13 October 2023 – Paul Inwood and Thomas Pegler
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(10.00 am)
Mr Blake: Good morning, sir, can you see and hear me?
Sir Wyn Williams: Yes, I can, thank you.
Mr Blake: This morning we’re going to hear from Mr Inwood.
Paul Inwood
PAUL INWOOD (sworn).
Questioned by Mr Blake
Mr Blake: Thank you. Can you give your full name, please?
Paul Inwood: Paul Inwood.
Mr Blake: Thank you very much Mr Inwood. In front of you, you should have a witness statement?
Paul Inwood: Yes.
Mr Blake: Is that witness statement dated on the final page 15 May 2023?
Paul Inwood: It is, yes.
Mr Blake: Is that signature on your page?
Paul Inwood: It is.
Mr Blake: Is that statement true to the best of your knowledge and belief?
Paul Inwood: It is.
Mr Blake: Thank you very much. That witness statement has the Unique Reference Number of WITN05780100. That witness statement will be published on the Inquiry’s website in due course.
Mr Inwood, you worked for the Post Office for a period of over 30 years.
Paul Inwood: That’s right.
Mr Blake: I think you started as a postal officer, serving customers in a Crown Post Office branch?
Paul Inwood: That’s correct, yes.
Mr Blake: You were Assistant Branch Manager and then Manager. You became Area Manager?
Paul Inwood: Mm-hm.
Mr Blake: Between 2002 and 2004 you were the Contracts Manager for the eastern side of South East England; is that correct?
Paul Inwood: That is correct, yeah.
Mr Blake: Then you held number of different roles, Rural Development Manager, Contracts Development Manager, and the most significant for today’s purpose is, 2011 to 2018, you were Contracts and Policy Development Manager?
Paul Inwood: I believe those are the dates, yeah.
Mr Blake: Thank you. Can you briefly describe that final role for us?
Paul Inwood: Well, it – there were two parts to at. The first part was to develop policies that would support people within the company in terms of managing day-to-day issues that would happen in a postmaster’s life-cycle, for example insolvency, death in service. And those policies were developed either upon demand from internal clients or because I noticed that there was a sort of gap in the current approaches, possibly caused by statute or other gaps in the way that we are managing the relationship with postmasters.
The second part was to develop either variations to the existing contracts, and I refer to, like, the traditional contracts, which were the subpostmaster contract and variants of that, or to develop new contracts for postmasters, normally in response to, like, a set piece business transformation programme, such as Network Change or Network Transformation.
Mr Blake: Thank you very much.
Could I ask, you’re a little bit quiet. Could you possibly come slightly closer to the microphone, not on top of them but slightly closer. Thank you.
Can you tell us where in the Post Office hierarchy did that role sit?
Paul Inwood: It was a senior managers role. But it was – the people I were reporting into, you know, were probably two to three steps removed from the ExCo.
Mr Blake: Can you give us examples of who it was that you were reporting into during that period?
Paul Inwood: Latterly it was Nick Beal, who managed the Agents Development Team that looked after postmasters’ remuneration and the contract and policy developments. You know, Craig Tuthill, similar, but he was – similar level, but he was looking after the Contracts team. That is the Contracts Advisers that would deal with the day-to-day postmaster issues.
Mr Blake: Did you have any cause to liaise with those higher up in the Executive, for example?
Paul Inwood: No.
Mr Blake: I want to start by asking you about what we know as Legacy Horizon in the early years of Horizon. Can we, please, turn to POL00006666, please. This is a document that I’m going to come back to a number of different times today. So, just to assist us, can you tell us what this document is?
Paul Inwood: I can’t see it on the screen.
Mr Blake: It should hopefully come up on your screen. This may be the second time it’s happened: it may not be turned on.
Ah, somebody is running over to assist.
Can you see it on your screen now?
Paul Inwood: Yes.
Mr Blake: It’s a document we’ll return to a number of times this morning. Can you assist us with the circumstances in which you came to be talking to a solicitor at Womble Bond Dickinson?
Paul Inwood: I think this is what was referred to as the witness proofing statement that was taken in, I think, January 2018, in advance of the Group Litigation Order.
Mr Blake: It looks as though you were sitting down with somebody called Victoria Brooks, who was a managing associate at Womble Bond Dickinson?
Paul Inwood: That’s correct, yeah.
Mr Blake: What was the purpose of the meeting?
Paul Inwood: I think the purpose of the meeting was for them to ask me a whole bunch of questions about my experiences in the company and to see the extent to which that would be helpful with POL’s position in the Group Litigation.
Mr Blake: Were you involved in the Group Litigation outside of this?
Paul Inwood: No, no.
Mr Blake: 2018 is also the year, I think, that you left the Post Office?
Paul Inwood: That’s correct.
Mr Blake: Is there any connection between the Group Litigation –
Paul Inwood: No.
Mr Blake: – matters and your departure?
Paul Inwood: No.
Mr Blake: No. Can we please turn to page 64. Are you able to assist us with why you left the Post Office?
Paul Inwood: Contract came to an end.
Mr Blake: I’m going to take you through a page and a half of the transcript between you and the solicitor. I’m going to start about halfway down and it’s where – “PI” is you and “VB” is Victoria Brooks of Womble Bond Dickinson. You say there:
“My understanding is the advent of automation at least in the directly managed estate improved that situation.”
That was a situation about the difficulty adding certain figures up, et cetera?
Paul Inwood: Mm.
Mr Blake: Then she says, “Yeah,” and you say:
“You know.
She says:
“Did you find it to the extent that you’ve used it – how did it compare to the manual system?”
You say:
“You know, it’s er, it was less reliance on mental processing – because you know you push a button and the system works out the balance due to the customer.”
Sorry, could we just stay on page 64. I’m going to start, actually, slightly higher up, about halfway. Could we zoom out slightly. It’s halfway down there, I’m going to start slightly higher up:
“My understanding is that advent of automation at least in the directly managed estate improved that situation …
“Because all right if you put garbage in you get garbage out.”
She says, “Yeah”.
Then you say:
“But a calculator is less inclined to make mental mistakes than a human being.”
Paul Inwood: Mm.
Mr Blake: She says:
“Yeah, that’s true.
“PI – And effectively Horizon is a calculator.”
Paul Inwood: Mm.
Mr Blake: Just pausing there, “calculator” is a description we’ve heard before and it’s a description we’ll hear again today. Where did that description come from?
Paul Inwood: I think when automation was introduced into the Crown Post Office estate, there was evidence that the shortages were reduced because of that. So my understanding was that the advent of automation would result in fewer discrepancies.
Mr Blake: But a calculator can be very simple –
Paul Inwood: Yeah, it’s –
Mr Blake: – it can be used by children.
Paul Inwood: It’s a simplification of something that’s more complicated, yeah.
Mr Blake: Where do you think that term came from, was that a term your colleagues used or –
Paul Inwood: Yeah, it’s one that I’d heard used internally.
Mr Blake: Then if we go below that it says:
“Did you ever work in branch [something] Horizon was installed – I’ve forgotten the timeline.”
Paul Inwood: Mm.
Mr Blake: You say:
“I did because what I used to do when I was an area manager was I used to go out at Christmas and because BMs [I think that ‘PMs’, must be] were too busy to talk, branch manager, and to be visible I would go and work on the counter alongside a colleague and I still do that actually but in a slightly different way – so I had used Horizon and … it was a brilliant system.”
Paul Inwood: Yeah, “BMs” is an abbreviation of branch manager, yeah, not – it’s not PM.
Mr Blake: Branch manager, thank you. You described Horizon there as a “brilliant system”. Can you assist us with how it was that in 2018 you still considered Horizon to be a brilliant system?
Paul Inwood: Well, I’d used it personally and I’d not encountered any problems using it. That said, I’d never completed a balance at the end of the week around that time. As I said, we would go out in times of Christmas pressure and execute transactions using Horizon. So it wasn’t perfect but I’d found it fairly intuitive to use.
Mr Blake: So you would place entries onto the system –
Paul Inwood: Yes.
Mr Blake: – but you wouldn’t ever balance the system?
Paul Inwood: You may do a cash declaration at the end of the day but not check all of the stock, so that you know that there hadn’t been a major problem caused by me during the day.
Mr Blake: So the comment that it was a brilliant system is based on occasional use –
Paul Inwood: Yes.
Mr Blake: – and occasional use that doesn’t involve the Wednesday balance?
Paul Inwood: Yeah, and, obviously, it wasn’t made with the benefit of hindsight.
Mr Blake: She says, “Yeah”.
You say, “You know”.
She says:
“Did you find it to the extent that you’ve used it – how did it compare to the manual system?”
You say:
“You know … it was less reliance on mental processing – because you know you push a button and the system works out the balance due to the customer.”
She says:
“Yeah, that’s true.”
If we go over the page:
“And from the customer – but it also reminds you what you have to take from them or give to them in terms of the products.
“VB – Yep.
“PI – So in my view … it was a real watershed.
“VB – Yeah.
“PI – In the way we interfaced with the customer.
“VB – Ok.
“PI – And we saved time because at the end of weekly balancing procedures were much quicker … so if you … had you know a postmaster … I think it’s quite intuitive.”
So, again, that comment has to be taken in the context that you hadn’t actually completed a weekly balancing procedure?
Paul Inwood: Earlier on when I was a branch manager, then yeah, there would be weekly balancing of individual stock units and there would be a cash account produced which is an amalgam of all of the stock accounts for all of the stock units but that was an automated environment pre-Horizon.
Mr Blake: Yes, and your reference there to saving time because the balancing procedures were much quicker, that wasn’t because you had actually used Horizon and carried out that out yourself, that was –
Paul Inwood: No, that was anecdotal.
Mr Blake: Anecdotal?
Paul Inwood: Yeah.
Mr Blake: Why did you think it was much quicker?
Paul Inwood: Because I think when automation was introduced into the Crown and the Agents Estate, the narrative was that there were time savings in the production of the weekly cash account. You know, when I was doing manual accounts, you know, you could easily be there an hour and a half to two hours on a Wednesday evening and I think in the Crown estate efficiency savings were made when automation was introduced. So it would be reasonable to think that it was quicker when automation was introduced into the agency estate.
Mr Blake: You described it as the “narrative”. Where was that coming from?
Paul Inwood: There were business efficiency teams within POL and, you know, you would hear about savings that had been made in the Crown Post Office estate and, anecdotally, from postmasters that it was faster to produce not just the balance but the weekly cash account in an automated environment.
Mr Blake: So you’ve described there the weekly balancing being quicker and that it’s quite intuitive. This Inquiry has heard quite a lot of evidence to the contrary: long periods of time on, for example, the helplines; unhelpful helplines; difficulty with actually using the system, balancing it – putting aside bugs, errors or defects, just pressing wrong keys and things like that. Were you not familiar with those kind of complaints in 2018?
Paul Inwood: Well, I didn’t receive complaints directly but, where there were discrepancies in accounts, then clearly it could take longer to bottom out those discrepancies or sometimes the discrepancies wouldn’t be resolved at that point. And, therefore, the postmaster would have to roll over into another balancing period and accept those discrepancies at that point and hope that an error notice or a transaction correction would come back.
Mr Blake: So where you’ve said the balancing procedures were quicker, in fact, what you mean, really, is that pressing the button to calculate the total is quicker?
Paul Inwood: Yes.
Mr Blake: But there could be a whole host of problems with that process?
Paul Inwood: If everything went okay, it would be quicker. If things didn’t go okay and there was a discrepancy, then, clearly, that would take some remediation to get to the bottom of that and, therefore, it would not have been quicker.
Mr Blake: Did you think about that at this time when you were answering these questions? Was that something on your mind –
Paul Inwood: Err, no. Not reacting to the questions that were put to me, no?
Mr Blake: You then said:
“I’ve never seen in the evidence that it was inaccurate. It’s er it’s a calculator plus and it does a whole lot more than that obviously you know why would our EPOS be inaccurate and no one else’s is …”
Pausing there, how would you know that nobody else’s EPOS system was inaccurate?
Paul Inwood: Just speaking from person experience. I’d not received or couldn’t recall any evidence that there was a problem with the EPOSS.
Mr Blake: You’re referring there to nobody else’s being inaccurate; are you referring to other companies that use an EPOS system?
Paul Inwood: Yeah.
Mr Blake: Did you consider, for example, whether other companies prosecuted on the basis of data produced by the EPOS system?
Paul Inwood: Not at that point but I’d had meetings with other franchisors and didn’t seem to be any evidence that they’d had these problems with their EPOS systems because we would often talk about their approaches to contract breach.
Mr Blake: Who do you have in mind?
Paul Inwood: McDonald’s was one example.
Mr Blake: Do McDonald’s prosecute on the basis of data provided by their EPOS system?
Paul Inwood: Do they?
Mr Blake: Yes.
Paul Inwood: Well, if there are problems internally, I would imagine they would but I’ve not seen any evidence of that.
Mr Blake: I mean, looking back at this account here, do you think that you gave enough thought there to the implications of relying on the EPOS system and its comparison with a company like McDonald’s?
Paul Inwood: Not in the moment.
Mr Blake: How about now?
Paul Inwood: Well, over the last two or three years, I’ve read a lot that’s now in the public domain regarding the integrity of the Horizon system and, at various points, I’ve tried to think back of specific examples where I’d seen evidence that it was unreliable.
Mr Blake: Yes. One task for this Inquiry is really to understand why, in 2018, people from the Post Office in quite senior roles, like yourself, considered that Horizon was a calculator and that why would your system be inaccurate if nobody else’s is. Where does that mindset come from? What was it within the company that was telling you that?
Paul Inwood: I think there was a narrative internally that spoke to the integrity of the system and the narrative was that the system was robust.
Mr Blake: Can you tell us where that narrative was coming from?
Paul Inwood: Fairly senior levels in the company but it was discussed broadly at my level when I had meetings with contracts team. There was never any suggestion that discrepancies at audit had been caused by the system.
Mr Blake: Are you able to assist us, in particular, with anybody, in particular, who you had those kinds of conversations with, who reassured you?
Paul Inwood: It’s quite difficult to think back for specific individuals. I’m talking about, you know, a large community where there was almost like a corporate groupthink, that the system was robust but not foolproof. Sometimes, the system would crash. That was happening back when I was a Contracts Manager 2002 to 2004; data could be lost, in the event of that happening.
So it clearly wasn’t completely foolproof but nor was there any trend of cases that I’d seen where the EPOS system had caused phantom discrepancies in people’s accounts.
Mr Blake: Where you say “trend”, I mean, how was it that people would prove that to you?
Paul Inwood: Well, there was never any attempt to prove a negative, that, you know, the system was completely foolproof and there were no examples. There were, from time to time, examples where data was lost to do with power outages or the equipment crashing, that there would have had to be some attempt at remediation of the postmaster’s accounts.
Mr Blake: Did you not receive complaints over the years from subpostmasters that there were more significant problems with Horizon?
Paul Inwood: When – over the two or three – period when, you know, information entered the public domain regarding flaws in the system and when I completed your questionnaire, I thought back long and hard for specific examples where it had been put to me directly that a discrepancy had been caused by the system and I couldn’t think of any specific examples at those points in time.
Mr Blake: Can you think of examples now?
Paul Inwood: I can because I’ve seen one that was disclosed to me quite late this week, where there was an email exchange around one specific case where the postmaster had claimed that the discrepancy was caused by Horizon, and I’ve obviously read that there were hundreds of other claims that emerged during the course of the Group Litigation and beyond that.
Mr Blake: Yes, but in terms of your personal knowledge, you’re saying there was one occasion when there was a complaint made about the system?
Paul Inwood: I can think of one but that’s only because I saw an email exchange in the bundle.
Mr Blake: Which one was that?
Paul Inwood: I can’t remember the name of the post office.
Mr Blake: Okay, it may be that we come to it, I’m just going to read on a few more lines, she says:
“Can I ask you what you think the biggest weakness in Horizon is from your experience?”
You say:
“I think probably there are too many screens to go through to get to what you want to it do. Sometimes it was awkward to remember where things are and in order to get to where you want to go you have to remember which screen you have to go through. You know the printer was probably too slow and noisy but we are improving it and it has changed a lot recently I think there is no major issue with it really.”
She says:
“It’s interesting to speak somebody about that who has got experience of both.
“PI – I don’t think anyone would want to go back to a manual.
Then she says:
“That’s what we should ask them shouldn’t we? We should ask subpostmasters if they want to go back to that.”
So in this discussion in 2018 you hadn’t recalled that one occasion when a complaint –
Paul Inwood: No.
Mr Blake: – had been made about the system?
Paul Inwood: No, I had not.
Mr Blake: Were you in any way playing things down in this conversation with the lawyer?
Paul Inwood: No, I was just responding to their questions.
Mr Blake: Can we also bring up your witness statement, so WITN05780100, please. We’ve talked a little bit about using the system and some difficulties that some subpostmasters may have had using the system. Can we look at paragraph 23, please, and that’s page 4.
