scheme did so on the same contractual terms. Twenty- eight of the thirty-one providers would have entered into the contract knowing exactly what it was the Ministry was offering.¹²

• [210] The price that the Ministry agreed to pay for the services was the price set out in the contract. It was applicable to all providers in a similar situation to Edubase without variation.

• [211] The special position of the Ministry was that it was a Government department responding to a unique situation which had not been experienced before, in respect of which it had developed a suite of policies, the individual components of which all had a value to Edubase and a detriment to the Government.

• [212] There was no-one other than the Government paying for these services, but there were a number of providers who must be assumed made rational decisions about whether or not to agree to provide the services.

¹² All but three – PORSE, Edubase and Barnardos, would have signed up after 1 April 2020 when the contract details had been finalised.

• [213] The various different theories advanced by Edubase to support its alternative claims all ignored the public law context of these proceedings and the policy decisions made by the Government to adjust other eligibility criteria as part of the overall remuneration for providing the service. Edubase’s advisors also made no attempt to calculate any additional costs above and beyond those for which they had already been compensated that Edubase would incur as a result of participating in the service. I accept Mr Jordan’s evidence that these omissions result in fatal flaws in the approach taken by Edubase’s witnesses.

• [214] When the overall context is looked at, it cannot be said that the Ministry did not pay a reasonable price for the childcare services that Edubase agreed to provide. The quantum meruit claim therefore fails.

Conclusion

• [215] The plaintiff’s claims are dismissed. I invite the parties to settle costs themselves but if agreement cannot be reached, the defendants are to file a memorandum within 14 days of the date of this decision with the plaintiff having seven days from receipt of the defendants’ memorandum to file a memorandum in reply. I will then resolve costs on the papers.

Churchman J

Solicitors:

Holland Beckett Law, Tauranga for Plaintiff Crown Law, Wellington for Defendant