Official hearing page

14 October 2022

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(10.00 am)

Mr Beer: Good morning sir, can you see and hear me?

Sir Wyn Williams: I can. Can you see and hear me?

Mr Beer: We can. Thank you, sir. As you know, you’re to hear opening statements on behalf of the Department for Business, Energy and Industrial Strategy this morning; then UK Government Investments, UKGI; Fujitsu; and then the Post Office.

We start with Mr Chapman on behalf of BEIS.

Sir Wyn Williams: Thank you, Mr Beer.

Mr Chapman: Can you see and hear me now, sir?

Sir Wyn Williams: I can.

Mr Chapman: Excellent.

Sir Wyn Williams: If it’s easier for you to sit down to speak into the microphone, please do. It’s entirely up to you, all right?

Mr Chapman: I’m stood now, sir, I’ll carry on standing, thank you.

Sir Wyn Williams: Fine.

Opening statement by Mr Chapman

Mr Chapman: As you know, sir, members of the panel, the Department for Business, Energy and Industrial Strategy established and sponsors this independent Public Inquiry and, in that capacity, it would again like to restate its thanks to you and to the entire Inquiry team for undertaking this extremely important work.

In its separate and distinct task or role as a Core Participant in this Inquiry, the Department is grateful for the opportunity to make this opening statement. It wishes to start by expressing again its sympathies to each of those hundreds of postmasters and their families who have so unfairly suffered the grotesque and long lasting consequences of the Horizon scandal.

As the Department has previously stated, it should never have happened and, indeed, should never have been possible.

Many good people’s lives have been devastated, communities damaged and a national institution undermined. The impact continues to be felt to this day and can never be put right. It’s all the worse because the Post Office is publicly owned and exists to provide a public service.

The Department is profoundly angry and dismayed that these unforgivable events could ever have occurred. Insofar as the Department might have in any way contributed to them, it apologises unreservedly.

The Department set up this Inquiry in order independently to establish the facts, to identify fault and to make recommendations. As it has stated previously, the Department’s objective throughout this Inquiry is to listen with humility and with a genuinely open mindset and to learn, to learn the facts of the past and to learn lessons for the future, with the aim of preventing anything like this from ever happening again.

The Department and the Government as a whole recognises that as part of this process, it too must be held to account. If it was at fault in any way, it will not shy away from admitting it and, as part of a process of continual improvement, it is determined to learn the necessary lessons and will continue to make sure that, wherever change is needed, it is implemented.

The Department therefore wishes me to make clear, on its behalf, its commitment to continuing to assist this Inquiry in whatever ways it can.

Whilst the Department believes that critical self-reflection has been necessary throughout, it recognises that is nothing like the complete picture. The Inquiry’s disclosure continues at pace but remains in its relatively early stages and the Department has no desire to pre-empt or second-guess what the evidence may show. Instead, it will carefully consider the evidence as it emerges in the forthcoming hearings before attempting to make detailed submissions on any topic.

As the Inquiry-sponsoring Department, it takes this opportunity to emphasise to all other institutional Core Participants and individual witnesses its firm expectation that they should share this same commitment to openness, self-reflection and cooperation with the Inquiry.

The Department believes that it will be able to provide substantial assistance to the Inquiry in relation to themes and issues arising in four of the seven phases of the Inquiry. These are Phase 2, insofar as it relates to the Government’s political objections for the Horizon project and its role in its coming into being; Phase 5, particularly in relation to government’s role in the compensation scheme set up once the scandal emerged; Phase 6, especially relating to the system of government ownership of, and oversight over, the Post Office; and Phase 7, which concerns improvements already made and lessons for the future.

I’d like to briefly address those four phases in turn, starting with Phase 2.

In relation to Phase 2, four departmental witnesses have provided the Inquiry with statements accompanied by hundreds of pages or hundreds of documents spanning over two decades and you’ll be hearing evidence from each of them during the course of the hearings. These witnesses include the former Secretary of State for Trade and Industry, Stephen Byers, and two former ministers, Sir Ian McCartney and Alan Johnson, the latter a former postman who was subsequently Secretary of State for Trade and Industry and Home Secretary .

Each of the Department’s witnesses looks forward to providing the Inquiry with their own unvarnished account, setting out the various difficulties from their perspective within Government, in getting the Horizon project off the ground and the reasons why it was thought so important to do so.

They will also, of course, provide the Inquiry with an insight into what was known within Government about technical problems within the system at the time of their involvement.

In relation to Phase 5, the Department will be able to assist the Inquiry in relation to what was known within the Department about the emerging evidence of serious problems with Horizon and the Post Office’s response. It will, of course, also be able to assist the Inquiry in relation to its role in the compensation schemes set up since the scandal came to light.

As I stated in the hearings in July this year, ensuring that affected postmasters quickly achieve full and fair compensation is a key priority for the Department. It recognised then, and recognises now, that progress has been slower than anyone would have wished, and it again apologises for this.

I won’t dwell on compensation issues now in the knowledge that you’ve already held hearings and will hold another hearing in December focused specifically on compensation.

In our written opening statement, we provided some detailed updates as to the current position in order to address the issues which you raised in your progress update and I’m conscious that POL has also done so.

Suffice it to say that, in relation to the compensation schemes administered by the Post Office, the Department continues to work actively with and encourage the Post Office to complete these processes as quickly as possible. It continues to work hard to ensure that the financing is made available where necessary.

Importantly, the Government has now announced that it will extend its financial support to the Post Office so that those who missed the deadline for applying for compensation under the Historical Shortfall Scheme will be able to make a late application, which will be considered on the same basis as in-time applications, and its financial support will now also extend to cover increased legal costs.

In relation to the Government’s own compensation scheme, which concerns additional compensation to the claimants involved in the Group Litigation against the Post Office, the Department continues to work hard in consultation with the claimants’ representatives to develop and progress the scheme and continues to make very good progress in paying interim awards to those affected.

Phase 6 concerns issues of governance and oversight. No doubt one key question for the Inquiry in this phase will concern the nature of the relationship between the Government and the Post Office at various times and this is an issue upon which the Department will be able to provide assistance.

The Department will also be able to help the Inquiry in relation to the extent to which, in practice, information relating to Horizon was brought to the Department’s attention, via the system of corporate governance and oversight which was in place.

The problems which the Horizon scandal have revealed in the POL corporate governance and oversight arrangements are of real interest to Government. As I said in my opening remarks, it’s not just that the Horizon scandal should not have happened, it’s that it should never have been possible. For a variety of reasons, the Government remains of the view that the arm’s length body model of ownership, whereby POL is operationally independent of Government, is the right model.

But that model depends on a properly functioning system of corporate governance and oversight, one that provides a very high degree of assurance, that the Department, as POL’s ultimate shareholder, would be made aware of problems of this level of seriousness within a short time of them emerging, so that it could act on them.

Clearly the system failed here and it failed over an extended period. The Department is extremely keen to understand why it failed and, in particular, whether there were problems with the way the system of corporate governance and oversight was structured or how it operated in practice, or both. In other words, was this a systemic failure or an operational failure?

The lessons to be learned here may have implications for the way in which Government engages with public corporations more generally in the future, not just with the Post Office.

That last point leads neatly to my remarks on Phase 7, which concerns current practice and procedure, lessons learnt and recommendations for the future. In this phase of the Inquiry, POL will be able to describe the corporate cultural changes which it’s making to prevent a recurrence of events in the nature of the Horizon scandal. For its part, the Department will follow with great care the evidence of the impact of those changes to date and, as I’ve just explained, it is also extremely important that the right lessons are learnt in relation to the system of government oversight over its public corporations, including, but by no means limited to, the Post Office.

As set out in the Department’s written opening statement and in evidence, the Department has provided to the Inquiry to date, since the Horizon scandal came to light, the Department, together with UKGI, has engaged in a process of reflection and learning and, as a result, a number of changes have already been made in order to improve the system of oversight over POL.

But I repeat and emphasise the point that the Department knows that it’s not in possession of the full facts. It recognises that further lessons in relation to governance and oversight are likely to emerge from the evidence that the Inquiry will hear.