At paragraph 23, you say you do not feel that any improvements could be made to the training given to subpostmasters. Do you still think that’s correct?
Paul Inwood: Based on my experience during the period of time I was in the company, I wouldn’t change that.
Mr Blake: Could we look at POL00093184. This is a letter to you from somebody called Laurence Green; is that somebody you remember?
Paul Inwood: I haven’t but I’ve got a vague recollection of this when I read it this week.
Mr Blake: Can you remember who he was at all?
Paul Inwood: I think he was either a – he was probably a postmaster.
Mr Blake: He is there writing to you following an NFSP Eastbourne branch meeting.
Paul Inwood: Mm.
Mr Blake: Does that assist you at all? Might he have been a representative of some sort or –
Paul Inwood: He may well have been.
Mr Blake: This was 2004 so you were Contracts Manager for the eastern side of South East England at the time?
Paul Inwood: Yeah, that was, I think, coming to the end of my period of time as the Contracts Manager, yeah.
Mr Blake: Thank you, if we could scroll down to the bottom of this page. He says at the very bottom:
“Most, like me, have received no system training from the Post Office throughout their careers. In 24 years, excepting various sales training initiatives and a laptop based product knowledge evening, my total system training amounted to one day for Horizon plus two assisted balances when Horizon went live. When I took on my first office in 1980 I learned from a fellow postmaster and paid for his help.”
Pausing there, were you aware, therefore, of historic complaints of training concerns even pre-Horizon?
Paul Inwood: I think, from time to time, postmasters – or I would identify a capability issue with a postmaster, as opposed to an integrity issue and, from time to time, I would ask either the training team or, perhaps, one of the field team just to give them a bit of extra support, you know.
Mr Blake: He says there:
“Two newly appointed postmasters were in attendance and they advised that they had been made aware of and had been trained in, the zero balancing system, on appointment, and followed this system.”
Can you tell us what was the “zero balancing system”?
Paul Inwood: No, I’ve got – I don’t know what he’s referring to. Perhaps it’s that you have to balance the accounts and accept discrepancies identified by the system. That’s a guess.
Mr Blake: He says:
“I advised that you had stressed that there is only one policy universally applied and that no one postmaster could be allowed to be an exception.”
It says:
“15 members reported that they had not been trained in, nor were they aware of the requirement for zero balancing. All reported that if a discrepancy occurs during a holiday it is not adjusted by the locum but is dealt with on the postmaster’s return. Also they operate the ‘old system’ of showing any discrepancy in the final cash account and then making it good.
“They were dismayed that they could be disciplined and threatened with loss of contract for not using a procedure of which they, like me, were unaware and in which they are untrained.”
So that’s 15 members from your region complaining about difficulties, a lack of training. Do you recognise those complaints at all?
Paul Inwood: I think that part to the South East was managed by a different Contracts Manager. I don’t know what he’s referring to here because, clearly, the postmasters had been trained to balance their accounts on Horizon and I’m not sure what the change is here. I’ve got no recollection of that.
Mr Blake: He says:
“It may be that our branch is unique in this matter and that the policy has been successfully rolled out to all our colleagues. It seems more likely from experience that this policy is as yet far from universal in its application and is hampered by poor communication and lack of training.
“From our correspondence I had assumed that I was the only one at fault and out of step. I now wonder how many others are in the same position as my branch colleagues and me.”
Do you remember that correspondence at all?
Paul Inwood: No.
Mr Blake: No? Do you know why he might have felt that he was the only one at fault? That’s certainly a phrase or a phrase similar to one we’ve heard before in this Inquiry.
Paul Inwood: Well, I’ve heard it said that a lot of postmasters, when they reported problems with the Horizon system to our helpline they were told “Well, you’re the only person that’s got a problem with it”. So what he’s saying there is consistent with what many other people have said.
Mr Blake: Yes, and did that stick in your memory at all?
Paul Inwood: It doesn’t stick in my memory, no, not this specific case or any others similar to that.
Mr Blake: Do you agree that in 2004 you had received complaints – that’s from relatively early on in the life of Horizon – about a lack of training?
Paul Inwood: It was either sporadic complaints that someone felt that they needed more training to cope with the system or because I’d identified a problem that was to do with capability where I’d identified the need for more support.
Mr Blake: We’ll come to the policies in due course but, when it came to formulating various policies, did you have in your mind at all difficulties that subpostmasters may have with training?
Paul Inwood: Well, the company had a policy that was already in place to deal with what were capability issues with postmasters and there was a process that sat alongside that. So they could be offered either, upon their request or upon the request of others that worked for POL, additional training and support, and that would be delivered by the training team, perhaps, or their Area Manager.
Mr Blake: But did any lack of training or issues with training feature in any way in your thinking when you were drafting various policies?
Paul Inwood: What years later?
Mr Blake: Yes.
Paul Inwood: Err … no, I don’t think it did. I think that the people that had a close relationship with postmasters like Area Managers, Field Advisers, Contracts teams, were quite adept at identifying where there were capability issues and providing additional support. So that was just something that happened, really, across a whole range of issues in a postmaster’s life-cycle. It wasn’t necessarily connected to their accounting, it could be any aspect of the way they operated the business.
Mr Blake: So we have this letter from 2004. Are you aware of it being followed up and those people being trained?
Paul Inwood: I’ve got no recollection of that, no.
Mr Blake: Can we, please, look at POL00114930, please. We’re now moving forward to 2009. Can we go over to the second page. It’s a chain of emails in 2009. Can we look at the bottom half of that page, please. I’m going to start here with an email from Jessica Madron. Do you remember who she was? She was in Legal Services –
Paul Inwood: She was a principal lawyer in Post Office Legal Services.
Mr Blake: Can you assist us with the recipients of this email, how senior they were, what kind of roles they held?
Paul Inwood: Tracy Marshall was my line manager at the time. I think the people that were cc’d intended to be more junior in the hierarchy of the organisation.
Mr Blake: Thank you. I’ll briefly read some of this email. Do you recall having received this?
Paul Inwood: Well, I – only this week, you know, I don’t have any recollection, back to 2009, of this case, no.
Mr Blake: It’s entitled “letter from BERR” – that’s now the Department for Business – “re challenge to Horizon integrity”. It says there:
“A reporter has written to her MP referring to conversations she has had with a [subpostmaster] to the effect that the Horizon system is faulty and shows deficits where there are none and that POL [Post Office] just reclaims these deficits from [subpostmasters]. There is also reference to a website for [subpostmasters] who have been ‘victims’ of [the Post Office’s] approach.”
Why would you be contacted in this regard?
Paul Inwood: Because my job title included the word “agent” or “postmaster”, I would often be sent or copied in on emails that related to agent postmasters.
Mr Blake: When you say because your job title included that, what do you mean by that?
Paul Inwood: Well, if something was not to do with the Crown Post Office and it was to do with a postmaster, I would often find myself being copied in on something.
Mr Blake: Because you were –
Paul Inwood: Either for information or because I was being asked to say or do something specifically in response to the email.
Mr Blake: So, in this particular email, you were in the “to” list rather than the “cc” list?
Paul Inwood: That’s correct, yeah.
Mr Blake: So does that signify to you that somebody thought you were the appropriate person, alongside Tracy Marshall, to address this issue?
Paul Inwood: Correct, yeah.
Mr Blake: Can we look at the first page and I’m going to take you through an email, the response from you. Thank you, so you say:
“Dear Jessica …
“… I have some experience of this type of complaint from my time as a Contracts Manager.”
So just pausing there, we spoke about half an hour ago, or so, about whether you had received complaints and you couldn’t recall any during your conversation in 2018. You then recalled one, having seen the documents in the bundle.
Paul Inwood: Yeah.
Mr Blake: This certainly suggests that you did have more than just one complaint from a subpostmaster?
Paul Inwood: From 2002 to 2004.
Mr Blake: Yes.
Paul Inwood: Yeah.
Mr Blake: That was the context of my questioning earlier as well, about the early days of Horizon and I think you could only recall one, having seen documents, but it’s clear here that in 2009 you could recall that you had received a fair few more?
Paul Inwood: I can’t say how many but more than one.
Mr Blake: You go on there to say:
“From time to time, either existing agents or those suspended/terminated due to accounting irregularities/unpaid debts, will say that it is ‘the Horizon system that has caused the loss’. On each occasion I had asked a [subpostmaster] to substantiate the allegation, they had been unable to provide any evidence to support it.”
Now, “from time to time” suggests certainly more than one, probably a fair few, given that it’s from time to time.
Paul Inwood: Over a three-year period, yeah.
Mr Blake: “Unable to provide any evidence”: how was it that a subpostmaster would be able to provide evidence that the Horizon system has caused the loss?
Paul Inwood: Well, I don’t – the postmaster’s ability to interrogate the system was limited. So, for example, they could look at event logs to see who had had access to the system, they could look at transaction logs to see the detail of the transactions processed through the system, and it would be possible to perform some type of reconciliation between physical documents and what the system was producing.
But I think that their ability to interrogate the system was limited.
Mr Blake: Looking back at this now, do you think that that was too high a hurdle for a subpostmaster to overcome, to substantiate that there had been – that they had to provide evidence?
Paul Inwood: Yeah, I think looking back on it now, I don’t think many postmasters would have the capability or the resources or the time to perform, you know, a long audit of their own work in the system in order to detect why discrepancies had happened.
Mr Blake: Even if they could compare certain physical documents with what is on screen, if a bug, error or defect affected the data that was on the screen, do you think that they could actually identify that bug, error or defect?
Paul Inwood: No, absolutely not, and nor would they be able to know that it was possible to access the system at the back end without their knowledge.
Mr Blake: That, I think, you’ve said in your statement was something you only found out relatively late in the day?
Paul Inwood: I’d heard of this around the time that the Group Litigation order was imminent.
Mr Blake: You say:
“In many respects, Horizon is a sophisticated calculator, and operates on the principle of GIGO – garbage in, garbage out. It is no more likely that, with 100% accurate input, Horizon produces inaccurate outputs than a calculator would, which is extremely unlikely.”
I said we’ll come back to this description of it being a calculator. Looking back, that can’t be right, can it?
Paul Inwood: I think that is an oversimplification of what Horizon is and I did go on to say that you couldn’t say absolutely that the system was flawless.
Mr Blake: You say:
“In some respects though, there are items of data transferred between other terminals in-store, and from Horizon to Home Office – it is always possible that in these data streams electronic data could go astray, either because of human error or an IT failure, and that could cause transaction corrections to be produced, either in favour or against an agent.”
Paul Inwood: Correct.
Mr Blake: You then say:
“It is not possible to say, absolutely, that the system could not cause a loss or gain, and some time back when Horizon was introduced, [the Post Office] wrote off a considerable number of losses that appeared in agents’ account on migration from manual accounts – after some investigation it was not possible to show where the losses had occurred.”
So, quite frankly, you made very clear that there were cases where the Post Office couldn’t show where the losses had occurred?
Paul Inwood: Yeah, I think there was an issue around the physical migration from manual accounts to Horizon, where a POL employee attended the postmaster’s premises, did the physical count of the cash and stock to make sure that the starting point on Horizon was accurate. I think quite a lot of discrepancies were uncovered at that point, shortages or surpluses.
Mr Blake: So this would have been during the rollout of Horizon?
Paul Inwood: It was, yeah. I’ve had direct experience of visiting one branch where I think there was a discrepancy, not huge, that had just happened as part of the weekly balance and, anecdotally, I think a number of other people had found that to be the case.
Mr Blake: You say:
“[Post Office’s] approach is consistent in that when a [subpostmaster] challenges a [transaction correction], they have an opportunity to produce evidence to support their claim, and that is considered by the contracts team, and consideration can be given to writing off all or part of the loss. It is a fact that these days, far fewer losses are written off, as some years back there was a culture of weak management where some losses that were inappropriate for write-off, were written-off – perhaps the proliferation of these complaints is the outcome of that, or [the Post Office] becoming more hawkish in the way it manages debt/integrity issues.”
I’d like to look at the culture of the Post Office. Can you assist us with that, what seems to be described as some sort of culture shift?
Paul Inwood: I think I’m referring back to a period of time where every postmaster would have a direct relationship with an Area Manager and all the branches were account managed. And I think, for many postmasters then, the relationship was a lot closer and they were receiving a lot more direct face-to-face support.
And when I started off as an Area Manager in the ’90s, I think you often used to see or hear about cases where a postmaster had requested a shortage to be written off. And I think there was possibly more leniency in that period of time and I think the change happened because of business efficiency, far fewer postmasters had that direct face-to-face relationship with postmasters and they were more reliant on the helpline.
Mr Blake: Can you assist us with time periods?
Paul Inwood: Yeah, well, you know, the time when I think all postmasters had that direct account managed relationship was when I started as an Area Manager, which was probably in the early ’90s, and then there were subsequent reorganisations of the business that meant that there were fewer people out in the field supporting postmasters and that just – process seemed to continue for a long time and various business rationalisations. And, as I said, they became more reliant on their relationship with the helpline and they would see POL people in the field on far fewer occasions and, normally, when there was a problem.
Mr Blake: You describe it here a “culture of weak management”.
Paul Inwood: Yeah.
Mr Blake: That’s a term that you used in 2009.
Paul Inwood: Mm.
Mr Blake: Did the Post Office, as at 2009, see the former approach as a culture of weak management?
Paul Inwood: I’m not sure that the Post Office did. That was just my opinion of how things were at the time, you know. There were just decisions made in terms of writing things off that perhaps the losses weren’t properly evidenced why that had happened. It was more – it was probably a more sympathetic culture.
Mr Blake: Why, in 2009, would you have considered a sympathetic culture to be a culture of weak management?
Paul Inwood: Because, you know, there were approaches, processes, policies to follow, and it may have been that those were bent out of shape a little bit in the terms of providing outcomes for postmasters, with the best intentions: to help them.
Mr Blake: You described how, previously, the management was more regional, more local –
Paul Inwood: Yeah.
Mr Blake: – and that they would have more of a relationship with the subpostmasters and that became more central.
Paul Inwood: Yes.
Mr Blake: What I’d like to understand is how it is that a change from somebody who knows a subpostmaster to somebody who doesn’t know a subpostmaster is interpreted as the former being effectively weak and the latter being strong?
Paul Inwood: I think there were examples of what I’ve described there as “weak” behaviours, ie not sticking to agreed policies and processes. And I think when it moved to a less – a more central relationship, you know, the operators of helplines stuck rigidly to policies and processes.
Mr Blake: You say they stuck rigidly. Was that at the request of those who were in charge of the policies and procedures?
Paul Inwood: I think it was just an outcome of an organisational change, where people who were, like, Tier 1 helpline operators had less. They didn’t have management discretion. You know, they were helpline operators, trying to do their best, sticking to scripts and processes, whereas Area Managers back in the ’90s, I think, had more leeway than management discretion, control of their own budgets, to do certain things.
Mr Blake: Looking at this now, knowing what you know, do you still see the earlier approach to be a culture of “weak management”?
Paul Inwood: Well, if you applied that approach and cut and paste it on to the Horizon era, no, because there should be more analysis of why shortages have happened than there was, from 2001, I think, when Horizon was introduced.
Before postmasters were asked to repay shortages and, you know, I’ll go further than that and say that there should have been a process where, if a discrepancy had arised (sic) either at audit or some other way, the possibility that that discrepancy had been generated by the system and, therefore, was a phantom discrepancy should have been ruled out prior to the discrepancy being recovered.
Mr Blake: I’ll just read one more sentence it says:
“I think our line must be that [the Post Office] is always prepared to consider representations that are based on proper documentary evidence, and not simply an obtuse ‘the system did it’.”
I think, following the evidence you’ve just given, your reflection on that is that that was actually too high a hurdle for subpostmasters to overcome?
Paul Inwood: I agree.
Mr Blake: Do you know if you were ultimately involved in the response to this complaint from the journalist and the Member of Parliament?
Paul Inwood: I was never involved in drafting responses to any of those.
Mr Blake: Do you recall any follow-up after your email?
Paul Inwood: No.
Mr Blake: So this is 2009. We’ve looked at your comments in 2018 to the lawyer, in relation to the Group Litigation. They’re very similar in response to the issues with Horizon, lack of knowledge of issues with Horizon. Was there nothing in that 10-year period, or almost 10-year period, 2009 to 2018, that made you rethink your position?
Paul Inwood: I think in the background you had the Justice for Subpostmasters campaign. I wasn’t directly involved in answering anything that came from that campaign and I’d tend to think that the people around me in the company were quite sceptical and dismissive about the things that were being said, and I can’t recall any trend of anything happening, really, that would cause me to think that there were significant problems in the system.
Mr Blake: We know the Computer Weekly article, for example, was published on 11 May 2009, so very soon after that email exchange?
Paul Inwood: Yeah.
Mr Blake: Did that not make you rethink the experiences, for example, when you were being Contract Manager and had received those complaints about training?
