Agenda
Post Office Limited
Postmaster Litigation Subcommittee Agenda
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OST
FIC
[Bate] 22 september 2019 [ime] 11.30-12.30hrs [Pocation: I 1.19 Wakefield ]
ee Leal
© Tim Parker Tom Cooper « Nick Read « Alasdair Cameron
(Chairman) (Non-Executive Director) (Chief Executive Officer) (Chief Financial Officer)
© Ken McCall ¢ Ben Foat « Veronica Branton
(Senior Independent Director) (General Counsel) (Company Secretary)
Andrew Parsons © Rodric Williams
(Womble Bond Dickinson) (Head of Legal Dispute
Resolution & Brand)
* Catherine Emanuel e Alan Watts
(Herbert Smith Freehills) (Herbert Smith Freehills)
Richard Watson © Julie Thomas
(General Counsel ~ UKG!) (Operations Director) (Item 5.)
Angela Van Den Bogerd I Amanda Jones
(Business Improvement (Network Director) (Item 5.)
Director) (Item 5.)
1. Welcome and Conflicts of Interest Noting Chairman 11.30-
11.35 hrs
2. Minutes and Matters Arising Approval Chairman
- 17September 2019
3. Updates on Court Activity Noting and Discussion I Womble Bond 11.35 —
Dickinson/ 11.50 hrs
Herbert Smith
Freehills
4. Group Litigation Update Noting and Discussion _ I Ben Foat 11.50—
12.00 hrs
5. Operational and GLO contingency planning Noting and Discussion I Julie Thomas/ 12.00 -
Angela Van Den 12.25 hrs
Bogerd/ Amanda
Jones
6. Any other business Chairman 12.25-
- Herbert Smith Freehills fee levels (email Decision 12.30 hrs
appended)
7. Date of next meeting: Noting Chairman
November date to be confirmed’.
1 The date originally scheduled now clashes with the Court of Appeal hearing for permission to appeal the Common
Issues Judgment.
Strictly Confidential
Postmaster Litigation Subcommittee 22 October 2019-22/10/19
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Tab 2 Minutes and \
a
Postmaster Litigation Subcommittee
Board
Strictly Confidential and subject to legal privilege
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POST
FICE
MINUTES OF A MEETING OF THE POSTMASTER LITIGATION SUBCOMMITTEE OF POST OFFICE LIMITED HELD ON
TUESDAY 17 SEPTEMBER 2019 AT 20 FINSBURY STREET, LONDON EC2Y 9AQ AT 10.00 HRS
Present:
Tim Parker Chairman (TP) (by phone)
Ken McCall Senior Independent Director (KM)
Tom Cooper Non-Executive Director (TC)
In attendance:
Nick Read Group Chief Executive (NR)
Ben Foat General Counsel (BF)
Veronica Branton Company Secretary (VB)
Rodric Williams Head of Legal - Dispute Resolution & Brand (RW)
Catherine Emanuel Herbert Smith Freehills (CE)
Andrew Parsons Womble Bond Dickinson (AP)
Richard Watson General Counsel — UKGI (RW)
Alan Watts Herbert Smith Freehills (AW)
1. Welcome and Conflicts of Interest
The Directors declared that they had no conflicts of interest in the matters to be considered
at the meeting in accordance with the requirements of section 177 of the Companies Act
2006 and the Company's Articles of Association.
Minutes and Matters Arising
The minutes of the meetings held on 24 April 2019, 12 June 2019 and 20 June 2019 were
APPROVED and AUTHORISED for signature by the Chairman.
Updates on Court Activity (oral updates)
Catherine Emanuel provided an overview of court activity including the Common Issues
Appeal, the Horizon Issues Judgment and the Third/ Further Issues Trial.
An oral hearing on the application for leave to appeal had been scheduled for 12 November
2019 at which each side would have two hours to make their case.
The Horizon issues judgment was likely to be released at some point in October 2019 but
the timing was in the Court’s hands. The Court would also indicate when the Judgment
would be made public but it was likely that POL and the claimants’ solicitors would receive a
copy under embargo. The embargoed Judgment would be circulated to the Subcommittee”
and the legal team would read through this at speed to provide the headline findings and
then produce a more detailed briefing.
Ben Foat reported that a Horizon contingency planning group had been working through the
worst case scenarios (including the Judge finding the Horizon system not fit for purpose) and
through less extreme scenarios.
The Horizon Issues Judgment and the decision on leave to appeal would change the overall
position of the litigation.
1 It was agreed that this should not include Richard Watson, General Counsel, UKGI who was an observer at the
Subcomi
mittee meetings.
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Postmaster Litigation Subcommittee 2:
Action
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Tab 2 Minutes and Matters Arising
Postmaster Litigation Subcommittee
Board
Strictly Confidential and subject to legal privilege
The third trial was scheduled for March 2020 and would look at the principles of how loss
would be calculated. Work would start at the end of October 2019 with test cases. Four of
the six claimants from the Common Issues Trial had been selected. The briefing notes Rodric Williams.
associated with these cases would be circulated to the Subcommittee. The trial was not
designed to focus on the details of the original cases but the legal team would be working
‘on the assumption that claimants would wish to pivot back to their case. A number of court
hearings would also be taking place on procedural issues. A decision would need to be
reached on which counsel to use for the trial. Helen Davies QC had held this time in her
diary but the Subcommittee would be asked to take the decision on which counsel to
appoint when we knew more about the timing of the Common Issues appeal.
A number of points were raised, including:
Julie Thomas/
* that the Subcommittee would like to see what we had done and would be doing to re- Veronica Branton
design business processes and which changes were a consequence of the Common
Issues Judgment. An item would be added to the next Subcommittee agenda
* ownership of business processes was discussed and it was noted that this had changed
when Al Cameron had become interim CEO and business processes had moved into the
Chief Operating Officer’s remit under Rob Houghton. A permanent owner needed to be
identified now that Rob Houghton had left the business and Nick Read would consider Nick Read
who this should be.
4. Settlement / Mediation (Draft Board Report)
Ben Foat provided an overview of the paper to the Board on the settlement and mediation
issues. Our legal strategy had changed to explore settlement options fully. The paper
considered recoverability from a legal perspective, the claimants’ funding arrangements and
what their funders might seek from a settlement. Settlement ranges were provided,
including factors such as post termination losses and other categories of claim such as
personal injury, stigma and harassment and what might be recoverable under these. The
Subcommittee was not being asked to take any decision on potential settlement figures
currently. We were trying to arrange a lawyers meeting for both sides in October 2019 to
discuss a number of issues, including figures, prior to the mediation process starting.
