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Tom Beezer
From: Tom Beezer
Sent: 21 August 2006 1
To: mandy.talbot( i "GRO _
Ce: Stephen Dilley
Subject: Castleton
Attachments: eCopy scanned document.pdf
Mandy
As we discussed last week I am writing to update you on certain points that came out of my
discussions on the Castleton case with Richard Morgan of Maitland Chambers.
Overview
Richard Morgan believed the case to be one with a good chance of success but he did warn that
was dependent upon the accountancy evidence stacking up in our favour (I return to this
below) and also upon an acceptance of the costs in taking this matter to trial. We have
discussed costs before. I also return to this point below.
A further point made by Richard Morgan was that we should endeavour to move the main area
of focus in the case away from the Horizon system if possible. Richard suggested a method to
do that would be to prove (if possible) the physical cash losses at the Marine Drive branch by
reference to all the other documentation created around the transactions, not simply by
reference to what was in fact recorded on the Horizon system. So for example when a cheque
is deposited there is (as I understand it) a counterfoil filled out which is sent off daily by the
sub-postmaster, with all cheques eventually ending up at EDS. If the Horizon system was later
found not to match the physical remittances an error notice is generated. One of the issues in
this case is that there were few error notices generated suggesting that the physical
remittances did match the Horizon inputs. Clearly, to attempt to look into such matters in the
level of detail likely to be required will be costly and time consuming.
Amendment of the Particulars of Claim
Richard Morgan would like to make some few minor amendments to our particulars of claim.
Currently they are drafted to plead your claim on a breach of contract basis (i.e. the sub-
postmaster’s obligation to make good the losses as contained his contract). Richard would like
to go on to also include a plea that the sub-postmaster is your agent and therefore has a duty
to account to you for all losses in any event. This is not a major amendment and Castleton’s
lawyers already acknowledge he is an agent. Any consequential amendments will, therefore, be
limited. The reason for the amendment is to put the case at its strongest and I suggest that
such an amendment be made. I would be grateful for your view on this.
Fujitsu
In this matter Fujitsu are clearly going to play a role. I understand that Fujitsu are currently
looking at the matters raised in a letter of 25 July 2006 from Castleton’s lawyers (copy enclosed
for ease of reference). One of the pivotal issues in this matter will be the arithmetic used
throughout and I would like to know the answer from Fujitsu as soon as possible to the points
raised by Castleton’s lawyers. Is there any pressure you can bring to bear upon Fujitsu to
cause them to answer this letter in the near future? I would be most grateful if you would
consider this.
One other point raised by Richard was the integrity of the Fujitsu product generally. Just to
confirm, I understand that Royal Mail/Post Office know of no issues with the Fujitsu system and
are confident that it operates correctly. Please discuss this with me if you have a different
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view.
Which Court?
You may recall that Castleton’s lawyers had this matter transferred from a local court to the
High Court in London. Richard is strongly of the view that it is possible a High Court judge may
take an adverse view that this matter is before him given that, initially at least, it is a claim for
between £25,000 - £27,000. Richard feels that we should write to Castleton’s lawyers and
suggest that given the nature of the claims the matter should be transferred to the Central
London County Court - Chancery Division. Richard has a high level of faith in the judges there.
Even by making the suggestion we buy ourselves a level of protection if the matter is ever
raised by a High Court judge. At that point we could then at least assert we had asked for the
matter to be transferred to a more appropriate forum but Castleton’s lawyers refused. I would
be grateful for your view on this.
Length of Trial /Costs
With the likely number of witnesses that may be needed to cover all the various aspects of the
business conducted at the Marine Drive Post Office together with the need for expert witnesses,
Richard considers that this matter will take between 7 to 10 days of court time. The previous
estimate was 5 days. This will clearly have an impact on costs going forward. I know that
historically Stephen has produced for you a schedule of costs that was shown to Castleton’s
lawyers. That schedule totalled approximately £223,000 including VAT and disbursements. At
the time that schedule was prepared it was felt to be realistic but at the higher end of what the
matter may cost (for the purposes of demonstrating to Castleton’s lawyers what they may be
facing). Having reconsidered the matter, and in the light of the complex nature of the evidence
that will need to be gathered (both of fact and expert) and the extended current estimate for
the trial I believe the costs estimate to be certainly possible and perhaps even light. A better
view on this will be achievable in the course of the next few weeks as the nature of the
evidence Stephen is able to gather becomes clearer. I will have Stephen update you on this
aspect of this matter in the near future.
Counsel also raised the issue of the possibility of costs capping - i.e. the court asserting that
costs only up to a certain level should be awarded. This could come up as an issue if the judge
takes a view on proportionality (i.e. costs verses level of claim). There are, of course, argument
that can be deployed to try to counter this issue - should it in fact come up — but I thought it
worth raising here.
As we discussed (and apologies for raising this matter again - I know you are aware of this
advice - but I raise it here for the sake of completeness), the costs of pursuing this claim will
significantly exceed what is at stake. Accordingly, even if you win, the P.O will almost certainly
not make a net gain as your costs will be assessed and possibly capped and the
irrecoverable costs may well exceed the value of the monetary claim. In any event, you
may well find it difficult to enforce any judgment because of Mr Castleton's asset position which
is unclear. Accordingly the purpose of pursuing this claim now is not to make a net financial
recovery, but to defend the Horizon system and hopefully send a clear message to other
subpostmasters that the P.O will take a firm line and to deter others from raising similar
allegations.
