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Confidential and legally privileged
9 March 2018 WOMBLE
BOND
DICKINSON
Bates & others v Post Office Limited
Initial summary of the Common Issues Judgment
1. SUMMARY
14 The Judge has adopted the approach that we feared he might adopt: he has taken into account
large swathes of inadmissible material, despite saying before trial that he would not do so and
claiming in the Judgment not to have done this. However much of the first 500 paragraphs (out
of a total of 1100) are turned over to factual analysis of post-contractual actions.
1.2 This has led him to make findings on a number of factual matters on which he has not heard
evidence from Post Office, because such evidence (we maintain and on the Judge's own
assessment) is inadmissible.
1.3 He has also made a small number of findings in relation to Horizon, despite previously stating in
an early judgment that he would not do this.
14 He is highly critical of Post Office's past practices and the conduct of the litigation in general. He
heavily criticises some of Post Office's witnesses as being unreliable and its legal team for the
conduct of the case. He refers at times to Post Office being oppressive and operating a culture
of secrecy. By contrast, even when faced with clear evidence of dishonesty, he refuses to
criticise the Claimants.
15 From this starting point, he has gone on to restrict (but not eliminate) Post Office's rights to
recover losses, suspend and terminate Subpostmasters' contracts and vary its contract terms in
the future. He has also found that Post Office (and the Claimants) are subject to a wide ranging
duty of good faith, that imposes many new obligations on Post Office. He has done so through a
novel application of the law and through the misapplication of several established legal principles.
1.6 In our and Counsel's view, the Judge's approach is astonishing: it is unfair and unprecedented.
With no hesitation, we strongly recommend lodging an appeal
17 We set out below a short commentary on the key aspects of the Judgment. This summary
inevitably simplifies the complexity of the full legal analysis. It has also been prepared rapidly
after the draft Judgment was provided and at a time when some parts of the Judgment are far
from clear. A fuller detailed analysis is underway. This initial summary is therefore only intended
as a starting point for consideration of how Post Office might respond legally, operationally and
publicly to the Judgment when it is handed down (likely on Friday 15 January).
2. LOSS RECOVERY
2.1 The Judge has found that Post Office can recover losses when the Subpostmaster is at fault for
the loss.
2.2 In relation to losses caused by assistants:
2.2.1 Under the SPMC, Post Office must show fault on the part of the assistant.
2.2.2 Under Network Transformation contracts, the Judgment is unclear but on one reading
Post Office cannot recover losses caused by assistants. Clarification will be sought on
this.
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23
2.4
25
2.6
27
3.1
3.2
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A loss means a real financial harm to Post Office. A shortfall in the branch accounts is not on its
own sufficient grounds to recover. The shortfall in branch must either be tied to a physical loss of
cash or stock in branch or be traced through Post Office's back-end accounting systems to a real
financial loss (eg. non-payment of money by a client).
The burden is on Post Office to prove that (i) a loss has been suffered by Post Office and (ii) it
was caused by the fault of an SPM or his assistant.
A branch trading statement is only good evidence of a branch shortfall if an SPM does not
dispute the branch trading statement at the time of submitting it. If it is disputed, then Post Office
will need to prove a branch shortfall by other means (ie. from the transaction data on Horizon,
meaning that Post Office has to prove the veracity of Horizon in every disputed shortfall).
The difficulty with the above formulation is that Post Office often does not know what the exact
causes are of a shortfall in a branch and therefore faces difficulty in proving that it has suffered a
financial loss. Eg. a SPM mis-keys a bank deposit as £100 rather than £50, this would show as a
£50 shortfall at the end of the trading period but how would Post Office know which exact
transaction during the trading period was mis-keyed and that that transaction has led to a
financial loss?
Finally, the Judge has imposed a restriction that Post Office may not seek recovery of losses
unless:
2.7.1 Post Office has established that the alleged shortfall represented a genuine loss to
Post Office; and
2.7.2 Post Office has carried out a reasonable and fair investigation (proportionate to the
amount in issue) as to the cause and reason for the alleged shortfall, and whether it
was properly attributed to the Subpostmaster under the terms of the Subpostmaster
contract.