Catherine Emanuel provided an overview of the advice on settlement provided by Herbert
Smith Freehills and the Subcommittee discussed this in detail. It was noted that assistants’
claims were not included in this analysis. There were different potential periods for post
termination losses. It was reported that normally claims would be limited to the contract
termination period but that the Common Issues Judgment had referred to a payment not
being “less than” the termination period while also referring in some instances to a period
of 12 months. The period for post termination losses was an issue that we would like to
take to appeal. It was noted that £5m in payments had been made to claimants to date.
A number of points were raised, including:
« that we needed a better understanding of the thinking of the claimants and their funders
and how we would be approaching the case in their position
that it would be helpful to translate some of the figures provided into specific examples _ Legal Team
{a “bottom up” analysis) and see what the overall position would be depending on which
categories of claimants we included
© the approval process for determining settlement figures and funding was discussed. It
was noted that a merits opinion would need to be produced as part of the Shareholder
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Tab 2 Minutes and M: rising
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funding approval process but that it was sensible for this to be drafted after the Horizon
Issues Judgment had been issued.
5. Date of next meeting:
11.30 hrs, 22 October 2019
Page 3 of 3
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Tab 4 Group Litigation Update
POST OFFICE BOARD PAGE 1 OF 11
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Group Litigation Update
Author: Ben Foat/Rodric Williams Sponsor: Ben Foat Meeting date: 29 October 2019
Executive Summary
Context
Post Office is awaiting decisions from the courts on the Horizon Issues trial and on Post
Office’s application for permission to appeal the March 2019 Common Issues judgment.
On 3 October 2019 Post Office notified the Claimants and the Court that we had become
aware of the existence of potentially relevant documents (previous versions of Fujitsu’s
Horizon Known Error Log / KEL entries) which had not been disclosed before the Horizon
Issues trial.
Mediation to explore settlement with the Claimant Group is scheduled for 27-28
November 2019. This could be postponed if the Horizon judgment is delayed.
Preparations otherwise continue for the third, “Further Issues” trial scheduled for March
2020.
An update on Post Office’s operational responses to the Common Issues Judgment
handed down on 15 March 2019, and on the Contingency Planning for the Horizon
Judgment will be addressed in a separate Board paper.
Questions addressed in this report
1. What is the update on the Group Litigation (Horizon judgment; Common Issues trial;
third/Further Issues trial)?
2. What is the update on the KEL Disclosure development?
3. What is being done to prepare for mediation and settlement?
a. What is being done to analyse each individual Claimants’ claim?
b. What might be driving the Claimants’ perspective on quantum?
c. Would it be more cost effective to settle the claim or litigate and lose?
d. What is being done to map out the route for shareholder approval of any
settlement?
e. Who will attend the mediation for Post Office?
4. What are the next steps?
Conclusion
1. The Horizon judgment will not be handed down until the end of October at the
earliest. It is possible that the KEL Disclosure development delays this. We are also
preparing for the Court of Appeal hearing on 12 November 2019, and to receive on
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25 October 2019 the Claimant’s formal claims for the third, “Further Issues” trial
scheduled for March 2020.
2. Post Office has received the additional KELs from Fujitsu. We are reviewing the
newly provided versions of the KELs referred to at trial to assess the impact they
may have on the litigation. We are also addressing Post Office's legal options and
audit rights against Fujitsu. Neither the Court nor the Claimants have as yet
responded substantively to Post Office’s notifications of this development.
3. Mediation to explore settlement with the Claimants has been scheduled for 27-28
November 2019. This could be postponed if the Horizon judgment is delayed (which
is possible given the KEL Disclosure development). Nevertheless, further work is
being done to refine the analysis of the Claimants’ claims and quantum, and to put
in place arrangements to share information with, and obtain approvals from, our
shareholder concerning settlement.
4, The next key steps between now and the end of November 2019 are attending to
the Horizon judgment once received and the KEL Disclosure development, preparing
for the Court of Appeal hearing on 12 November 2019 and mediation on 27-28
November 2019, and responding to the Claimants’ case for the Further Issues trial
by 25 November 2019.
Input Sought Input Received
1. The Board is asked to note the 3. This paper has been prepared with
updates in this paper. the assistance of external legal
2. The Board is also asked to note the counsel.
approach being taken to mediation,
and to authorise the Board
Subcommittee to delegate to the
General Counsel authority to make
settlement offers at mediation (on
terms determined by the
Subcommittee).
The Board is reminded to exercise caution when communicating about potential levels
of settlement. Communications about settlement should therefore only be held orally,
but if that is not possible, advice should be sought from Post Office’s lawyers.
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Litigation Update
Horizon Judgment
On 7 October 2019 the Managing Judge informed the parties that his judgment on the
Horizon Issues Trial was “unlikely to be distributed before the end of the month”. A
further update from the court on when we can expect to receive the judgment will be
provided during the week commencing 21 October 2019.
The Horizon contingency plans have been developed to respond to an adverse
judgment, the details of which are set out in the separate GLO Operations paper.
Common Issues Appeal
The Court of Appeal will hear Post Office’s application for permission to appeal the
Common Issues Judgment on 12 November 2019, with judgment on the application to
follow shortly after.
The hearing will be based on the Grounds of Appeal and Skeleton Argument we filed on
28 June 2019, and largely influenced by questions from the judge (Lord Justice
Coulson). As part of her preparations for the hearing, Helen Davies QC has outlined
the key points she aims to land during the hearing. These focus on the wide ranging
legal term of good faith Mr Justice Fraser implied into the postmaster contracts (to
which most of the other issues are connected), and challenge both the breadth of the
term and whether it should be implied at all. Helpfully, there has been a recent
judgment in another High Court case which supports our approach.*
Third / Further Issues Trial
The next step ahead of the “Further Issues” trial scheduled for March 2020 is for the
Claimants to file “Particulars of Claim” (PoC) formally setting out the legal basis for their
claims for financial compensation. We know from correspondence with the Claimants
that these could include claims for harassment and for their litigation funding costs.
