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UK Government Department
Date: 14 May 2020
Director General: Charles Donald
Lead Official: Joshua Scott / Tim Mcl
Lead Official Telephone
Recipient To Note / Comment To Approve / Decide
Secretary of State xX
Minister Scully x
Special Advisors xX
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NOT FORWARD OR SHARE WITHOUT SEEKING LEGAL ADVICE
POST OFFICE LTD. GROUP LITIGATION BACKGROUND AND LATEST STATUS
Summary
1. This note provides the background and summary of live issues in relation to the Post
Office Ltd. (POL) Group Litigation Order (GLO) claim, brought against POL by 555
(mostly former) subpostmasters, that was settled in December 2019. This is in
preparation for the Secretary of State’s discussion with Minister Scully and officials on
these issues on 15 May. Specifically, this note covers:
i. The December 2019 settlement and the resulting Historical Shortfalls Scheme;
ii. The review undertaken by the Criminal Cases Review Commission (CCRC) and
referral of cases to the Court of Appeal;
iii. Historical prosecutions undertaken by POL involving Horizon; and
iv. The Independent Review which the PM committed to on 26 February.
Timing
2. The meeting is taking place this Friday 15 May. You are meeting with Tom Cooper
(Director, UKGI and POL Non-Executive Director serving as the shareholder
representative on POL’s Board) and Carl Creswell (Director, BEIS) to discuss.
Recommendation
3. That you note the contents of this submission.
Advice
4. The Secretary of State requested a meeting with Minister Scully to discuss Tim Parker's
(POL Chair) letter of 29 April 2020 which informed BEIS of the risk of potentially
substantial financial exposure for POL arising from the announcement of the CCRC to
refer a number (39) of POL convictions to the Court of Appeal, and further work done
by POL in reviewing historical prosecutions that involved it's accounting system,
Horizon. At this time, there are 959 cases that POL is investigating in the light of the
litigation judgments. The letter also sets out the risk that should all of these cases
ultimately lead to successful appeals, POL have assessed that they could be potentially
exposed to £0.75 - £0.85bn for civil compensation claims as a “worst case” scenario
although this figure needs further work to refine. Tim Parker's letter is attached at
Annex A for reference.
5. Ahead of that meeting we thought it would be helpful to set out the latest state of play
on the range of issues related to the Horizon litigation.
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6. December 2019 Settlement of Commercial Claims: In late November/early December
2019, POL and the claimants undertook a successful mediation and agreed a
settlement of the GLO. This was a civil (contractual) claim brought by 555 postmasters.
The settlement consisted of an apology from POL, a financial element of £57.75m
(which included all legal and other fees and was fully funded from POL’s commercial
revenues), other elements aimed at POL recognising shortcomings on its part in the
relationship with subpostmasters, and POL supporting programmes to assist
subpostmasters affected by the litigation. BEIS and HMT were not party to the
mediation but Ministers from both Departments approved the final amount, given the
novel and contentious nature of the expenditure.
A key commitment from the settlement was for POL to set up the Historical Shortfalls
Scheme (HSS) for subpostmasters who were not part of the GLO to have historical
shortfalls investigated and addressed. The scheme launched on Friday 1 May (it was
delayed from March due to Covid-19) and has already started receiving applicants. It is
difficult for POL to have full visibility of the total cost of this scheme, given the wide
spectrum of potential cases from existing and former subpostmasters, however they
have budgeted £33m for the HSS including all associated costs in FY20/21. It is
important to note that whilst this cost is an estimate, there is a risk that costs could be
significantly higher, depending on the number and type of cases that are successful
through the scheme. Individuals with convictions are not eligible for the HSS.
It is worth noting that since the GLO settlement there has been discontent in the
claimant group regarding the amount received (believed to be circa. £11m out of the
£57.75m) by the subpostmasters following payment to their litigation funders and legal
fees. There will inevitably be comparisons drawn in public once the HSS scheme starts
paying out to successful applicants between the amount received from the scheme, and
the amount the claimants received from the GLO. POL will need to manage this
carefully.