TERMINATION RIGHTS
Post Office can terminate a SPM's contract on notice as follows:
3.1.1 The original notice periods in the contract are valid (typically 3 or 6 months). There is
no minimum 12 month notice period, save where already provided for in the Network
Transformation contracts. The judge has however interpreted these as minimum
notice periods.
3.1.2 The exact notice period provided must be set in line with Post Office's duty to act in
good faith, which means that it may be required to offer more than the minimum notice
periods (for example, for a SPM who has only just been appointed would therefore
suffer financial hardship from an early termination).
3.1.3 Post Office cannot terminate SPMs: (i) arbitrarily, irrationally or capriciously; (ii) without
reasonable and proper cause; and/or (iii) in circumstances where Post Office was itself
in material breach of duty in respect of matters which Post Office considered gave it
the right to suspend.
Post Office can terminate a SPM's contract immediately where the SPM has committed a
repudiatory (fundamental) breach save that it cannot terminate SPMs: (i) arbitrarily, irrationally or
capriciously; (ii) without reasonable and proper cause; and/or (iii) in circumstances where Post
Office was itself in material breach of duty in respect of matters which Post Office considered
gave it the right to suspend.
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4. SUSPENSION RIGHTS
44 Post Office's rights to suspend are upheld but it cannot suspend SPMs: (i) arbitrarily, irrationally
or capriciously; (ii) without reasonable and proper cause; and/or (iii) in circumstances where Pot
Office was itself in material breach of duty in respect of matters which Post Office considered
gave it the right to suspend.
4.2 Post Office's right to withhold remuneration during a period of suspension has been struck down.
Post Office must now pay all suspended SPMs.
5. RIGHT TO VARY CONTRACTS:
5.1 Post Office's existing rights to vary its contracts unilaterally are preserved. But any new terms
need to pass a test of reasonableness.
6. IMPLIED TERMS
64 Post Office is subject to a general duty to act in good faith. The scope of that duty is poorly
defined in the Judgment save in its manifestation of implied terms (see below). It is also unclear
whether this duty is mutual on the Claimants.
6.2 20 new terms are implied into the Post Office contract as either incidents of the overarching duty
to act in good faith or on the grounds of necessity. See table below for full details.
6.3 Some of these implied terms relate to loss recovery, termination and suspension and their effects
are described above. The other freestanding implied terms can be summarised as:
6.3.1 Post Office must provide adequate training and support.
6.3.2 Horizon must be reasonably fit for purpose.
6.3.3 Post Office must accurately effect and record all branch transactions.
6.3.4 Post Office must take all reasonable care in performing its functions.
6.3.5 Post Office must communicate problems with Horizon to SPMs.
6.3.6 Post Office must assist SPMs in investigating shortfalls
6.3.7 Post Office must not exercise any contractual right in bad faith.
7. STRIKE DOWN OF EXPRESS TERMS
74 Asmall number of other express terms have been struck down as unenforceable. These are
unlikely to have immediate commercial or operational impact, but further explanation can be
provided as needed.
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analysis and even-handed investigation, and give fair consideration
to the facts and information available as to the possible causes of
Implied term sought by the Claimant Incident of Implied term I Any modification to the term by the Judge?
the implied on grounds
duty of good I of business
faith? efficacy?