The Court has ordered the PoC to be filed by 25 October 2019. The Claimants may
however seek an extension of time so that they can reflect in the PoC the Horizon
judgment’s findings. There is also a Case Management Conference before the Court
scheduled for 7 November 2019 at which any issues with the PoC could be raised. As
matters stand however, Post Office has been ordered to file Defences formally replying
to the PoC by 25 November 2019.
Future Trials
As part of its ongoing review of all 555 individual cases, Post Office is identifying criteria
for selecting “Test Claimants”. These Claimants would then be used as cases
representative of the wider claimant group in an as yet unscheduled trial on breach (i.e.
whether Post Office acted wrongly), causation (i.e. did that breach cause the Claimant's
harm), and limitation (i.e. is a Claimant’s claim time-barred).
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The parties will each propose selection criteria for choosing test cases on 25 November
2019, which will then be discussed with the Managing Judge at a Case Management
Conference scheduled for 4 December 2019. The approach taken to this exercise will
be set out at the next Board Subcommittee meeting. No date has yet been set for the
selection of test claimants.
Horizon Issues Trial - KEL Disclosure
As reported to the Board on 3 October 2019, Post Office failed to disclose all potentially
relevant Known Error Log entries (KELs) prior to the Horizon Issues Trial. Post Office
disclosed only final versions of the KELs, and not any previous versions, acting on
incorrect information from Fujitsu that previous versions were no longer available.
The Court and the Claimants were notified of this on 3 October 2019, and urgent steps
(on which the Board has received separate updates) have been taken to correct the
position. We will understand better the impact this may have on the litigation once we
have completed the reviews of the newly provided versions of KELs referred to at trial
(e.g. as to whether the versions are materially different), received substantive
responses to our notification from the Claimants and/or Court, and assessed its
influence on the Horizon judgment itself.
The Claimants are, however, likely to contend that the inadequate KEL disclosure
warrants the Court drawing an adverse inference about the extent of bugs in Horizon.
They may also press to re-open the trial.
These developments could delay receipt of the draft judgment, which could in turn delay
mediation scheduled for 27-28 November 2019. They could also influence the Judge
while drafting his Horizon judgment and ahead of future trials which will consider for
limitation/time-bar purposes whether Post Office concealed known issues with Horizon.
Legal advice is being provided about our prospects of making a claim against Fujitsu
arising from this incident and in respect of the proceedings more generally (any
recommendation will however have to wait until the impact of this on the litigation is
better known). We are also proposing to audit Fujitsu's work on the extraction of the
historic KELs. A verbal update can be given at the time of the meeting.
Mediation / Settlement Update
At its September 2019 meeting, the Board approved the broad approach to settlement
outlined in the paper prepared for that meeting. The Board also raised a number of
further matters, which are addressed below.
Individual Claimant Analysis
The Board noted that further work needed to be done to investigate each individual
Claimant's case.
HSF has already assessed the claims on a claimant-by-claimant basis for quantum
analysis purposes, based on data collated from Post Office's records (principally
remuneration, notice period, suspension period and settlement data). Nevertheless,
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assumptions may still be required for some cases, e.g. if data is not available or cannot
be verified from Post Office's records.
The cases are now being analysed so that Post Office can make informed decisions
about liability (both individually and collectively), and make strategically useful
settlement offers as part of the settlement strategy.
We aim to complete the case reviews by 31 October 2019 and also refine the quantum
analysis in light of the Claimants' Further Issues PoC so that a more informed view can
be formed prior to mediation. We aim to present the outcomes from this exercise at
the Board Subcommittee meeting prior to the mediation.
Claimants' Perspective on Quantum
The Board wanted to understand what might be driving the Claimants’ funders
investment in the GLO given the substantial delta between HSF'’s estimates of Post
Office’s legal liability
The fact that the Claimants are now proposing to
bring a claim for their litigation funding costs suggests they recognise this delta exists.
Litigation funding arrangements are highly confidential, so we do not as yet have any
insight into how the funders assessed this particular case (we hope to learn more at
mediation). The gap might however be explained by:
e The Claimants exceeding their budget: HSF's funding analysis is based on costs
incurred, which are substantial. The funders' original assessment would, however,
have been based on budgeted costs and it is likely they did not budget for Fraser
J's approach of holding numerous, costly trials.
¢ Including recovery for convicted Claimants: A convicted Claimant whose
conviction is overturned is likely to have stronger claims for stigma damages,
personal injury, harassment and malicious prosecution.
e Interest: HSF estimated interest at LIBOR plus 1% / Addin
recovery for convicted Claimants as above could increase interest
ae more if higher rates of interest or compound interest is awarded.
e Other possible factors: These might include the Claimants making less generous
assumptions arou
particular around
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In summary, although we do not yet have any insight into the funders’ approach, the
above could explain how they put a greater valuation on the claims than HSF’s
estimates, thereby justifying their investment in the GLO.
Costs to Settle vs. Costs to Litigate to Conclusion
The Board wanted to understand whether it would be cheaper to settle or to fight and
lose in Court.
HSF cannot express a concluded view on this question until we understand better the
Claimants’ settlement expectations (which should come through mediation), and have
clarity on the claims that will be made and how they are quantified (where we will be
better informed following receipt of the Further Issues PoC). Nevertheless, the following
points can now be made:
e If the Claimants’ expectations are driven by their funding commitments and a per
Claimant recovery on top,
« The cost of fighting and losing in Court will be driven by the heads of recoverable
loss and their values, plus legal costs and interest. Although this gives rise to a
large number of permutations, the following benchmarks (which are based on
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5 Post Office would also need to bear its own costs of progressing matters to
trial which, subject to the way the litigation develops, could be in the order of
a further £10-15m.
Determining the amount at which settlement can be justified will be a risks-based
exercise. Recognising the number of unknown factors that remain (e.g. the outcomes
of the Horizon Issues trial and application to appeal the Common Issues judgment, and
the potential for additional or more substantial claims to be brought), our approach has
been to start with a reasonable and justifiable assessment of quantum based on the
claims as they are currently pleaded.
Settlement strategy and authority for mediation
Our recommended strategy for mediation is as follows:
e HSF will meet with the mediator prior to the mediation and explain that Post
Office's key concern is that the claims are not worth what the Claimants claim.
e At the plenary session on the first morning, Post Office will emphasise its desire to
bring this matter to a satisfactory conclusion for commercial reasons and
reassure the Claimants that it is negotiating in good faith.
« Much of the first day will be devoted to getting the parties to understand the
principles upon which the value of the claims will need to be assessed.
