BEIS0000494
BEIS0000494
a6 ue
Date: 6 December 2019
Director General: Justin Manson
Lead Official: Joshua Scott / T:
Lead Official Telephone:
Aldred
Recipient To Note / Comment To Approve / Decide
Andrea Leadsom x
Kelly Tolhurst x
Permanent Secretary xX
OFFICIAL SENSITIVE — CONFIDENTIAL AND SUBJECT TO LEGAL PRIVILEGE — DO
NOT FORWARD OR SHARE WITHOUT SEEKING LEGAL ADVICE
UPDATE ON MEDIATION IN POST OFFICE LTD. (POL) LITIGATION
Summary
41. Following approval from you and the CST to a proposal from the POL Board to authorise
settlement of this Group litigation at a figure up to £65m, POL began a mediation with the
Claimants on 27 November. Although initially scheduled for 2 days the parties have been
making significant progress and the mediation is continuing. We had advised that the first
mediation was unlikely to be successful (given the size of the claim was estimated at more
than £200m), but — thanks to good progress — it is now possible that a positive settlement
will be achieved within the authorisation provided. This submission updates you on the
broad terms of that settlement.
Timing
2. Itis expected that a settlement would be announced as soon as an agreement is reached.
This could be as soon as tomorrow but in any event is likely to be before 16 December
when the judgment in the Horizon trial will be handed down. Any announcement should
be by a statement agreed between the parties to the Group litigation, but it is possible that
news of any settlement will go public as soon as the mediation has completed.
Recommendation
3. That on the back of the approval you and the CST gave to the POL Board’s proposals for
settlement you Note this update, in particular:
(a) that reaching a settlement would be a very positive outcome by bringing to an end this
very high profile, protracted and difficult Group litigation case where the claimants’ claims
totalled in excess of £200m not including interest and legal costs; and
(b) that POL may have continuing exposure to certain claims even if the mediation is
successful, though we believe that the proposed settlement is as comprehensive as it can
be for this mediation.
Background
4. Our submissions of 8 November and 15 November provide the background to this
litigation, POL’s mediation strategy and the authority the POL board were seeking to settle
the litigation for up to £65m.
5. Following approval from you and the CST to a settlement up to £65m, POL began the
mediation with the Claimants on 27 November. Although scheduled to take place over two
UK Government Department for
Investments Business, Energy
OFFICIAL — SENSITIVE & Industrial Strategy
BEIS0000494
BEIS0000494
ue as
UK Government Department for
Investments Business, Energy
OFFICIAL — SENSITIVE & Industrial Strategy
days, the mediation is still going on and — into its sixth day — the parties have made
significant progress.
6. A figure for a financial settlement has not yet been agreed, but POL believes it will be
possible to reach a settlement within the £65 million figure that you and the CST have
already approved. There are a number of other elements to any settlement that are close
to agreement as follows:
« Agreed joint statement by the parties which recognises the past experience of the
claimants and POL’s desire to learn the lessons and improve their relationship with
postmasters.
e POL’s approach in respect of the convicted claimants and its undertaking to comply
with its ongoing duties. This points out that although the proceedings are
comprehensively settled Post Office has not made any payment to or of the benefit of
the convicted claimants. Post Office undertakes to take advice from a leading
criminal barrister and as a minimum to act upon and follow the legal advice it
receives in respect of what position it should take if a convicted claimant obtains
permission to appeal. If the convicted claimant's conviction was overturned as a
result of the breaches by Post Office of which complaint is made in the Group
litigation, Post Office will issue an apology. POL will make it clear that there is no
admission of liability or wrongdoing by virtue of this agreement.
« POL’s support in respect of claimants who wish to exit the business post
settlement.
e POL to withdraw proof of debt or claim in respect of insolvent claimants as part of
the settlement.
« Asupport programme for claimant Postmasters and Postmasters in similar position
of the claimants including mental health support for claimants.
« POL to consult claimant group on POL’s change process. This gives rise to the
creation of a “Idea Sharing Group” of which Post Office would listen and consider on
a quarterly basis for no less than 12 months post settlement.
« POL would also set up a historic shortfall group to deal with any shortfalls which
arose between 2000 and the effective date of the settlement of the Group litigation
with an internal escalation and ultimately arbitration as a resolution forum (rather than
the court process).
« Claimants’ solicitors and funders not to solicit new claims.
POL’s potential continuing exposure
7. If settlement of the Group litigation is achieved on the above terms then POL will have two
broad areas of continuing exposure as follows:
e The 61 convicted claimants who are part of the Group litigation - POL’s lawyers
Herbert Smith Freehills (HSF) previously advised that if all 61 convicted claimants
had their convictions overturned there could be a further exposure of circa £10m -
45m, largely due to claims for stigma damages.
« Other postmasters (current or former) who are not claimants in this Group litigation
— POL have no visibility of whether there are any potential claimants in this
category. They cover a spectrum that could range from existing postmasters who
bring complaints about shortfalls they have had to repay to former postmasters
whose appointments were terminated and might bring significant claims for loss of
earnings. On best estimates if there were 100 claims arising from former
BEIS0000494
BEIS0000494
ae ae
UK Government Department for
Investments Business, Energy
OFFICIAL — SENSITIVE & Industrial Strategy
postmasters and another 100 arising from current postmasters, this might require
a POL budget of £9m.
8. Itis likely that POL will face claims from people in both these categories. While there is a
potential further exposure for POL up to a worse-case scenario of £60m we think it likely
the figure will be significantly less. There are arguments that due to the passage of time
some of these potential claims may no longer be allowed to be brought, either on the
grounds that they are time-barred or because the claimants have had ample opportunity
to join the Group litigation. It is possible nevertheless that POL may remain exposed to
potential claims until at least April 2022 (i.e. 6 years after the Group litigation was
commenced), but we are confident that this proposed settlement is as final and
comprehensive as it can be within the bounds of this mediation.
Next steps
9. Itis possible a settlement will be achieved by the end of this week or early next. The Court's
judgment on the Horizon trial is due to be made public on 16" December.
Comms Handling
10. The parties are considering the terms of a joint settlement statement that can be made,
consistent with the position to date in which this is a matter for POL, not BEIS. If
approached for comment, we would issue a BEIS spokesperson comment to welcome the
resolution and the steps that POL have taken, which will allow all parties to move forward.
We will prepare additional reactive Q&A on the settlement figure and if asked, we would
confirm that BEIS approved the settlement, given the nature and scale of the payment, but
that the settlement is being funded by commercial revenue and not by taxpayers.
Contributors
11. BEIS POL policy and finance colleagues have been consulted on this advice and are
content with its contents. BEIS and UKGI Legal have also been consulted on the content
of this submission. Note, BEIS Legal have not advised on or given a view on the litigation
strategy proposed by HSF.