(a) To provide adequate training and support (particularly if and I No Yes No
when the Defendant imposed new working practices or systems or
required the provision of new services)
(b) To provide a system which was reasonably fit for purpose, No Yes To provide a Horizon system which was reasonably fit for
including any or adequate error repellency purpose, including any or adequate error repellency
(c) Properly and accurately to effect, record, maintain and keep I Yes Yes No
records of all transactions effected using Horizon
(d) Properly and accurately to produce all relevant records Yes Yes No
and/or to explain all relevant transactions and/or any alleged or
apparent shortfalls attributed to Claimants
(e) To co-operate in seeking to identify the possible or likely Yes No No
causes of any apparent or alleged shortfalls and/or whether or not
there was indeed any shortfall at all
(f) To seek to identify such causes itself, in any event Yes No No
(g) To disclose possible causes of apparent or alleged shortfalls I Yes No No
(and the cause thereof) to Claimants candidly, fully and frankly
(h) To make reasonable enquiry, undertake reasonable Yes No No
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the appearance of alleged or apparent shortfalls (and the cause
thereof)
irrationally or capriciously; (ii) without reasonable and proper cause;
(i) To communicate, alternatively, not to conceal known Yes No No
problems, bugs or errors in or generated by Horizon that might have
financial (and other resulting) implications for Claimants
(i) To communicate, alternatively, not to conceal the extent to Yes No No
which other Subpostmasters were experiencing relating to Horizon
and the generation of discrepancies and alleged shortfalls
(k) Not to conceal from Claimants the Defendant's ability to Yes No No
alter remotely data or transactions upon which the calculation of the
branch accounts (and any discrepancy, or alleged shortfalls)
depended
() Properly, fully and fairly to investigate any alleged or Yes No No
apparent shortfalls
(m) Not to seek recovery from Claimants unless and until: (i) the I Yes Yes “the Post Office would not seek recovery from Claimants
Defendant had complied with its duties above (or some of them); (ii) unless and until the Post Office had established that the
the Defendant has established that the alleged shortfall represented alleged shortfall represented a genuine loss to the Post
a genuine loss to the Defendant; and (iii) the Defendant had carried Office, and the Post Office had carried out a reasonable
out a reasonable and fair investigation as to the cause and reason and fair investigation (proportionate to the amount in issue)
for the alleged shortfall and whether it was properly attributed to the as to the cause and reason for the alleged shortfall, and
Claimant under the terms of the Subpostmaster contract (construed whether it was properly attributed to the Claimant under the
as aforesaid) terms of the Subpostmaster contract.”
[This wording only applies if implied under business
efficacy]
(n) Not to suspend Claimants: (i) arbitrarily, irrationally or Yes Yes Not to suspend Claimants: (i) arbitrarily, irrationally or
capriciously; (ii) without reasonable and proper cause; and/or (iii) in capriciously; (ii) without reasonable and proper cause;
circumstances where the Defendant was itself in material breach of and/or (iii) in circumstances where the Defendant was itself
duty in material breach of duty in respect of matters which the
Defendant considered gave it the right to suspend.
(0) Not to terminate Claimants’ contracts: (i) arbitrarily, Yes Yes Not to terminate Claimants’ contracts: (i) arbitrarily,
irrationally or capriciously; (ii) without reasonable and
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and/or (iii) in circumstances where the Defendant was itself in
material breach of duty
proper cause; and/or (iii) in circumstances where the
Defendant was itself in material breach of duty in respect of
matters which the Defendant considered gave it the right to
suspend,
recover any alleged shortfalls, whether while the relevant Claimant
was a Subpostmaster or post-termination, was subject to an implied
term requiring Post Office to do the same within a reasonable time
of discovery or the date by which, with reasonable diligence, Post
Office could have made such discovery.
(p) Not to take steps which would undermine the relationship of I Yes No No
trust and confidence between Claimants and the Defendant
(q) To exercise any contractual, or other power, honestly and in I Yes Yes No
good faith for the purpose for which it was conferred
(r) Not to exercise any discretion arbitrarily, capriciously or Yes Yes No
unreasonably
(s) To exercise any such discretion in accordance with the Yes No No
obligations of good faith, fair dealing, transparency, co-operation,
and trust and confidence
(t) To take reasonable care in performing its functions and/or No Yes To take reasonable care in performing its functions and/or
exercising its functions within the relationship, particularly those exercising its functions within the relationship, particularly
which could affect the accounts (and therefore liability to alleged those which could affect the accounts (and therefore
shortfalls), business, health and reputation of Claimants liability to alleged shortfalls),-business,-health-and
reputation-of Claimants
(u) The ability of the Defendant to recover and/or seek to No No No
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