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Update on the work programme arising from the Horizon report
1. Further to the Board discussion on 16 July, this note provides an update on how we're taking forward
the programme of work in response to the publication of the Second Sight report.
Outline of the key workstreams
2. Our work programme is split into the following four broad categories:
completing the review of cases started as part of the Second Sight investigation, with the aim of
seeking some form of resolution;
ii. meeting our duty to review cases that have been subject to criminal prosecution;
iii identifying improvements in the training, support and other processes related to the Horizon
system and branches; and
iv. meeting our commitment to review how an independent safety net could be introduced to help
resolve disputed cases with sub-postmasters in the future.
i. Completing the Second Sight case reviews
3. As was evident at the Parliamentary debate on 9 July, there is a clear expectation from all the key
stakeholders concerned - the JFSA, James Arbuthnot and other MPs - that the existing 47 cases
which have been submitted to the Second Sight process would be properly reviewed, with the aim of
seeking some form of resolution in each case. There was also a clear expectation from MPs that
Second Sight would continue to have a leading role in this process, in order to guarantee
independence from the Post Office:
4. We have therefore been focussing on developing an approach to respond to these expectations which
balances the requirements to be cost effective, time efficient and credible. We have two specific
concerns around Second Sight’s role in this context:
a) as a two-man team they do not have the capacity to deal with all of these cases within an
acceptable timescale; and
b) their approach of seeking to reconcile the conflicting evidence and views of the Post Office and
sub-postmasters - which stems from a steer from James Arbuthnot that they needed to “keep the
JFSA onside” - is pushing them into an almost impossible situation, which both extends the time
taken to conclude each case and, more worryingly, creates a tendency for them to place greater
weight on the sup-postmaster’s version of events, irrespective of the evidence we present.
5. We propose to address these concerns through two specific measures:
¢ restricting Second Sight’s remit to the specific task of preparing an impartial evidence base, with no
requirement to seek to iron out any inconsistencies between the two sides’ positions. We propose
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that this process of resolution will instead be pursued by employing an independent professional
mediator, who will seek to facilitate a dialogue between the Post Office and sub-postmaster to
arrive at a sensible conclusion; and
e changing the way we work with Second Sight, by allocating additional senior level resource with a
deep understanding of the network to work closely alongside them, in order to answer their
queries and help them prepare an accurate evidence base as quickly and efficiently as possible.
The mediator (or panel of mediators) is likely to be a senior, independent lawyer, with specific
experience and expertise in mediation. His or her role will be to help the sub-postmaster and Post
Office find common ground and hopefully some form of resolution to the sub-postmaster’s complaint.
They would not have the authority to impose a financial settlement or any other form of resolution on
the parties.
There are a number of possible outcomes to this resolution process, which will have to be determined
on a case by case basis. In some instances we may conclude that we still believe that the sub-
postmaster was at fault, and therefore no specific redress should be offered. In other cases we may
acknowledge that there were shortcomings on our side or both sides, and commit to take action to
address these as part of the process improvements workstream. And of course there is the clear risk
that in some cases the sub-postmaster will argue that financial compensation is appropriate, which
again will have to be assessed carefully on a case by case basis. We certainly do not believe there are
grounds for a blanket compensation scheme, and will not be setting up the process with this
expectation. Further details of the potential claims for compensation are provided at paragraph 26
under the Costs section below. If agreement could not be reached through mediation, the sub-
postmasters concerned could still seek remedies through the civil courts.
We discussed the broad concept of mediation with James Arbuthnot (and Second Sight) on Monday
and he was supportive in principle. We then followed this up with a detailed workshop on Thursday
with Second Sight and the JFSA to agree the specific details of the process. It was decided that a
working group should be established to provide independent oversight of progress, which is also in
keeping with the commitment we made in our 8 July statement. As a minimum the working group
will comprise representatives of the Post Office, JFSA and Second Sight, although we may also invite
other stakeholders and/or appoint an independent chair. One option which we will explore next week
would be to invite BIS to participate, to represents the interests of taxpayers in ensuring that public
funds are used appropriately - although they may be unwilling to play this role.
It should be noted that while we believe this process will result in a swifter (and more robust) result
than if Second Sight were tasked with resolving all the cases by themselves, it will still not be a quick
process overall. Our best estimate at this stage is that it will be early next year before all the existing
cases currently in scope can be resolved (although in the meantime we will be drawing a line under
individual cases at a steady pace and thereby helping to dampen the ‘noise’ and reputational risk
related to the issue). There will also be additional costs involved with mediation (as set out in more
detail at paragraph 24), but as explained below it is not clear that there is a more cost effective and
viable approach to dealing with the legacy of past cases.