On this and all other issues, the Department will continue to engage with the Inquiry proactively, fully and openly. It’s committed to making whatever changes are needed and looks forward to receiving your report and recommendations in due course.

Thank you.

Sir Wyn Williams: Thank you very much, Mr Chapman.

Opening statement by Mr Sheldon

Mr Sheldon: Good morning, sir, I hope you can see and hear me.

Sir Wyn Williams: Yes, I can. You’re slightly quiet, given the distance between you and the microphone but I can hear you, yes.

Mr Sheldon: Thank you sir, I’ll speak up.

Sir Wyn Williams: Thank you.

Mr Sheldon: Good morning. As you will be aware, I act, along with Mr Paul Mertens, for UK Government Investments, which you designated as a Core Participant after the establishment of this Inquiry, and to which I will refer in these brief opening submissions as UKGI.

You have not heard much from us so far, sir, and you will not be hearing much from us in Phase 2 either. There are no UKGI witnesses on your roster for these hearings and we have little, if anything, to contribute to your investigation of the procurement, design and rollout of the Horizon System.

UKGI’s involvement in this Inquiry, at least directly, will become more prominent in the later phases of your investigation and most particularly phase 6, when you come to examine governance issues, including the role of the Post Office Board and Central Government. That is because the primary reason for UKGI’s participation in this Inquiry is that it and its predecessor body, the Shareholder Executive, or ShEx, acted as the main interface between Central Government and the company, first as a division of the Department of Business, Innovation and Skills and, later, following our separation from the Department, on behalf of the Department for Business, Energy and Industrial Strategy.

As a part of this role, we were responsible for briefing Central Government on the activities of the company and ensuring that decisions made by Central Government were effectively communicated to the company and their implementation monitored.

From 2012, we had a non-executive director seat on the Post Office Board. This is a role which UKGI performs with an inevitable degree of individual variation for a number of other companies within its portfolio, which are similarly owned by the Government. For the purposes of this Inquiry and by reference to your list of issues, we anticipate that you will be most concerned with the oversight exercised by ShEx and UKGI over the performance of the Post Office generally and the strategy and decision making relating to Horizon in particular.

We anticipate you will also be concerned with the effectiveness of the steps taken by ShEx and UKGI to hold the Post Office executive to account for its actions and also with the lessons that have been learned and improvements implemented by UKGI in the performance of its corporate governance functions.

Sir, as I’ve said, all of this will come later and I don’t propose to take up time today with a detailed analysis of the evidence you will not be turning to consider until later phases of your investigation. However, we understand that this is likely to be the only chance we get to make an oral opening statement and so we wish, at this earliest opportunity, to make UKGI’s position clear on a number of important issues.

First, sir, I wish to acknowledge, on behalf of the organisation I represent, the profound suffering, distress and hardship endured by many hundreds of subpostmasters, their families and those close to them. We are, all of us, acutely conscious that lives have been ruined irreparably and the damage has been done which can never be undone.

What happened in relation to Horizon is an affront to any right-thinking person’s sense of fairness and justice and plainly calls for the most rigorous and unsparing investigation.

I make these observations not just because they’re self-evidently true but because they form the basis of the approach that UKGI wishes to take to this Inquiry. Although UKGI’s involvement in the matters you will be considering is relatively narrow and self-contained and although it will not be until much later in the process that its role will be subject to detailed examination, we wish to provide you, sir, and the other Core Participants, at the very outset, with a detailed and frank analysis of what we did, what we think we could have done better and what lessons we have learned as a result of the rigorous process of reflection we have undertaken over the course of the last three years or so.

To that end, these brief oral submissions in opening are accompanied by a much more detailed set of written submissions, which you will have seen and in which we set out, by reference to the contemporaneous evidence currently in our possession and by reference to what seemed to us to be the key milestones in the chronology as we currently understand it, our assessment of why more effective steps were not taken by the Post Office Board, and by UKGI in particular, to identify and address the errors that were being made in the handling of the issues relating to Horizon and the treatment of subpostmasters, which now seem to be so stark.

The written submissions also address the work that UKGI has done thus far to ensure that were a similar situation to arise again in relation to one of its assets, it would identify the problems more effectively and deal with them much better.

Sir, we recognise that is a lengthy document and we apologise for that but we hope it is a helpful one, at least it will be, when the relevant stage of the investigation is reached.

The analysis it contains is a reference to a schedule of documents which were provided to the Inquiry on Thursday last week. We make clear, as we have done in writing, that we do not seek in any way to anticipate and pre-empt the findings of your Inquiry and we fully recognise you may come to different conclusions than we have.

The motivation for providing you with our analysis now, at the start of the hearings, is simply this: UKGI serves as the Government’s Centre of Excellence for corporate governance, which is a role it takes very seriously, as you would hope and expect. It seems to us, frankly, that the handling of the Horizon Issues and the treatment of subpostmasters by the Post Office must reflect at least a potential shortfall in effective corporate governance. That being so, it is incumbent upon UKGI to identify why that may have happened and get on with the job of ensuring that it doesn’t happen again.

That process started well before this Inquiry was established and a great deal of work has already been done. In those circumstances, it seemed to us that the responsible thing to do was to provide you and the Core Participants with the product of that work now, rather than seeking to remain silent until later in the Inquiry and waiting for the totality of the evidence to emerge.

Now, it may be, as we fully recognise, that, as the Inquiry progresses, other issues may emerge, other criticisms may fairly be made and other lessons may be identified. But this is the product of the work we have done to date. We hope you find it provides a useful starting point for your analysis of UKGI’s role. We hope it provides the other Core Participants and, in particular, the affected subpostmasters and their families with some reassurance as to how seriously UKGI takes its responsibility to assist this Inquiry in uncovering the truth of what went wrong and as to the strength of UKGI’s determination to ensure that the mistakes that were made are not repeated.

Sir, having made those introductory observations, I propose to let our extensive written submissions speak for themselves and confine myself to only a brief summary of some of the salient aspects of UKGI’s role in the relevant chronology, which may assist in placing us in our proper context.

We are aware that not everybody may understand who we are and what we do and what part we played at key points in the story, and what follows is intended to be of some assistance in that regard.

Prior to 2012, when POL became a public corporation operating independently from Royal Mail Group, the role of UKGI – or ShEx, as it was then known – was very limited, at least in respect of matters with which this Inquiry will be concerned. Up until early 2012, as you will have seen, the Post Office was a subsidiary of Royal Mail Group and did not have its own board with independent non-executive directors. ShEx did not have a seat on the Royal Mail board and, in the years leading up to 2012, the role of the Post Office team was primarily to focus on funding issues and to facilitate the process of separating the Post Office business from Royal Mail.

In particular, ShEx had very little knowledge of, and still less involvement in, the policy for prosecuting subpostmasters for Horizon-related shortfalls that was pursued by the Royal Mail Group. It is for that reason primarily, sir, that the analysis of the prosecution’s issue at paragraphs 33 to 64 of our written opening, focuses on the period from 2012, when a ShEx non-executive director took up their seat on the Post Office Board and started to be provided with management information concerning the ongoing process of prosecutions, and 2016, when the prosecution ceased.

Following the establishment of the Post Office as a separate public corporation with its own board, the role of ShEx changed materially. The ShEx shareholder non-executive director took up their seat on the board on 1 April 2012 and, from that point onwards, there was a ShEx non-executive director on the Post Office Board throughout the period with which this Inquiry is concerned, although the identity of that individual changed on a number of occasions during that period.

There was also a dedicated shareholder team within ShEx during this time.

The powers and responsibilities of the ShEx non-executive director were essentially equivalent to those of any other non-executive director. As in almost all companies, it was the responsibility of the executive management team to provide the board with accurate, up-to-date information on the operation and management of the company and it was the responsibility of the board to satisfy itself that the company was being properly and effectively run, including by requiring the management team to provide further information, should that be necessary.

The ShEx non-executive director, like any board colleague, could request sight of relevant documents, could make proposals to the board as to how it should deal with matters brought to its attention and could, for example, propose that the board seek to exercise more directive oversight of the company’s handling of particular issues.