Summary
The above, I believe, covers the main issues of substance that were discussed. I have not
sought to record all the detail of all the matters covered. Once you have had the chance to
consider the above I would grateful if you could give me a call or drop me an email so we can
move this matter forward as swiftly as possible.
Kind regards
Tom Beezer
For and on behalf of Bond Pearce LLP
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39-49 Commercial Road
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Date: 25 July 2006
Your ref: SJD3/FAC1/348035.134
Our ref: MDT.113969
Please ask for:
Direct dial:
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Bond Pearce
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PLYMOUTH
Dear Sirs
Post Office Limited -v- Mr L Castleton
Following disclosure, our client has been reviewing the transaction logs disclosed by your client. We
understand from paragraph 2(c) that these documents constitute a full audit trail. By that, we understand that
these logs are intended to show an item-by-item statement of all transactions carried out at Marine Drive Post
Office for the particular days shown in the logs.
Mr Castleton has carried out a manual reconciliation of all transactions recorded in the log for Week 42. Since
this is a time-consuming exercise, we have for the time being limited the analysis to that week, although in
light of what we say below we envisage that it will be necessary for each of the following weeks in which it is
alleged shortfalls arose. Week 42 was chosen for this initial analysis as it was the first week in which an
apparent discrepancy arose and therefore the starting figures going into Week 42 are undisputed and provide
an uncontentious benchmark against which to judge the movements during Week 42.
Mr Castleton’s analysis of the transaction logs for Week 42, and a comparison with the cash accounts for that
week appears to show a number of inconsistencies. According to the final cash account generated at Marine
Drive Post Office for Week 42, total receipts of £176,291.15 were paid in during the course of Week 42. The
end figure carried over from Week 41 was £54,170.49. As a consequence, it can be seen that, apparently,
£122,120.66 was received during Week 42. However, a manual reconciliation of the figures contained in the
transaction log for this week gives a figure for monies received of £125,013.90, an apparent difference of
£2,893.24.
Similarly, an analysis of the figures relating to payments (i.e.-monies. leaving Marine Drive Post Office during.
Week 42) also shows a discrepancy. The figure for stock carried over from Week 41 was £92,374.74. If this is
deducted from £176,291.15, this leaves a figure of £83,916.41 in respect of payments made. Again, however,
a manual reconciliation of all of the transactions showing in the transaction log gives a figure of £83,707.07
This difference is not allocated in the Week 42 cash accounts.
It would further appear that there is £1,706.64 in unallocated cash shown as being paid out of Marine Drive
Post Office. The computer system then seems during the end-of-week balancing to have offset this
unallocated cash against the £2,893.24 figure, along with some further giro bank transactions, and produced
an apparent cash shortfall figure of £1,103.13. This is of course the figure that our client was required to make
good.
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GAMARKT\ABBEVICASTLETONOSO70§ LETTER TO BOND PEARCE
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Our client has not been able to reconstruct precisely how Horizon arrived at the figure of £1,103.13. He
surmises that the system has sought to offset the £1,706.64 and other unallocated giro bank transactions
against the £2,893.24 figure set out above, We would invite your client to undertake its own analysis of the
transaction logs and provide an explanation for how that figure has been derived, in order that this discrepancy
can be explained and any possible flaw in our client’s methodology in carrying out the manual reconciliation
brought to light as quickly as possible.
This represents an analysis of the figures at their most basic level. Mr Castleton’s findings seem on the face of
it to be entirely consistent with his assertion since this dispute first arose, namely that the figures provided by
the Horizon computer system are incorrect. At the very least, it raises question marks about how a system that
relies in essence on double-entry book-keeping can give rise to such discrepancies,
Our client then proceeded to review the Week 42 transaction log in more detail. It would appear that a number
of the transactions recorded are incomplete — that is to say, only one half of a given transaction has been
recorded by Horizon, with no corresponding entry. Ordinarily, one would expect to see two “halves” of a
transaction, For example, a sale of £10 worth of stamps would show a £10 reduction in stock and a
corresponding £10 increase in cash. In a number of cases, the log shows apparent transactions with only one
“half” having been recorded by Horizon, and no corresponding other “half” to balance it.
In practice, this cannot happen. We understand from Mr Castleton that the Horizon system is configured in
such a way that in order to complete a transaction on screen a valid method of payment must be selected. As
such, the system would not process a transaction unless there had been a corresponding second “half” (or, in
the case of payments, a corresponding first “half” to it.
The obvious inference to be drawn is that, if the system cannot be operated to only create half of a transaction,
Horizon is not recording the apparently missing “half”. Again, this is consistent with our client’s supposition
that transactions have not been fully recorded (or recorded at all) as a result of problems in communication
between the two computer nodes used at Marine Drive Post Office.
Our client’s firm belief is that if half of a transaction were to be lost, the effect would only show in relation to
cash because Horizon looks for everything and the remainder is cash. If the first “half” of a transaction were
lost, it would show as having no effect on stock but would only be noticeable in terms of movement in the
cash figure. This also rather begs the question of whether whole transactions can be “lost” (i.e. not recorded
by Horizon) if it is possible to “lose” halves of transactions.
We appreciate that this is, of course, something that is going to have to be addressed in expert evidence. It will
also be necessary to undertake the same reconciliation in relation to the other weeks in which losses
apparently arose. However, at this stage, we would invite you to conduct your own analysis of the figures for
Week 42 and consider these anomalies with your client, and then provide an explanation for them.
Yours faithfully
GAMARKTUBBEVICASTLETONUS0706 LETTER TO BOND PEARCE