Paul Inwood: No, because I didn’t read it or have any knowledge of it. The only thing that made me rethink about how cases were managed is the information that emerged from the Group Litigation onwards. And I would think back and try and think of specific examples of what I would have done differently, or had I seen any evidence that the Horizon system was flawed and, at all of those points, I wasn’t able to identify anything that I could have – specific examples, historically.
Mr Blake: You had that email exchange in 2009, very shortly before Computer Weekly, about a letter from a Member of Parliament having been informed by a reporter.
Paul Inwood: Mm.
Mr Blake: You then have the Computer Weekly article. Is that not something you saw at the time, was brought to your attention that people talked about?
Paul Inwood: No. No. The first time I heard of the Computer Weekly article was reading Nick Wallis’ account of developments online in the last two to three years.
Mr Blake: Did you notice any change in activity within the Post Office, within the various hierarchies, with those who you communicated with, in response to trying to get to the bottom of any problems that were identified?
Paul Inwood: Well, I know that there was concern within the company about the number of postmasters that were being suspended as a result of bad audits, and there were changes put in place to make sure that these suspensions were authorised at quite a high level in the company. But that didn’t tell me that there were inherent problems with the Horizon system. It just told me that there was a general concern about the number of suspensions that were happening, because we were finding it problematic to keep services going in some communities and that was always a strong imperative for the company.
Mr Blake: Who, in particular, do you recall being concerned about the number of suspensions?
Paul Inwood: Well, at the time I was working in the Agency Development Team – I’m trying to approximate the years – I think it was around 2017/18 – sorry, 2008/2009, and Kevin Gilliland was the head of that team and I know that he had concerns about some specific cases where a postmaster had been suspended, and I recall that there was a change to the approach regarding either prosecutions or suspensions around that time, based on a meeting that he’d had with Legal Services and Paula Vennells, who was Network Director at the time.
And then I think there was some authorisation process at a reasonably high level before a suspension could happen, you know.
Mr Blake: Thank you very much.
Was there a concern that you noticed within the Post Office about shining a light on this is issues in that 2009 period?
Paul Inwood: No, no.
Mr Blake: I want to return to your interview with Womble Bond Dickinson, so that’s POL00006666 and it’s page 46 that I’d like to look at. It’s the bottom half of page 46. It seems there that you’re going through with the solicitor a document, maybe a pleading or a request of some sort, from the claimants; do you recall that?
Paul Inwood: Which paragraph?
Mr Blake: If we look at VB, she says “64.9”. I’ll read that to you. She says:
“64.9 to communicate or alternatively not to conceal the extent to which other subpostmasters were experiencing issues relating to Horizon and the generation of discrepancies and alleged shortfalls. So what they want to have here I think is information sharing about postmaster A has got a problem and that should be told to postmaster B or possibly to all the other postmasters.”
Paul Inwood: Mm.
Mr Blake: So there seems to be a request that the Post Office should be communicating with postmasters about problems with other postmasters –
Paul Inwood: A request from whom?
Mr Blake: Well, exactly. That was my question. Do you recall, it seems to be some sort of document of requests, perhaps from the claimants in the Group Litigation?
Paul Inwood: No.
Mr Blake: Your answer to that proposal was as follows. You said:
“Well first of all there is the issue of confidentiality and data protection concerning other people. Secondly commercially it would make no sense to do that because that information could then be used by others as a smokescreen to defraud the company. The other point is where we have seen examples of good practice or bad practice then we would publicise and do publicise that because we do not want agents to suffer financial harm so to suggest that could be an obligation on us I think commercially it makes no sense at all.”
So you raise there issues of confidentiality, data protection, you say it would be commercially bad, you say it could encourage fraud. There seem to be a quick list of reasons not to provide information to subpostmasters about bugs, errors or defects within the system. How is it that you gave that answer?
Paul Inwood: I think it just seems to make sense, really –
Mr Blake: Can you see the problems with that answer?
Paul Inwood: – at the time. In the context of?
Mr Blake: The lack of information sharing with subpostmasters about other subpostmasters having discrepancies and alleged shortfalls?
Paul Inwood: Mm, I think that you wouldn’t talk to one postmaster about experiences other postmasters had had. That doesn’t seem to make any sense for the business to do that.
Mr Blake: Why wouldn’t it make sense for the business?
Paul Inwood: Well, it may not be helpful, in terms of dealing with the complaint that a postmaster had put to us.
Mr Blake: Because it wouldn’t help the Post Office?
Paul Inwood: It wouldn’t get to the bottom of the dispute, would it? If a postmaster A says they had a problem with their accounts, it wouldn’t be helpful to them or us to publicise other postmasters that had also had problems with their accounts. They’ve still got a discrepancy in their accounts, haven’t they?
Mr Blake: Was that your view, the view of your department, the view of the company as a whole?
Paul Inwood: It was just response that was put to me at that particular point in time by Victoria, really, and it was just a practical objection to sharing information regarding other postmasters, I think.
Mr Blake: Do you now recognise the problems with that?
Paul Inwood: Like I – you know, in the last two or three years I’ve read that a lot of people have said that they were told that they were the only one experiencing problems with their Horizon system and, clearly, they weren’t. So yeah, it’s hard to reconcile what I now know with what I said back then.
Mr Blake: The company, of course, was prosecuting people –
Paul Inwood: Yeah.
Mr Blake: – and people were losing their livelihoods. You were involved in, for example, the debt recovery policies.
Paul Inwood: Yeah.
Mr Blake: People were affected who were saying that they had discrepancies or alleged shortfalls caused by bugs, errors or defects?
Paul Inwood: Yeah.
Mr Blake: I mean, revisiting that position from 2018, not so long ago, do you see the problem with that approach?
Paul Inwood: I think, looking at it now, I think it was incumbent on the company to be completely open and honest about problems with the system at the point that they were aware of those problems.
Mr Blake: Where was that mindset of confidentiality, data protection, commercial implications? Where was that coming from?
Paul Inwood: That was just my own opinion at that particular point in time, in reaction to a question that was being put to me by Victoria, really.
Mr Blake: Having received, for example, from time to time, during your time a contract manager, complaints from subpostmasters, having been involved in that 2009 correspondence from the journalist, the complaint to the Member of Parliament, why do you think it is that you didn’t recognise the importance of information sharing and put up, quite quickly, those barriers?
Paul Inwood: I think it’s because, over a long period of time, you know, I would deal with – you know, there was something like 13,000/14,000 postmasters and, as a Contracts Manager, you would deal with a certain number of those, maybe 1,000, in my part of the South East. And you would always look at the scale of complaints compared to the total network size and it didn’t appear to be huge.
It was difficult for me, just looking after 1,000 agents, to see that perhaps the problem was much bigger than I thought it was.
Mr Blake: So you didn’t have visibility of the figures around the country?
Paul Inwood: No, there was no sort of data sharing of what was going on around the country. I think, at one point, it became apparent that the number of suspensions and terminations had, sort of, increased, compared to a time when there were manual accounts, pre-Horizon. And the narrative in the company was that was because the Horizon system provided us more insight into what was going on in branch and, therefore, audit activity could be targeted with more intelligence and, therefore, you would expect the Post Office to uncover more discrepancies.
Mr Blake: The identification of the issue with a large number of suspensions, et cetera, is that the time period that you had previously told us about and the discussion, I think you mentioned a number of names that were involved in that, or is this a different period?
Paul Inwood: It was during the period of time when I was working for Craig Tuthill and John Breeden was in charge, and Lin Norbury in charge of the Contracts Advisers. And there was some sharing-off information on a, sort of, bimonthly basis about the number of suspensions.
So that was maybe the period of time, probably ‘14/’15/’16, sometime around then, and yeah, the – there was concern in the company about the number of suspensions, and that was roughly around the same time where there had been a sort of policy change, a top-down policy change, regarding who could authorise suspensions on the basis of a bad audit, or for any other reason.
Mr Blake: Where did you see that drive coming from?
Paul Inwood: At the top.
Mr Blake: What do you mean by “top”, sorry?
Paul Inwood: At ExCo level.
Mr Blake: The Executive?
Paul Inwood: Yeah.
Mr Blake: The views that we’ve seen in those emails about Horizon acting like a calculator, et cetera. Is it fair to say that you held those views when you drafted the various policies that we’re going to see, in particular debt recovery policy?
Paul Inwood: Yeah, that’s fair. You know, my view about the system didn’t change until the emergence of, you know, a large amount of information from the Group Litigation regarding the flaws in the software and the bugs.
Mr Blake: When you were drafting the policies – we’ll look now at the debt policy, debt recovery policy –
Paul Inwood: Yeah.
Mr Blake: – the ability or potential for there to be bugs, errors or defects in the system, was that ever part of the conversation?
Paul Inwood: No. You know, I’ll be very clear that the debt recovery policy was quite simple. You know, debts are there to be recovered by the company. And it was quite unusual for me to be asked to get involved in something like that, that was managed elsewhere in Finance and between the Contracts team.
And I think the reason I was asked to do it, it was more to do with the process and there were some – it was a bit clunky, there were problems between the Contracts team and Finance. It wasn’t working well. It wasn’t anything to do with the real policy of recovering debt, it was just process mapping, really.
Mr Blake: Can you summarise for us the problem?
Paul Inwood: I don’t recall what the specific disjoins in the process or what the tensions were between Finance and the Contracts team. I wasn’t told. It was Craig Tuthill, I think, that instructed me to refresh the process. It wasn’t policy. It was process mapping. And I had numerous conversations with people in that part of the world, just to agree a better process, a more efficient process.
Mr Blake: I’m going to bring that document onto the screen. It’s POL00113670. This is the 2013 version of the policy.
Paul Inwood: Yeah.
Mr Blake: It’s called “Operators’ In Service Debt”, and we see at the bottom of this page you are listed there as “Assurance”. If we could scroll down, sorry. There, that’s your name there. Why does your name appear there?
Paul Inwood: Because I’m the owner of policy and, therefore, didn’t get implemented unless I was content with it.
Mr Blake: I think you said in your witness statement that you drafted this policy or were responsible for drafting it. Did you actually input some of the text or?
Paul Inwood: I think a lot of the screwdriver work was probably done by one of my team and, therefore, there were just iterations between me and Ravi, in terms of developing the approach and the drafting work. I think he did a lot of the process mapping but that’s about the extent that my memory will allow.
Mr Blake: Would you have been the most senior member of the Post Office to have reviewed this before it was finalised?
Paul Inwood: No, there were people in that circulate – if you scroll up, yeah, there were people in that circulation list that –
Mr Blake: They’re listed as stakeholders. Would they have reviewed it before it was finalised?
Paul Inwood: Yeah, they would have been asked to comment on the process mapping.
Mr Blake: Thank you. If we look at page 3, it sets out the purpose of the policy.
Paul Inwood: Yeah.
Mr Blake: It says:
“The purpose of this policy is to clearly set out the processes Post Office Limited will follow to recover debt incurred in service by Operators of all Post Office branches.”
If we scroll down to the glossary, it defines “Operator” there, a little bit lower down on the page. An operator is:
“Any individual, company or partnership
(including subpostmasters and franchisees)
Mr Blake: responsible for the operation of any Post Office branch.”
Paul Inwood: Yeah.
Mr Blake: So this policy, to summarise, it sets out the processes for the Post Office to follow to recover debt incurred by –
Paul Inwood: Postmasters.
Mr Blake: – amongst other people postmasters.
Paul Inwood: Yeah, “operator”, at that time, was just using an umbrella term for agents. Now, it’s postmasters on different contract types.
Mr Blake: Thank you. Could we go over the page to page 4, please. 3.2 says:
“This policy is designed to provide clear and consistent guidelines and processes for [the Post Office] to recover transactional and non-transactional debt incurred whilst in service by Operators of all Post Office branches whether they are still in service or have subsequently resigned.”
Then we have “Background”. It’s the background section that I’m particularly interested in. Is it possible, if we could keep this on screen and I’m just going to bring up alongside it a slightly later version of the same policy. So if we could keep that, perhaps, on the left-hand side, if that’s possible, and if we could bring up POL00088312.
This is a 2017 version. Is that the same policy but just a later version?
Paul Inwood: I’m just looking for –
Mr Blake: The earlier version is called “Operators’ In Service Debt” and this one is called “Postmasters’ In Service Debt”?
Paul Inwood: Yeah, I think it’s a later iteration of –
Mr Blake: Thank you. That also has your authorisation in 2017.
Paul Inwood: Yeah.
Mr Blake: So it looks as though in 2013 you authorised a policy, you subsequently authorised updates, and you authorised this one in 2017.
Paul Inwood: Yeah.
Mr Blake: If we could go to page 3 on the right-hand side, we should be able to see the bottom half of page 3. If we could zoom in, in the same way as we have on the left-hand side, thank you very much. It’s the “Contractual position”, if you could scroll down slightly, thank you.
It seems as though they’re largely the same, these two. On the left-hand side, we have:
“From a purely contractual perspective, the Operator of a Post Office branch is responsible for …”
Then it has three points. I’m going to come to each of those.
I think the only real difference between 4.1 and 3.1 is the reference to “without delay”, on the right-hand side, “making good without delay”. So on the left-hand side we have the word “making good” in the bullet points; in the right-hand side, we don’t have them in the bullet points, but they are in 3.1, but there is a difference and it seems to be in the time period in which they had to be made good.
Do you see that difference?
Paul Inwood: Yeah, in the first document, it says “without delay”. In the second document it doesn’t say that.
Mr Blake: I think it’s the later document says “without delay”, the earlier one doesn’t.
Paul Inwood: Oh, I see. Right.
Mr Blake: Do you recall a change in the time period, for example, that things needed to be made good, or?
Paul Inwood: No, because that would have been managed between finance and the contract team, in terms of the amount of time that was allowed to make good losses.
Mr Blake: Both of those say, “From a purely contractual perspective”.
Paul Inwood: Mm.
Mr Blake: Can you assist us, were all subpostmasters on the same contract? Were there different contracts?
Paul Inwood: No, you had what I referred to as the “traditional” contracts. So that would be subpostmaster, modified subpostmaster, community subpostmaster. Then you had the contracts that emerged as part of the Network Transformation Programme and they were referred to as operators. So that was an entirely different type of contract and there were – sorry, and there were lots of variants of those contract types.
Mr Blake: Were these three bullet points intended to capture all of those different versions of the contract?
Paul Inwood: Yeah, the latter – I think the original policy wasn’t developed in the life-cycle of Network Transformation. So the latter policy would have been designed to take into account the Network Transformation contracts.
Mr Blake: So am I right to understand that some subpostmasters would have signed a contract pre-Network Transformation and be operating under whatever contract it is they signed there –
Paul Inwood: Correct.
Mr Blake: – others post, but both would be held to this policy?
Paul Inwood: Yeah, the policy spanned all postmasters, yeah.
Mr Blake: Can you assist us with why the reference there is “from a purely contractual perspective, the operator is responsible for”? What do you think is meant there by “purely contractual perspective”? It seems to imply that there’s, for example, some discretion over and above what the contract says?
Paul Inwood: No, I think I was just making it clear that it was a contractual obligation, not that I thought it was something happening beyond the contract.
Mr Blake: I mean, you’ve said in your statement, and I think you’ve really repeated it today, that subpostmasters could write to their Manager, Contracts Adviser or even to the Post Office.
Paul Inwood: Mm.
Mr Blake: Might that be why there’s a reference there to the contractual perspective, because the reality was that you could go outside of your contract and make an approach to somebody?
Paul Inwood: No, I just don’t think that was in my mind at all at that point. As I said, the whole issue of dialling down losses or writing them off, that was a long time ago, you know, in any volume. I didn’t see, in 2017/18, that happening but I wouldn’t because I wasn’t managing the Contracts Advisers or Area Managers. It was something, if it was happening, it was discrete to me.
Mr Blake: To assist us with time periods, do you mean in the early days, Legacy Horizon, so 2000/2001/2002, et cetera, there was still that –
Paul Inwood: No, I mean in the era of manual accounts where postmasters were account managed, had a closer relationship with Area Managers in the field.
Mr Blake: You don’t believe that happened during the lifetime of Horizon?
Paul Inwood: If it did, I wouldn’t have any knowledge of it because, you know, I was in a more senior role and I wasn’t managing postmasters directly, except for the time when I was a Contracts Adviser – Manager in 2002 to 2004. And, even at that point, my recollection is that it was extremely rare to receive these type of requests from postmasters.
Mr Blake: Looking at those bullet points, the first one is:
“Making good any loss of Post Office cash and stock without delay.”
In fact, so the “without delay” there appears on the left side.
Paul Inwood: Mm.
Mr Blake: There’s no real difference there. But the first one is:
“Any loss of Post Office cash and stock.”
The second is:
“Any losses incurred whilst operating under their respective contractual agreements that come to light following termination of the agreement.”
Paul Inwood: Mm.
Mr Blake: The third is:
“All losses incurred through their own negligence, carelessness or error and also for losses caused by their Post Office assistants.”
Paul Inwood: Mm-hm.