« As defendant, Post Office is likely to be pressed to make the first offer.
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Addressing the Board’s request to map out the route for Shareholder approval through
BEIS and HMT in advance of mediation, arrangements are in hand with UKGI to finalise
a protocol for Post Office's shareholder to authorise settlement if required. Specifically:
e UKGI/BEIS and HMT representatives have formed a committee to assess and
respond to requests for authorisation.
e Arrangements are in place for Post Office to share information with that committee,
so that it can ask questions and form provisional views before any formal request
for approval is made.
e The committee will require confirmation of how Post Office plans to fund any
settlement. Al Cameron has confirmed that Post Office could fund the sums
presently under consideration from its own resources.
The precise form the authorisation protocol takes will depend on further feedback from
the committee.
Managing messages coming out of Mediation
The Board enquired about the extent to which we could manage the messages coming
out of a settlement, and noted that BEIS input should be sought if we were considering
the use of confidentiality agreements.
Mediation is a confidential process where the parties should be free to explore
settlement with the mediator and each other without fear of their discussions becoming
more widely known. Mediation cannot work without confidentiality.
Mediation is also a consensual process where the parties agree the terms of settlement
where one is reached. Settlement agreements routinely impose confidentiality
obligations (with consequences for breach), which may also be accompanied by a
statement the parties agree can be made public. These terms will be subject to
negotiation along with all other settlement terms. BEIS’s input on any such terms could
therefore be sought through the information sharing and approvals process as
appropriate. Post Office will also act consistently with Law Society guidance on the use
of confidentiality clauses.
Post Office Mediation Representatives
Beyond ensuring that attendees are properly authorised, there are no rules as to who
can attend mediation for a party. As matters stand, it is proposed that the key Post
Office representatives at mediation will be General Counsel Ben Foat and Alan Watts of
HSF.® Consideration is being given to CEO Nick Read attending to make introductory
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tion Update
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commercial remarks. Others from Post Office's operations and legal teams will be
available on the day to assist as required, either in person in breakout rooms or
remotely.
We do not intend bringing our Leading Counsel to the mediation, given that the purpose
of mediation is to explore commercial possibilities for settlement rather than debate
each side’s legal case. The Claimants’ solicitors have confirmed that that is also their
understanding, and that although their Leading Counsel (Patrick Green QC) will attend
the mediation, he is doing so to satisfy their funders’ requirements.
Consistent with the mediation strategy outlined at the September 2019 Board meeting,
we do not recommend there be any shareholder representation at the mediation.
However, as noted above arrangements will be finalised to keep shareholder
representatives informed of progress in the mediation.
Next Steps
An overview of the main court and settlement-related activity in the Group Litigation
through to October 2020 is set out in the “Group Litigation Timetable” at Appendix 1.
Between now and the end of November 2019 we are preparing to:
* resolve the KEL Disclosure issue, including assessing the legal claims that could
be pursued against Fujitsu and pursuing audit rights;
* receive the Horizon judgment;
* attend mediation on 27-28 November 2019, which includes finalising in advance
the protocol for shareholder settlement authorisation if required;
* attend the Court of Appeal on 12 November 2019 for the hearing on permission
to appeal the Common Issues Judgment;
* respond to the Claimants’ Further Issues trial PoC due on 25 October 2019; and
e identify “Test Claimant” criteria by 25 November 2019.
A timeline of the key milestones to the end of November 2019 is set out at Appendix
2.
The operational responses to the Common Issues Judgment and Contingency Planning
for the Horizon Judgment are addressed in a separate Board paper.
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Appendices
1. Group Litigation Timetable
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2. Timeline of Key Litigation and Settlement Milestones to end of November 2019
wic 21 October Horizon: Court to provide an update regarding judgment
2. I 22 October Post Office Board Sub-Committee
3. I 25 October Further Issues Trial: Deadline for Lead Claimants to file/serve Individual Particulars of Claim
4. I 29 October Post Office Board Meeting
5, 1 November Horizon: judgment expected to be handed down on or after this date
6. I 4 November Case Management: Deadline for Post Office to file any applications before the 7 November case management
conference
7. I 7 November Case Management Conference
8. 12 November Common Issues: Oral hearing of Permission to Appeal application
9. I 13 November Post Office Board GLO Sub-Committee on or after this date
10. I 18 November Further Issues Trial: Internal deadline for legal team to draft Defences and provide to Post Office for sign off.
11. I 25 November Further Issues Trial: Deadline for Post Office to serve individual Defences
12. I 26 November Post Office Board Meeting
13. I 27 November Parties to serve and file their proposed Selection Criteria for Test Claimants
14. I 27 — 28 November Mediation. UKGI/BEIS authority to be obtained if required.
15. I 3 December Parties to set out assumed facts and issues to be decided at Further Issues Trial
16. I 4 December Case Management: Case Management Conference to resolve any disputes about issues to be dealt with at FIT
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Tab 5 Operational and GLO Contingency Planning
POST OFFICE BOARD
POSTMASTER LITIGATION SUBCOMMITTEE NOTING PAPER
Operations and GLO contingency planning
Authors: Nina Trueman, Angela Van Den Bogerd Business Sponsors: Julie Thomas, Amanda Jones, Ben Foat
Meeting date: 22 October 2019
Executive Summary
Context
This paper covers a comprehensive update of the activities across Operations which
have already been completed since the Common Issues Trial Judgment was received in
March 2019 and those in progress as part of the change activities under Operations and
Retail. It also updates on the contingency planning work completed in readiness for the
Horizon Issues Trial Judgment.
Questions addressed in this report
1. What changes have been made to operational support processes since the
Common Issues Trial Judgment?
2. What further changes are now in progress via the Ops transformation and Agent
Relationship Programmes?
3. What is our level of preparedness ahead of the Horizon Issues Trial Judgment
being received?
4. Is the expected spend on GLO in line with expectations?
Conclusion
1. All processes related to how we support branches, recover losses, manage loss
disputes, suspend and terminate Postmasters have been reviewed to reflect the
outcomes of the Common Issues Judgment.
2. A programme of activity to reduce Transaction Corrections through Horizon screen
changes and further process system and restructure activity across Loss
Prevention and the Branch Support Teams in Chesterfield is now mobilised.
3. Ahead of the Horizon Issues trial judgment, additional monitoring capability, a
response plan to protect service and a comms strategy to maintain the confidence
of our stakeholders are all ready to be deployed.