10.
11,
12
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The alternative option would be to seek to set a fixed deadline for Second Sight to complete their
work (e.g. October), and set them the task of reviewing as many cases as they can within that time
available. However, we do not believe this would be credible or in the best interests of the business
overall. Second Sight have indicated that, under the current working arrangements, they would only
be able to process a handful of cases within this timescale. James Arbuthnot made it very clear to us
that he was prepared to take strong action through Parliament and the media if we sought to close
down the process in this way and leave some cases unresolved. We know he would be supported by
other MPs in this regard, and likewise the JFSA has lobbied Jo Swinson directly on this point. We
therefore reached the conclusion that it would expose the business to unacceptable ongoing
reputational risks to ignore these concerns.
We also considered the option of supporting Second Sight with additional capacity from another firm
in order to seek to accelerate the rate at which they can process cases. However, this would not
address the underlying issues associated with their current role of seeking ‘resolution’ between the
two sides’ accounts, which forces them into a conflict of interest and stymies their ability to make
progress. We therefore concluded that the mediation process, alongside more collaborative joint
working and no arbitrary time limit, would be the best way to balance our various objectives.
The independent mediation approach has clear benefits in communications terms - providing a
tangible sign of the Post Office’s determination to take these issues seriously and respond
appropriately. This has the potential to take the sting out of the issue as a media story. The process
will also be supported by a specific programme of engagement with each of the relevant MPs (and
other stakeholders) to keep them on side as far as possible.
As we flagged up in the last Board paper, there is a strong likelihood that other historical cases will
emerge as a result of the media and Parliamentary attention arising from the interim report. Alan
Bates of the JFSA has since confirmed that more sub-postmasters have approached him over the
past two weeks. We therefore need to consider how we address these. We do not believe that ignoring
them is a credible option, so we are instead working constructively with the JFSA to develop an
impartial filtering process to decide whether any of these cases should be referred to the mediation
and resolution process noted above.
ii) Prosecution Case Review
14.
There is a separate process in train for those cases which have been subject to criminal prosecution.
As we discussed at the last Board, as a prosecuting authority we have a continuing duty to act
properly and fairly, and that requires us to disclose to the defence any information which undermines
the prosecution. This assessment is made on a case by case basis. Through our criminal law solicitors,
Cartwright King, we are complying with this duty by reviewing past and present prosecutions to
identify any cases where the Second Sight report ought to be disclosed. It is then up to the defendant
to decide whether to apply to the Court of Appeal for permission to appeal a conviction based on the
additional information.
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15. As of 22 July, Cartwright King had reviewed 124 cases, with the following outcomes:
the prosecution has been discontinued in three cases as not being in the public interest;
disclosure to the defence has been provided in 6 cases;
in all cases, the recommendation is that we oppose any attempted appeal; and
it is not believed that any of the cases would satisfy the test for compensation from the
Government for a miscarriage of justice under Criminal Justice Act.
16. The next step will be to review pre-separation case files held by Royal Mail, initially dating back to the
start of 2010.
17. We are also consulting Brian Altman QC, a leading barrister and former First Treasury Counsel, to
provide additional advice and independent oversight on this case review process and any wider
criminal law questions that arise (for example questions from the Criminal Cases Review Commission
about how we are handling this matter). Counsel's scope of work will also include recommendations
about our future prosecutions strategy, to inform our own thinking.
tii) Process improvements
18. As we discussed at the Board, there is a clear opportunity emerging from the Second Sight review to
make substantial improvements to the way we train and support sub-postmasters, which should have
a lasting beneficial impact on the business. We have therefore appointed one of our most experienced
senior managers, Angela Van Den Bogerd, to lead the overall delivery of this workstream. She will be
supported by a programme board bring together relevant expertise across the business, to take
forward work under the following areas where concerns have been raised:
Training - both for new entrants and on a periodic basis for more established sub-
postmasters and members of staff (either in the classroom or on-site). All aspects of training
will be considered, although there will be a particular focus on the balancing of branch
accounts.
Field support - how we support sub-postmasters in branch or indeed remotely when they
have problems with transactions and accounting difficulties, including in relation to dealing
with error notices and transaction corrections.
Contracts - how we award contracts for services to sub-postmasters; how we monitor
performance once the contract is awarded; and how we deal with potential contract breaches
including our policy on precautionary suspension and either termination of contract or
reinstatement of the sub-postmaster.
Audit - issues related to our processes for undertaking on-site cash and stock verification
and checking transaction logs and compliance with proper procedures.
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. Security - how we investigate what appears to be a breach of contract and/or potential
criminal activity at branches such as fraud and theft.