Mr Blake: So the first bullet point we have there is “any loss”, so the postmaster is responsible for any loss, and the third one is “all losses save for”, for example, it seems, if it wasn’t caused by their own negligence, carelessness or error. Can you explain to us why the first of those reads as though any losses must be paid back, but the third reads as though there might be some reasons to excuse a subpostmaster?
Paul Inwood: I think that there was a difference between the Network Transformation contracts and the traditional contracts in terms of what the postmaster’s obligations were, and I think there was a probably, in the Network Transformation contracts, I think it was the obligations were probably heavier, from memory – I can’t remember specifically how – than what was placed upon the postmasters who had traditional contracts. I think there was some tightening of the drafting.
Mr Blake: So, in fact, it may have been that the first bullet point was intended to capture those who had signed the post-Network Transformation contract and the third bullet point was intended to capture those who had signed the original subpostmaster’s contract?
Paul Inwood: It’s quite possible but I can’t remember specifically what my thinking was at the time.
Mr Blake: Can you see there potential cause for confusion amongst those who were operating this policy as to whether they were to take action in respect of all losses or just those that weren’t caused by their own negligence – that were caused by their own negligence, carelessness or error?
Paul Inwood: Well, I think typically the people managing the whole issue of recovery of losses were either Finance or the Contracts Advisers, and that was their sort bread and butter business, really, part of it, it was recovering debts. And they would always be mindful of what type of contract the postmaster was on when doing that, or should have been.
Mr Blake: Looking at this document, though, the policy document about recovery of debt, can you see that there could be cause for confusion in respect of the circumstances in which you can, in fact, recover debt from subpostmasters?
Paul Inwood: If you relied purely on the policy document and weren’t cognisant of which type of contract the postmaster was on and the circumstances in which the debt had arisen, yeah, there would be.
Mr Blake: Separately, was there any thinking at this time, I think you’ve already given this answer, but to bugs, errors and defects, and how that might fit into –
Paul Inwood: No.
Mr Blake: – the situation?
Paul Inwood: No.
Mr Blake: Just before the break, I’ll just take you to the community subpostmaster contract that’s POL00000246, and it’s page 71. So, I mean, we have various different iterations of this policy.
Paul Inwood: Yeah.
Mr Blake: Perhaps if we go over – sorry, yes. That’s fine. On page 71, you have there – this is under section 8 – “Responsibility for Post Office’s stock and cash” and at paragraph 12 we have a heading “Losses”.
Paul Inwood: Mm.
Mr Blake: It says there:
“The subpostmaster is responsible for all losses caused through his own negligence, carelessness or error, and also for losses of all kinds caused by his Assistants. Deficiencies due to such losses must be made good without delay.”
So does that assist you, that that looks very much like that third bullet point but not at all like the first bullet point?
Paul Inwood: Yeah, I think, looking at that, it’s – that policy spans the sort of more modern Network Transformation contracts and the traditional contracts.
Mr Blake: Well, it doesn’t span both, does it? This is pre-Network Transformation?
Paul Inwood: It is, yeah.
Mr Blake: It has there a provision that refers to negligence, carelessness or error –
Paul Inwood: It does, yes.
Mr Blake: – and is quite differently worded to that first bullet point in the policy, isn’t it?
Paul Inwood: Yeah, that’s what I’m trying to say. I think in the Network Transformation contracts, I think the obligations were more onerous upon the operator than they were in the traditional contracts and, therefore, the first and third bullet points in the policy document attempts to deal with that.
Mr Blake: Mr Justice Fraser in the Bates litigation, in one of the judgments, he refers to a case where a subpostmistress received a letter saying that they were contractually obliged to make good any losses that occurred during their term in office, and he remarks that that overstated the position because, as you can see in 12, it’s not in fact any losses.
Do you think that some of those problems come down to the policy that we’ve just looked at and the ambiguity between those three bullet points.
Paul Inwood: Yeah, it’s possible if someone looked back at the policy document and wasn’t mindful of which contract the postmaster was on, when they sent a letter, then there is scope for confusion, yeah, I agree.
Mr Blake: Thank you.
Sir, that might be an appropriate time to take our mid-morning break.
Sir Wyn Williams: Yeah, sure.
Mr Blake: If we could come back at 11.35.
Sir Wyn Williams: Yes, that’s fine. Thank you.
Mr Blake: Thank you very much.
(11.19 am)
(A short break)
(11.35 am)
Mr Blake: Sir, Mr Inwood, I’m going to move on to a different topic and that’s the resolution of disputes.
You explain in your witness statement that, as Contracts Manager and as Appeals Manager, you were involved in disputes regarding alleged shortfalls and the procedures that they involved.
Paul Inwood: Correct.
Mr Blake: Can you assist us, how would evidence be gathered in respect of that?
Paul Inwood: So, for example, if an audit had occurred and there was a discrepancy, significant discrepancy, in the accounts, then the auditors would complete a report about what they had found and then, after the precautionary suspension of the postmaster, if that was necessary, that would be sent to me and, therefore, I would evaluate that report to see if there had been a potential breach, material breach of contract.
And then a charge letter would be sent to the postmaster, setting out the charge, which could be something like false accounting or misuse of Post Office funds, and then they would be – they would have the option of making a written representation or have a personal hearing, often attended with a member of the National Federation of SubPostmasters, and they would have the opportunity to present any exculpatory evidence for those charges.
And then, based on that and any further investigation that was necessary, because of the outcome of that hearing, then I and other Contracts Managers would draw up a balance sheet of the evidence and determine whether there had been a material breach of contract based on the balance of probability. And once that decision had been made and then, if there had been, then, an evaluation was made as to what would be the most appropriate outcome for POL and the postmaster.
Mr Blake: Can you assist us with whether there was some sort of disclosure process to subpostmasters during that procedure?
Paul Inwood: The postmaster should be provided with a copy of the evidence that the Contracts Manager had received from the auditors or the Security team. The Security team were not always involved. It would depend on the circumstances. So they should receive a copy of the inculpatory evidence.
Mr Blake: We’ve heard quite a lot about something called ARQ data or the audit data obtainable from Fujitsu itself. Is that something you recall being provided to postmasters?
Paul Inwood: I was not aware of that during the period of time I was a Contracts Manager or after that.
Mr Blake: What kind of period are we talking about, when you would sit on those hearings?
Paul Inwood: As a Contracts Manager, it was 2002/03 to the end of, I think, 2004. There was a period of time when I was an Appeals Manager but it’s difficult for me to approximate the years during which that was the case.
Mr Blake: But it would have been after your time –
Paul Inwood: It would have been after 2005 because, to be an Appeals Manager, you had to be at a certain level in the company, senior manager level in the company.
Mr Blake: So we’ll start with the first level, Contract Manager. You’ve said that a representative of the National Federation of SubPostmasters could attend or, I think, you also said in your statement that a friend could attend?
Paul Inwood: Or a friend, yes.
Mr Blake: I just want to take you back to the subpostmaster contract. So that is POL00000246. It’s page 93 – actually, if we could look at 92 and 93. Page 92, section 14, seems to govern the appeals procedure, so I think that’s the second stage, isn’t it?
Paul Inwood: Yeah.
Mr Blake: If we look at page 93, I don’t think this is the first stage, is it? This is a different type of investigation for a criminal offence, or do you understand this to have governed that first stage?
Paul Inwood: No, I agree with what you just said, yeah.
Mr Blake: I just want to use an analogy though and, if we turn to page 95, there is reference to friends at investigation interviews?
Paul Inwood: Mm.
Mr Blake: Then if we turn to page 96 at the top there, paragraph 19, it says this, in relation to those criminal investigations. It says:
“A friend may only attend and listen to questions and answers. He must not interrupt in any way, either by word or signal; if he does interrupt he will be required to leave at once and the interview will proceed without him. Whatever is said at the interview is to be treated as in strictest confidence. The friend may take notes of the interview but he must keep the notes in the strictest confidence. The only communication the friend is entitled to make on behalf of the person who has been questioned will be in the form of a written ‘in strictest confidence’ statement which may be submitted by the latter, in support of any official appeal which the person questioned may desire to make in connection with the methods followed at the enquiry. No other communication about the interview is allowed (unless made by permission of the Post Office) as it might constitute a breach of the Official Secrets Acts. The questioned officer may, however, if he so desires, communicate the friend’s statement to the National Federation of SubPostmasters in strictest confidence.”
As I say, this doesn’t apply to those hearings but was a similar regime in place for those hearings, in respect of what the friend or assistant could or could not do?
Paul Inwood: I think that the custom and practice, when I was a Contracts Manager, was that the friend who may also be an officer of the National Federation of SubPostmasters could attend the – what they referred to as the reasons to urge hearing, and it was the case that the NFSP officer would speak on behalf of the postmaster.
And I think that was because a lot of postmasters found that to be quite a difficult meeting and were not able to properly articulate their defence or mitigation to the charges, and I think that was custom and practice through the period of time I was a Contracts Manager.
Mr Blake: If you weren’t an officer of the National Federation of SubPostmasters, were you allowed to speak?
Paul Inwood: I believe it was custom and practice to make some representation.
Mr Blake: So if you were attending as a friend, for example –
Paul Inwood: Yeah.
Mr Blake: – were you allowed to say something?
Paul Inwood: I don’t think there was any differentiation at the time between what type of friend you were or whether you was an NFSP officer. It just happened to be the case that was people were represented by officers of the NFSP because they had some considerable experience and training in dealing with these issues.
Mr Blake: Were lawyers allowed to attend?
Paul Inwood: No.
Mr Blake: Do you know the reason for that at all?
Paul Inwood: Well, because – well, I guess if a friend was also a lawyer that wouldn’t preclude them from attending but if they were there in a capacity as a lawyer and acting on behalf of their client, that would not be allowed because it was a private matter between the company and the postmaster.
Mr Blake: Were you assisted at that stage 1 decision by lawyers in the Post Office?
Paul Inwood: No, not as a Contracts Manager, no. No, if there was any criminal investigation into the case, that was dealt with entirely separately in a silo from any action that the Contracts Manager would take in the civil case.
Mr Blake: Thank you. Can we look at POL00088982, please. If we look over the page, this is a document drafted by you.
Paul Inwood: Mm.
Mr Blake: Your name is at the bottom of that second page. Then if we turn back to the first page there’s handwritten “In Confidence and Draft”. Am I right to say you drafted this or this is a draft that you drafted?
Paul Inwood: I drafted this policy, yes.
Mr Blake: I’m not sure if we have the final version of this, and you can tell me if you recall that anything was significantly or substantively different from the version that we’re looking at. “Background”, it says:
“From time to time contracts advisers and appeals managers will be required to give consideration to what would be an appropriate outcome where an agent is found to be culpable of a serious breach of contract. Typically but not exclusively these breaches will be in the form of false accounting and/or misuse of Post Office funds.”
What kind of period was this in operation, do you recall?
Paul Inwood: I think the policy was drafted some time around 20 – let me think – 2014 onwards.
Mr Blake: Was there a policy before that?
Paul Inwood: There was an approach, yeah. I think there were historic policies that existed prior to that, obviously.
Mr Blake: To what extent did you consider yourself to be qualified to be drafting this policy?
Paul Inwood: Because it was a policy that supported people within POL dealing with material breaches of contract or alleged material breaches of contract and it was done with iterations between myself and Legal Services.
Mr Blake: Who in Legal Services do you recall liaising –
Paul Inwood: I think the principal person would have been Jessica Madron.
Mr Blake: We see there under “Guidance notes”, it says:
“In cases where guilt has been proven on the basis of ‘balance of all probabilities’ …”
Do you recall, was that the test that you applied: guilt on the basis of balance of all probabilities?
Paul Inwood: Yes, whether the charges were proven on the test of balance of all possibilities, as opposed to beyond any reasonable doubt. The threshold was lower in a civil case.
Mr Blake: Do you recognise any difficulty, looking at that now, that test. First of all “guilt”; this isn’t a criminal matter?
Paul Inwood: No, it was loose terminology. I think it was better to say culpability for the charges, yeah.
Mr Blake: “Balance of all possibilities”, it sounds a bit like a conflation between “balance of probabilities”, which is a civil test, and “beyond reasonable doubt” or –
Paul Inwood: That was not what I had in mind when I was I drafted it. It was perhaps loose terminology.
Mr Blake: Do you think that was the test applied by people who were using this policy?
Paul Inwood: If they had followed the policy, yeah.
Mr Blake: When these kinds of policies were being drafted, was there any consideration of what impact bugs, errors or defects in Horizon may have?
Paul Inwood: No, the reason that the instructions were given to me to develop this policy is because the company was concerned that there weren’t a broad enough array of options to apply, where it had been proven that there had been a material breach of contract, and that ties in with the belief that there were, you know, perhaps too many suspensions and, you know, outcomes were problematic for the company in terms of maintaining continuity of service.
So the policy prescribed additional outcomes that could have been applied by Contracts Advisers, for example, a suspended termination, where it was believed that termination was not appropriate in the circumstances. So it was just driven by providing a broader array of options for Contracts Advisers.
Mr Blake: So, if we scroll down, we can see there are aggravating factors and mitigating factors that might assist in making a decision as to how to deal with a contract breach and, as you say, this policy was implemented because there was a concern that too many people were having their contracts terminated or suspended?
Paul Inwood: No, no, no, I think it was – the main driver was that the Contracts Advisers needed to have a broader array of options in terms of the outcome of the case, that was the main driver for the policy.
Mr Blake: Because, prior to that, the only option would be to suspend or terminate?
Paul Inwood: Yeah, it would be binary. Yeah, well, a precautionary suspension would be a precursor to this process and then, once this process had started, then the options were that either the postmaster would be reinstated or that the contract would be summarily terminated.
Mr Blake: They needed, aggravating, mitigating factors, more options; was that not driven by the fact that they were experiencing a high level of terminations?
Paul Inwood: I think there was a background concern in the company that there were too many suspensions, too many cases where we were losing Post Office services in some communities and not being able to maintain those after the fact of termination.
Mr Blake: You say this was 2013, did you say, or –
Paul Inwood: I think it was around 2014, perhaps.
Mr Blake: So a fair amount of time after, for example, that Computer Weekly article that we’ve talked about or the correspondence from the journalist to the Member of Parliament about complaints about –
Paul Inwood: Yeah, I don’t believe there was a nexus between the two.
Mr Blake: No, and do you think there should have been a nexus between the two, in that bugs, errors or defects in Horizon might have been something to consider during this –
Paul Inwood: Yeah, with hindsight, I think that, as part of the whole process around suspension, dealing with alleged material breaches of contract, as I said earlier, I think there should have been a process in place where the possibility of a discrepancy being caused by software errors, bugs, should have been ruled out as a possible cause prior to contractual action being taken.
Mr Blake: I’m going – sorry.
Paul Inwood: I can see why it would be necessary to issue a precautionary suspension upon the advent of a significant discrepancy in a postmaster’s accounts. But, in that period of suspension, I think there should have been more diligence by the company in flushing out any possible IT causes.
Mr Blake: Moving to appeals, you said you were an Appeals Manager?
Paul Inwood: I was, yes.
Mr Blake: In your statement, you referred to conducting your own investigation as part of that process?
Paul Inwood: Mm.
Mr Blake: What exactly did that involve?
Paul Inwood: Well, the purpose of the appeal was to rehear the case, so looking at any inculpatory and exculpatory evidence and then examining both and, if necessary, conducting a further investigation into the facts internally, prior to reaching a conclusion.
Mr Blake: In terms of, say, audit data, do you think you were capable of properly understanding audit data and obtaining the right information from, for example, Fujitsu, if required?
Paul Inwood: I think the audit report would be taken at face value by any Appeals Manager.
Mr Blake: Was that because the Appeals Manager didn’t have the right skillset to analyse those kinds of things?
Paul Inwood: I don’t think they would have been able to analyse the data but, at that point in time, it wouldn’t have entered my mind or any Appeals Manager, I don’t believe, to test whether the discrepancy had been caused by failures in the system.
Mr Blake: If a subpostmaster had said that losses were arising because of a software error, what would you be able to do as part of your investigation to get to the bottom of that?
Paul Inwood: Well, that would be raised internally and I’d have to investigate how to determine whether that was the case or not. I can’t remember a case when I was an Appeals Manager where that was the – was raised with me internally, but the number of appeals you would hear were very small. You know, if you heard one a year, you know, that would be normal. There was quite a large panel of appeals managers. So it was difficult to get a sort of holistic view about whether that was being raised a lot at the appeals stage.
Mr Blake: You’ve said that at the first stage you weren’t assisted by lawyers. At the appeals stage, was there legal involvement at all?
Paul Inwood: No, no.
Mr Blake: If I could go back to the contract, so that’s POL00000246, page 92, where it addresses the appeals procedure.
If we could look at the bottom of page 92, please, there’s a reference there to appeals and then it says, “Approaches to persons outside the Post Office”, paragraph 6. It says:
“Until the subpostmaster has exercised his final right of appeal, he should not ask persons outside the Post Office to take up the case on his behalf although this does not prevent a subpostmaster from obtaining such advice and support from the NFSP or any other outside person as may help him to present his case effectively. The subpostmaster should not detain Post Office papers or allow them out of his custody for the purpose of such consultation without the permission of the Retail Network Manager.”
