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Initial @
Complaint and
Mediation
Scheme:
the way
forward
Discussion draft:
Summary of general issues and
options
3 April 2014
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Introduction @
This paper is intended to stimulate discussion and debate in respect of:
* The working assumptions that may inform the future of the Scheme;
* The principle of “fairness” and what that means in relation to any changes proposed;
* The broad options to restructure the Scheme; and
* Any changes required to current arrangements.
There are five key questions on page 10 on which we are seeking ExCo input.
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Outline of current position @
The Initial Complaint Review and Mediation Scheme (the Scheme) was established in August 2013 as
a device to resolve complaints and issues about the Horizon system to the satisfaction of most or all
stakeholders.
* The initial timelines have proved to be over-optimistic. Out of an original 147 applications, 139 are
still in the Scheme at various stages.
* There is an expectation gap. Estimated claims are thought to be in the region of £100M. This
contrasts starkly with our legal exposure.
* The scheme is resource intensive. There are currently 29 staff/consultants working on the Scheme.
In addition, there is considerable external legal, professional and consultancy support. Run rate is
£5M per annum and rising. This includes backfill for investigators. Second Sight account for around
10% of this expenditure.
* There are concerns in relation to the role of Second Sight, their capacity and the quality of their
work.
¢ Stakeholder management continues to be challenging.
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Issues and Concerns &
Six key concerns have been identified in relation to the existing Scheme. These are:
The cost of administering the Scheme
The PR and reputational risk associated with non-settlement
The PR and reputational risk associated with settlement
That settlement through mediation will not be achieved within appropriate and reasonable financial
parameters;
That unfounded assertions made by Second Sight in relation to Horizon are leaked or come into the
public domain: and
So-called settlement risk.
These concerns are discussed in more detail in Appendix A.
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Working Assumptions oe
In looking out to the future of the Scheme we have made the following assumptions:
* The Board does not have the appetite to close the Scheme and to put in place an entirely different
structure;
¢ Stakeholder expectations are such that any decision not to investigate the applications to the
Scheme would be met with significant public censure;
* There is a desire to modify the Scheme in order to give Post Office greater control of it whilst
maintaining the “spirit” of the dialogue with SPMRs;
¢ There is a desire to limit Second Sight’s role in the Scheme;
¢ Excluding Second Sight entirely from the Scheme / Working Group could give rise to adverse
consequences;
* The Post Office wishes to be seen to be “doing the right thing” and accordingly will be guided by
principles of “fairness”;
¢ There is no desire to take a decision to amend the Scheme in such a manner which will increase the
Post Office’s susceptibility to Judicial Review; and
* The Horizon system is working as it should. NB an independent assurance exercise is currently
being undertaken with respect of the Horizon system.
* We do not wish to do anything precipitous which may be inconsistent with the Chair of the Working
Group.
(5)
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Implications @
It would appear to us that the following are necessary implications of the above working assumptions:
* On current run rates, it is likely to be early Autumn before the Post Office investigation phase is
complete;
Mediation will not be completed until the end of 2014/15.
¢ Second Sight, to the extent that they continue to be involved, will be a bottleneck in the process;
The overall cost of managing the Scheme will not decrease significantly; and
* Any change to the existing Scheme will require us to manage stakeholders more assertively than we
have done - including MPs - and manage the consequences of that.
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Scheme Objectives and Core Principles oe
The following principles have been developed as a framework to assess “fairness” and therefore
provide a basis for deciding how best to reconfigure the Scheme.
Core Principle What that means in practice:
Equality * Not treating SPMRs who have applied to the Scheme differently to others therefore giving rise to
claims of unfairness from non-applicants and existing SPMRs
Transparency + Ensuring we are transparent in our dealings with applicants and other SPMRs. Where we have not
been transparent we might consider the applicant has a claim to some form of redress.
+ Clarifying eligibility under the scheme for claimants subject to criminal convictions or civil judgements
* Establishing an independent view of Horizon system and whether it is fit for purpose
* Open about process and timescales
» Audit trail to support decision making
Full disclosure of legal decisions
Consistency with Post Office + Post Office does not have an overarching legal duty of care to SPMRs. It has a contractual
and SPMR business model relationship. The standard terms and conditions of contract, and associated risk allocation apply to all
applicants
* The Scheme and any settlements should be consistent with those terms and also any business
model operated by SPMRs.
Doing the Right Thing + Commit to seeking the right answer in each and every case
Ensuring that no SPMR is out of pocket by being part of the scheme
+ Protect our public reputation as a fair and just organisation.
+ Admit to mistakes and highlight the changes being put in place
There will also be a requirement to manage the Scheme effectively and to demonstrate value for
money. In adopting these principles the Scheme will go beyond generally accepted legal
principles.