. Helplines - the provision of product and services advice and guidance and assistance with
first line queries on transactions, accounting and the use of the Horizon system.
. Product & Branch Accounting - the identification and processing of errors by branches.
This covers the support given to sub-postmasters in understanding accounting errors,
correcting the transaction and preventing a recurrence of the error going forwards.
19. This programme of work will be informed by two inputs in particular:
* any insights emerging from the case reviews, enabling us to demonstrate that we are
responding to the key learning points from this process; and
e® anew ‘Branch User Forum’, which will be a permanent structure that provides a means for
sub-postmasters to provide direct feedback into the business on the way we train and
support them. We are now in the process of scoping the membership and terms of
reference for this forum, with the aim of holding the inaugural meeting in early October.
iv) Adjudication/mediation for new cases
20. As part of our response to the Second Sight report, we committed to establish “a review chaired by an
independent figure to determine how an independent safety net might be introduced to adjudicate in
disputed cases in the future’. This was in part informed by a proposal which Alan Bates submitted to
us and James Arbuthnot, although it also mirrored our own thinking on the need for such a
mechanism.
21. Based on the initial advice we have received from our external lawyers on the use of such
mechanisms in other businesses and industries, our view at this stage is that this commitment is best
taken forwards by extending the process of mediation that we are seeking to use to resolve the
existing Second Sight cases. This would be more appropriate than an independent adjudicator, which
works best when clear judgements can be made against a rigid set of rules. The nature of our
disputed cases with sub-postmasters requires a more nuanced approach and process of dialogue, and
therefore mediation is likely to be the more appropriate mechanism.
22. Our initial view at this stage is that the remit of the Working Group noted in paragraph 8 above may
be extended to conduct the review of these arrangements, building on the experience of the mediation
process which we are establishing for the existing Second Sight cases.
Governance and leadership arrangements
23. The overall programme will be led by Susan Crichton, reporting to a weekly steering board chaired by
CEO and attended by other relevant directors including the CFO. This steering board will report to the
ARC on progress, alongside regular updates to the Board.
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Costs and business risks
24. The project has so far incurred spend of £220k related to Second Sight’s costs. The table below sets
out our initial estimate of the potential further costs that are likely to be incurred through the next
stages of the programme, which could total in the region of £0.9-1.4m (not including any costs
associated with compensation). We are exploring options to account for some or all of these costs as
below the line items. It should also be noted that we will be aiming to absorb the majority or indeed
all of the people costs associated with the project within the existing headcount plans, so not all of this
will result in a direct increase in expenditure.
25. Clearly these estimates are subject to considerable uncertainty at this stage, although we will be
taking every opportunity to minimise the risks of additional expenditure. The overall programme will
be closely monitored by Finance, with any policy decisions with the potential for substantial costs
subject to the approval of the CFO.
Area Estimated costs Commentary
Will be managed within fixed fee or on fee per case basis,
£100-150k with close monitoring to ensure delivery of outcomes within
this budget. Doesn't include £220k already spent
Second Sight (or
replacement)
Assumed average cost per case is £6k, although could be
higher. The other uncertainty at this stage is how many cases
Costs of mediation £350-550k beyond the initial 47 will pass through the filtering process.
This estimate is based on 75 cases in total each requiring a
half day of mediation.
Costs of external legal advice £100-300k Includes QC, Bond Dickinson and Cartwright King
Independent Chair Nil to £10k May be an unpaid post
Dedicated team of 5 people. Horizon development costs
assumed to be covered within £100k budget which Fujitsu
Process improvements and €200k has offered to set aside.
IT changes Expenditure in this area should be viewed as adding value to
the business, by strengthening sub-postmasters’ capabilities
and reducing occurrence of future problems.
Helpline £40k Dedicated team of 3 people
Finance Service Costs £100k Dedicated team of 2 people providing data on specific cases
Total £0.9 to 1.4m
26. As indicated at paragraph 7, in cases where through the resolution process we concede that
shortcomings in our processes were a significant factor in the difficulties faced by sub-postmasters,
they may seek to claim some form of compensation. The mediator would not be empowered to
impose any form of financial settlement, so it would be up to us to consider the most appropriate
response, which will have to determined based on the individual merits of each case. This assessment
will need to take into account the risk that the sub-postmaster could successfully secure
compensation through the civil courts, alongside a consideration of what we deem to be our moral
responsibilities as a principled business and our exposure to damaging reputational risks. Given the
uncertainties, at this stage it is not possible to provide any meaningful estimate of the potential overall
6
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costs associated with compensation, although we will be keeping this under close review. However, to
provide a sense of the range of potential claims in individual cases, possible types of compensation
might include:
. for early termination / forced exit cases - 3 months remuneration (as per standard notice
period in the sub-postmaster contract);
. for claims of distress and reputational damage - hundreds of pounds up to tens of
thousands of pounds;
. repayment of wrongful losses (i.e. where a sub-postmaster was forced to settle losses which
were later found to be false) - this will of course depend on the size of the debts in each
case; and
. there will also be a mixed bag of other lasses such as legal costs, forced insolvency and loss
of retail business, which are very difficult to predict.