Can you assist us with the purpose of that provision?
Paul Inwood: I think the view internally was that, at that stage, it was purely a private contractual dispute between us and the postmaster and that there was a process internally to manage that. Once that process had exhausted, of course, it would have been open for the postmaster to take whatever course of action they thought was appropriate, if they felt that the outcome of the case was unsafe or unfair.
Mr Blake: Who is it preventing a subpostmaster from making contact with?
Paul Inwood: Well, anyone, anyone outside of the company, really.
Mr Blake: We discussed earlier the problems involved with the inability for subpostmasters to find out about similar problems that other subpostmasters were experiencing.
Paul Inwood: Yeah.
Mr Blake: Do you see this provision as causing any issues in that regard?
Paul Inwood: Well, it may or would make them think that, you know, they were having to deal with this in a sort of silo, almost, and that they weren’t able to openly discuss the circumstances of the case with other people or share information with other people.
Mr Blake: Do you recall any cases that you were involved in that were overturned on appeal?
Paul Inwood: I think when I was a Contracts Manager there was one case that was heard by Lin Norbury, who was an Appeals Manager at the time, that was overturned.
Mr Blake: So that’s one case in a two/three-year period?
Paul Inwood: In a two or three-year period. I think there was some information internally that said, I think, around 10 per cent of appeals were upheld, you know, that –
Mr Blake: In terms of your personal experience and personal knowledge, you’re only aware of one?
Paul Inwood: I’m only – I can only recall one that would have happened in, like, a three-year period but I can’t remember how many terminations that I would have been involved in over that period.
Mr Blake: That’s when you were the Contracts Manager. What about when you were –
Paul Inwood: Contracts Manager, yeah.
Mr Blake: – sitting on the appeals? Did you ever overturn an appeal?
Paul Inwood: No.
Mr Blake: I’m going to move on to –
Paul Inwood: I think you meant uphold an appeal?
Mr Blake: Yes. Sorry.
Paul Inwood: No.
Mr Blake: Thank you. I’m going to move on to what happens when you’ve been terminated, when your contract has been terminated. Can we look at POL000075610, please. This is a 2009 policy where you are the author?
Paul Inwood: Yes.
Mr Blake: You’re named as the author. Do you recall writing this or being responsible for it?
Paul Inwood: Yeah, I’ve got some recollection of, you know, looking at that document now, yeah. Yeah.
Mr Blake: Do you think you wrote it?
Paul Inwood: Yeah, I would have authored that approach, yeah, yeah. It’s got my name on it, yeah.
Mr Blake: If we look at the bottom of the page it explains what the change is. It says:
“For agents who have had their contracts summarily terminated by Post Office Limited, or who, in our opinion, have resigned to avoid termination, it is important that we are open with them in communicating the possible outcome of that decision in respect of what type of Post Office operating model, if any, we determine is appropriate in the locality.”
Paul Inwood: Yeah.
Mr Blake: “One of these outcomes may be the deployment of a different operating model, eg Post Office essentials, to that currently used.”
It says on that final paragraph on the screen:
“It is important to note here that subpostmasters do not have any right of assignment of their Post Office business, so any enquiries in that respect should be managed using the normal reactive lines”, et cetera.
Can you assist us with what this all means?
Paul Inwood: This is in the context of, like, a set piece business transformation programme where the business had developed a different type of Post Office operating model. I think the document refers to Post Office essentials, which was a forerunner of the local Post Office model that was implemented as part of the Network Transformation Programme.
So the purpose of the document was to say that, in the event of termination or resignation to avoid termination, we need to be open with the outgoing postmaster that it may not be the case that a traditional contract – a Post Office with a traditional contract, is deployed in that location.
Clearly, an outgoing postmaster would be perhaps advertising their retail business for sale with the concession of a Post Office within it. So it was necessary for them to understand what type of post office, so that they could inform any potential buyer.
Mr Blake: So might it be that a subpostmaster’s contract is terminated?
Paul Inwood: Mm.
Mr Blake: They’re then left with a post office and they then need to find another subpostmaster, sell it, et cetera, and this document is telling them or is outlining the position that actually they might be left with something –
Paul Inwood: Something different to what was there, yeah.
Mr Blake: Typically something less than what was there? I mean, Post Office essentials sounds perhaps smaller, or –
Paul Inwood: I think the remuneration aspect was different in Post Office essentials because it was on a fully variable basis so, on a traditional contract, the subpostmaster would receive a fixed payment plus a variable payment. On the more modern operating models, it was on a fully variable basis. It’s quite an important distinction if you’re thinking about buying a business that has a post office in it.
Mr Blake: So potentially less profitable?
Paul Inwood: Potentially, yeah.
Mr Blake: If we are thinking about implications for subpostmasters once their contract has been terminated, are we to read into this document that not only would they lose their contract but they might suffer financial harm because their post office is less sellable than it perhaps was before their termination.
Paul Inwood: Yeah, that’s quite possible, yeah.
Mr Blake: Thank you. I’m going to look at a few other policies. I’ll take them quite quickly. They address issues such as suspension and contract breach, for example.
Can we look at POL00005933. This is a 2012 policy, “Precautionary Suspension Policy”. I think you’ve mentioned before precautionary suspension?
Paul Inwood: Mm.
Mr Blake: Can you briefly summarise for us what precautionary suspension was?
Paul Inwood: Well, that would normally be where there had been a bad audit with a significant discrepancy, and there would need to be a process following that. So a precautionary suspension may be the most appropriate thing to do at the time.
Mr Blake: We see there you’re the owner of that particular policy?
Paul Inwood: That’s correct.
Mr Blake: Can we turn to page 3, please. It’s 3.3. It says there:
“[The Post Office] may consider it to be in its interests to spend the Operator of a Post Office branch if it deems there is a risk to its brand and reputation, cash or stock or the interests of our customers.”
3.13, over the page to page 4, says:
“During the period of any suspension [the Post Office] will cease all payments to the suspended Operator.”
So am I to understand that a subpostmaster may be suspended on a precautionary basis –
Paul Inwood: Mm.
Mr Blake: – and the result of that is that the Post Office will stop paying the subpostmaster?
Paul Inwood: That’s correct. What would happen in that case is that we would seek to appoint a temporary postmaster to operate from the premises. He would negotiate some payment with the suspended agent for consideration for using the premises, and then the remuneration would go to the temporary postmaster.
Mr Blake: Thank you. Another policy, POL00086116. This is the “Guiding principles for suspension”. So that’s substantive suspension, is it, rather than precautionary suspension?
Paul Inwood: I think there was only precautionary suspension, yes.
Mr Blake: Thank you. Were you involved in the drafting of this document?
Paul Inwood: What was the date of the –
Mr Blake: I don’t think this document is dated. If we can zoom out, please?
The Witness: Okay, is it possible to have a five-minute comfort break?
Mr Blake: Yes, absolutely.
The Witness: Okay, thanks.
Mr Blake: Sir, can we break until 12.15? We have plenty of time today.
The Witness: Thank you.
(12.07 pm)
(A short break)
(12.15 pm)
Mr Blake: Thank you, sir.
Mr Inwood, one final policy before I move on to two very small discrete issues. It is POL00088475. This is a 2014 policy with you named as the owner and it’s entitled “Contract Breach”. Can you just briefly assist us with how this policy fits in with the various policies that we’ve already seen.
Paul Inwood: I think this was probably the most recent iteration of the policy and I think it was at the request of Angela van den Bogerd, she was the sponsor of this work. So it was just something that I worked up with Legal Services, really, that was deployed into the contracts community.
Mr Blake: Thank you. At page 2 it sets out at the very top the purpose; does that assist you in its purpose?
Paul Inwood: Yes.
Mr Blake: This policy and the previous policies that we’ve seen today, am I right in saying that there was nothing in those policies about how to deal with situations where there are bugs, errors or defects in the system?
Paul Inwood: No.
Mr Blake: Thank you. I’m going to move on to a different topic and that’s involvement in criminal and civil proceedings. I think you said in your statement that it was rare to receive contact from lawyers and that you played no part in criminal prosecutions and don’t have recollection of civil cases.
Paul Inwood: Criminal cases.
Mr Blake: Of criminal cases. Now, I can show you a number of different documents but perhaps I’ll just ask you the open question as to whether you’ve reconsidered that position since you’ve seen documents?
Paul Inwood: I can recall one particular case, I think, when I was a Contracts Manager, 2003/2004. I think it was some contact from Jarnail Singh, who was involved in the criminal prosecutions team. But it was only that. It was just to inform me of progress and to find out progress with the contractual case. There may be others that I wasn’t able to recall when I completed the witness statement, of course.
Mr Blake: Did you ever give evidence in criminal proceedings?
Paul Inwood: Only when I was a branch manager in the Crown Office estate and a case of a POL employee, and I think I was called to give evidence in one other case as an expert witness. I think it was a postmaster, something that I wasn’t directly involved in.
Mr Blake: When you say an expert witness, in what way were you an expert witness?
Paul Inwood: That can provide an insight into branch accounting procedures. It was to do with an issue of something that was known as British Excursionary Document and they were being issued inappropriately to members of the public. So I think the court just needed to know what the correct procedure was, in terms of validating a person’s identification.
Mr Blake: Was the Post Office a party to that case?
Paul Inwood: I can’t remember if they were the prosecuting authority, no.
Mr Blake: Because you’ve described yourself as an expert, did you know the difference between an expert witness and somebody who isn’t an expert witness?
Paul Inwood: Well, someone who isn’t an expert witness wouldn’t know a great deal about the subject and I did know a great deal about the subject. So that’s why I described myself in that way.
Mr Blake: Were you ever told by anybody in the Post Office Legal team, for example, about the duties to a court that an expert witness owes?
Paul Inwood: No, I don’t think there was any discussion. I think it was the Post Office Investigation team that had asked me to appear. It was an odd one because it just wasn’t a case I’d been directly involved in.
Mr Blake: Do you recall who in the Post Office Investigation team?
Paul Inwood: No, it was a– that was a long time ago when I was a branch manager, so I think it was probably some time in the 1990s.
Mr Blake: Thank you. I’ll take you to a few documents very quickly. Can we look at POL00086582, please. This is a discussion with somebody called Victoria Brooks, who was an associate at Bond Pearce, about a case that involved a branch called Newcastleton branch. Halfway down the page, she says there:
“You have seen my emails with Roderic and Paul Inwood regarding the interview process, where this comes from and whether it is necessary. Paul has said that these points would be picked up as part of a review that is imminent, so for now I have proceeded on the basis that [the Post Office] wants to allow the opportunity for an interview to take place.”
Can you assist us, does this assist you with the types of occasion when you would come into contact with lawyers?
Paul Inwood: Well, I was working with Legal Services very closely all of the time, so it wasn’t something that was odd for me to have emails from Legal Services about individual cases.
Mr Blake: Can we, please, also have a look at POL00072146, the second page here. You’re copied into an email from Mandy Talbot and it’s about the Marine Drive Post Office, that’s a Post Office that was previously run by Lee Castleton, and she says about halfway down the page:
“Given the problems we had with Castleton I would have thought that [the Post Office] would be happy if a prospective permanent postmaster had come along? Can the BDM or the Contracts Manager for the relevant part of the country advise whether or not she ever applied for the position at Marine Drive or at another branch and if so what the response was.”
Does this assist you in recalling what if any involvement you had with the legal case against Lee Castleton or what followed that case?
Paul Inwood: No, I think it was – this was an issue around a temporary postmaster and there was some, when I read this earlier there was some issue around whether they would receive a termination payment, which clearly wasn’t appropriate for a temporary postmaster. And I think there was concerns about the fact that she felt that she was entitled to such a payment.
Mr Blake: Would you be consulted by the Legal team about contractual matters involving subpostmasters?
Paul Inwood: From time to time, yeah, in the context of a civil case, yeah.
Mr Blake: Do you recall Mandy Talbot?
Paul Inwood: I’m familiar with the name and I think perhaps she was involved in criminal prosecutions side. I’m not entirely sure.
Mr Blake: If we look at the email, it has, on the next page “Mandy Talbot, Dispute Resolution, Company Secretary’s Office”. Does that assist you?
Paul Inwood: Err –
Mr Blake: Do you recall, for example, how senior she was, or how senior you understood her to be?
Paul Inwood: I think she was probably around the level of principal lawyer, around the same level as Jessica Madron.
Mr Blake: What did you understand by the same principal lawyer?
Paul Inwood: Well, not a paralegal, you know, someone who had direct reports, you know, solicitor working for them, or some – you know, job titles tend to be determined by whether you had direct reports or not.
Mr Blake: Direct reports to who, sorry?
Paul Inwood: Into them.
Mr Blake: Yes.
Paul Inwood: So she may have had a solicitor working for her or a paralegal.
Mr Blake: In your understanding of that Legal team, looking at this or recalling from this discussion about the Lee Castleton case, can you give us your understanding of whether she was a case worker or something more significant?
Paul Inwood: I can’t recall, sorry.
Mr Blake: Can we look at POL00041427, please, page 2. An email from yourself to Jessica Madron and Rodric Williams and it says, if we could scroll down:
“We’ll need your help with this case please as there is an indication that it may be heading towards litigation.”
Does that assist you at all in your involvement in litigation against subpostmasters and the role that you had?
Paul Inwood: I think it would be very infrequent if at all. As I said to you earlier, the whole management of the civil aspect of a dispute was sort of in a silo from any criminal prosecution. I don’t believe anyone would come to me for advice about how to manage a criminal prosecution but would come to me for advice about how to manage the civil aspect of the case.
Mr Blake: The Inquiry has heard evidence suggesting that actions taken by Contracts Managers, for example, in some way, formed part of a prosecution case against a subpostmaster. Were you aware of the actions that you were taking as Contracts Manager?
Paul Inwood: No, it was the opposite to that. As I said earlier, I don’t think there was any nexus between the two. I was trained to treat the civil aspect of a case entirely separately from the criminal aspect of the case. That’s because the burden of proof in the two is completely different. And, as I said earlier, it was very rare for me to – in the context of the whole number of cases that would cross my desk, would be to hear about the criminal aspect of a case, as opposed to the civil aspect.
Mr Blake: Were you aware that information that you gathered, for example, might subsequently be used in a criminal prosecution?
Paul Inwood: I’m not – I can’t think of any examples where it was because, in the context of a civil aspect of the case, I can’t recall being asked to provide any evidence by someone –
Mr Blake: Would you have known if information that you gathered as part of your processes was subsequently used in a –
Paul Inwood: Not necessarily, you know, because once the case had been put to bed, you know, the paperwork would be retained for six or seven years in the ex-postmaster’s papers and I guess it would have been possible for someone looking at the criminal prosecution to call those papers in and look at them but I wouldn’t have been alerted to that fact, had it happened.
Mr Blake: The final topic I have is Second Sight. You say in your statement that you had no involvement with Second Sight.
Paul Inwood: Yeah.
Mr Blake: You’ve subsequently seen some documentation. Does that assist you at all?
Paul Inwood: I’ve seen documentation where I was copied in to either an email or a document that was being developed to inform the response to Second Sight.
Mr Blake: Perhaps I can show you POL00022167. If we go to the final page here, page 4 has your name there, 2014?
Paul Inwood: Yeah, it does, yeah.
Mr Blake: If we look at the first page it explains what it is. “Second Sight Mediation Briefing Report”. Do you remember writing this report?
Paul Inwood: No.
Mr Blake: It may be difficult to say why you don’t remember it but it wasn’t so long ago, 2014?
Paul Inwood: Well, it’s nearly 10 years ago.
Mr Blake: Is there a reason why issues relating to Second Sight you I can’t recall, certainly haven’t detailed in your witness statement?
Paul Inwood: It was something I was aware of and it’s clearly something I’ve helped draft a response to, but it’s not something that really stuck in the mind, really.
Mr Blake: Perhaps if we could look at POL00021853. It’s an email of 27 August 2014. You’re listed there as a copy recipient.
Paul Inwood: Mm.
Mr Blake: If we could scroll down a little bit, thank you very much. It’s an email chain commenting on the Second Sight Part Two report. Why might you have been included in that email distribution list?
Paul Inwood: Why would I have been?
Mr Blake: Yes.
Paul Inwood: Because someone believed I needed to see it. If they were asking for a specific comment, I think that would be different.
Mr Blake: Do you know why you in your particular role at that particular time may have been included in the distribution list. Looking at the names there, for example, what is it that you might have added or why you might have needed to see that?
Paul Inwood: I think it was – as I said earlier, it was quite common for me to be copied in to email chains for anything pertaining to postmasters, as a sort of comfort blanket, you know, in case I could read it and think of something where it added value to the conversation in the email.
Mr Blake: Do you recall reading the Second Sight Part Two report?
Paul Inwood: No.