(7)
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Broad options for the future of the Scherfe
The spectrum of potential options for the Scheme can be described broadly as follows:
1. Maintain current Scheme
2. Close the Scheme
3. Restructure the Scheme whilst maintaining the “spirit” of the existing Scheme; and
4. Devising a new alternative dispute resolution structure (e.g. Arbitration).
It would appear to us that no option other than Option 3 is consistent with our working assumptions
(see Appendix B for details).
Work to date has identified two variants to Option 3:
¢ A “rough and ready” approach which applies a settlement recommendation based on the Post
Office’s assessment of the value of the claim, post investigation; and
¢ Amore nuanced approach (along the lines of those discussed with the Financial Ombudsmen
Service) which could consider:
Whether there was evidence of heavy-handed treatment;
Length of service and how far from retirement he/she was when terminated/suspended;
Whether there had been any admission of guilt; and
Whether there had been any loss of value in the SPMRs non-post office business.
Whether the Post Office was in possession of information which, if disclosed, would have been
helpful to the SPMR.
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(8)
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Changes required to current arrangemerf@
In any event, the following aspects of Scheme operations need to change:
¢ Governance arrangements — revising the current balance of power between the Post Office and
other stakeholders to enable effective and fair decision making;
¢ Applicants subject to criminal convictions - continue to investigate but make no decision until the
end of the process;
* Settlement — to be based on a clearly defined, structured process and decision framework based
on core principles;
* Second Sight — decide whether, and if so, to what extent they should continue to be involved in the
Scheme; and
¢ Periodic Review — institute monthly checkpoint reviews of the Scheme as a clear view of the
caseload develops, to ensure the Scheme continues to operate in the best interests of all parties.
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Deliberative Discussions @
The views of the ExCo sub-committee are sought in response to the following questions:
¢ Do you agree with the working assumptions and their implications?
* Do you agree that “fairness” is a core principle for the Scheme?
If so, has the principle of “fairness” been properly defined?
* Do you agree that Option 3 —- Scheme restructuring is the way forward?
¢ Do you agree with the need to change the Governance, the handling of Criminal Cases and
Second Sight’s involvement?
¢ What are the next steps?
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Appendix A
Risk Matrix
Issues and Concerns
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@
Six key concerns have been identified, and these are summarised in the table below:
+ Under scheme rules POL have agreed to meet costs
Cost of administering the scheme
incurred by SPMRs:
* up to £1,500 plus VAT for claim investigation
+ up to £750 plus VAT for a half day mediation plus travel
up to £1,250 plus VAT for a full day mediation plus travel
+ Liability estimated at £415k [TBC]
Conducting investigations and reviewing the outcome is
accounting for the majority of the spend to date.
Negative publicity may follow should the cost of this exercise
become publically known, particularly if SPMRs are not
satisfied with the outcome.
Second Sight are resistant to direction by the Post Office,
and have continually attempted to expand their scope
(reference to so called Job 1 — MPs work)
Costs incurred by Second Sight. Run rate in excess of £50k
per month.
Risk of dispute where quality of work under question
Lack of clarity in respect of role and remit resulting in a
perceived lack of impartiality.
* Agree rules to establish eligibility for
contribution towards costs
* Agree terms of reference
* Clarify role and responsibilities
+ Agree QA and approval process in
terms of contract to support payment of
fees
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@
Issues and Concerns
Risks identified
Issues arising
Mitigation / approach to quantificatio
PR and reputational risk
associated with non-settlement
Establishment of scheme has set high expectations of a
financial settlement
Views expressed publicly by Second Sight and other
stakeholders, often with little evidence to support position,
raises expectations of applicants.
Low risk of litigation if SPMR not satisfied with outcome of
mediation - scale and merits of claim will drive decision
making in this regard.
Low risk of class action
Clarity around process
Transparency in relation to decision
making
Consistency of approach
PR and reputational risk
associated with settlement
The reaction of stakeholders, including non-applicants and
SPMRs to the payment of compensation to SPMRs where
there is no legal liability to do so.
The effects of such payments on the criminal convictions
secured to date and sought in the future.
These risks are potentially more significant than non-
settlement
Clarity around process
Transparency in relation to decision
making
Consistency of approach
Settlement through mediation will
not be achieved within
appropriate and reasonable
financial parameters due to
professional advisers seeking to
recoup their costs within the
settlement mandate.
Adversarial approach being adopted by professional advisers
driving up costs for what was intended to be a light touch
mediation scheme.
Upward pressure on settlement value will increase financial
liability
Time and cost to manage caseload likely to increase.
Explore potential to cap level of costs
which would be applicable in any
settlement.
Negotiate cost settlement outside
mitigation process.