The ShEx non-executive director participated in collective decision making around the board table in the same way as their director colleagues, and did not have the power to dictate the actions of the board, or override decisions of which they did not approve.

In addition to that broadly conventional role of a non-executive director, the ShEx non-executive director worked with the ShEx shareholder team to ensure that the Department, including the relevant minister and their team, were accurately briefed on the operation of the company, and the way in which significant issues were being handled. This was done through meetings with the minister and their officials and the provision of written briefing notes, a number of which appear in the material disclosed to the Inquiry.

The ShEx non-executive director’s role also included ensuring that the Post Office Board was aware of, and took into account, Government’s perspective on significant issues relating to the company when it was making decisions.

As you have heard already this morning, the Government did not and does not seek to run public corporations like the Post Office itself nor does UKGI seek to do so on its behalf. That is the job of the company’s executive management, overseen by the board.

Public corporations like other companies, have to be given the freedom to operate in their own commercial best interests, uninhibited by micro management, either by Central Government or UKGI. However, there is plainly a balance to be struck between arm’s length commercial autonomy, on the one hand, and effective corporate governance on the other and, at some points in the chronology, UKGI considers that, on reflection, that balance should have been better struck.

Either through its seat on the board or through the shareholder team, there are points at which the Post Office management should have been challenged more robustly on the story it was telling about Horizon, points where further information should have been requested and points when a more interventionist approach should have been taken.

We identify what we consider those points to be in our written submissions and I don’t propose to take up time, sir, in numerating them all now.

As you will have seen, in addition to the relatively brief overview of the prosecution’s issue, in respect of which our involvement was, as I’ve explained, peripheral, we have identified six key aspects of the chronology: the Mediation Scheme; the Second Sight Reports; the Deloitte review; the Panorama broadcast; the Parker review and the litigation. These aspects of the chronology, it seems to us, are of particular relevance when one comes to consider the fundamental corporate governance questions at the heart of this narrative, namely whether and, if so, why, key pieces of work undertaken or commissioned in order to investigate the problems with Horizon were not presented to the full board, whether assurances that were provided by the Post Office executive management to the board as to the integrity of the Horizon System were subjected to adequate scrutiny and challenge and whether the scale of the reported discrepancies and prosecutions of postmasters should have served to cast doubt on those assurances and prompt the commissioning of further independent investigation on the part of the board.

To illustrate the nature of the analysis we have undertaken and the type of conclusion reached, and solely by way of representative examples, we explain in the written submissions why we consider that, on reflection, the Post Office executive management should have done more to ensure that the board was provided with important information concerning the operation of Horizon, and that the board should have done more to insist that such information was disclosed to it.

Key examples include the full Deloitte report in mid-2014, the final Second Sight Report in April 2015 and the report of Jonathan Swift QC, commissioned by Mr Parker in early 2016.

We further explain why the Panorama whistleblowing allegations should have prompted a greater degree of challenge on the part of both the board and the shareholder team to the Post Office management’s assurances as to the integrity of the Horizon System and we explain why we consider there should have been a greater degree of oversight of the litigation strategy on the part of the board in particular, especially in the early stages of the litigation.

Whilst we subject each of these aspects of the chronology to detailed consideration by reference to the contemporaneous documentation in our possession at this stage and, in each case, we set out our reflections, including our provisional conclusions, as to whether opportunities were missed to gain a better understanding of the Horizon Issues, to challenge the narrative being provided by POL as to the integrity of the system and to exercise more effective oversight over the way in which subpostmasters were being treated by the company.

I should make clear the use to which hindsight has been put in the conduct of this analysis, as the proper application of hindsight is always one of the most challenging aspects of an investigation of this nature.

It should, of course, be excluded from any assessment of the realtime actions and judgements of those directly involved in the material events who did not have the advantage of knowing what has now been established through litigation and subsequent investigation. However, the exclusion of hindsight from the assessment of the actions of those involved in the material events does not mean it cannot be applied in learning lessons and identifying improvements.

It is a valuable tool in that process and there should be no limitations on its use. That is the approach that has been adopted by the UKGI in its opening statement and we have sought to make clear where we have reached conclusions based on the totality of what is now known.

Sir, there is plainly and clearly a long way to go in this Inquiry and a lot of evidence to be heard and a lot of documents to be considered. However, even the necessarily limited analysis we have undertaken for the purposes of preparing the opening statement has made it clear that, in general terms, both the Post Office Board, including the ShEx non-executive director and ShEx itself, placed too much faith in, and was insufficiently critical of, the assurances they were given by the Post Office concerning the integrity of the Horizon System.

It is also clear, in general terms, that there were opportunities for more robustly testing those assurances which could and should have been taken, including by requiring the Post Office executive management to provide the material on which those assurances were apparently based.

Finally, and at the risk of over-generalisation, there are points in the narrative at which the balance between active interventionist governance by the board and management autonomy was wrongly struck and a more interventionist approach was called for.

In reaching those provisional conclusions, we have sought to keep in mind throughout the general context of persistent concern being expressed by subpostmasters and their representatives, which was very difficult to reconcile with the assurances being provided by the Post Office and ask why more concern was not expressed about the inherent improbability of so many accounting discrepancies and so many allegations of dishonesty.

In addition to placing too much faith in the assurances given by the Post Office management, it is also apparent that at no stage did the board commission its own independent investigation into the workings of the Horizon System to obtain a clear understanding of its operation and potential failings and to test the reliability of the assurances it was being given by the POL management.

Accordingly, and in addition to the need to rigorously scrutinise the information that is available, a key corporate governance lesson to be drawn from the handling of the Horizon Issues is the importance of the board being proactive in satisfying itself that the information and assurances provided by management on complex and controversial matters is accurate.

Sir, we have focused our analysis on those points in the chronology where more could and/or should have been done to identify what was going wrong and to take steps to mitigate the harm that was being caused. We understand that these will be the aspects of the narrative of most concern to the Inquiry and the Core Participants and UKGI welcomes the scrutiny to which it will inevitably be subject and, as I have said, has already subjected itself to a great deal of self-critical analysis.

However, at each relevant stage in the chronology, it is plainly necessary to place the actions of the board and ShEx and UKGI in their proper context. Inevitably, the overall picture is a mixed with one with some instances of effective corporate governance from which valuable lessons can be drawn. The establishment by the board of a litigation subcommittee in 2018, including the ShEx non-executive director, and the role it ultimately came to play in challenging the litigation strategy and ultimately bringing the litigation to an end, is perhaps one example and there may be others.

An important section of the written opening statement is the part entitled “Lessons learned”. As you may have seen, sir, each section dealing with individual parts of the narrative concludes with a summary of UKGI’s reflections, including the identification of any aspects of UKGI’s involvement which, on reflection, could or should have been handled better. Those reflections have been distilled into a series of practical lessons, directed at the specifics of what could have been done better and how to ensure that it would be done better should a similar situation ever arise in the future.

This section of the opening statement also includes a summary of the practical measures that UKGI has implemented or is in the process of implementing in order to achieve that objective. There are sections dealing with whistleblowing, corporate culture, oversight of the company’s handling of contentious issues and the management of litigation. In each case, the focus is on the role of the board and/or the shareholder team within UKGI, in holding the company to account and ensuring that high standards of corporate conduct are maintained.

Sir, as with the rest of the opening statement, nothing in that section is intended to pre-empt the Inquiry’s investigation or any conclusions you may reach. This work have been done simply because UKGI continues to play an important role in the governance and oversight of a number of assets, including the Post Office and, if there are lessons to be learned from the Horizon story, then the sooner they are learned and implemented, the better. They have been included in the opening statement because it seems us to that if a Core Participant has undertaken work of this nature, it should inform the Inquiry about it at the first possible opportunity.

As I have indicated, and as we explain in much greater detail in our written opening, the review of the evidence we have undertaken thus far and the process of reflection in which UKGI has engaged leads to the conclusions that, at a number of points in the chronology, ShEx and the Post Office Board placed too much faith in and were insufficiently critical of, the assurances given by the Post Office management as to the integrity of the Horizon System.

