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Chris Aujard Cc:
General Counsel
06/12/2013
Post Office Limited Board
Summary
This note updates the Board following their meeting of 27 November where the
Board asked for an update on liability, insurance and prosecutions.
Directors are highly unlikely to be liable unless they have acted maliciously
or in bad faith. If a claim is brought against any Director Post Office Limited
has insurance which may cover that claim.
Prior to April 2012 prosecutions were undertaken by Royal Mail Group
although administratively the court papers may show them being taken
forward by the post office
Post Office Limited has continued those prosecutions that had commenced
prior to the pause after the publication of the Second Sight report.
Once an expert witness has been identified for Horizon (expected by the end
of February) there will be around 30 cases ready to prosecute.
The Board will be invited to make a decision as to whether cases in general
should be prosecuted as part of its wider consideration of POL’s prosecution
strategy.
Recommendation
2.
3.
The Board is asked to note the update and confirm it is content for the
prosecutions and POCA confiscations to proceed.
Anything here on the status of the pause???
Liability for Individual Board Members
4.
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 unlikely event that an action is brought for breach of director's duties
(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
against individual directors. It is also retrospective.
Insurance
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6. There are three relevant insurance policies (full details in Annex B) to
consider in this case:
e Director & Officer Liability (D&O) Directors and Officers Liability provides full
cover for Post Office directors and officers where they are sued as a result of a
wrongful act resulting from something that they are alleged to have done while
acting as a manager of Post Office Limited.
e Public Liability covers injury or damage to Third Parties arising out of our
actions.
e Professional Indemnity Professional Indemnity Insurance covers a breach of
professional duty by Post Office Limited resulting in a third party loss.
7. Following a review of our insurance policies with our broker, Miller, we have
formally notified insurers for our Directors and Officers Liability, Professional
Indemnity and Public Liability policies. They have also all received a copy of
the 2nd Sight report.
All the insurers have noted the contents of the report. We have received no
further comment from insurers, though this is expected because there are no
claims or notifications at this stage.
Claims against the policies
9.
Previous Prosecutions
If any claim were successful, under the terms of our policies, insurers would
potentially be able to subrogate against Fujitsu for their outlay. Furthermore
insurers would want to be fully involved in mediation and may not accept our
mediation outcome
10.Prior to the split in April 2012 all prosecutions were undertaken by Royal Mail
Group. After the split the Post Office undertook the prosecutions. However
the board should be aware that the court papers prior to April 2012 may show
the Post Office as the prosecuting authority rather than the Royal Mail group
due to the administrative division of the case load across Royal Mail's
business.
County Court Magistrates Court
Guilty I Not guilty Discontinued Guilty I Not guilty Discontinued
Ql 14 1 2
2009 Q2 uv
Q3 18 2
a4 14 1 1
Ql 14 3
2010 Q2 14 1 1
Q3 13 2
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Q4 15
Qi 12 1 2
7 1
2011 o2
Q3 13 1
Q4 4 1 3
Qi 9 2 2
2012 2
Q3
a4
‘Table 1 Royal Mail and Post Office prosecutions by quarter
I 20
i
I 18
i
16
I ~@==County Court Guilty
I =i County Court Not guilty
ine
10 wg County Court Discontinued
I 8 dem Magistrates Court Guilty
i
6
6" Magistrates Court Not guilty
—————— re on
I <> Magistrates Court
I 2 / > / Discontinued
i
I 0 4h: i
I Q1Q2_ 3 Q4.Q1 02/03)
I 2009 2012
ure 1 Prosecution outcomes by quarter
DN why do prosecutions tail off so markedly??
Current Prosecutions
11.The Current cases being taken forward by Post Office Limited are set out
below:
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Current Case Load Post Office Limited
mt Awaiting Advice
I
I
i Live Prosecutions/Matters
POCA
w Live Prosecutions/Matters
Trial
Live Prosecutions/Matters
I
Other I
i Advised on
i
i
I
POCA
12.The POCA cases are being taken forward to a judicially set timetable
following a guilty plea/verdict. Post Office Limited could apply for a delay in
these cases, and has done in the case of a mediation scheme applicant.
However the reputational impact of taking this approach more broadly is
deemed too great in terms of the precedent.
Awaiting advice cases
13.All of these cases are ready to summon except for the outstanding issue of an
expert opinion on the Horizon system.
Expert Witness
14.A potential expert witness has been identified and we have met with the
supplier and are in the process of agreeing a scope for the opinion with the
supplier Fujitsu. Our current estimate is that the opinion will be ready by the
end of February at the earliest
15.Before the expert witness opinion is provided we will revert to the board with
detail .
Clearance
16. This paper has been cleared by Post Office Legal and Belinda Crowe.
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Annex A — Directors’ duties
Post Office Limited's directors are subject to various personal duties including the
duties to:
act in accordance with the company’s constitution and for a proper purpose;
promote the success of the company;
exercise independent judgement;
exercise reasonable care, skill and diligence.
eeee
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:
e malicious prosecution against an SPMR;
e breach of the Data Protection Act in misusing personal / Horizon data;
e inducing a breach of contract between POL and an SPMR.
The duties are owed to the company, ie Post Office Limited, and can only be
enforced by Post Office Limited. In rare circumstances, these duties can be enforced
by a shareholder (i.e. BIS) acting on behalf of Post Office Limited (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 Post Office
Limited has failed to make adequate disclosure in any criminal proceedings as no
director has directly and personally led the disclosure process.
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Annex B Insurance policy background
There are three relevant insurance policies to consider in this case:
Director & Officer Liability (D&O) Directors and Officers Liability provides full
cover for Post Office directors and officers where they are sued as a result of a
wrongful act resulting from something that they are alleged to have done while
acting as a manager for Post Office Limited. In addition the policy will respond if
there is an investigation into an act that they are alleged to have committed, or
where they are required to attend an investigation into the affairs of the company.
This policy is a joint and severable contract between Insurers and each individual
who is insured, which means that any individual has the ability to make a claim
under the policy, with or without the agreement of Post Office Limited or Royal
Mail Group. It should be noted that the policy covers claims against individuals
not Post Office
For the D&O policy to apply individuals would have to be named in any
claims. However there could be some recoverable investigation costs. (If an
official body decided to investigate Post Office, then the costs for a director
attending that enquiry should be covered).
With regards to mediation, this is unlikely to be covered as it isn’t either a claim
against an individual or an investigation.
Public Liability covers injury or damage to Third Parties arising out of or actions.
This policy also carries an excess of £250k per claim We have notified our Public
Liability Insurers as a claim against PO for “stress” arising out of this matter could
be classed as a third party “injury”
Professional Indemnity Professional Indemnity Insurance covers a breach of
professional duty by Post Office Limited resulting in a third party loss. This policy
covers Civil Liability, Defence Costs and Expenses, Libel and Slander (committed
by Post Office or any person employed by Post Office), Breach or Infringement of
copyright/Intellectual property rights. This carries a £250k excess each and every
claim. Whilst Post Office was part of Royal Mail Group it had no PI cover and the
cover purchased last year was to specifically cover our Government Services
contract which may make a claim difficult.
Another point to note is that having any notification successfully accepted under
our PI policy is that of first awareness. The second sight report identifies that the
problems with the Horizon system and the resultant issues with the sub-
postmasters had occurred prior to the inception date of the Pl policy and
therefore, under its strictest terms, any claims arising from this “known” issue
would be excluded from cover.