4. The current estimated GLO spend is £8.9m Opex (of which £1.7m not committed)
and £10.6m Change spend (£3.7m not yet in any business case). See summary at
Appendix 4.
Input Sought Input Received
1. The Board is asked to note the 2. Operations team, Retail Sales team,
contents of this paper Horizon Contingency Planning
Programme, Finance
Strictly Confidential
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POST OFFICE PAGE 2 OF 14
The Report
What changes have been made to operational and support processes to reflect
the Common Issues Trial Judgment?
The Branch Support Centre has been restructured to strengthen the support for
branches:
1. Transaction Correction wording changed and under strict quality control to
ensure these are plain English and correct.
2. Transaction Correction Disputes Team mobilised to help Postmasters if they do
not agree with a Transaction Correction following explanation from the Branch
Reconciliation Team.
3. Tier 2 Branch Support implemented with dedicated Case Handlers helping
Postmasters by investigating discrepancies if the Tier 1 call is unable to identify the
cause. (By September, 575 cases valued at circa £1m have been resolved - 99%
success rate).
4, Loss Prevention Case Workers - new team mobilised in August to administer
the end to end audit process, which will ensure accurate, consolidated information
is maintained at an individual case level. This team will take on the responsibility
of scheduling audits which will result in less lead time between a risk being
identified and the branch being audited.
5. Horizon Knowledge Based Faults (KBFs) formerly known as KELs — joint work
with IT and Fujitsu completed to separate known faults from Knowledge Based
Articles (KBA) and Knowledge Based Information (KBI).
6. KBF Process - the process for identifying faults has been formalised and the
(current) 11 known faults have been documented and uploaded to Dynamics and
the Branch Insights Tool for reference by the Branch Support, Loss Prevention and
Area Manager teams if a Postmaster reports a discrepancy.
7. Branch Insight Tool - developed and launched to all Area Managers and all
branch support teams. This tool is designed to be shared with Postmasters and
gives detailed Operational performance information to enable supportive
discussions around Operations conformance.
A new Loss Prevention function has been established to minimise loss to Post Office,
whilst supporting branches against the threat of internal and external losses:
8. End to end process review - all data, decisions, letters, processes involved in
supporting branches, identifying losses, supporting recovery of discrepancies,
moving into loss dispute, recovery, suspensions and terminations have been
reviewed: -
9. Audit Rationale Document - produced for every audit and shared with the
branch operator at the start of each audit to improve the transparency of the
rationale for the audit
10. Audit opening and closing scripts — have been produced, and used by auditors,
to ensure a consistent conversations the branch operator at the start and end of
each audit
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11. Audit attendance - all audits now have a minimum of two auditors to ensure
consistency and to allow double checking of counting between auditors and so
minimise mistakes
. New telephone quality assurance process to gain feedback from branch
operators on their audit experience
13. Weekly management of suspension cases and cases involving Legal
introduced to improve visibility of suspension cases and improve the speed of
resolutions — cases now reduced to 6-8 per month from typically 15-18.
14. Contract management restructured to create one point of decision making for
all suspension, termination and reinstatement decisions to improve consistency
and speed.
15. Correspondence reviewed with Legal and Comms - ensuring legal
compliance, but supportive tone of voice. This includes remedy letters sent by
Contract Advisors and discrepancy letters sent by Loss Recovery.
16. Loss Recovery call monitoring introduced to ensure quality and consistency of
telephone calls
17. PACE interviews — no longer carried out by Security given that prosecution
processes are on hold
18. Increased support and Operation Torch visits - are being carried out by the
Security teams to focus on helping operators prevent their exposure to increasing
retail crime and to drive security compliance
19. Culpa 'y reviews - processes for operator culpability (e.g. sleight of hand)
have been reviewed to ensure consistency and a focus on support for the branch
operator
1
N
What further changes are now in progress via the Operation Transformation &
Agent Relationship Programmes?
20. Developing Capability (Hothousing) - there has been a step-change in effort
over the last year to better engage and support Postmasters. Capability is being
developed through hot-housing which is live in 220 branches, extending to a
further 45 this month (October). Of a selection of Postmasters surveyed, 79% felt
the relationship between Postmasters and POL was improving.
21. Training — improvements to the on-boarding experience with the new ‘Run a Post
Office’ website and digitised business plan on track to be live this month. New
operational Training modules being developed to address priority areas where we
have balancing issues e.g. lottery and ATMs.
22. Engagement - continued testing of the effectiveness of different engagement
channels. To date, hosted 9 regional business update conference calls, over 100
curry nights, 22 drop-in sessions and over 100 mails workshops across the
country. The sessions, led by Regional Managers and Area Managers, allow
postmasters to openly share concerns, discuss issues and share ideas.
23. Remuneration - various options for increased remuneration have been tested
and modelled with the input of c.50 Postmasters, 6 multiple partners and the
NFSP. Recommendations will be proposed to the Board in a separate paper.
24. Transaction Corrections and Horizon improvements - business case approved
for phase 1 and 2 along with prove case for phase 3.
Phase 1 and 2:
e Banking TCs - changes to reduce ability to make mistakes (Nov 19)
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« Bureau TCs - changes to Bureau manual booking, selling and buying screens
and pre-order click & collect. (Jan 20)
* Cash rem from branch improvements (Jan 20)
Phase 3:
e Debit card TCs - delivery of refund to debit card functionality (Jan and Mar
20)
« Lottery TCs - Camelot integration for Lottery prizes (Mar 20)
e« Paystation TCs —-automation changes (Mar 20)
e ATM TCs - ATM simplification (Mar 20)
25. Continuous Improvement of Horizon screens - shared accountability to feed
the backlog of improvements between Retail, Operations and IT. Annual budget
(ASM) to be ringfenced to fund a dedicated Fujitsu improvement team.
e Backlog issues to include simplifying the wording of a Branch Trading
Statement and making it clear that Postmasters have the ability to dispute
the balance figure.
26. Loss Prevention Transformation — business case submitted to continue the
modernisation of this new function with predictive data modelling and case
management allowing earlier detection, fewer losses and fewer suspensions: -
e Introducing a Case Management system linking with other teams outside
of LP means we can work through cases clearly and consistently from incident
to recovery, to understand true workload, improve inefficiencies to close
cases quicker. The Postmaster will have a much better experience as we can
implement support interventions sooner, and meet our obligation of good
faith and transparency. This will also enable case progress to be made visible
to the Area Manager teams and other internal audiences so that local
stakeholders can be managed and updated as appropriate.
e Basic SAP Improvements such as ageing the losses correctly and
automating legally compliant letters means we will be able to recommence
our loss recovery activity whilst doing this confidently within the findings of
the GLO.