It also demonstrates that there were opportunities for testing those assurances, which could and should have been taken, and there were points at which the balance between active intervention in the handling of the Horizon issue and management autonomy was, with the benefit of hindsight, wrongly struck. Whilst those are necessary preliminary conclusions at this stage of the Inquiry, they are nevertheless ones that call for an apology to subpostmasters, their families and all those whose lives have been detrimentally affected by Horizon and the failure to identify the problems with the system until it was far too late.

Sir, I sincerely offer that apology on behalf of UKGI, its chief executive and its board.

Sir, can I end by giving you this assurance: it is not uncommon, as you will know, for institutional Core Participants at the start of a high profile inquiry into a terrible tragedy to assure the chair of their determination to be open and transparent and to diligently provide the inquiry with such cooperation and assistance as it may require. Sometimes those assurances are fully discharged, sometimes less so, and we are conscious that any Core Participant falls to be judged by its actions not the assurances it gives in opening submissions.

Nonetheless, on behalf of UKGI, I do wish to assure you of our determination to provide you with the fullest possible assistance in the conduct of your investigation and to answer such questions, as the Inquiry and Core Participants may have of us, as fully and frankly as we can. We are acutely conscious that those affected by Horizon expect and deserve nothing less from us.

We hope that the early provision of a detailed, reflective and self-critical opening statement stands as reassuring evidence of the approach that UKGI has taken thus far and will continue to take hereafter.

That is all we propose to say by way of opening statement. Although not directly involved in this phase of the hearings, we will be following the proceedings closely and, if the Inquiry identifies any issues in respect of which we are able to provide some useful assistance, we are, of course, sir, ready to provide it.

Thank you very much.

Sir Wyn Williams: Thank you, Mr Sheldon. You have correctly characterised your written submissions as detailed and lengthy but, for my part, and putting it, as you’d expect, entirely neutrally, as to conclusions, it’s nonetheless a very helpful document. So thank you.

Mr Sheldon: Thank you, sir. We’re very grateful.

Mr Whittam: Sir, can you see and hear me?

Sir Wyn Williams: At the moment, I can hear you, and now I can see you.

Opening statement by Mr Whittam

Mr Whittam: Sir, as you know I’m instructed by Morrison Foerster and I make this opening statement on behalf of Fujitsu Services Limited.

Sir Wyn Williams: Yes.

Mr Whittam: Fujitsu is grateful to you for the opportunity to make this brief opening statement and for the opportunity to assist the Inquiry. The human impact phase of the Inquiry reinforced the devastating impact the events described by the subpostmasters had on their lives and the lives of others. As stated by Paul Patterson, director of Fujitsu Services Limited in Fujitsu’s corporate statement, dated 28 September of this year, Fujitsu apologises for its role in the subpostmasters’ suffering.

From the outset, Fujitsu is being, and continues to be, fully committed to supporting the Inquiry in order to understand fully what happened and to learn from it.

The evidence that has been shared with the Inquiry to date has been focused on the early stages of Horizon, namely the design, pilot and development of Horizon and its operation. The corporate statement outlines the background to the procurement of Horizon and detailed technical matters leading up to the rollout of Horizon from 1999 to 2001.

As part of its commitment to helping the Inquiry understand what happened, Fujitsu has devoted considerable resources to responding to the Inquiry’s Rule 9 requests as fully and comprehensively as possible. Warehouses have been searched, databases have been processed and electronic documents from approximately 120 Fujitsu individuals have been collected.

Sir, that amounts to more than 30 million records, electronic and hard copy: going back 25 years, they have been collected. Fujitsu Services Limited, which is the UK arm of Fujitsu, and its predecessors, have provided IT services in the United Kingdom for more than 55 years. It has more than 9,000 employees in the United Kingdom across all four countries. As the Inquiry has heard and will continue to hear, Fujitsu’s IT systems support everyday life in the United Kingdom, including the retail sector, transport, defence and utilities.

It was in 1995 that Post Office Counters Limited and the Department of Social Security, issued a tender entitled “Bringing Technology to the Post Office and Benefits Payments” to potential suppliers.

The goal was to computerise Post Office’s 19,000 or so branches across the United Kingdom and to automate the payment of benefits to over 19 million claimants. In May 1996, ICL Pathway Limited, part of the Fujitsu group, won that tender. The ensuing project became known, in turn, to ICL Pathway as the Pathway Programme.

The Post Office Board recognised that there was a degree of technical risk with whatever system was adopted, not least because of the size and complexity of the proposed network. The development of the Pathway Programme proved significantly more complex than the contracting parties had anticipated and it took much longer than was expected.

Numerous modifications were made to its design, extensive negotiations took place between the contracting parties. Sir, as you know, the Department of Social Security pulled out in May 1999, three years after the tender had been awarded.

The departure of the Department of Social Security meant that a key part of the Pathway Programme, the automated system for the payment of benefits, was no longer part of the project. Rather than abandon the project completely, Post Office and UK Government decided to preserve that part of the system intended to deliver the computerisation of the Post Office branch network. That system became known as the Horizon System.

Horizon is multi-functional system, which encompasses point of sale services as well as over 100 additional services, including Financial Services, government services, lottery purchases and others. It is a large, bespoke and highly complex system, developed by Fujitsu in conjunction with the Post Office for its use in Post Office branches. Horizon initially was rolled out between 1999 and 2001 and, as you know, sir, it remains in use today.

Complex IT projects such as Horizon are governed and substantial and complex contracts, which are subject to ongoing amendment and variation. There are, to date, 21 conformed conversions of the Horizon contract, the first being an agreement between Post Office and ICL Pathway in July 1999.

The Horizon contract also includes hundreds of Contracted Controlled Documents, which are used to provide detailed specifications for operational services.

Technical teams at Fujitsu and Post Office have worked closely together, throughout the life of the Horizon System, in design, development and acceptance of Horizon to the present day. Some of those technical teams have shared offices in the past.

There were numerous issues identified during the acceptance process for Horizon prior to its national rollout in 1999. Some of these were characterised by the parties as Acceptance Incidents, this included an Acceptance Incident relating to branch account discrepancies. Ultimately, whilst certain Acceptance Incidents remained unresolved, on 14 January 2000 it was agreed between the Post Office and ICL Pathway that the national rollout of Horizon could continue. By the end of 2001, Horizon had been rolled out to Post Office branches.

Sir, as was outlined in Mr Beer’s detailed opening, the Horizon System was changed over time in response to changing Post Office requirements. There have been the three broad phases to Horizon: what we have been describing as Legacy Horizon between 1999 and 2010; then HNG-X, or Horizon Online, from 2010 to 2017; and HNG-A or Horizon Anywhere, from 2017 onwards.

Legacy Horizon was the original phase of the Horizon System, it went through a number of substantial changes between 1999 and 2010. HNG-X, or Horizon Online, was rolled out to the majority of Post Office branches by the end of August 2010. It was a replacement for the Legacy Horizon system and was designed to take advantage of advancements in technology since Legacy Horizon was rolled out.

HNG-A, or Horizon Anywhere, was progressively rolled out to branches from 2016. That development was driven by the need to replace aging Windows NT4 branch counter technology with Windows 10 operating system.

During its early phases, the Inquiry will examine the existence, extent, knowledge and management of bugs, errors and defects in the Horizon System and of remote access.

Fujitsu acknowledges that there have been a number of bugs, errors and defects with the Horizon System and that, in some instances, those bugs had the potential to, and indeed did, affect the integrity of the subpostmaster branch accounts.

No complex IT system will ever be completely free of bugs, errors and defects. It is for this reason that processes governing the identification, communication, escalation and resolution of bugs, errors and defects, were put in place between Post Office and Fujitsu.

The issue of remote access is also of significance to this Inquiry and to the subpostmasters. It was, as you will have witnessed, sir, an important topic in the human impact phase. In general terms, remote access is the ability to access the Horizon System from a location other than a counter at the branch.

Remote access includes all mechanisms by which the Horizon System can be accessed remotely and all mechanisms by which branch information can be changed by a method other than branch staff entering data into Horizon using the counter application provided at the branch.

Sir, Fujitsu had, and continues to have, the ability to remotely access Horizon in multiple ways via various ingress access types. It had that from the time of the initial rollout to date, including both Legacy Horizon and Horizon HNG-X. The Post Office has been aware from an early stage of Fujitsu’s ability to remotely access the Horizon System.

