Abbeyfield Newcastle Upon Tyne Society Ltd v Newcastle City Council

Where a continuing care agreement refers to a price fixed under an expired umbrella agreement, the former price does not necessarily continue for the resident’s lifetime. If the contractual price-setting mechanism has broken down, a term may require payment of a reasonable rate.

The reasonable rate must reflect the contractual framework, the public authority’s statutory duties, applicable guidance, relevant local care costs and the exclusion of irrelevant considerations. It is capped by a lawfully established usual cost, but is not automatically the authority’s preferred rate, the provider’s private fee or the result of a price review.

Abbeyfield operated residential care homes and supplied accommodation to residents placed by Newcastle City Council. The parties’ umbrella Pre-placement Agreement expired on 1 April 2010, while individual User Agreements with residents continued. The parties disputed the rate payable during negotiations for replacement arrangements.

The Council maintained that the last agreed rate continued, or that a new agreement had arisen by conduct. Abbeyfield claimed contractual payment at a reasonable rate, alternatively restitution on a quantum meruit basis. The Council argued that the claim was an abuse of process because the rate-setting decision should have been challenged by judicial review.

The central issues were whether the former rate continued, whether a new contract arose by conduct, how any reasonable rate should be determined, and whether the claim was properly brought as a private law action.

1. The claim succeeded in part. The User Agreements continued after expiry of the Pre-placement Agreement. The last rate did not automatically continue for the remainder of each resident’s life.
2. No new contract arose by conduct. Although the parties’ conduct showed continuing performance, they were negotiating the price and other important terms. In those circumstances, the objective analysis was not an interim executory contract on terms still under negotiation. Depending on the circumstances, the proper analysis might be an agreement to pay reasonable remuneration or restitution for unjust enrichment.
3. The User Agreements contained an implied term that, if the contractual price-setting mechanism broke down, a reasonable price would be paid. The rate had to be assessed on the footing that the contractual obligations had been performed, including participation in the Price Review Exercise, and that the Council would exercise its statutory and contractual discretions lawfully.
4. A reasonable rate was not necessarily the Council’s usual cost, the rate accepted by other providers, Abbeyfield’s private fee or the figures produced by the Price Review Exercise. The Council’s usual cost operated as a ceiling only if it had been lawfully established. The Council could reject the Price Review findings, but it had to take them and other relevant matters into account.
5. The assessment required regard to actual local care costs, statutory and non-statutory guidance, the Council’s competing duties to fund care and protect public funds, and Abbeyfield’s obligation as a charity to remain financially viable. The Council had to exclude irrelevant considerations and give coherent reasons for departing from guidance.
6. The Council’s frozen rate of £436 per week was not reasonable because it deliberately ignored the Price Review Exercise, relied on an unsustainable indexation rationale, and failed to show that actual care costs or relevant guidance had been considered. On the evidence, the reasonable rates were £450 per week for April 2010 to March 2011 and £460 per week for April 2011 to March 2012.
7. The proceedings were not an abuse of process. The dominant issue was the enforcement of contractual payment rights under continuing User Agreements. The incidental examination of the lawfulness of the Council’s usual cost did not convert the claim into a judicial review. The court also stated that, if contractual relief had been unavailable, it would have awarded the same amount on a restitutionary quantum meruit basis.