Mr Blake: There are other emails, two other emails, I can give the references, I won’t bring them up on screen: POL00021883 and POL00022240. Again, you’re part of a small distribution list –
Paul Inwood: Yeah.
Mr Blake: – that is addressing the Second Sight Part Two report?
Paul Inwood: Mm.
Mr Blake: Is it – it’s not something that you recall discussing with anybody at the time?
Paul Inwood: Not really, no. Not at all.
Mr Blake: I mean, looking at the names, were they people who you had regular conversations with?
Paul Inwood: The whole Second Sight thing, I think it was intended to be managed in a silo by Legal Services. Obviously, I had been copied in to email chains but it’s something that I could add very little value to. So I didn’t take a huge interest in what was going on.
Mr Blake: Who in particular? You say Legal Services.
Paul Inwood: I think the General Counsel, Susan Crichton, who I think was instructed to appoint Second Sight. Generally, some fairly senior lawyers were involved in that.
Mr Blake: The Second Sight report contained some aspects that were critical about the Horizon system.
Paul Inwood: It did.
Mr Blake: This is 2014. We started today with that 2018 interview with the solicitors where, you’ll recall, Horizon’s a calculator, no problems, et cetera, et cetera?
Paul Inwood: Mm.
Mr Blake: Is it slightly strange that it didn’t feature more prominently in discussions with you and those individuals?
Paul Inwood: I think there was a narrative that was beginning to develop in the company that was quite dismissive and unhappy with some of the findings that the Second Sight had arrived at and it’s not really what they wanted.
Mr Blake: Who, in particular?
Paul Inwood: I think that, around that point, the General Counsel left the company quite quickly, Susan Crichton.
Mr Blake: Other than what you’ve read in the media subsequently, is there anything that you knew at that time or know now as to the reasons for her departure?
Paul Inwood: I think internally there was a – sometime after, there was a feeling that she felt that she was being blamed for the developments with Second Sight. I mean, when General Counsel leaves the company quite rapidly, clearly there is a reason for that.
Mr Blake: Were there any discussions you had in that regard?
Paul Inwood: No, that wouldn’t have been at my level. I’m referring to anecdotes within the organisation that I overheard.
Mr Blake: You’ve said that there was unhappiness about that Second Sight report?
Paul Inwood: Mm.
Mr Blake: Was that from her or directed towards her?
Paul Inwood: I think it was the latter.
Mr Blake: Who would be directing it towards her?
Paul Inwood: Probably people at ExCo level.
Mr Blake: Can you assist us with that?
Paul Inwood: I think it may have been Paula Vennells.
Mr Blake: Is that through any particular knowledge, any particular discussions with anybody? How is it that you reached that conclusion?
Paul Inwood: Overhearing anecdotes and conversations internally, some time after the fact.
Mr Blake: Can you give us an approximate time for those?
Paul Inwood: Well, from – it’s difficult to approximate when.
Mr Blake: We know you left in 2018, so presumably it was in between 2014 and 2018?
Paul Inwood: Correct.
Mr Blake: Thank you.
Sir, I don’t have any further questions. I know Mr Stein has a small number of questions. Do you, sir, have any questions before Mr Stein?
Sir Wyn Williams: Can you hear me, Mr Blake?
Mr Blake: I can, yes.
Sir Wyn Williams: Fine, because there’s a glitch on the IT on my side of this. I can’t mute or unmute myself. Anyway, I will remain on unmute. I haven’t got any questions, no, thank you.
Mr Blake: Thank you, sir. Mr Stein?
Questioned by Mr Stein
Mr Stein: Mr Inwood, my name is Sam Stein I represent a large number of subpostmasters and subpostmistresses.
Just that last point, you’ve been discussing with Mr Blake about Second Sight and the Second Sight report. Your answer to him a few minutes ago was that, in agreement with him, was that the Second Sight report raised concerns, and your answer to him was “It did”.
Now, help us understand a little bit more about your evidence about this.
Paul Inwood: Mm.
Mr Stein: You were aware of the contents of the Second Sight report when it came out?
Paul Inwood: I don’t believe that I ever read it.
Mr Stein: So is this in the same way that you’ve discussed with Mr Blake the fact that there was discussion within the company about such things?
Paul Inwood: There was corridor talk –
Mr Stein: Corridor talk?
Paul Inwood: – around the fact that the company were not too happy with the way it was going.
Mr Stein: Well, the Second Sight report did set out that there had been defects and difficulties within the Horizon system, that those had been noted, and that there were problems, to a certain extent, based upon the information they had at the time. So the Second Sight report seems to have been discussed amongst people in the corridors, as you say, with knowledge that it was showing some defects in the system; is that fair?
Paul Inwood: I believe so, yeah.
Mr Stein: Right. The reason why I ask you that is that at paragraph 98 of your statement – and, sir, the statement is WITN05780100, paragraph 98, page 17 of 28 – that you talk about, during the final year of your service:
“… I had heard that it was possible for Fujitsu engineers to gain ‘backdoor’ access into the system without the knowledge of subpostmasters.”
Paul Inwood: Mm.
Mr Stein: You then go on to say:
“That did give me some cause for concern as I had previously heard a rebuttal to this internally.”
Paul Inwood: Mm.
Mr Stein: Next sentence:
“That aside I was not aware of any concerns regarding the robustness of the Horizon system.”
Now, your last year of service, unless I’ve got this wrong, was 2018; is that right?
Paul Inwood: Correct.
Mr Stein: Okay. So the sentence there that says, “That aside I was not aware of any concerns regarding the robustness of the Horizon system”, is not true, is it?
Paul Inwood: Not from postmasters. When I completed that statement I was thinking in terms of specific examples from postmasters, regarding flaws in the Horizon system.
Mr Stein: Well, let’s read onwards.
“That aside I was not aware of any concerns regarding the robustness of the Horizon system. I had used the system myself on occasions, over a long period of time, and it had appeared to work well. I had not seen any evidence that it was not working well. I had heard of a campaign by the Justice for Subpostmasters group, however we were assured internally that the system was sound.”
Paul Inwood: Mm.
Mr Stein: Well, you had had concerns brought to your attention in corridor discussions –
Paul Inwood: Well, they weren’t brought –
Mr Stein: – relayed in relation to and in discussion in relation to –
Paul Inwood: Yeah, they weren’t –
Mr Stein: – the second Sight report?
Paul Inwood: Yeah, but I’m referring to anecdotes internally regarding some disquiet about Second Sight, generally. I’d not uncovered any specific examples that demonstrated to me that there were flaws in the system.
Mr Stein: Well, let’s just nail this down. Why did you say at paragraph 98 that you were not aware of any concerns regarding the robustness of the Horizon system?
Paul Inwood: Yeah, well –
Mr Stein: When, in fact, you knew, going back in time to the Second Sight report, in corridor discussions, that it was raising concerns?
Paul Inwood: I think people were being dismissive about the findings of Second Sight and narrative internally was that, you know, these are forensic accountants not lawyers. How could they have concerns with regards to the fairness of the contracts? You know, I’m talking – in the statement I’m talking about the fact that I wasn’t aware that there were specific examples bought to my attention directly regarding the integrity of the system.
Mr Stein: Well, Mr Inwood, what it says, “I was not aware of any concerns” –
Paul Inwood: Yeah, I understand of that.
Mr Stein: – when concerns are being raised.
Paul Inwood: Well, let me elaborate –
Mr Stein: Well, why didn’t you actually get it right in your statement and actually say “I was aware of problems in the Second Sight Report but, in fact, I was told by X or Y to ignore it”?
Paul Inwood: Well, I’ve made it clear to you now.
Mr Stein: You’ve also mentioned in your evidence about – you said something about the Tier 1 helpline –
Paul Inwood: Mm.
Mr Stein: – and you described it in this way, that – you were discussing with Mr Blake the fact that the helpline didn’t seem to have much by way of operational discretion and you spoke about sticking to scripts.
Paul Inwood: Mm.
Mr Stein: Okay. Now, help us, please, understand, how many tiers operated in the helpline?
Paul Inwood: I don’t know. I wasn’t directly involved in that area of the business.
Mr Stein: Well, we know there’s Tier 1, that seems to suppose there’s more than one tier?
Paul Inwood: Yeah, but you asked me how many and I’m not aware of that.
Mr Stein: Well, all right, what did the other tiers, other than Tier 1, do?
Paul Inwood: I don’t know. I wasn’t directly involved in that part of the business. Refer – Tier 1 would refer issues that they could not deal with –
Mr Stein: To?
Paul Inwood: – up the chain of command to Tier 2, and beyond. If there was a beyond.
Mr Stein: Right. So you didn’t have any information about, what, maybe Tier 2, 3, 4, 5?
Paul Inwood: That wasn’t a sphere of the business that I had any involvement or oversight with, no. And it would change from time to time in business reorganisation, so no.
Mr Stein: Okay. Can we have on the screen, please, POL – this a document we looked at earlier – POL00006666, page 46, please. Roughly the middle of the page, where we see a “VB: 64.8” right. So if you could highlight, please – thank you very much.
You see where it’s just been kindly highlighted at “VB: 64.8”, now this is the discussion that you had. It’s saying this:
“… is Post Office should communicate or alternatively not conceal known problems, bugs or errors in or generated by Horizon that might have financial and other resulting implications for claimants?”
Paul Inwood: Mm.
Mr Stein: Okay, right. Now, with all due acceptance that that particular sentence is being written down perhaps as it’s said conversationally, then your answer:
“I agree entirely and if we did do that it would be entirely inconsistent with our values as an organisation and I do not believe that any individual or individuals would do that in this organisation.”
Paul Inwood: Mm.
Mr Stein: Okay. So help us understand what you’re saying here. Are you saying there that you felt that the organisational values were not to keep back or hold back information about the operation of the Horizon system errors, bugs and problems?
Paul Inwood: I think it – generally the values of the organisation would be to be open, transparent and honest at that point in time.
Mr Stein: What point in time are you talking about?
Paul Inwood: At the point in time that I made that statement, which is 2018 –
Mr Stein: What the year before? Completely dishonest and wouldn’t trust them an inch?
Paul Inwood: No, at that point in time and before that.
Mr Stein: So you’re saying, generally, that’s your view of the system?
Paul Inwood: Of the organisation.
Mr Stein: Okay.
Paul Inwood: Yeah.
Mr Stein: Now, the bottom of the page, please, “64.10”, I think it is. Right, here we go. Yes. So again, highlight, please, “VB: 64.10”. Thank you very much. This is a reference:
“… not to conceal from claimants Post Office’s ability to alter remotely data or transactions upon which the calculation of the branch accounts and any discrepancy or alleged shortfall is depended. I am not sure whether you would comment on that or are not sure about that?”
Then your answer:
“I am aware why this has been put in there but I cannot comment on whether we do have the ability to do that or not. I suspect it goes back to a rogue individual in Fujitsu saying that they could [not] manipulate and individual’s agents’ accounts I do not know whether this is true or not.”
Okay?
Paul Inwood: Mm, mm.
Mr Stein: So we’ve got two parts of the same page, one you saying you think that the ethos of the Post Office is good, and that, no doubt, bugs and errors, if found, would be discussed and, secondly, regarding altering the system, you didn’t know about any ability to do that, other than some bloke or some person in Fujitsu?
Paul Inwood: At that point in time.
Mr Stein: At that point in time, okay?
Paul Inwood: Yeah.
Mr Stein: Then your statement, just as a reminder, you say this, the paragraph we’ve looked at:
“During the final year of my service, I had heard that it was possible for Fujitsu engineers to gain ‘backdoor’ access into the system without the knowledge of subpostmasters. That did give me some cause for concern as I had previously heard a rebuttal to that internally.”
Paul Inwood: Mm.
Mr Stein: Okay, let’s add two things together. This possibility that you talk about in your statement for Fujitsu engineers to gain backdoor access to the system without the knowledge of subpostmasters, where did you get that idea from, that you talk about in paragraph 98?
Paul Inwood: It’s something that I heard after the witness proofing statement. So in the first quarter of 2018, I think –
Mr Stein: Right.
Paul Inwood: – after I made the statement.
Mr Stein: Right. You go on to say:
“That did give me some cause for concern as I had previously heard a rebuttal for this internally.”
Who did you hear the rebuttal from?
Paul Inwood: It was a rumour internally that a senior manager had rebuked someone else for suggesting that it was possible for Fujitsu engineers to access the system remotely.
Mr Stein: Forgive me for interrupting, Mr Inwood, the senior manager being –
Paul Inwood: Alwen Lyons, the company secretary.
Mr Stein: Say it again?
Paul Inwood: Alwen Lyons, the company secretary.
Mr Stein: Right. Okay. Now, I’m going to take you to another document, please, which is FUJ00081584. I don’t believe you’ve had this before but it relates to the evidence you’ve given on these two matters. Can we just go through who we’ve got here. This document is a 2010 document, okay, and it relates to “Receipts/Payments Mismatch issue notes”, as you’ll see in the middle.
Mr Blake: Mr Stein, sorry to interrupt but is this a document that was in the Rule 10 request?
Mr Stein: No, it arises out of the answers that the witness has given.
Mr Blake: If Mr Inwood hasn’t seen it, I think he should have an opportunity to see the entire document. It may be we can do all of that before lunch but I do ask.
Sir – I mean, perhaps we can –
Sir Wyn Williams: Well, I’m – this is all very interesting but the truth is that we now know absolutely that it was possible for Fujitsu to access the system remotely and I’m not quite sure that exploring this with the witness for whom this must have been peripheral in the extreme during the course of his work, is going to get me very far, Mr Stein.
Mr Stein: Can I try and shorten it then and put it in two different ways other than the document? Okay?
Can we take the document down.
Mr Inwood, in 2010, the document I was about to show you, if you had been aware of such issues, was discussing what’s called a mismatch bug. It’s a bug that affected branches. It infiltrated a branch to the extent that you couldn’t tell that there was something gone wrong but, in fact, there was a shortfall, okay? So completely submarine-like for subpostmasters. Were you, in your terms of employment, made aware of any such bug that could have a devastating effect upon Post Office branches.
Paul Inwood: No.
Mr Stein: No. Secondly, the document goes on at the very end to talk about the fact that the Fujitsu can alter branch accounts –
Paul Inwood: Mm.
Mr Stein: – through a back door. This is in 2010. Were you aware of that?
Paul Inwood: No, not in 2010.
Mr Stein: Do you think you should have been told about such issues?
Paul Inwood: I think anyone that was managing contractual issues with a postmaster should have been aware of that, yeah, because it introduces the possibility that the evidence that they’re using to determine a contract is unsafe.
Mr Stein: The fact that a bug, a mismatch bug, that operates in the way I’ve described in 2010 rather undermines what you said about there being a good ethos of openness about bugs and errors within the Post Office, doesn’t it?
Paul Inwood: Well, yeah, the flaws in software bugs, backdoor access to the system, should not be a secret in the company because it – as I’ve just said, it introduces the possibility that contracts were being determined or worse, based on the possibly unsafe evidence. It’s difficult to see how anyone could arrive at any other conclusion than that.
Mr Stein: Sir, no further questions.
Sir Wyn Williams: Thank you.
Mr Blake: Thank you very much, sir, there are no further questions.
Sir Wyn Williams: Right. So how are we looking, in respect of this afternoon, Mr Blake?
Mr Blake: We’re absolutely fine. This afternoon’s witness will not be particularly long, perhaps an hour, so perhaps if we could come back in one hour’s time to 1.50.
Sir Wyn Williams: Yes, that’s fine.
Hopefully, I’ll be able to solve the mystery of why I can’t mute myself any more. Thank you.
Mr Blake: Thank you very much, sir.
(12.50 pm)
(The Short Adjournment)
(1.50 pm)
Ms Price: Good afternoon, sir, can you see and hear us?
Sir Wyn Williams: I can, thank you.
Ms Price: May we please call Mr Pegler.
Sir Wyn Williams: In a moment, I just wanted to put on record the fact that, due to my concern that my IT system was breaking down just before lunch, I omitted to thank Mr Inwood for his witness statement and for his oral evidence.
I would like to put on record my thanks to him for providing the statement and oral evidence.
Now you can call the witness, Ms Price.
Ms Price: Thank you, sir.
Thomas Pegler
THOMAS ABRAHAM PEGLER (sworn).
Questioned by Ms Price
Ms Price: Could you confirm your full name, please, Mr Pegler.
Thomas Pegler: Yeah, it’s Thomas Abraham Pegler.
Ms Price: You should have in front of you a hard copy witness statement in your name, dated 12 May 2023; do you have that?
Thomas Pegler: Yes.
Ms Price: If you turn to page 20 of that statement, please?
Thomas Pegler: Yes.
Ms Price: Do you have a copy with a visible signature?
Thomas Pegler: I do and it’s my signature.
Ms Price: Are the contents of that statement true to the best of your knowledge and belief?
Thomas Pegler: Yes.