Sir, Fujitsu remains fully committed to supporting the Inquiry in every way it can, in considering the evidence as it is presented to your Inquiry, and that’s all that I propose to say in the opening statement on behalf of Fujitsu.

Sir Wyn Williams: Thank you very much. Thank you.

Ms Gallafent?

Ms Gallafent: Good morning.

Sir Wyn Williams: I will be guided by you now. If you don’t think there’s need for a mid-morning break, then please continue, subject only to a 15-second delay while I locate your written opening. But if you want to have a mid-morning break, is now the best time or some time into your submissions?

Ms Gallafent: I suspect now is the best time, sir.

Sir Wyn Williams: Fine, then we’ll have a 15-minute mid-morning break.

(11.00 am)

(A short break)

(11.15 am)

Sir Wyn Williams: Ready when you are, Ms Gallafent.

Opening statement by Ms Gallafent

Ms Gallafent: Thank you, sir.

I would like to thank Counsel to the Inquiry and, of course, all his team for his careful and thorough opening statement earlier this week and all representatives for their submissions.

I am obviously not going to attempt today to respond to or address every point raised in those submissions but they will equally, obviously, be the subject of very careful consideration by Post Office going forward.

As the Inquiry will be aware, Post Office publicly welcomed the Secretary of State’s decision to establish this Inquiry in September 2020 and, similarly, publicly welcomed the Secretary of State’s decision in May 2021 to convert it into a statutory Inquiry.

The start of this phase represents an important step in the proceedings and Post Office is grateful for the opportunity to make some short submissions in this context.

I start by apologising unreservedly on behalf of Post Office for the suffering and damage caused to every person who has been affected by the Horizon IT scandal. That includes not only postmasters directly affected by Post Office’s failures but all others, including, in particular, their families, whose lives have been impacted by those failures.

On the day that the human impact hearings began in February this year, Nick Read, the chief executive of Post Office, reiterated the apology that he’d personally made on behalf of the Post Office before the BEIS Select Committee in January of this year for the impact on lives of all postmasters that was caused by historic failures by Post Office.

As many of those involved in the Inquiry may know, Mr Read joined Post Office in September 2019, after the Common Issues judgment and before the Horizon Issues judgment, and played an active role in working towards the settlement of the Group Litigation in December 2019.

In his evidence to the Select Committee, Mr Read also publicly stated that what happened was unacceptable, that the Inquiry should get to the bottom of what went wrong and that it provides an opportunity to help draw a line for some people who have suffered for decades. He expressed his determination that Post Office does all it can to help the Inquiry achieve that.

The Post Office remains fully committed to those objectives. It regards its role in this Inquiry as having two key elements. The first is to listen and learn from all the evidence and representations made by other Core Participants. Although Post Office has worked resolutely over the last few years to respond to the issues raised in the judgments of Mr Justice Fraser, it does not come before this Inquiry convinced that it knows all the answers. Only by listening intently to the evidence given during the course of the Inquiry, to the representations, submissions and questions posed by other Core Participants, as well, of course, by you yourself, sir, and Counsel to the Inquiry, can Post Office hope to understand fully exactly what went wrong.

We, therefore, do not seek at this stage to anticipate either the evidence to come or the Inquiry’s potential conclusions in this or any other phase. I would wish to make it clear that in not saying anything specific about Phase 2 itself in this opening statement, we certainly mean no disrespect to all of those who have worked so hard to prepare for this first substantive phase.

So far as the evidence that has already been given during the course of the human impact hearings and via the focus groups, Post Office can assure the Inquiry and all those who have given evidence that their voices have been heard.

Before those hearings, in his public statement, Mr Read anticipated that their testimonies would make for uncomfortable listening for Post Office but which it needed to hear. He was right in both respects. He and other senior officers and employees at the Post Office have between them personally listened to a significant amount of the testimony. In addition, they have been provided of summaries of each day’s hearing and other witness statements which were submitted to the Inquiry.

They wish to pay tribute to everyone who gave evidence, whether orally or in writing, for their strength and courage in doing so. It was, rightly, chastening to hear it.

Of course, listening, in and of itself, is not enough. It’s what happens as a result that really matters. Before the human impact hearings, Post Office created a team which was responsible for identifying and recording action points arising from the evidence. That team assigned each action point to a relevant business area with the knowledge and expertise to address the points.

Thereafter, the team has been responsible for progressing responses to each one. As of yesterday, there were 255 action points identified, 193 of which have been resolved. In order for an action point to be resolved, the response to it must have been formally approved at group executive level or by a person who formally reports directly to the relevant group executive member.

By way of example, 28 of the actions points involve allegations made about Post Office staff members, including current and former staff members, where they’ve been named or described. This includes allegations in relation to the conduct of interviews, inappropriate pressure being brought to bear on postmasters or others and the withholding of evidence from them.

All such points have been brought to the attention of the Post Office ‘Speak Up’ team, which is the team responsible for dealing with whistleblowing reports and processes. That team advised that contact be made with the witnesses involved to find out further information to ascertain whether there are grounds for an investigation.

In June of this year, Post Office wrote to the representatives of those who had made such allegations, to propose that the Speak Up team speak to the witnesses directly or that the witnesses provide a written outline of all information relevant to their allegations.

Post Office also recently invited the Inquiry to notify one of the anonymised witnesses of its invitation to Speak Up or provide information to the Speak Up team. The Inquiry has since advised Post Office of the identity of the representatives for the anonymised witness and Post Office has written directly to them.

It is obviously a matter for individuals as to whether they want to pursue this opportunity and we recognise that some may feel this is either too little too late or they simply do not want to engage with Post Office in the light of their experiences. However, I can assure all witnesses that Post Office genuinely wants to investigate those allegations and will take appropriate action where necessary and required and would encourage those who wish to do so to speak and engage with the Speak Up team.

In addition to action points relating to allegations against specific individuals, Post Office has carried out, or is in the process of carrying out, internal investigations and reviews of contemporaneous documents to verify other broader points raised by human impact witnesses, these include, for example, alleged conduct by Fujitsu.

Where the executive level member or the reportee tasked with approving the resolution of the action point considers it appropriate, feedback on the outcome of the investigations will be provided to the individual witness.

As indicated in our written submissions, Post Office anticipates that a number of the outcomes of these investigations will be relevant to forthcoming stages of the Inquiry and it will, of course, be disclosing all relevant information and outcomes in that context.

Several current postmasters gave evidence about ongoing problems with Horizon and in respect of training. In each case Post Office has looked into the concerns and has taken, or is in the course of taking, steps to resolve them.

A number of other action points resulted in Post Office reviewing its policies to ensure an appropriate policy is in place to prevent a similar situation arising again. For example, this includes ensuring that the current policy on suspension is sufficiently robust to address any concern about inconsistency and that weekly updates are provided to suspended postmasters to avoid them being left uncertain as to the status of an investigation.

Finally, there were a number of action points in relation to the Historical Shortfall Scheme and other compensation issues. Some of these have been resolved by improvements to the website, for example to make it clear that compensation payable under HSS could be made to the estate of a deceased person. Others have led to the changes which were considered at the interim hearings on compensation, such as the removal of the clawback clause in relation to interim hardship payments. I’ll deal more fully with other developments in relation to compensation in a moment.

Post Office hopes that its proactive engagement with the points raised by the human impact witnesses demonstrates its commitment to hearing the voices of postmasters, engaging with their concerns and doing all that it can to resolve them, both for the sake of the individual concerned and to ensure that such issues do not rise again.

As the Inquiry may be aware, Mr Read, who is here with me today, was here earlier this week and other board members and senior police have been and will be in attendance during the Inquiry hearings. These include people with particular responsibility for remediation issues, such as Ben Tidswell, who was appointed to the board as a non-executive director in August 2021 and chairs the historical remediation committee, which as its name suggests, was established to oversee actions to address past failures. They also include Simon Recaldin, who joined Post Office in January of this year as the historical matters director.

They, together with other board members and senior employees, will hereafter be maintaining a very close oversight of these proceedings, assisted by the steering committee that has been established for the purposes of the Inquiry.

