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Common Issues
Judgment:
summary of the effect
- on postmaster contracts
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Judgment summary:
postmaster contracts
Common Issues Judgment:
Summary of the effect on
postmaster contracts
This document summarises the effect of the judgment in the Common Issues Trial in Bates
& Others v Post Office Ltd [2019] EWHC 606 (QB) (referred to here as the Judgment) on
Post Office Ltd's contracts with postmasters for the operation of a Post Office branch
(referred to here as the contracts). In this summary, postmaster means the person or
entity which is party to the contract with Post Office Ltd.
The Judgment changes the meaning of the contracts:
« It implies (adds) some new terms into the contracts. Most of these are
additional obligations for Post Office Ltd. There are a small number of additional
obligations that also apply to the postmaster.
« It replaces or modifies some existing terms. This mainly affects or restricts
Post Office Ltd's rights under the contracts. In addition, the Judgment clarifies
the meaning of the terms relating to the postmaster's responsibility for losses.
e It removes a small number of other terms. This affects or restricts Post Office
Ltd's rights under the contracts.
These changes to the meaning of the contracts are summarised below. However, the exact
effect on each contract may vary and not all of these changes may apply to all
contracts. Please contact your area manager if you have any questions about this.
Please note that this summary reflects as far as possible the Judge’s wording contained in
the Judgment.
This summary includes various terms and phrases that may not be familiar to everyone, so
we have provided some explanatory notes on the right-hand side. Please note these are
provided for guidance only and are not definitive. This guidance does not have any legal
effect and does not constitute legal advice on the meaning of those terms and phrases.
Judgment summary:
postmaster contracts
1. DUTY OF GOOD FAITH
A new term is added to the contracts
requiring each of Post Office Ltd and the
postmaster to act in good faith in the
performance of its obligations and exercise of
its rights under the contract.
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Term or Phrase — Good Faith
Explanatory note — This is a legal concept that relates to how
the parties must behave.
The Judgment states that this means that Post Office (or the
postmaster, as applicable) is not entitled to act in a way that
would be considered commercially unacceptable by reasonable
and honest people.
2. NEW IMPLIED TERMS ~ GENERAL
New terms are added to the contracts that mean additional obligations for both
parties. These new terms require each of Post Office Ltd and the postmaster:
e to take reasonable care in performing its functions and/or exercising its functions
within the relationship, particularly those which could affect the accounts (and
therefore liability to alleged shortfalls);
« torefrain from taking steps that would inhibit or prevent the other party from
complying with its obligations under or by virtue of the contract; and
e to provide the other party with such reasonable co-operation as is necessary to the
performance of that other party's obligations under or by virtue of the contract.
New terms are added to the contracts that
mean additional obligations for Post Office.
These new terms require Post Office Ltd:
« not to take steps which would
undermine the relationship of trust and
confidence between the postmaster and
Post Office Ltd;
« to exercise any contractual, or other
power, honestly and in good faith for
the purpose for which it was conferred;
* not to exercise any discretion arbitrarily,
capriciously or unreasonably; and
« to exercise any such discretion in
accordance with the obligations of good
faith, fair dealing, transparency, co-
operation, and trust and confidence.
Term or Phrase — Capriciously
Explanatory note - This is generally taken to mean acting in an
erratic and unpredictable manner, subject to whim.
Term or Phrase — Arbitrarily
Explanatory note - This is generally taken to refer to decisions
or actions being taken purely on the basis of the personal
preference of whoever is taking the decision, as opposed to
resulting from any systematic consideration.
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Judgment summary:
postmaster contracts
3. ASSISTANTS
A new term is added to the contracts requiring the parties to co-operate in respect of the
training of assistants in the operation of Horizon. A new definition of the Horizon system
is also added to the contracts.
The obligation on the postmaster to provide training to its assistants is modified so
that the postmaster shall only be required to train its assistants to the same and not a
higher standard than the standard of training received by the postmaster from Post Office
Ltd.
4. REIMBURSEMENT
The term (if any) in the contracts requiring the postmaster to reimburse Post Office Ltd in
full on demand for all losses, claims, demands, proceedings, liabilities, costs and expenses
(including reasonable legal costs and expenses) incurred by Post Office Ltd as a result of (i)
any negligence or breach of the contract by the postmaster or its personnel (ii) any misuse
or infringement of any intellectual property of any third party by the postmaster or its
personnel and/or (iii) any claim brought under the Equality Act and/or its regulations in
respect of the branch, is removed.
Additional note: please see section 5 in relation to the postmaster's responsibility for losses
caused through negligence, carelessness or error.
5. LIABILITY FOR POST OFFICE CASH AND STOCK
The term in the contracts relating to the Postmaster's liability for cash and stock is
modified to mean that the postmaster is responsible for:
« all losses caused through his or her own negligence, carelessness or error
and also for all losses caused by the negligence, carelessness or error of his
or her assistants.
Additional note: this should be read alongside the new terms in section 6 below.
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Judgment summary:
postmaster contracts
6. LOSSES AND SHORTFALLS
New terms are added to the contracts that r
mean additional obligations for Post Office Ltd. Term or Phrase ~ Error repellency
These new terms require Post Office Ltd: Explanatory note — This is a technical computer term meaning
the way the system deals with errors.