If we were to reach an agreement on compensation through the resolution process, it is likely that we
would ask the sub-postmaster to sign an agreement waving all their claims so we have some finality
and are not exposed to further risks through the civil courts.
While it is clearly uncomfortable to be entering into this resolution process without a clearer sense of
the likelihood and potential quantum of compensation that might arise in some cases, it should be
noted that effectively this contingent liability already exists, and is the product of legacy shortcomings
rather than the resolution process itself. We will of course be seeking to manage the process in a way
which arrives at a sensible and proportionate outcome to each case, taking into the wider public
interest of taxpayers and not just the individual sub-postmasters. We have considered whether we
could limit our exposure by setting a cap on the amount of compensation payable for each individual
case or for the caseload as a whole: however, our concern is that this will only serve to increase costs
by setting an expectation that compensation is payable in every case rather than by exception.
There are a number of wider potential business risks which we will need to manage carefully
throughout this process, for example:
. the reputational and brand risks that could emerge if we don’t handle the overall resolution
process carefully;
. the risk to NTP if concerns around how we treat sub-postmasters leads to lower take-up of
the new models;
. the opportunity cost arising from the significant amount of senior management time that will
be taken up in handling this process;
. the potential destabilising impact on the NFSP, who are feeling exposed to the whole issue
because of accusations from some sub-postmasters that they failed to represent their
interests; and
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the process re-engineering that may be required for our IT, training and support systems,
which will add further complexity and risk to the existing transformation programme.
30. These and other risks will be closely monitored and addressed through the weekly steering board, with
linkages to other programme boards made where appropriate.
Responses to other questions raised at the 16 July Board meeting
31. The Board requested further clarification on their exposure as directors in relation to the review. As
set out in more detail at Annex A, it is highly unlikely that any individual director would have any
personal liability in connection with this review, unless they had acted in bad faith or maliciously, In the
highly unlikely event that an action is brought (which could only be by Post Office Limited or in very
rare circumstances by the shareholder acting on behalf of the company) there is insurance in place to
cover their liabilities. The policy provides cover up to £60 million and has a £25,000 excess for claims
by the company but no excess for claims brought by individual directors. It is also retrospective.
32. In response to the Board’s request for a post-mortem, Internal Audit has now been tasked with
carrying out a review of our response to the Second Sight investigation, reporting to the ARC. The
terms of reference will be agreed with the Chair of ARC over the coming weeks.
Next steps
33. We will provide a further update to the Board in late August, by which point we aim to have:
vi.
vii.
finalised the terms of reference for the process of mediation and resolution in relation to
the existing cases and also identified a mediator, so we are ready to commence the
process;
agreed the process for filtering any ‘new historical’ cases that emerge;
started engagement with key individual MPs on how we will be taking forward their cases;
completed the second sift of past prosecuted cases;
developed an initial position on the pros and cons of continuing to bring prosecutions
ourselves;
identified ‘quick wins’ in relation to process improvements for sub-postmaster training and
support, and started mapping the approach for longer-term improvements; and
established the terms of reference for the Branch User Forum
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Annex A: Directors’ duties
POL's directors are subject to various personal duties including the duties to:
- actin accordance with the company's constitution and for a proper purpose;
- promote the success of the company;
- exercise independent judgment;
- exercise reasonable care, skill and diligence.
Provided a director makes fair and reasoned decisions in good faith, s/he is unlikely to breach these duties.
If a director takes a decision in bad faith or maliciously, this could create personal liabilities, e.g. for:
- malicious prosecution against an SPMR;
- breach of the Data Protection Act in misusing personal / Horizon data;
- inducing a breach of contract between POL and an SPMR.
The duties are owed to the company, i.e. POL, and can only be enforced by POL. In rare circumstances,
these duties can be enforced by a shareholder (i.e. BIS) acting on behalf of POL (a “derivative action’).
These duties cannot be directly enforced by others, e.g. employees, contractors and/or SPMRs.
Directors should be careful when externally commenting on specific SPMRs / cases as they can be held
personally liable for any defamatory comments.
There are no personal consequences for a director under criminal law if POL has failed to make adequate
disclosure in any criminal proceedings as no director has directly and personally led the disclosure process.