Mr Read has asked me to make it clear that any postmaster who wishes to raise a matter with him, either in person or in writing, should feel free to contact him directly. His contact details for this purpose appear on the Historical Matters section of the Post Office website.

While he was chair of Post Office, Tim Parker wrote to every postmaster whose conviction was overturned with a personal and heartfelt apology. Post Office has always recognised and understood the value of such personal apologies. There may be some postmasters who do not wish to be contacted by Post Office in this or, indeed, any way, which position Post Office of course respects.

Having carefully considered the submissions made on behalf of postmasters represented by Howe+Co, Post Office invites any postmaster who would like to meet a senior member of Post Office and receive a personal apology, to contact Post Office via Mr Read in order for that to be arranged.

The newly appointed chair of Post Office, Henry Staunton, will be taking up his post on 1 December 2022. He has also asked me to confirm his unequivocal commitment to supporting the work of the Inquiry.

The other key role of Post Office is in doing all that it can to assist the Inquiry with its work. A core element of is assistance is, of course, responding to requests for documents and witness statements. As of yesterday, Post Office has disclosed just under 95,000 documents to the Inquiry.

The issue of the disclosure of documents by Post Office, which was, of course, traversed on Tuesday morning, will be the subject of the further interim disclosure statement to be provided to the Inquiry next Tuesday afternoon and may be the subject of further consideration during the course of this phase. I therefore say no more about it at this stage, save to reiterate Post Office commitment to assisting the Inquiry, both in respect of requests for documents and for witness statements.

I now move to the issue of compensation. Post Office wishes to thank you, sir, for your detailed and insightful progress update on issues relating to compensation. As we made clear in our written submissions, Post Office has carefully considered each of your conclusions and has taken action in nearly all cases by acting in accordance with your provisional views and conclusions.

In relation to the Historical Shortfall Scheme, HSS, the statistics up to the end of September were set out in our written submissions. In short, Post Office remains on track to meet the target of making offers in 95 per cent of eligible applications by the end of this year.

As of yesterday, offers have been made in 1,976, that’s 83 per cent, of cases. After the tax on interest has been removed, this amounts to a total value of £55 million. Payments have been made in 1,600 cases, which, again, after removing to tax on interest, amounts to a total value of £34.5 million.

1,654 applicants have accepted offers in settlement. Of those who did not initially accept the offer, 48 have subsequently accepted it; 23 accepted it before any good faith meeting; 16 accepted it after a good faith meeting but before any escalation meeting; 11 cases have proceeded to an escalation meeting, of which four accepted the offer and two applicants have asked to proceed to remediation. A further 161 cases are being actively supported through the HSS dispute resolution procedure by the dedicated dispute resolution team.

Sir, this team wasn’t the subject of any discussion at the interim compensation hearings so it may assist the Inquiry to know it consists of experienced Post Office employees, many of whom have been postmasters themselves. Every applicant who has indicated that they wish to engage the dispute resolution procedure is assigned a designated lead person from the dispute resolution team who will communicate with them by phone or email in order to understand their concerns, answer their questions and assist them throughout the process, which Post Office recognises may be regarded as complex and unfamiliar to many postmasters.

There is also an independent wellbeing support telephone line engaged by Post Office to support applicants going through the scheme. This line is operated by a company called Optima, who are fully independent of Post Office and they can provide emotional wellbeing support to individuals who are beginning their applications and who feel they need further emotional support. There is no charge for this service.

Post Office remains in agreement with your observation that there is a balance to be struck between the speed of decision-making and ensuring that offers which are made are full and fair. It is satisfied that the continuing progress towards its target has not been at the expense of the fairness of the process. In particular, Post Office is mindful to ensure that applicants and other external stakeholders have sufficient time to collate and provide any relevant information or evidence before an offer is made and during the dispute resolution procedure.

If applicants or other external stakeholders consider the process is too fast or too slow or have views on it, that is obviously something they should raise with Post Office, which, throughout the running of the HSS scheme, has welcomed feedback and sought to act on it where appropriate. Indeed the action of the dispute resolution team was precipitated by relevant feedback.

Turning to the issue of late applicants to the scheme, Post Office fully accepts your conclusion that the delay in determining whether outstanding applications received after November 2020 should, or indeed could, have been accepted into the scheme was wholly unacceptable and Post Office apologises for its part in this delay.

Sir, you may have seen the formal announcement made by the Minister on 6 October that BEIS and His Majesty’s Treasury have now approved Post Office’s proposal for funding in respect of late applicants to the HSS.

Post Office is in the process of writing to all 224 postmasters who told us they wished to join the scheme after the extended deadline and are not currently included in HSS. They have provided copies of the application form, the consequential loss principles and guidance. As of noon yesterday, 97 letters had been sent out and Post Office expects to send the majority of the remainder by early next week. It has also put a notice on the historical matters section of its website, inviting any further applications.

The eligibility criteria for the consideration of late applications will reflect those of current HSS terms of reference, save that, of course, instead of having to apply by the November 2020 deadline, applicants will instead be asked to explain why they were unable to submit an application by that deadline. By way of guidance on the website, examples of possible reasons provided might include that they didn’t know about the scheme or were poorly, overseas or caring for a relative. That is obviously not an exhaustive list of circumstances.

In the event that Post Office were minded not to accept an application on the basis of timing, it has accepted your recommendation, sir, to introduce an independent decision-maker to whom an applicant could apply for a formal determination of whether their application is eligible. Post Office has not yet finally determined whether that role should be fulfilled by one of the King’s Counsel members of the current Independent Advisory Panel, that might detract from the time they can spend on decision making in relation to substantive applications, or another independent body, such as a different senior barrister, but we will obviously keep you appraised of its final decision on that point.

As the Minister’s statement made clear, the Independent Advisory Panel will carry out the same role for late applications as it currently does in making a recommendation to Post Office on settlement amounts. This will ensure consistency and objectivity.

Post Office is currently considering whether there should be any other variations to the current process but I can assure you that no variations will be made that would, in any way, result in a less fair process than that currently provided for under the existing scheme.

As noted in our written submissions, Post Office has also reviewed its position on eligibility for the scheme, where the branch was operated by a limited company which has since been dissolved.

On 30 August, Post Office announced it had re-examined the position where that was ineligible and will be writing to all postmasters, who were previously treated as ineligible, to explain it’s now reviewing their claims. There are 29 claimants in this position, of which Post Office has already written to 22, and it’s working out how best to contact the remaining seven where there’s an issue as to whom Post Office should correspond with as a result of bankruptcy or insolvency.

Turning to the issue of legal assistance, Post Office recognised the force in your view that fairness to the remaining applicants in the scheme demands that these allowed for advising on offers, which are made henceforth, should be increased to levels commensurate to the work reasonably carried out by an applicant’s lawyer and, as a result, for offers made from this week onwards, post Office will offer to pay an applicant’s reasonable legal costs.

As a starting point, Post Office considers that £400 is reasonable for the cost of consulting a solicitor on an offer and its full and final settlement terms, where it’s offered to pay the applicant’s claim in full or largely in full, and that £1,200 is reasonable where it has not. But it will invite any applicant who considers that additional legal support is required to discuss the position with Post Office, so they can obtain the advice they require in the confidence that Post Office will pay their reasonable costs.

Post Office has also considered your view in relation to the legal assistance at the dispute resolution phase. Post Office, at that point, will now also offer to pay applicants their reasonable legal costs. Again, Post Office has a starting point but not a fixed point that, in such cases, the sums of £5,000 for cases which relate solely to a shortfall loss and £10,000 for cases which have other heads of loss may be appropriate, but to give the applicant comfort and with the aim of avoiding collateral disputes on costs, Post Office will seek to agree those costs with applicants in advance of them being incurred.

Finally, in relation to the scheme, I turn to the issue of hardship payments. On 29 July, Post Office published a statement on the Historical Matters section of its website, to reflect the existing but unpublicised, by then, practice of considering making early payments of up to £10,000 to applicants who are experiencing financial difficulties or suffering serious health issues. On 22 August, it updated that statement to confirm that if an applicant has received an offer but needs more time to dispute it, it will consider paying part of the offer for applicants who are experiencing financial difficulties or suffering serious health issues.