Criminal Cases Review Commission: Since 2015, the CCRC has been considering a
number of cases from subpostmasters who applied to have their cases reviewed. Some
of these subpostmasters were part of the GLO. At the time of the GLO settlement, the
number of cases under consideration was 61. On 26 March, the CCRC announced its
decision to refer 39 of these cases to the Court of Appeal, with the other 22 still under
consideration. The referral was made "on the basis of an abuse of process argument’.
The CCRC is expected to provide the rationale for each referral (which is set out in the
Statement of Reasons) by the end of May.
. When POL receives the Statements of Reasons from the CCRC it must decide (within
28 days for Crown Court Cases) what position to take with respect to each individual
case. In essence this is effectively:
i. Support the appeal;
ii. Not object the appeal; or
iii, Oppose the appeal.
Whatever position POL takes before the Court of Appeal in respect of any individual or
group of defendants is likely to bind it in other proceedings. POL is working through
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11.
14.
these options with their external lawyers. If convictions are overturned POL could be
exposed to further civil liability (see Potential Financial Implications section).
To be clear, at the time of the GLO the CCRC were reviewing 61 cases whereby
applicants (current/former subpostmasters) had applied directly for their cases to be
reviewed. We understand that further postmasters have now applied to the CCRC to
have their cases considered. The exact number is unknown; however, since the
Horizon Issues Judgment in December 2019 POL has been reviewing its past
prosecutions and believes there are 959 prosecutions against subpostmasters that
involved Horizon (see below).
. Historical Prosecutions: POL are reviewing all past prosecutions that involved Horizon
to form a view as to whether they believe the convictions could be considered unsafe.
Initially this was believed to be around 500, however on 29 April Tim Parker wrote to
Minister Scully stating that POL had identified more cases, bringing the total to 959
cases which POL believe is the most accurate figure at this time and significantly
increases the potential financial exposure of POL if successful appeals result in civil
claims being brought. POL’s external lawyers have provided a “worst-case” estimate of
the potential financial exposure (see para 18 — 20) and we have requested that POL
undertake further work to clarify the quantum, different scenarios and likely timescale.
.It is important that the position POL takes with regard to any of these cases is
consistent with the approach it takes to those that have already been referred to the
Court of Appeal. POL cannot refer cases directly to the Court of Appeal; however, they
are proactively engaging with the CCRC on these additional cases. POL should be on
the front foot in ensuring as many defendants as possible have the opportunity to
challenge their convictions without binding itself to a specific outcome.
POL have received a Freedom of Information (FOI) request to release the number of
historical prosecutions undertaken by POL/Royal Mail since 1990. Following due
diligence with external lawyers the total number POL are releasing in response to the
FOI is 888; this is different to the number provided by the POL Chair and is as a result
of:
i. The 959 represents what POL believe to be the ‘worst case scenario’ in that it
includes cases for which, as yet, they have been unable to determine whether the
prosecution resulted in a conviction. The 888 only includes cases for which POL
have been able to determine there was an actual conviction.
ii. The 959 potential conviction cases includes prosecutions that may have been
brought by the Crown Prosecution Service, but the data is unclear. The 888
confirmed convictions only includes prosecutions brought by Post Office / Royal
Mail.
.POL expect this number to attract media attention and have prepared a press
statement, noting that their review of past cases has identified “around 900” cases
prosecuted since the introduction of Horizon. POL must respond to the FOI by 22 May.
. Independent Review: On 26 February, the PM was asked by Kate Osborne MP during
PMQs to launch an independent inquiry into the issues that subpostmasters had faced
in relation to the Horizon accounting system. The PM agreed to “get to the bottom” of
the issue; BEIS subsequently agreed with No 10 that we should launch an independent
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review to assess whether POL has learned the lessons from the litigation and taken the
necessary actions. Since the judgments handed down by Mr Justice Fraser following
two lengthy trials made clear what went wrong at POL, you have agreed with advice
that a forward-looking review is most appropriate. After Minister Scully met with
postmasters on 18 March, officials redrafted the Terms of Reference, and these are
currently with Ministers for final clearance (Annex B), together with a long-list of
potential candidates to chair the review. Once Ministers have provided a steer on the
long list of candidates, officials will identify a short list, conduct the required due
diligence on those candidates, seek salary approvals and submit the shortlist for the
Chair to Minister Scully. The submission will also give further advice on resources, cost
and timings.