Ms Price: For the purposes of the transcript, the URN is WITN08980100. Thank you for coming to the Inquiry to assist it with its work and for providing the witness statement that you have. As you know, I will be asking questions on behalf of the Inquiry.
Today I’m going to be asking you about issues which arise in Phase 4 of the Inquiry, focusing on the policy, procedure and practice of the Post Office, in relation to the action taken by the Post Office against Post Office employees, following discovery of apparent shortfalls in branch accounts.
You were with the Post Office for 31 years, I think, after you joined in 1984; is that right?
Thomas Pegler: That’s correct.
Ms Price: Initially you joined as a postman?
Thomas Pegler: Yes.
Ms Price: You became a counter clerk in 1986 –
Thomas Pegler: Yes.
Ms Price: – and a Supply Chain Manager in 1986. Apologies, I think we must have the wrong date there. Forgive me.
You moved across to Counters as a counter clerk in 1986?
Thomas Pegler: That’s correct, yes.
Ms Price: You were subsequently promoted to assistant and then branch manager –
Thomas Pegler: Yes.
Ms Price: – and an ECCO+ Implementation Manager. Could you please explain what ECCO+ was?
Thomas Pegler: Yeah, ECCO+ was a forerunner to the Horizon system, employed solely in Crown Offices. It wasn’t networked, it was a standalone, but every counter position that a terminal and I think there was a back office processor and, if I remember correctly, it was operated via a 3.5-inch floppy disks, which went to Product and Branch Accounting weekly in Chesterfield, which contained all of the branch’s accounts.
Ms Price: What was your role in relation to this system?
Thomas Pegler: It was basically there as a support to branch managers and their staff when ECCO was implemented, which basically ran – two weeks before the office, I would take delivery, run diagnostics, be in branch while they performed their final written manual cash account, having already installed all the positions, and then I’d be there for a week until they completed their first electronic balance, and there as a support and trainer, and then move on to the next branch.
Ms Price: What were the differences between the ECCO+ system deployed in Crown Offices before Horizon was introduced? What was the difference between the ECCO+ system and the Horizon system?
Thomas Pegler: The main difference, I think, were better hardware with touchscreens, which we didn’t have, so a difference in the keyboard, a difference in the hardware, the fact that it was all networked as well, and – down the line, meant there was no need for floppy disks.
Ms Price: Can you recall when Horizon was rolled out in Crown Offices?
Thomas Pegler: It must have been front ended. There was probably, I think there was a Thames Valley project of sorts, so it could well have been the late ’90s, early 2000s.
Ms Price: You were seconded, I think, to the head office project team in 1997; is that right?
Thomas Pegler: That’s correct, yes.
Ms Price: What was the focus of your work when you were part of this team?
Thomas Pegler: The focus of that was mainly an organisation review, looking at all aspects of the business from territorial, regional and Head Office and back office support as well. So I was primarily involved as a support to the very senior managers on that team and a librarian collating all documentation about how the business was run.
Ms Price: You were a Head Office based Crown Service and Efficiency Manager from around 1998; is that right?
Thomas Pegler: That’s correct, yes.
Ms Price: You held roles which focused solely on the operation of the Crown Network from this point until you left the Post Office in 2015?
Thomas Pegler: Yes, all aspects of operational work other than sales.
Ms Price: The Crown Network covered Crown Office branches, otherwise known as directly managed branches; is that right?
Thomas Pegler: Yes.
Ms Price: Those who worked in Crown Office branches were employed under contracts of employment by the Post Office, weren’t they?
Thomas Pegler: They were, yes.
Ms Price: In contrast to subpostmasters, who were not employed by the Post Office but were agents and operated branches pursuant to a contract for services?
Thomas Pegler: Correct, yes.
Ms Price: Were you ever involved in the operation of branches outside of the Crown Network?
Thomas Pegler: Not really. When the business decision was to look at the Crown Office and how profitable they were, one of the options was franchising, so I did become involved in supporting the franchises as they occurred, which often meant being on site when an office was closing or converting to a franchise and then being there as a bit of a support for the franchise office as it started running.
This could have been an independent franchise or a company franchise, for example WHSmiths, but as time went on, there was more bespoke support for how franchise offices were brought in.
Ms Price: Turning, please, to Post Office losses and gains policy, you say in your statement to the Inquiry that Crown net losses had always been an area of concern over the years when you worked for the Post Office; is that right?
Thomas Pegler: Yes, yes. It was seen as a manageable line on a P&L.
Ms Price: Could we have on screen, please, POL00083982. This is a document entitled “Losses in the Crown Network”. It appears from its contents to date to late 2007 or early 2008; does that sound about right?
Thomas Pegler: It sounds about right, yes.
Ms Price: You say in your statement that you remember assisting your manager pulling some of the data together for this document?
Thomas Pegler: Yes.
Ms Price: Under “Background”, this document explains as follows:
“There has been considerable concern in the Crown Network due to the recent trend in counter losses and Postshop shrinkage, together totalling 2.5m for all Crown Offices.”
Can you just explain for us what Postshop shrinkage was?
Thomas Pegler: Yeah, sure. When the business wanted to get into the retail area, there were very few Postshops, which were front of house, a retail area not behind screens, and shrinkage was effectively stock going missing, either coming in or going out from the suppliers; stock going out the front door from loss and theft; accounting errors; basically any – anything where there’s deemed to be a loss in the retail stock side of the Postshop.
Ms Price: There is a table below setting out net losses, reported for offices remaining in the Crown Network and there is a number given for that, 373 offices.
Thomas Pegler: Yes.
Ms Price: We can see the counter loss stood at 1.393 million in 2003, stayed at similar levels in 2004 and 2005, and then went up by 53 per cent to 2.048 million in 2006, and up 25 per cent on that in 2007, with a figure of 1.740 million. Pausing there, was there any discussion at this time of the possible reasons for the losses in the Crown Office Network?
Thomas Pegler: From what I remember, the biggest impact and focus on the figures was that the business wanted to move to a retail base and a financial specialist base, and I’m not sure when we partnered with the Bank of Ireland but a lot of managers were coming in externally and wouldn’t necessarily know the operational processes in order to manage the counter.
Now, simplistically and from my point of view, when I went to training (a) we were told don’t think of cash as cash, it’s just an item of stock; and (b) always take the money first. And simplistically, my belief, and the belief of people in the team, was that the basics of conducting a transaction, taking the money or the payment was being missed off.
That’s a very simplistic view to take, I know, but the culture of the business was trying to turn to get more profit and get back to profitability from financial product sales.
Ms Price: This document assists with the policy which was in place from 1999, so about halfway down there, “In 1999”, it says this:
“In 1999 a loss policy was developed to advise on the controls required at the Post Office Counter, following the introduction of ‘multi-user’ tills in the Crown Office Network. Guidance was provided to improve security of stock, cash and equipment and user log on IDs.
“Branch Manager responsibilities were also defined and clear instructions given to improve awareness of loss performance at branch and individual level. The need for balance and supervisory surprise (Snap) stock checks were reiterated as well as capturing loss and gains data in order to deploy the escalation process agreed at the time, ie ‘3 in 3 losses over £20’, ‘6 in 6 losses over £20’ and ‘9 in 9 losses over £20’ resulting in interviews with staff.
“However, despite the introduction of a national policy document it was consistently deployed due to a number of factors.”
A number of reasons are then set out for that and the conclusion is set out over the page, please, about a third of the way down the page, and it says:
“Due to the recent poor loss performance and trend over the recent years, it has been decided that action should be taken to address future losses in the Crown Office Network.”
You refer in your statement at paragraph 18 to the silo way of working in the ’80s and ’90s. Can you just explain what you meant by that?
Thomas Pegler: Yeah. I mean, early on when I joined, departments were very, sort of, insular and they kept to themselves and there didn’t seem to be much collaboration around at the time, and I think I said in my statement, we got better at that. Obviously, when I went to Head Office in the ’90s, the view at head office differed around the Retail Line, and when I say the Retail Line, I mean directly managed branches like Crown, sub offices and franchises.
My view is that we were there to support the frontline. So branch managers and subpostmasters had a big enough job, if you factor in the customer care elements. So we were very much as a support. And the business developed that further. By the time, I’d left they had sort of pipeline initiatives, where we were looking at if we did this at Head Office, how would it impact the Retail Line, and looking at timing of events and things like that, which would never have happened in the ’80s or ’90s.
Ms Price: Was this silo way of working something which the review happening at this time, in 2008, was trying to address?
Thomas Pegler: When you say the review, was it the –
Ms Price: So this document here is discussing actions which should be taken, and we’ll come on to the policy document dated 2008, which appears to result from this review and this consideration given in this document. I’m asking, in relation to the silo way of working, whether that was something that this review, and then the new policy in September 2008, was intended to address?
Thomas Pegler: I think it was addressed before then, probably in pre-reviews, like sales and service reviews, SCS reviews, probably from the late ’90s onwards, but I think this review was really instigated around the actual loss performance. But, at the same time, trying to make the management of losses and gains seen as a potential training, could be a training issue, not just focused purely on the punitive side of things.
Ms Price: A new mandatory losses and gains policy in the Crown Office Network was introduced in September 2008. Could we have that on screen, please. It’s POL00084075. You address this document at paragraph 4 of your witness statement to the Inquiry and you say you recall reviewing this document at the time.
Thomas Pegler: Yes.
Ms Price: Can you just explain what you mean by reviewing?
Thomas Pegler: Yeah, there was a document in place and I can’t remember, it would have been a similar title, because when I first went to Head Office, there was a document that covered the management of losses and gains and, periodically, I was asked in my position to review that document as other impacts, for example, shared tills, Horizon coming in would impact this.
So the 2008 review, I think was more structured, in that we had more input from other stakeholders around the business, and I particularly remember working closely with Finance because it was all around getting ownership for branch managers on their P&L and score cards.
Ms Price: Could we go, please, to page 3 of this document, which introduces the policy and sets out its purpose. It reads as follows:
“The impact of losses in the Crown Office Estate is having a serious effect on our ability to deliver the three2eleven plan to bring us back into profitability by 2011. This Policy has been redesigned to provide clear and consistent guidance to the Crown Office Managers and their Assistants as to their responsibilities for the recording, maintenance and monitoring of losses and gains. The Policy will also provide Crown Office Managers with a tool to be able to effectively manage losses and gains and to take appropriate measures to reduce losses. It also reiterates the security controls required to protect both the business assets as well as the individuals themselves. Finally, for the first time the Policy details a commitment to provide training and support to all Crown Office Managers in how to deploy the Policy and deliver on their responsibilities.”
Going over the page, please, Section 3 covers the “Annual Certificate of Compliance”. Could you explain briefly, please, what this was?
Thomas Pegler: Yeah, it was a certificate that branch managers signed off yearly to say that all of the compliance elements of running a Post Office – and that could be security, the management of visitors to a branch, fire extinguishers, the evacuation policy, contingency planning – was all signed off. So branch managers had a duty to sign that off annually, staggered throughout the year for the branches, and then it was posted centrally.
Ms Price: Then about halfway down this page, Section 4, we have “Supervisory Surprise Checks & Misbalance Checks”. What was the difference between supervisory surprise checks and misbalance checks?
Thomas Pegler: Branch managers, from when I remembered, always had a duty to perform these checks. Not sure that they went on as declared in the policy, as on a regular basis as they I did prior to any automation, but it was basically an element of surprise to say, “Ah, Geoff, I’m going to check your counter stock today”, not necessarily after balance, but it could be on any day of the week which involved a branch manager, effectively, just doing a surprise random check, but the branch manager would record that and then the Area Manager or above, when they visited the branch, would ask to see their record of these checks.
On the other hand, a misbalance check, I think when I was involved in this £30 was the set criteria. So what we said, a second pair of eyes, be it the assistant or the manager or another person in the branch, should physically check the cash and stock before it is moved on or used again. Because, sometimes, a second pair of eyes could help find things.
Ms Price: Going over the page, please, page 5., that is in this document, about halfway down the page, we have, in bold and underlined:
“The followed steps are carried out when undertaking a financial audit at a Crown Office and are recommended for the Crown Managers to adopt when performing a stock check.”
The bullet points there of steps to be taken include:
“Confirm the location of all cash and stock and ascertain if the stock is an individual or multi-user stock;
“Obtain cash declaration print for the night prior to the check and previous week’s full Balance Snapshot or Branch Trading Statement, daily prints and all vouchers on hand;
“Obtain the following printouts from the Horizon system
“office snapshot, if multi-user stock is in operation
“stock unit snapshot for each stock, if individual stock balancing is used
“suspense account summary.”
Then:
“Reconcile stock to the snapshot printout;
“Reconcile daily prints and vouchers on hand to the snapshot print;
“Reconcile non-value items (MVLs, bus passes, etc);
“Inform colleague(s) of the result of the check.”
Then there is some further explanation in the paragraph below:
“The basis of control is that there is an awareness of the levels of discrepancies in conjunction with any actions necessary to implement improvements, protect our people, where it highlighted poor performance, including bringing disciplinary procedures to bear where applicable.”
Then finally on this page:
“The Crown Office Manager has responsible for ensuring the approved systems for controlling losses and gains are adopted and implemented.”
Over the page, please, Section 5, towards the bottom of the page. This addresses “Branch Trading” and explains:
“Branch Trading should be undertaken in accordance with the latest Branch Trading booklets, which include details of balancing stock units, production of the Branch Trading Statement, production of reports and despatch of documents.
“Following the process below prior to Branch Trading will help to ensure that only true losses and gains are posted to Profit and Loss at Branch Trading.”
Do you recall the introduction of branch trading?
Thomas Pegler: Very vaguely. I think for Crowns it meant moving to a branch trading calendar, which could be a four or five-week period but what we did, we took it in the Crown Network that we would still prepare a balance weekly, which would be a balance period, so, effectively, where this happened on a Wednesday night we’d still do that, but the main accounts would be posted monthly, whereas I think in other parts of the Network, for example sub offices, possibly franchises or modified scale payment offices, they effectively did their balances once a month. But in Crowns we decided we’d still do a weekly balance, which would effectively declare fully the cash and stock on hand.
Ms Price: Going over the page, please, the checks which should be conducted before posting losses or gains are set out. Scrolling a bit further down, we can see that transaction corrections are addressed.
Over the page again, please, to Section 6. This deals with “Counter Loss & Gains Management Reporting”. In summary, this section sets out the different steps to be taken for different levels of losses, doesn’t it?
Thomas Pegler: Yes.
Ms Price: So the first level of loss being £5 to £249.99, then losses over £250, and then a bit further down the page to the bottom, losses over £2,000.
Going, please, to page 11 of this document, this addressed the loss escalation process and trigger points. Could you please explain what the loss escalation process was?
Thomas Pegler: Yes, this had been around for many years and anything to do with losses and gains was subject to national discussion with the CWU Union and the CMA Union for managers. Effectively, in the early days, and I think I said in my statement, it was part of the personnel rules and regulations of anyone working in the Post Office, and it had developed over the years, so that if a trigger point was triggered, that individual or the people using that multi-user stock would enter in stage 1 and, basically, it would have been a watching brief for the manager to keep an eye on performance of the loss record, because they could actually end up balancing fine after that and then they would go back on to start from scratch, or if further losses were encountered, that it could be triggered up to stage 2 and 3 above.
So I think the first stage there is quoting three losses of £30 or more in a reference period, and sitting behind this for the branch manager, I think was a sheet, an Excel-based spreadsheet, where they could keep track on all of this.
Ms Price: We see here that this table loss escalation process sets out the various stages and we start with the multi-user stocks, and stage 1, as you’ve just referred to, the performance which triggers action, and the action for stage 1 is:
“Informal interview [with a] Crown Office Manager – with colleagues, identified as having access to the stocks that have incurred losses, to raise awareness of their performance and to reiterate the Loss Escalation Process. Action Plans should be agreed and notes taken and signed. Consideration given to a switch to individual balancing if appropriate at this stage.”
We then have stage 2, a further three losses of £30 or more, over the period of three months following the stage 1 interview, and the action at that point is:
“2nd informal interview [with a] Crown Office Manager – to review performance and agree the level of support required. Action Plan agreed and notes taken and signed. Notice given to colleagues that they will switch to individual balancing by stage 3 if improvement is not forthcoming and switch is not appropriate at this stage 2.”
Then, finally in this section, stage 3, further 3 losses of £30 or more, over the period of three months following the stage 2 interview:
“3rd Informal Interview [is the action with] Crown Office Manager – colleagues moved on to individual stocks. Action Plan agreed and notes taken and signed.”
What was the reason for moving someone on to individual stocks?
Thomas Pegler: I think the key thing is if you have an individual stock as we operated earlier on, that was your cash and stock, it was your own responsibility. There would be no other people using that stock. So, in agreement, what we decided was that you couldn’t take formal action where a multi-user stock was being used. Unless, for example, if you knew that somebody was serving and a major transaction came in for, say, £2,000 premium bonds and you forgot to take the money, you knew that that individual had caused that mistake.