Post Office did not consider it was necessary to amend the terms of reference of the scheme to that effect. Its current view is that this is sufficient to mitigate the risk of hardship prior to a claim being definitively resolved but it will continue to keep this approach under review. It is conscious that there have, so far, been relatively few cases to enter the dispute resolution procedure, just 209 to date.

As the meetings as part of those procedures continue, Post Office will take into account whether there are particular issues or themes arising which would justify making interim payments other than on hardship grounds and, if so, will reconsider its current policy.

Moving on to Post Office’s approach to the overturned historical convictions. As you heard earlier this week from Mr Moloney, progress continues to be made. As of yesterday, Post Office paid approximately £8.9 million in respect of this aspect of compensation across both interim and final payments.

As we set out in our written submissions, of the 81 overturned convictions, applications for initial interim payments have been made in all but one case and that’s the choice of the intended applicant.

Interim payments have been offered in all but three cases and all of those offers have been accepted, save in one case where the applicant has only recently instructed his lawyer but his lawyer has indicated that his client intends to accept.

No further applications over and above what I’m going to characterise as the public interest only cases have been declined. In addition, Post Office has made second additional interim payments in respect of three cases. To date, there remain only the three public interest only cases where an interim payment has been refused or challenged. These are, of course, the cases referred to the Crown Court by the Criminal Cases Review Commission, prior to the Court of Appeal’s judgment in Hamilton, a judgment that brought very helpful clarity in this area.

Although Post Office cannot eliminate the possibility that new, unexpected issues will emerge in the future, there are good reasons to believe that this issue, created by the so-called public interest only cases is a problem of three and will remain so. Against that background, Post Office has carefully considered your conclusions in relation to potential challenges to a refusal of Post Office to make an interim payment, namely that a person or panel should be appointed to deal with all such issues, rather than Post Office being the final arbiter in such circumstances.

As the Inquiry is aware, the three former postmasters whose applications for interim payments have been refused are all represented by Hudgells Solicitors. Post Office has continued the constructive work it commenced with Hudgell Solicitors on this issue on April of this year and I can now confirm that, in order to seek to resolve matters, Post Office and Hudgells solicitors have agreed to go to mediation with an independent mediator.

We and Hudgells solicitors will obviously keep the Inquiry updated on progress made in this respect.

Were any other cases to arise in the future where an interim payment was refused by Post Office, which, as I’ve indicated, we regard as unlikely, Post Office would seek to adopt the same constructive approach to identifying the best route forward via some form of independent dispute resolution process.

Moving on to final compensation and Post Office’s current approach to resolving those cases. As you’re aware, sir, Lord Dyson provided his evaluation at the end of July and this was provided to you, sir, last week at your request.

Following receipt of Lord Dyson’s evaluation, Post Office confirmed it fully endorses his Lordship’s findings and has agreed to be bound by them in future cases. The value of the early neutral evaluation approach is amply demonstrated by the fact that, to date, six of the ten claimants involved in that process have now formally settled their non-pecuniary claims with Post Office in light of the advice provided by Lord Dyson and two of those having reached full and final settlements on all aspects of their claims.

Post Office anticipates the remaining four non-pecuniary loss claims should be agreed shortly. Post Office will also be reflecting the ENE outcomes when considering future applications for interim payments.

Following the approach to evidence adopted in the ENE, Post Office has shared or offered to share the evaluation with the legal representatives of all potential claimants with overturned convictions. It is inviting all concerned to submit evidence in support of their non-pecuniary claims so these can be settled swiftly in advance of their pecuniary claims and damages paid out in short order. I repeat that invitation today.

To date, Post Office has received non-pecuniary claims from 31 claimants, including the ten involved in the early neutral evaluation, with overturned convictions. It has already made offers worth more than £4.5 million across 19 cases; it expects to make further offers in the coming weeks. It is hoped that offers will be made by Post Office in the majority of non-pecuniary claims by the end of this year. Post Office, UKGI and BEIS are all working hard to see that this is accomplished and encouraging all claimants to come forward with their claims as soon as possible.

Post Office will offer more help and support to those claimants with overturned convictions, who do not currently have the benefit of legal representation. There is currently, in fact, only one unrepresented claimant. They will do so to ensure they are not prejudiced, that they too are aware of the opportunity to take their non-pecuniary claims forward on an expedited basis and they are aware of what they need to do in order to do so.

A further development we’ve flagged up in our written submissions was confirmation on 23 September by His Majesty’s Treasury that all compensation payments to postmasters with quashed convictions are to be exempt from tax. Post Office notified all the affected postmasters on the same day of this positive news. This followed several months of work by Post Office and officials at UKGI and BEIS working together to put forward the proposal to His Majesty’s Treasury.

The exemption is hugely beneficial to those seeking compensation from Post Office. It will allow Post Office to process their claims more quickly and, crucially, provide certainty to postmasters who understandably might have worries about the tax effect of their compensation payments.

Post Office is grateful to His Majesty’s Treasury for making this tax treatment possible.

In relation to pecuniary claims, as I’ve indicated, the two initial cases that we’ve previously reported on in our submissions have now been settled, one following a mediation. A further six claims with supporting schedules of loss have been received, in respect of which Post Office is working with the solicitors concerned on evidential matters to enable opening offers to be made. Again, Post Office wishes to encourage all claimants and potential claimants to present their claims as soon as they are able to do so.

It was reported to Post Office that a challenge for claimants was the lack of ready, available information from HMRC. To assist claimants in that regard, Post Office, BEIS, HM Treasury and HMRC have created a simplified process which will allow claimants to access that information within 28 days. That has been communicated to all claimants. It is hoped that that will assist those bringing claims to advance them with greater ease and expedition. Again, we are grateful to all parts of Government involved for their assistance in this respect.

It is against this background, sir, that I turn to your view that there should be contingency planning as to how disputes about final compensation should be reviewed. That is a matter which the Post Office has to date dealt with by adopting the dispute resolution procedure, which is considered to be most appropriate to the point in issue, as agreed with the claimants in question, and, in that regard, as I’ve indicated, have already used the ENE process and a mediation process to positive effect.

The issue of whether there should be one single process which would be applicable in every case is being considered internally and, crucially, being discussed with legal representatives of claimants who may wish to avail themselves of it. As you’ve heard, Post Office and Hudgells solicitors have worked constructively to date to seek to resolve those claims and it is clear that Post Office must have regard to a range of views as well as potential solutions, before landing on any particular contingency plan. To be clear, though, Post Office is committed to seeking consensual resolution to disputes, facilitated by alternative dispute resolution procedures in all cases.

In this context, you’ve noted that, to date, less than 20 per cent of the postmasters whose conviction could be Horizon related have sought to have their convictions quashed to date and, in this context, we note the potential distinction between a Horizon related case and a Horizon case, as defined by the Court of Appeal, those being cases as well as those conceded on public interest grounds, which are capable of being successfully appealed.

Post Office would like to reiterate its encouragement to affected postmasters to consider their options for appeal. Whilst it has written to the vast majority of the 706 individuals who have potentially relevant convictions, or their relatives, there remain 12 individuals who Post Office has been unable to contact – I’m sorry, 12 that they will continue to trace but so far are unable to contact – and 20 who they’ve been unable to contact because all efforts to trace them to date have been unsuccessful.

Post Office continues to support the CCRC in their endeavours to independently contact those who have not responded to Post Office or who Post Office have been unable to trace. We very much hope that the publicity surrounding the Inquiry, as well as publicity as to settlements being made by Post Office, may assist in communicating that important message to them, and Post Office will continue to keep under review options for doing so.

Post Office also continues to provide support to the Crown Prosection Service, the Department for Work and Pensions, the Public Prosecution Service in Northern Ireland, the Scottish Criminal Convictions Review Commission, the Crown Office and Procurator Fiscal Service and the Royal Mail Group, in respect of individuals who are not prosecuted by Post Office. This support has included providing documentation held by Post Office, tracing services, as well as round table and individual meetings to insist in their independent reviews.