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(43)
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Issues and Concerns
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Unfounded assertions made
by Second Sight in relation to
Horizon are leaked or come
into the public domain
Feeding the perception that there are problems with
Horizon
Raising expectations of those within the Scheme
Potentially giving rise to additional claims from others not
within the scheme.
Undermining Post Office’s ability to properly investigate
and prosecute existing SPMRs
So-called Settlement Risk
“Inappropriately considered” settlement of claims may
encourage others both inside and outside the Scheme, to
claim similar amounts.
This has the potential to de-stabilise the network and
impact on the current operation of the business.
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Appendix B
Initial Options Analysis
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Subjective Analysis @
1. Maintain Current Position
This option maintains the scheme as currently constituted
* Maintains current commitments to applicants + Slow — expected case progression has moved from 3 I + Reputational risks
* Diligent investigation process months to 12 months. + Financial liabilities
+ Expensive to operate — and increasing due to case * Operating risk — inability to deliver the
progression challenges process as defined and secure a
+ Lack of clarity in respect of roles and responsibly of reasonable outcome for all parties
working group
+ No formal defined process or decision framework
2. Restructure scheme — assess all applicants and settle based on value
based judgements
A “rough and ready” approach which applies a settlement recommendation based on the Post Office’s assessment of the value of the claim, post
investigation. Claim criteria and corresponding values to be defined. All applicants to be thoroughly assessed, Assessment reports referred to Working Group
who will consider merits and recommend settlement based on report and application of criteria. Chair of Working Group would be able to veto. Decisions and
influencing factors would be documented.
Pros Cons Risks
+ Improved transparency and accountability + Working Group as currently constituted is not + Risk that every SPMR not part of the
* Consistency of approach appropriate for this role. Governance arrangements scheme will apply for similar value of
+ Easier to administer would need to be revised compensation
+ Defined financial settlements may increase financial I + May trigger legal action
exposure, and result in inappropriate .settlements + May change SPMR behaviour towards
non-compliance
MMAERS ATH NABENCE
Subjective Analysis
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framework
disbanded.
Pros
+ Minimise operating costs :
+ Improve settlement time
+ Minimise settlement costs by introducing the ability to
3. Restructure scheme — assess all applicants and settle based on eligibility
A more nuanced approach (along the lines of those discussed with the Financial Ombudsmen Service) .Eligibility criteria and decision framework defined.
All applicants to be thoroughly assessed against eligibility framework. Settlement value agreed on a case by case basis. Adopt Ombudsman policy of using an
independent assessor, or a Review and Scrutiny Panel with the power to call in and review cases and provide oversight of process. Working Group to de
Cons ks
Significant departure from current position which will I +
require significant stakeholder management and
communication to applicants
PR and reputational risk — may be
considered to be more aggressive and
adversarial
negotiate + Removing the opportunity for dialogue through + Financial liability will be difficult to
+ Fairness and transparency maintained through mediator, which may be more adversarial, and result quantify as they are determined on a
tiny-rok ddition egal-eosts-for-applicant: by basis-
I4. Close scheme making na settlement
* Quick and simple .
+ Limits operating costs and financial liabilities in the .
short term .
+ Court system is a more appropriate forum for these
cases to be discussed.. .
Announce closure of the Scheme and invite applicants to pursue cases through legal routes.
Not fair or transparent + Risk of court proceedings
Does not fulfil current commitment to Minister * On-going financial liability
Likely to significantly damage relationships with
SPMR community
PR nightmare
Impacts negatively on strategy to be a trusted
financial services provider
Damaged relationship with Working Group chair.
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Subjective Analysis @
5 Close scheme making arbitrary settlement to all applicants
Announce closure of the Scheme and make full and final settlements with all applicants except those with criminal convictions.
* Quick and simple * May be perceived that Post Office is admitting fault. I + Risk of court proceedings
+ Limits operating costs and financial liabilities in the + Not transparent due to the limited investigation
short term carried out.
* Difficult to rationalise decision to external parties
+ Impacts negatively on strategy to be a trusted
financial services provider
+ Damaged relationship with Working Group chair.
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Options Appraisal @
Appraisal Approach
A matrix will be developed to enable each option to be assessed in relation to alignment with scheme objectives, estimated financial
exposure and ease of implementation. Consideration will also be given to the relative merits of each option arising from the subjective
analysis. A weighting will be agreed to reflect the relative importance of each criteria. The outcome of the appraisal will then be
presented as follows:
Subjective Alignment with Estimated Ease of
Option Description Assessment Core Principles Financial Implementation
Exposure
Option 1 t F) © © Fy
Option 2 © © € ©
° © ¢ ¢ @
Option 3 G G @ G
Option 4 © G © €
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