So it was seen very much that on the punitive side of things, obviously dealing with the training first, if we had to take formal action, it could only be taken where that individual had sole responsibility for cash and stock.
Ms Price: We then in the table have individual stocks and stage 1 of that, when someone is on individual stocks:
“3 losses of £30 or moreover a period of 3 months.”
The action is:
“Informal interview … to raise awareness of loss performance, agree the level of support required and to reiterate the Loss Escalation Process. Action plan with notes signed.”
Then we see number of stages that follow. Stage 2, further losses. There’s another informal interview.
Stage 3, we have formal interview, and a number of steps taken out there, including notification that all future losses of £5 or more will be taken into account. Again, action plan with notes signed.
Stage 4, at this point you have a further four losses of £5 or more, over the period of six months, following the stage 3 interview. Here the action is formal interview with the Crown Office manager to review performance and agree the level of support required and to reiterate the loss escalation process, reiterate the possible consequences of reaching L&G escalation stage 5.
Stage 5, further three losses of £5 or more over the period of six months following the stage 4 interview. Formal interview is the action, with appropriate management level from outside of immediate Crown Office, to review performance and consider disciplinary action under the Conduct Code.
You addressed the loss escalation process at paragraph 16 of your statement to the Inquiry. Could we have that on screen, please, it is WITN08980100 and page 15, please, of that document. Paragraph 16 there:
“The loss escalation process in the Crown Network was designed to raise awareness, share best practice and monitor losses. It could also lead to the conduct code being triggered on individuals if loss performance fell outside of agreed levels.”
You also refer at paragraph 20 of your statement to moving away from focusing on the punitive side, and you have mentioned that again today, and, instead, focusing on the why. So the impact of losses on the business.
From the policy document we have just looked at and these parts of your statement, it appears that the focus, when it came to Crown losses was on raising awareness about best practice, establishing what support an employee might need and, ultimately, considering disciplinary action under the Code of Conduct. Is that a fair assessment?
Thomas Pegler: Yes, very much a fair assessment of the Crown Network.
Ms Price: There was no mention in the September 2008 losses and gains policy that we’ve just looked at to any requirement for Crown Office employees to make good any losses that were discovered, is there?
Thomas Pegler: No. The – when I joined, it was 50p, plus or minus. It went to £2 and I think it was £5 –
Ms Price: If I can just stop you there, in terms of my question, requirement for the Crown Office employees to make good losses, I’m asking whether there was any reference in that policy document that we looked at to any requirement for them to do so?
Thomas Pegler: No requirement, no.
Ms Price: We’ll come on to your statement that deals with what options were open to Crown Office employees in a moment.
Thomas Pegler: Thank you.
Ms Price: Was there any obligation on Crown Office employees to use their own funds to cover any losses identified – and again, using the word “obligation”?
Thomas Pegler: No obligation, no.
Ms Price: Was that something which was ever considered as part of the strategy for dealing with Crown Office losses?
Thomas Pegler: As far as I can remember, no.
Ms Price: Why not?
Thomas Pegler: Basically, they’re our employees and I think it would be difficult, from a HR perspective, to enforce that, unless there was a major rewrite of the contract manual but I don’t recall it ever being a consideration.
Ms Price: If we could go to page 18, please, within this statement. That top paragraph there, I think this is what you were referring to just a moment ago, and so just to read that out:
“Within the Crown Network when I started you had tolerance built into your balance, eg if you were plus/minus 50p out on balancing you could put in or take out the cash up to that value, this became plus/minus £2 then plus/minus £5 over time. If Crown staff declared losses then the Losses & Gains Policy would be applied by the Branch manager.”
Is what you’re saying here this: that if there was a minor amount by which the till was out, they could put in up to that minor amount rather than declaring –
Thomas Pegler: Yes.
Ms Price: – which would trigger the policy and the steps we’ve looked at?
Thomas Pegler: Certainly, you wouldn’t expect to see any declared – depending on the time, you wouldn’t expect to see any declared losses, for example, of less than £2 in the Crown Network.
Ms Price: Going back a page in the statement, please, towards the bottom, at paragraph 21 you deal with your understanding of the position in relation to shortfalls experienced by subpostmasters. You say:
“My understanding was that Subpostmasters had to make good any shortfalls within their accounts in line with their contract with the Post Office. This would mean Subpostmasters putting in their own cash so that the total balance agreed with the derived figure (eg paper based pre-Horizon or what was held in Horizon when their branch was automated).”
You’ve touched on this in your answer already, but why was this different approach adopted for subpostmasters when compared with Crown Office employees?
Thomas Pegler: Historically, there’d always been a difference, going back long before I joined the business, and it was the differentiation between subpostmasters are there – it’s their own business, they’re agents of the Post Office, whereas the staff are directly managed by Post Office Limited.
Ms Price: Did anyone raise any concern ever, as far as you’re aware, about the difference in approach between the two groups?
Thomas Pegler: No.
Ms Price: Could we have, please, the September 2008 Crown Office losses and gains policy back on screen, please. That’s POL00084075, and page 16 of that document, please. Towards the bottom of the page we have the start of section 8 entitled “Security Compliance”. Over the page, please, to section 8.2 “Horizon”. This reads as follows:
“Crown Office Managers must ensure the following actions are undertaken:
“Need to ensure that only colleagues who are working at their offices are logged onto the Horizon system. Anyone who leaves the office must be removed from the system.
“All colleagues must have their own user ID and must only be attached to the stock units they are operating at the time – it is not acceptable to have all users attached to a stock unit.
“Where possible, users not operating a stock unit, should be placed into default.
“Passwords are sacrosanct, and for each individual’s protection. Under no circumstances should passwords be known or shared, this is vitally important not only from a security aspect, but is a requirement under our licensing requirements for the FSA (Financial Services Authority).
“Crown Office Managers must make regular checks as to the users listed on Horizon and ensure people have the correct level of access (minimum access requirement as per Information Security Policy).”
What was the reasoning behind these mandated actions?
Thomas Pegler: It was best practice, good housekeeping. A good example would be a reserve member of staff who floated around, say, five or six offices and they could potentially be attached to stock units in those five or six offices. So that element it’s all about good housekeeping. We probably got input from the Security team or the Horizon team on these bullet points, as well, for the policy.
Ms Price: Turning, please, to page 19 of this document, section 8.9. About halfway down, that’s it, “Suspicions”, and the first bullet point here reads:
“If the Crown Office Manager, deputy or any colleague has any suspicion about someone, they have a duty to report it. This can be difficult, especially if you’re not sure. Please contact the NBSC, in complete confidence on [a number]. Your information will be passed onto the Investigation Team who will assess the information. Your details will remain confidential.”
The last bullet point there:
“Any loss can be reported if there are suspicious circumstances, irrespective of the amount. Again, the Investigation Team will assess the information and a decision will be made on whether any further action is taken.”
What would you have considered suspicious circumstances to be?
Thomas Pegler: It could have been a variety of things involving cash or stock, volumes of transactions. One that I did come across when we did certain transactions was a huge increase one day, which alerted the branch manager to say “Something’s not right here, who do I get in touch with?” So that would fall under that category.
Ms Price: Would a shortfall or loss on its own have been enough to amount to suspicious circumstances for you?
Thomas Pegler: Potentially, yes. I think the issue for me is, at the time, I was not aware of issues with Horizon. If we were, that potentially would fall under that category.
Ms Price: We have another version of the September 2008 the policy document which you have commented on at paragraph 6.4 of your statement to the Inquiry. Could we have that document on screen, please. It is POL00084076. You say in your statement that this was a version for use as an operational document for branch and Area Managers. What was the reason for having another version for branch and Area Managers?
Thomas Pegler: From what I remember, this brought out the key operational points without appendices. So it was, basically, a quick guide. The contents should be exactly the same as the overall policy, without all of the various discussion points. So it was really just identified as a quick guide for branch managers.
And this, I think, was rolled out at national workshops. So we had input from branch managers and Area Managers when we put this document together and we also rolled it out to the Network, as well. So I think it came from a branch manager or a team saying, “We need something more snappier” because there’s quite a lot in there, there’s a lot of material.
Ms Price: Could we go to section 1 of this document, please, page 3?
Section 1 here is a little different to section 1 in the other version we’ve been looking at. In particular, it includes the actual figure for Crown Office losses in 2007 to 2008 of 2.2 million. Do you know why this figure was not included in the other version?
Thomas Pegler: No. No. So this document is the quick guide.
Ms Price: Moving, please, to the balancing process for Crown Office branches, you say in your statement to the Inquiry that Crown Office branches used to balance their stock units weekly on a Wednesday evening. The office would then amalgamate and run the office plans from Thursday, sending all supporting documentation for that week in a pouch to P&BA in Chesterfield. Just to be clear, what does P&BA stand for?
Thomas Pegler: That would be Product and Branch Accounting.
Ms Price: You say:
“After branch trading was introduced a full branch account statement was only required 12 times a year.”
Is that right?
Thomas Pegler: Yes.
Ms Price: But you say that:
“Individual stock unit balancing was still taking place weekly in Crowns so there well up balance periods within a trading period.”
Is that right?
Thomas Pegler: Yes, that’s right.
Ms Price: You’ve said usually four to five balance periods in a trading period?
Thomas Pegler: Yes.
Ms Price: In terms of what a Crown Office branch should do, if there was an unexplained discrepancy when they were trying to balance, you address this at paragraph 12VII of your statement. Can we have that on screen, please, page 12 of that statement, please. Scrolling a little further down, please, it’s that last paragraph there:
“For colleagues working on the counter in a branch performing a balance (physical check of their cash and stock), only one option really existed and that was to confirm figures and roll over into the next balance period or trading period. If there was a discrepancy between physical cash and stock they could recheck themselves, ask a colleague or manager to recheck – this would of course be time dependent and may find the error – before confirming and rolling over. The branch manager may find errors next day, eg transfers between Stock Units not balancing, which rectify the original error. Depending on the value/volume of the loss or gain would decide what route through the Losses & Gains procedure the branch manager would take”.
What were the repercussions of rolling over when a reason for a discrepancy had not been found?
Thomas Pegler: If the reasons hadn’t been found, then the loss or the gain would be declared and that would go against the users who were using that stock that week, or the individual, if it was an individual stock, and that loss would be posted against those individuals or that person, and that would become subject for the losses and gains procedure.
Ms Price: Was there any way for a Crown Office branch to challenge an apparent discrepancy where it was unexplained?
Thomas Pegler: I believe so, yes. I mean, I had a team of people who faced up with branch managers and regional managers. When this process was bedded in, as I say, it was delivered via a workshop and there were various spreadsheets to capture loss record. All of my team were ex-branch managers and I think, informally, they would be on the end of a phone or a visit to a branch if there were unexpected losses.
They were my eyes and ears. I got out quite a bit myself but I do not recall any issues rising to me about unexplained losses or gains due to the Horizon system in the Crown Network.
Ms Price: You’ve explained in your statement that, although Crown Office branches could be audited by the audit team or field support team as they later were, financial audits of Crown Office were few and far between under normal operation. Was the reason for that linked to the process in place whereby branch managers were obliged to conduct certain checks themselves?
Thomas Pegler: Yes, I think from a risk perspective, the audit team saw the Crown Network as being low risk, purely because of the supervisory element within each branch and the fact that they had Area Managers that visited. So they were seen as low risk, which meant that they didn’t get the level of audit that potentially Crowns had when I joined the business.
Ms Price: Was there any other reason why this approach was taken to auditing Crown Office branches that you’re aware of?
Thomas Pegler: It became more procedural in terms of compliance. The FSAs would go out. I had a team of regional support advisers who would administer, for example, the annual certificate of compliance, and checks like that, but the actual financial and stock control element of an audit were few and far between in the Crown Network.
Ms Price: In 2013 there was a change, wasn’t there, whereby the Security team headed by John Scott took ownership of the losses and gains policy.
Thomas Pegler: Yes.
Ms Price: This led to the rewriting of the mandatory losses and gains policy for the Crown Office Network by the Security team, didn’t it?
Thomas Pegler: It did, yes.
Ms Price: You addressed this at paragraphs 6V and 6VI of your statement. This rewritten version of the policy was dated 24 April 2013. We need not display it now but, for the record, the reference for that document is POL00088124. What did you understand the reason for this change to be?
Thomas Pegler: At the time, my understanding, my assumption, was that, having been involved in organisation design team in the late ’90s, early 2000s, that Network or the Retail Line were deployers of policy, and the actual policies should sit elsewhere at Head Office. That was my understanding then.
Maybe now I’ve got a different view, in that in 2013, it seemed that the business was looking at bringing in management of policies centrally.
Ms Price: This version of the policy removed the loss escalation process. What was the reasoning behind that?
Thomas Pegler: It was branch managers taking ownership of running their own offices. It was a bit nanny state, if you look at the previous policies, and we wanted to get to an endgame that branch managers take full ownership of managing their branch, their people, their P&L, and a certain amount of – not leeway but management of that should be given back to branch managers and that was the Security team we were working with at the time.
Ms Price: Was it any part of the reasoning that there were, by this point, investigations taking place into the integrity of the Horizon system, following allegations that the system had been causing apparent discrepancies?
Thomas Pegler: That, at the time, I was not aware of at all.
Ms Price: At paragraph 22 of your statement, you say that the term “bugs, errors and defects” was not in your vocabulary when you worked for the Post Office and that the business line was that the Horizon system was robust. Who was this business line coming from?
Thomas Pegler: Towards the end of my work in the Post Office, so probably 2010 to 2015, I know that there were various programmes. It was in the media. We were told via our Internal Communications Team, if you were approached by journalists or subpostmasters, members of staff, branch managers, that you were to explain that Horizon was robust, there had been reviews and it was fine and there was a contact number that we should put people onto. So my understanding is that came from the top, that came from the board.
Ms Price: You may not have used the terminology bugs, errors and defects but you do recall, don’t you, there being blue screen issues arising with Horizon?
Thomas Pegler: Yes, yes.
Ms Price: That’s something you address at paragraph 23 of your statement. You also recall there being Horizon software releases planned and delivered to rectify transaction issues; is that right?
Thomas Pegler: That’s right.
Ms Price: Sir, those are the questions that have for Mr Pegler.
Sir Wyn Williams: Are there questions from anyone else?
Ms Price: There are questions from Ms Page, sir.
Sir Wyn Williams: Right, all right. Yes, Ms Page.
Questioned by Ms Page
Ms Page: Thank you, sir.
Mr Pegler I’d like to ask you, if I may, about the quick guide we were looking at, the losses and gains quick guide. Perhaps we could have that come back up, it’s POL00084076. If we go to Section 1 where the amount of loss was actually included, which is on page 3, that figure there of 2.2 million, how widely circulated had that been?
Thomas Pegler: It was certainly a figure known by the business at Head Office. Obviously, it was a major factor on the General Manager for Crowns’ score card. I’m not sure it would have been widely known within the Crown Network, which was the purpose of sharing best practice and letting individual managers and staff know that the business was losing its money. So, certainly within the Crown Network and above, at Head Office, it was a figure that was known, and with finance as well.
Ms Page: When it was circulated to the Crown Network did it cause a bit of a buzz, if you like?
Thomas Pegler: I think it was a shock to people because obviously we’ve very good branches out there that were incurring very small, if no losses whatsoever, and there were branches were they were haemorrhaging losses. So it was all about getting individual ownership on this figure and letting know the Network where we were, and what plans were in place to try and address this.
Ms Page: One thing that it reveals is that, just like sub post offices, some Crown Offices were struggling to manage as what they must have seen as unexplained losses?
Thomas Pegler: Potentially. Knowing what I know now, that is a potential, yes.
Ms Page: So the figure there, if subpostmasters had come to know of it, was potentially quite an incendiary thing for them to find out about; would you see that?
Thomas Pegler: I agree, yes.
Ms Page: Do you have any knowledge of that document having been, as it were, sort of the leaked from Crown Offices to subpostmasters? Is that something that’s ever come to your attention?
Thomas Pegler: It’s never come to my attention, but I would assume that it did get into the Crown Network. I can’t recall instances of it happening, but anything that did get into the Crown Network ultimately, you could bet your bottom dollar, I guess, that it would get into the rest of the network.
Ms Page: Did you ever hear of anyone – I put this because Mr Lee Castleton received a copy of this, and was told that he should never show it to anyone, and it was something that he should destroy because it was that incendiary – is that the sort of thing that you’ve ever heard of?
Thomas Pegler: No.
Ms Page: Well, thank you. Those are my questions.
Sir Wyn Williams: Thank you, Ms Page.
Is that it, Ms Price?
Ms Price: Yes, sir, it is. We’re back on Tuesday at 10.00 for John Breeden.
Sir Wyn Williams: Right. Well, before we formally close, Mr Pegler, thank you very much for providing a witness statement and for answering questions orally this afternoon. I’m grateful to you.
So we’ll resume again at 10.00 on Tuesday morning.
Ms Price: Thank you, sir.
(2.48 pm)
(The hearing adjourned until the following Tuesday, 17 October 2023)