Post Office identified 97 potential cases in Scotland and Northern Ireland and 182 Crown Prosecution, Department for Work and Pensions and Royal Mail Group cases. Two cases are currently before the Court of Appeal in Northern Ireland.

There is one further matter in relation to compensation which Post Office wishes to draw the Inquiry’s attention to, albeit one that may fall indirectly within the Inquiry’s terms of references if at all. Post Office’s annual report for 2020-2021, published in April of this year, recorded three items in relation to exceptional and contingent funding. Those were the HSS, compensation payments in relation to overturned historical convictions and what was referred to as postmaster remediation. The particular potential liability identified in the report was future payments to eligible postmasters who did not receive remuneration during periods of suspension before March 2019 when Post Office policy changed following the Common Issues judgment and Mr Justice Fraser’s comments on that position.

However, in the annual report, the directors noted and acknowledged that, as Post Office continues to review its historical practices and policies, further associated liabilities may arise. In April of this year, Post Office wrote to all current postmasters who were potentially affected by the policy of suspension without remuneration and put a statement on its website to confirm it’s working hard to ensure that arrangements are put in place as quickly as possible to address the impact of this previous policy, including working with the Government to secure the necessary funding to make payments to the people affected.

At that time, as recorded in the annual report, Government have provided Post Office with a comfort letter stating its intention to provide support in respect of these liabilities. The data required for the completion of the business case for funding was provided to UKGI and BEIS over several months, the remaining requested detailed provided at the start of May. Post Office hopes to have the final position on funding confirmed as soon as possible.

Subject to that, Post Office will then write to all potentially eligible postmasters confirming its intention to make payment to them, to compensate for the absence of remuneration during the period of their suspension.

Post Office’s review into other aspects of business activities which could have given rise to detriment, potentially, to postmasters is ongoing, but an example of one where other detriment has already been identified relates to maintained error limits. The individual amounts may be small, around half of them are for £1 or less, but Post Office has already remediated all current postmasters who suffered such losses and remains fully committed to remediating former postmasters who have done so.

Post Office does not consider that areas of potential detriment, such as these, fall directly within the Inquiry’s terms of reference, which of course concerns the failings associated with the Post Office’s Horizon IT System, or rather then in relation to other business policies or procedures. But it fully recognises that, in the course of considering issue 214, that is the extent to which changes and improvements have been made to the culture, policies and procedures of organisations, including Post Office, the Inquiry may wish to take into account Post Office’s approach to identifying potential areas of detriment, other than those arising from Horizon, but which nevertheless require remediation, and affecting that remediation.

In those circumstances, POL thought it right to raise the matter at this stage.

Finally, I would like to conclude with some comments on Phase 7. During that phase, you will hear evidence from Post Office as to the very considerable changes that have been made since the events that led to the Horizon scandal. I do not seek to anticipate that evidence today, not least as improvements will continue to be made during the period leading up to Phase 7. However, it is right that, at the outset of these substantive phases, the Inquiry should have at least a sense of the scale and pace of changes that have already been made since the Common Issues judgment and the Horizon Issues judgment.

In particular, Post Office has sought to reset its relationship with postmasters, upon whom we all depend. At the highest level of governance, this aim has been supported by the additional of two non-executive director postmasters, elected by other postmasters on the Post Office Board, to ensure that decision making fully takes into account the reality of the postmaster experience. All of those involved in this Inquiry are aware the Common Issues judgment included significant findings about the contractual relationship between Post Office and postmasters.

Immediately following that judgment, Post Office prioritised a contract review and restatement exercise to make sure that the contracts with all new and existing postmasters included the implied terms set out in that judgment. Moreover, there have been a number of external, as well as internal, reviews, and a gap analysis undertaken to improve and identify improvements against best practice.

To track the improvements resulting from the various recommendations from those reviews, an Improvement Delivery Group was set up in February 2021 to provide oversight at group executive level within Post Office. That group categorised a total of 447 CIJ related actions, delivery against which is closely monitored. When last reported to the board in July of this year, 407 actions were considered to be complete, and Post Office expects 443 of them to be complete before the end of March next year.

By way of examples, these actions include the establishment of an independent appeal panel, including former postmasters, to review disputed investigations, suspensions and terminations; new training, content and learning aides to support postmasters better in how their branch should be run and their business grown, and a system called Brunch Hub, which is a portal for postmaster communications, trading data, chat help, e-forms and other operational support.

By way of further assurance, Post Office has commissioned a series of reviews from its internal audit function, as well as an independent external review, to assess the actions taken or planned by it at that date, as to whether Post Office was conformant, or on a path to conformance, with the issues in the CIJ.

Of the 43 separate themes and sub-themes that were identified by the independent reviewer as being in the CIJ, as at September 2021, Post Office was found to be fully or substantively conformant in 24 of them, and on the path to conformance for a further ten. For the remaining nine, Post Office was found to need to be developing a path to substantive conformance on three, and five were not scored, as either overlapping with other themes of falling outside of the CIJ remediation work, or falling within the scope of remediation work in registration to the Horizon Issues judgment.

Based on this report, and progress made to date, by the end of March 2023 the Post Office expects to be fully or substantively conformant against 40 of those 43 themes.

Turning to the Horizon Issues judgment, Post Office has similar embarked upon an exercise of internal and external scrutiny and improvement in the light of Mr Justice Fraser’s findings on the 15 Horizon Issues. Whilst Mr Justice Fraser recognised that the version of Horizon operational at the time of handing down his judgment was relatively robust, and far more robust than that operational in and before 2017, he didn’t differentiate in his findings between issues which pertained to pre-and post-2017. Accordingly, all issues identified have been considered, even if they may no longer be relevant.

To address those issues, in November 2020 Post Office set up a dedicated Horizon IT team, initially supported by a specialist third party. This team undertook an extensive gap analysis to establish its current position against the themes of the HIJ, determine the actions required to close those gaps until the Horizon platform is retired.

Through this course of action, Post Office identified a range of the required outcomes with different levels of priority and urgency. Most of the outcomes have already been achieved.

Whilst Post Office remains committed to continuing its remediation work in relation to the existing Horizon System, as the Inquiry will be aware, it has also embarked upon an ambitious and accelerated large-scale effort to retire Horizon by 2025 and replace it with a new system which will be simpler, faster, and more intuitive. The design and testing for the new system is being undertaken in conjunction with the focus group of 240 postmasters to ensure that their views and needs are fully taken into account.

The first small-scale pilots of the new system started this month, and they will be carefully evaluated over the next few months before gradually being expanded to more branches.

By Phase 7, Post Office will therefore be in a position to demonstrate in real life what its future electronic point of sale system will look like.

Post Office will seek to show, in Phase 7, that lessons truly have been learned and concrete changes have taken place or are under way. As part of that process, Post Office intends to adopt the same approach in Phases 2 to 6 as it did to the human impact hearings; that is to identify the issues raised during the course of the hearings with a view to providing immediate clarifications or responses, where appropriate, or to investigating further where necessary, and making changes to current procedures or policies as required.

Post Office recognises that the forensic scrutiny to which its past will be subject during Phases 2 to 6 will be uncomfortable for many, but it nevertheless welcomes the inevitable criticisms as part of the essential process of change and improvement.

Thank you again for the opportunity to make these submissions.

Sir Wyn Williams: And thank you, Ms Gallafent, including my thanks for your various updates on issues which we’ve been looking at for some time now.

So, does that conclude the oral submissions? I should ask formally whether there are any Core Participants in the room who have had reason to rethink their view as to whether they wish to make oral submissions, because if they do not make them now, they won’t be making them. So is there anyone else who wishes to speak? Otherwise, Mr Beer, does that conclude our business for today?

Mr Beer: Sir, there are no bidders for submissions, and that does conclude our business for today. We’re back at 10.00 am on Tuesday, when you will be hearing from the Inquiry’s expert over two days, Mr Charles Cipione.

Sir Wyn Williams: Thank you. So, until Tuesday, I wish you a good weekend, everyone. Bye bye.

Mr Beer: Thank you, sir.

(11.58 am)

(The hearing adjourned until 10.00 am on Tuesday, 18 October 2022)