« to provide adequate training and support,
including through the provision of training
materials, to the postmaster, particularly if
and when Post Office Ltd imposes new
working practices or systems or requires
the provision of new services;
« to provide a Horizon system which is
reasonably fit for purpose, including any or
adequate error repellency;
* — properly and accurately to effect, record, maintain and keep records of all transactions
effected using Horizon;
*® properly and accurately to produce all relevant records and/or to explain all relevant
transactions and/or any alleged or apparent shortfalls attributed to the postmaster;
« to co-operate in seeking to identify the possible or likely causes of any apparent or
alleged shortfalls and/or whether or not there was indeed any shortfall at all;
* to seek to identify the causes of any such apparent or alleged shortfalls, in any event;
* to disclose possible causes of apparent or alleged shortfalls (and the cause thereof) to
the postmaster candidly, fully and frankly;
« to make reasonable enquiry, undertake reasonable analysis and even-handed
investigation, and give fair consideration to the facts and information available as to
the possible causes of the appearance of alleged or apparent shortfalls (and the cause
thereof);
* to communicate, alternatively, not to conceal known problems, bugs or errors in or
generated by Horizon that might have financial (and other resulting) implications for
the postmaster;
* to communicate, alternatively, not to conceal the extent to which other postmasters
are experiencing problems relating to Horizon and the generation of discrepancies and
alleged shortfalls;
*® not to conceal from the postmaster Post Office Ltd's ability to alter remotely data or
transactions upon which the calculation of the branch accounts (and any discrepancy,
or alleged shortfalls) depend;
* properly, fully and fairly to investigate any alleged or apparent shortfalls; and
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Judgment summary:
postmaster contracts
* not to seek recovery from the postmaster unless and until:
(i) it has complied with its duties above (or some of them);
(ii) it has established that the alleged shortfall represented a genuine loss to
Post Office Ltd; and
(iii) it has carried out a reasonable and fair investigation as to the cause and
reason for the alleged shortfall and whether it was properly attributed to the
postmaster under the terms of the contract.
The term in the contracts requiring Post Office Ltd to provide a helpline to postmasters is
modified to require such helpline to be reasonably fit for purpose, including (to the extent
applicable) any or adequate error repellency.
7. SUSPENSION
7.1 Right to suspend
In contracts containing a right to suspend, new terms are added, requiring
Post Office Ltd not to suspend the Postmaster:
(i) arbitrarily, irrationally or capriciously;
(ii) without reasonable and proper cause; and/or
(iii) in circumstances where Post Office Ltd is itself in material breach of duty in
respect of the matters which Post Office Ltd considers give it the right to
suspend.
The suspension clause is also modified so that Post Office Ltd may only suspend
the postmaster if it is in Post Office Ltd's legitimate interests to do so.
7.2 Right to withhold payment during suspension
Post Office Ltd's right to withhold payment during suspension is removed from
the contracts.
7.3. Temporary substitutes during suspension
Post Office Ltd's right to appoint a temporary substitute during suspension is removed
from the contracts.
7.4 Access during suspension
The obligation on a postmaster to, at its own cost and expense, enable Post Office Ltd to
maintain access to its branch during suspension is removed from the contracts.
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Judgment summary:
postmaster contracts
8. TERMINATION
8.1 Termination — general Term or Phrase — Repudiatory breach
New terms are added to the contracts that Explanatory note — This is a legal concept that refers to serious
mean additional obligations for Post Office breaches of contract.
Ltd. These new terms require Post Office Ltd Itis generally taken to mean a breach of contract that relates to
not to terminate the contract: something so fundamental that it undermines the very purpose
of the agreement and, in doing so, prevents the party not in
breach from deriving any substantial benefit.
(i) arbitrarily, irrationally or
capriciously;
(ii) without reasonable and proper
cause; and/or
(iii) in circumstances where Post
Office Ltd is itself in material
breach of duty in respect of the
matters which Post Office Ltd
considers give it the right to
terminate.
This does not restrict Post Office Ltd's
ability to terminate for a repudiatory
breach.
8.2 Termination on notice
The term in the contracts specifying the notice period on which Post Office Ltd may
terminate the contract is modified to clarify that Post Office Ltd must conscientiously
consider what the duration of the notice period should be, acting in good faith and taking
into account all relevant factors (but not irrelevant ones).
8.3 Immediate termination
The term in the contracts giving Post Office Ltd the right to terminate immediately on
giving written notice in the following circumstances is modified such that the right to
terminate is limited to circumstances where the breach is repudiatory:
« the postmaster commits a material breach of the contract;
e the postmaster fails to provide Post Office Ltd products or services to the
required standards, or at all;
« the postmaster fails to properly account for any money due to, or stock of,
Post Office Ltd or its clients; and
e the postmaster fails to pay any sum due to Post Office Ltd under the contract by
the due date.
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Judgment summary:
postmaster contracts
9. CONSEQUENCES OF TERMINATION
The term (if any) in the contracts stating that the postmaster acknowledges that he/she
shall not be entitled to receive any compensation or other sums in the event of the
termination or suspension of the contract or compensation for loss of office is removed.
10. APPOINTMENT OF A NEW POSTMASTER ON
TERMINATION
The term (if any) in the contracts giving Post Office Ltd discretion to appoint a new
postmaster on termination of the contract is modified to clarify that Post Office Ltd must
act for a proper purpose and in accordance with its duty of good faith when exercising its
discretion to appoint a new postmaster.
11. AMENDMENTS TO THE CONTRACT
Post Office Ltd's rights to amend the terms of the contracts are modified such that Post
Office Ltd may only make such amendments if the new terms are reasonable.