« New approach to Loss Prevention using predictive data modelling will
create a range of responses to risk. These will range from desk-based audit
calls for return of cash to blocking user access to Horizon to implement more
control, with physical audit and suspension becoming the exception rather
than the norm. Initial business case submitted Oct to include a prove phase,
expected to lead to a full business case in Q4.
e Cause of branch loss outside of Horizon changes to be understood,
including any weakness in processes which may expose Post Office, branches
or our clients to risk of loss. An example of this is Stock, which is converted
to cash as part of the balance and reconciliation process.
27. Business Resilience and Change (BR&C) - business case and planning
underway to establish a Business Resilience and Change gateway within
Operations. This will incorporate the existing Network Gateway Team with an
expanded remit. The team will continue to be the forward looking ‘voice of the
Postmaster’ for all changes impacting the branch network. The expanded remit is
to take ownership on impact assessing back-office systems, processes and third
party supplier process changes. It will also identify and coordinate the early
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resolution of issues that could impact branches as well as manage operational
branch communication. The Knowledge Based Fault process and ownership of
future Horizon improvements will sit in this team with joint objectives across
Network Operations and IT Operations.
28. Branch Support TOM - prove case to land in Q4 with a full business case as part
of OE to be developed during Q4. This describes a support centre which is digital
first, but skilled to support in the right way, at the right time, driven by data. This
is inter-connected with Branch Hub, Loss Prevention and improvements to Horizon
to design out mistakes
* see Appendix 1 for the aims and specific measures for Operations Transformation
What is our level of preparedness ahead of the Horizon Issues Trial Judgment
being received?
29. Preparedness activities ahead of the Horizon Trial Judgment being received include
the scope of work carried out since June 2019 and the strategy adopted by the
wider Post Office team to build organisational ‘readiness’ and minimise business
disruption, based upon a worst case Judgment being received. Though not all are
expected to materialise, the potential and most severe immediate business
impacts of a worst case scenario Judgment are set out at Appendix 2, along with
an indication of likelihood.
30.A set of minimum requirements, or capabilities, which needed to be in place in order
for Post Office to be ‘ready’ to respond to a potential adverse judgment were defined
as:
* To have a monitoring capability in place, in order to quickly identify
impacts across the network.
Capability is now in place and rehearsed to monitor and report twice daily on
the following: unplanned branch closures, postmaster sentiment, cash
declarations / branch conformance, media articles, customer complaints,
NBSC call volumes, relationship/client reaction, postmaster resignations.
e¢ To have operational response processes in place that will minimise any
disruption to customer service, with a particular focus on vulnerable
customers.
New processes have been designed or existing response processes enhanced
to ensure operational impacts can be managed coherently. For example, a
virtual team has been established to coordinate and mobilise Comms, Supply
Chain, Area Managers and Branch Support — should branches refuse to open.
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Where additional resource may be required (e.g. Branch Support Centre),
surge resourcing plans are in place.
Broader and longer term business continuity needs have been identified, with
plans in place to pilot and build resilience e.g. through trialling ‘pop up’ post
offices and having in place 5 additional mobile vans - both my mid-
November.
e¢ To have a rapid response team capability in place and rehearsed, able
to implement operational response measures and react to a rapidly
evolving and unpredictable situation.
A cross-functional strategic Crisis Management Team is stood up, rehearsed
and able to respond to a range of scenarios as well as manage more complex
strategic challenges, with the appropriate MI feeds and escalation points to
the GE.
* To have a communication strategy in place, designed to protect
stakeholder confidence in the Post Office.
A comprehensive communications plan, which is built up from 30 pieces of
collateral and briefing materials, varied by audience and channel, has been
developed. WBD and HSF have both reviewed all associated material as have
Lexington; ensuring the tone is appropriate and delivers to our strategic
objectives, which are as follows:
1. Avoid a hostile confrontation with the Judge.
2. Protect the overall reputation of the Post Office and the integrity of its
relationship with Postmasters.
3. Reassure and maintain confidence of key stakeholder groups in the overall
reliability of Horizon, the PO network, products and services.
4. Proactively make clear that the Post Office is addressing the concerns of
key stakeholders and the Court.
5. Minimise any media and political fallout arising from the Judgment.
6. Quickly move the story from criticisms of historic practices to
communicating forward-looking proposition to postmasters designed to
improve their commercial and day-to-lives.
31. The initial focus of the contingency planning has been to equip the business to
respond to the worst case scenario (a high level view of Post Office planned
responses is included at Appendix 3), recognising that currently there is no
alternative at scale to the Horizon system, nor for example, a temporary paper
based system which would be acceptable to regulators such as the FCA.
32. The focus has now extended to considering a more moderate and, we believe, the
more realistic response from postmasters i.e. we expect the majority of
postmasters to want to continue to provide services to their customers and run
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33.
successful businesses. They may however be concerned by the Judgment and turn
to Post Office for explanations, guidance and reassurance on what Post Office will
do to support them should they encounter any issues when using the Horizon
system.
A number of key materials have been or are being prepared in order to maintain
confidence, contain the judgment and reassure Postmasters and other
stakeholders:
¢ ‘Found vs Not found’: a document which will set out, by each of the 15
issues, what has or, importantly, has not been found by the Judge and what it
does or does not mean for Postmasters, customers, clients, retail partners etc.
The purpose of this document is to inform and equip individuals within the
business, enabling them to ‘contain’ the judgment. This document is to be
produced within 48 hours of receiving the embargoed Judgment, so that it is
ready for ‘Day 1’.
¢ 29 Bug Summaries: summaries have been produced for each of the 29
discussed in court but will need to be reviewed once the embargoed judgment
is received. It will be possible to make the detail of these bugs available to
postmasters and whether they were branch impacting.
¢ Identifying and fixing ‘bugs’: how branch affecting ‘bugs’ are identified,
escalated and communicated to Postmasters. (Branch Resilience and Change)
« Summary papers have been produced with the intention to make available to
postmasters:
o How the KEL, PEAKS and BIMs knit together and are used to fix errors.
o Remote Access — what we define it as, and the extent it has actually
been used in both Legacy Horizon and Horizon Online.
e One Pager Operator Guides have been produced for:
o Investigating Branch Discrepancies.
o Help with a discrepancy and or TC.
o Troubleshooting /Hints and Tips.