17. Separate to this, the BEIS Select Committee has also launched an inquiry into POL and
Horizon (which is on hold due to Covid-19).
Potential Financial Implications
18. If all 959 convictions (assuming all of POL’s past prosecutions resulted in a conviction)
are overturned, POL could be exposed to significant further civil liability. An initial
assessment by POL and its external lawyers puts the potential worst-case financial
exposure at between £0.75bn - £0.85bn. This range assumes that POL is found
culpable of malicious prosecution, which is a high bar to prove.
19. There is also a risk that other subpostmasters who were not part of the GLO settlement
last year and who decide not to apply to the HSS (or were unsuccessful) will bring new
claims for compensation, possibly by way of another Group Litigation case. This group
would likely include postmasters who have had convictions overturned but cannot prove
malicious prosecution — it would be an alternative mechanism for them to seek
compensation. The amount involved in this scenario would be substantially lower than
the range quoted in paragraph 18 above.
20. Although POL has managed the financial costs of the GLO to date, POL assert that it
will not be able to fund further significant civil liability at this sort of level. There is
however a significant amount of uncertainty in these figures and further work is needed
to refine.
Contributors
BEIS POL policy colleagues have been consulted on this advice and are content with its
contents. UKGI Legal have also been consulted on the content of this submission
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Annex B
Post Office Horizon IT System and trials Independent Review
DRAFT Terms of Reference
As at: 8 April 2020
The dispute and subsequent trial relating to the Post Office Horizon IT system has had an
incalculable impact on affected postmasters and their families. It has affected postmasters’
livelihoods, their financial situation, their reputations and for some, also their physical and
mental health. In his judgments, Mr Justice Fraser identified significant failings within Post
Office Ltd particularly in relation to the treatment of postmasters and in its management
culture.
Under its new CEO, Nick Read, Post Office Ltd has admitted it got things wrong in relation
to the Horizon case and has apologised. It has also started to take steps to reset the
relationship with postmasters. These are important moves in the right direction. However,
given the impacts this case has had on many individual postmasters, Government wants to
be fully assured that lessons have genuinely been learned, and that concrete changes
have taken place at Post Office Ltd to ensure that this situation will never be repeated. For
these reasons Government has decided to establish an Independent Review.
The Independent Review shall:
¢ assess whether the Post Office Ltd has learned the lessons from the criticisms
made by Mr Justice Fraser in the “Common Issues” and “Horizon Issues” trials and
has delivered or made good progress on the organisational and cultural changes
necessary to ensure a similar case does not happen in the future;
* record postmaster views on the lessons Post Office Ltd need to learn and assess
whether the quality of the service offer for them and their relationship with Post
Office Limited has improved;
e in particular assess whether the commitments made by Post Office Ltd within the
mediation settlement — including the historical shortfall scheme - have been properly
delivered;
* assess whether the processes and information provided by Post Office Ltd to
postmasters are sufficient to i) enable both parties to meet their contractual
obligations; and ii) to enable postmasters to run their businesses. This includes
assessing whether Post Office Ltd’s related processes such as recording and
resolving postmaster queries, dispute handling, suspension and termination are fit
for purpose; and
« examine the governance and whistleblowing controls now in place at Post
Office Ltd and whether they are sufficient to ensure that the failings that led to the
Horizon case issues do not happen again.
Independent Review Chair
The Review will be led by an independent chair who will be announced in due course
alongside final timings and terms of reference for the review.
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Final Report
The Review shall set out Post Office Ltd’s actions in response to the findings of Mr Justice
Fraser. It must avoid re-examining the findings made by Mr Justice Fraser through the
lengthy court proceedings. The Review should make any recommendations it sees fit,
including actions that may, in its view, be appropriate as a result of its findings. The final
report will be laid in the Libraries of the House upon completion of the review.