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Appendix 1 —- Scope and measures for Operations Transformation
The Operations Transformation programme is designed to support a partnership of transparency and trust, delivering
efficiencies and protecting Post Office from operational, legal and regulatory risks
we We will make the Branch We will establish the (2
Operator Lifecycle as simple appropriate controls. We will
¥ branch churn as possible, enabling ongoing be forward looking and W value of losses
management, controls and proactive, anticipating risk and
© operator complaints Suppor for our branches, We Soa in place necessary ¥ operator
Moperator satisfaction Will establish and maintain a : mitigations before it suspensions
reciprocal relationship of 1. Improving 2. Mitigati materialises. W reputational
trust and transparency the experience operational, risk
of our branch
operators
legal and
regulatory risk
) Digital first will underpin We will establish a Soh
everything that we do. e. lean and efficient, low Sop
3. Driving cost
0 Our business model itll i tisk central support
"9 . services and capabilities reduction ani service to our branch 2
*# digitisation will evolve to become efficiency operators Our process ‘f C0St efficiency
improvements will I WNBSC cost base
drive efficiencies both Wbranch
internally and for our ‘i ts
branch operators OPerating cos'
# online self-service —_ more digitised and
4 continuous customer centric with a
‘ supporting continuous
improvement culture in,covement culture
gains
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Appendix 2
1. Worst Case Scenario
A worst-case scenario was identified through a series of workshops with the wider business (including IT, Legal, Ops and
retail). The most severe of these impacts are captured below:
Issue ‘Grouping’ (There are 15 “Horizon Issues” to be decided at I I Stakeholder inference _ The Potential and most severe immediate I
trial. These can be grouped under 4 categories) along with extracts I I business impacts I
from the Claimants’ closing submissions I
I I
1. The reliability of Horizon and the extent to which Horizon I Technical: IT system is not fit I 1. Coordinated or widespread branch closures I
was the root cause of shortfalls in branches: It is clear that for purpose today to the extent I —_ impacting customers [likelihood thought I
bugs, errors and defects have caused discrepancies and shortfalls I that Post Office and postmasters to be low].
in branch accounts and undermine the reliability of Horizon to cannot rely on accuracy of branch I
accurately process and record transactions. accounts past and present. I 2. Calls for or enforced immediate legal, I
operational, or governance reaction (e.g.
2. The ability for Post Office and or Fujitsu to access, edit or I Procedural: Process governing I settlement, independent inquiries etc)
delete transaction data recorded in branches: Remote Access) the Horizon system are not fit for I _ [likelihood thought to be medium/ I
is an ‘open door’. Post Office and or Fujitsu had a number of purpose and serious concerns high).
different powerful tools and roles which had the potential to insert, remain over the use of remote I
edit and delete transactional data. Roles were not properly access. 3. Significant increase in postmaster queries, I
controlled. questions and claims into branch support I
Cultural: Post Office’s I centre [likelihood thought to be high].
relationships with, or conduct
towards, postmasters - or wider I 4
culture of organisation and
Please note that groupings 3 & 4 issues were designed to be
uncontroversial factual questions about how Horizon conducts
reconciliations and processes transaction corrections. The issues to
. Retail partners refuse to sell products or I
operate Post Offices. Commercial clients I
8 be addressed are purely factual and should not invite comment on _I 'adership ~ is not acceptable. seek to terminate contracts [likelihood I
adequacy or sufficiency. I thought to be low]. I
3. Reconciliation and Transaction Corrections - How Horizon I 5. Prolonged top tier negative media coverage I
compares its own transaction data against other data I extending beyond initial news moment to I
sources: There is no dispute between respective experts on these human interest stories [likelihood I
issues, though the Judge could find that over 100,000 TCs each thought to be low/medium]
year indicates that there are problems with Horizon or Post
Office’s reconciliation Process.
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Information available to Post Office versus that available to
Horizon did not, in general, alert Postmasters to any significant
bugs or other defects in the Horizon System.
Post Office had access to data and systems which Postmasters did
not. Some causes for shortfalls would be difficult or impossible to
identify from the reports or transaction data available to
Postmasters with such identification requiring information and co-
operation from Post Office and or Fujitsu.
There is no functionality within Horizon to raise disputes. These
are done via the helpline and ‘settling centrally’
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Appendix 3
2. Response Plan
The Response Plan is a live document detailing how Post Office will detect, mitigate and respond to immediate business impacts
with the processes upon which it is reliant, embedded within it. The table below provides an aggregated view of how Post Office
will respond to the most significant potential impacts which could occur across the network following receipt of an adverse
Judgment, along with our view of their likelihood.
Impact I How will we detect this? I Key responses I Key communication-based responses
I I I
I Coordinated or
« Inform customers through social media/email
a ==
Monitor HORice log-ins
If closed branch is located near to
Iwidespread branch «Supply chain reports I alternative branches/services: teams to redirect them to nearest available
I closures impacting Ie Area Manager reports I» Redirect customers to nearest branch services I
I customers I + NBSC reports (hiring taxis / minibuses if required) and I « Area managers to engage postmasters to
I I» Customer complaints team update Post Office website so customers determine length of closure expected
I I reports I know which post offices are open (temporary or long-term) and request re- I
I I I Inform supply chain to increase cash opening I
I IThis data is compiled into a orders to nearby branches who remain
I I single report, including I open and may receive increase in footfall
I I baseline unplanned branch I
I closures and removing [If closed branch has no Post Office branch
planned or scheduled branch I (or Payzone outlet for bill payments) within
closures. I3 miles but is nearby to competitors: I
I I* Redirect customers to alternative
providers/competitors
If closed branch is the only branch/service
within 3 miles:
I» Consider deployment of pop-up post
I I office (where available) to region in
I order to provide continuity of service to
I I vulnerable customers for SGEIs
I
I
I
I
I
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Impact How will we detect this? I Key responses Key communication-based responses 3
I+ Consider deployment of vans (where 8
I I I available) if location is within distance of I s
I I I current van routes I Fi
I Calls for or enforced I « Media coverage and/or I» Legal team have separate approach to * Core response communication playbook will be 3
I immediate legal, I demands from key I manage requests to settle / historic used to defend Horizon and remind I
operational, or I stakeholders etc I claims stakeholders of why Horizon fundamentally
governance reaction I __ requesting immediate I» IT response team set-up to respond to, does work 5
(e.g. settlement, I settlement / Inquiry I escalate and fix specific technical + ‘New Normal’ messaging to be used to I ©
independent ing I* Judge makes comment on I challenges that may be raised in demonstrate the positive and tangible changes I
jetc). I specific bugs, known errors I Judgment. Any issue will automatically be I being made by the business
I or technical issues I raised as P1 and escalated to Fujitsu
IT Team to have reviewed all processes
I I to ensure they are appropriately
I documented, including the ‘bug’ I
identification, escalation and
I I communication process and pro- active
I I scanning for issues process.
Areas managers will escalate challenging
Significant increase in I + NBSC call volumes NBSC surge resource plan invoked to
postmaster queries, I + Area Manager - sentiment I increase tier 1 headcount by amaximum I questions/queries to the comms team for a
questions and claims I monitoring and queries. ~—I_of c.30 people. This will mean more formal response
linto branch support I NBSC call handlers can manager tier 2. I» Area managers equipped to reassure I
Icentre. I I calls postmasters on Horizon
I I I» Area managers are equipped with * NBSC equipped to reassure and
I I information regarding Horizon manage/triage queries from postmasters
I I troubleshooting if Postmasters have
I I concerns on reconciling. This will reduce
I I the burden on NBSC as Postmasters can I
I I I use the guide to self-diagnose
Retail partners refuse I Relationship manager
Relationship managers and GE to be equipped
Legal team have specific response
I to sell products or alerts RRT / GE I process to address contractual issues with Horizon defence messaging detailing the I
I operate Post Offices. « Corporate affairs I raised by this scenario accuracy of the specific reconciliation process
I Commercial clients I « Communications team I with each commercial partner.
I terminate contracts. I
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How will we detect this?
Impact Key responses I Key communication-based responses
* If required, branch closure response Long-term strategic engagement required to
process will be invoked to provide manage commercial partner/client
continuity of services where required expectations and future relationship with Post
I Office
I Prolonged top tier * Corporate affairs * Comms team to continue to monitor and I All colleague comms to provide reassurance
I negative media I» Communication team I manage story. * Appropriate spokesperson used.
I coverage extending
Response will focus on strategy for people to
I beyond initial news “maintain confidence” in the Post Office
I moment to human I * New Normal’ messaging to be used to
I interest stories. I I highlight the major changes underway at the
Post Office
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Appendix 4 - Estimated GLO Spend (17 Oct 2019)
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‘Simpler Business Training and Engagement 3,200 Change Lead (GLO coordinator for Ops) 30 Simpler Business - Hot Housing 17
‘Agent Remuneration TBREC team “GLO response 120 ops subtotal Retail subtot @ 47
Agent Remuneration - increased rates for PH 2,500 Tas 24 ap
‘Agent Remuneration - Suspended PM" 1200, vorat 430 i976 Simpler Business - Hot Housing 29 ota Tota 37 a
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From: Watts, Alan
Sent: 16 October 2019 14:41
To: Ben Foat!_
Cc: Rodric Williams ¢
‘I GRO ]
} Emanuel, Catherine
We are now moving from phase 2 to phase 3 of the litigation whereby our standard hourly rates will
be reduced by an additional 5% to 15%).
I am hoping this is a suitable juncture to assess how HSF's performance has measured up to the
agreed KPls during phase 2.
You will recall that, under our engagement letter, 15% of our time costs for phase two is deducted
from our bills and only becomes payable if and to the extent that the GLO Board Subcommittee
considers we have met the agreed key performance indicators (including partner involvement,
actual versus quoted lead time for delivery of work product, quality of advice, cost efficiency and
responsiveness (including in relation to any complaints or issues). So Post Office has the discretion
to agree anything between 0 and 15% based on its view of our performance.
The key points we would draw to Post Office's attention are:
1. One of the key roles we were instructed on was the Common Issues appeal. History
suggests that we were right to recommend that this be dealt with separately from the
recusal application. Further, although the outcome of the appeal is not yet known, we have
successfully persuaded the Court of Appeal to give us an oral hearing at the permission
stage
2. Our other key role was to explore settlement. In that regard:
a. Amediation is now fixed and in the diary for November;
b. We have conducted an extensive quantum analysis across the 555 claimants which
enables us to negotiate credibly about the true value of the claims;
c. We have developed a clear negotiating strategy which takes advantage of the
government approvals required under Post Office's Articles of Association;
d. We have recommended the (novel) use of Part 36 which will enable us to: (a) shift
some costs risk to the Claimants; (b) make it more difficult for the Court to make
"rolling" costs orders in the Claimants favour which will swell their fighting fund and
(c) will allow us to "reach" individual claimants directly, rather than communicating
about settlement simply through Freeths and the activist claimant subcommittee.
3. We have taken an active role in steering the litigation in a helpful direction going
forward. In particular:
a. It was at our direction that the scope of the further issues trial was narrowed to
exclude limitation issues and, in particular, the (likely very damaging) question of
whether Post Office was guilty of deliberate concealment under section 32.
b. We have sought to re-focus the case on an examination of properly selected test
claimants by including a direction for the service of test case selection criteria and
taking over the individual claimant review ourselves so ensure that appropriate test
claimants are selected.
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4, We have actively assisted on issues arising out of the Horizon Issues trial, including the
recent disclosure issues.
5. I have been directly involved in all key matters relating to the case, including on shareholder
engagement.
6. Notwithstanding that a great deal of work has been required in short order, we have
delivered in a timeous fashion enabling the Board to take informed and considered decisions
on the appropriate levels of settlement authority to give.
7. We have leveraged off HSF's Belfast office with their lower charge out-rates and ability to
upscale quickly where required to deliver volume work (such as the quantum review and
individual case analysis) in a cost effective way without affecting the quality of the output
We are obviously quite happy to expand on these points or put them in whatever format you would
prefer. Will this email suffice for the members of the GLO Board Sub-Committee or would you like a
more formal note?
Regards
Alan
Herbert Smith Freehills LLP and its subsidiaries and Herbert Smith Freehills, an Australian Partnership, are separate
member firms of the international legal practice known as Herbert Smith Freehills.
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