Draft Linklaters LLP//19/03/2014
Dated [20] March 2014
POST OFFICE LIMITED
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REPORT INTO INITIAL COMPLAINT REVIEW AND MEDIATION
Linklaters
Linklaters LLP
One Silk Street
London EC2Y 8H
Telephone a
Facsimie, GRO
Ref Christa Band/ Jonathan Swil
SCHEME
PART A —LEGAL ISSUES
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BACKGROUND
This Report has been commissioned by the Board of the Post Office Limited (“the Post
Office”) following concerns over the level of claims and costs and other potential legal and
financial exposure for the Post Office in connection with the Initial Complaint Review and
Mediation Scheme (the “Scheme”).
We understand that the Scheme was established in August 2013 with the aim of resolving
various allegations that had by then been made by certain interested parties about the
Horizon financial transaction and accounting system (“Horizon”) used by the Post Office
and the Post Office's Subpostmasters (“SPMRs”). It was claimed by a small, but very
vocal, minority of SPMRs that there were problems with Horizon and that if Horizon
recorded that there were losses at a particular Subpostoffice this was not necessarily
because the SPMR had stolen or otherwise lost money or stock but because Horizon was
malfunctioning. This issue attracted political comment and there was debate in Parliament
about it.
Importantly, Jo Swinson, the Parliamentary Under Secretary of State for Employment
Relations and Consumer Affairs, noted that there was no evidence of a systemic problem
with Horizon.’ This has also been the Post Office's conclusion on the information so far
available to it. We note that there is, so far as we understand it, no in-depth and objective
Report which describes and addresses the use and reliability of Horizon. This is a major
gap and one which we would recommend is remedied as soon as possible.
AIMS AND OBJECTIVES
This Report aims to address the following key issues:
2.1.1 Whether and to what extent the Post Office has any legal liability with respect to
complaints made by applicants to the Scheme (“Applicants”).
2.1.2. The nature and extent of the risks arising from and associated with the Scheme in
its current form.
2.1.3. Whether and to what extent the Scheme, as currently structured, can be sensibly
modified in order to improve the efficiency and effectiveness of its operation, and
mitigate any of the risks identified above.
21.4 The nature of any dispute resolution (or similar) mechanisms that could be
established either in order to replace the Scheme or augment its operation. In
particular, whether adjudication, arbitration and the use of ombudsman services
might be more appropriate than the Scheme.
2.1.5 In the event that a decision is made by the Board to discontinue the Scheme, what
steps the Post Office could take to minimise any existing legal risks.
This Part A of our Report covers introductory matters and the legal issues identified in
paragraph 2.1.1 above only. Part B of the Report which deals with the remainder of
paragraph 2.1 will follow when the Board has had an opportunity to consider and reflect
upon this Part A.
1 Hansard, 9 July 2013.
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We anticipate that in considering this Report and reaching any conclusions as to decisions
the Board should take with respect to the future of the Scheme, the Board will wish have
regard to the following matters:
2.3.1 Does the Post Office wish to consider paying compensation by reference to
principles other than legal entitlement? If so, how will it articulate and apply those
principles? How will it justify its position to all SPMRs (Applicants and those who
have not complained) and to stakeholders?
2.3.2 Does the Post Office wish to establish a full baseline audit of the functioning of the
Horizon system?
2.3.3 How important is it to the Post Office to determine the facts of each individual
claim? In any claim is the Post Office's stance to be more conciliatory than
adversarial? What are the limits of this approach?
2.3.4 How and to what extent will the Post Office wish to strike a balance between
resolving past issues and putting the future operation of Horizon and the
relationships with SPMRs on a sound footing?
2.3.5 How and to what extent will the Post Office wish to strike a balance between the
matters above and achieving a satisfactory political outcome, including with regard
to what has been said in Parliament about the Scheme and Horizon?
Section 2 of the Draft Scheme Settlement Policy states that the objectives of the Scheme
are to:
2.4.1 listen to SPMRs concerns;
2.4.2 explain the Post Office's position;
2.4.3 offer solutions where possible;
2.4.4 compensate if loss has been unfairly suffered
2.4.5 demonstrate that the Post Office is being transparent; and
2.4.6 — ensure that the Post Office's decisions are defensible.
BASIS OF THIS REPORT
The issues in this Report are discussed primarily from the perspective of the legal rights
and obligations of the parties involved. We appreciate that some of the matters covered
have political and public relations implications for the Post Office or may have such
implications in the future. As we have not been asked (nor are we qualified) formally to
advise on such non-legal matters, we have sought to highlight in the Report where they
may arise and have suggested possible solutions for dealing with them where appropriate
but otherwise have not provided any definitive views on them. Some measure of political
engagement will doubtless be called for. It is a decision for the Board what measure of
criticism or public relations damage it could and should tolerate — this is a factor which
applies whether the Post Office decides to compensate SPMRs otherwise than in
accordance with their legal entitlements or declines to pay such compensation and thereby
doubtless frustrates their expectations. The Board may decide that it is sensible to engage
specialist public relations advice to guide the management of this issue.
In preparing this Report we have assumed that:
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3.2.1 the 10 spot reviews and 4 cases with which we have been provided are indicative
of all the types of complaint that have been accepted into the Scheme — we have
not seen any other cases;
3.2.2 all legal issues are governed by English law; and
3.2.3 we have been provided with all relevant Reported decisions. There has been prior
litigation on issues directly relevant to those raised in this Report. Whether or not it
is strictly binding (and some may be) it is likely to be persuasive.
Our observations and conclusions are limited by the following:
3.3.1 we have only reviewed certain documents prepared by or on behalf of Second
Sight, the Working Group or SPMRs or the JFSA and have otherwise had no
contact with any of those parties;
3.3.2. we have had no contact with Fujitsu, the company which designed, provided and
supports the Horizon system;
3.3.3. we are not in a position to test the facts of any of the claims; and
3.3.4 we have been asked not to consider certain matters, namely, Pl and D&O
insurance.
We reference throughout this Report where appropriate the documents from which we
have derived facts forming the basis of our views. All other facts referred to herein are
based on discussions we have had with the Post Office Scheme project team. We would
welcome any comments on facts or background we have stated in this Report which
appear to be inaccurate or incomplete. They could affect the views and conclusions we
have reached.
EXECUTIVE SUMMARY
We set out in this executive summary our key conclusions on the legal analysis of the
complaints made by SPMRs about Horizon.
Post Office/SPMR relationship
but in our view, there is no general duty of care owed by the Post Office to
SPMRs relevant to their complaints about Horizon.
SPMR complaints
The nature of the complaints made by SPMRs in respect of Horizon vary in their detail but
can broadly be categorised as concerning 1) wrongful recovery of “losses” from SPMRs by
Post Office, 2) wrongful termination of SPMRs' Contracts and 3) inadequate training and
support. Complaints are also made that some SPMRs have suffered emotional distress as
a result of their dealings with the Post Office.
Loss recovery
The Post Office regularly recovers “losses” from SPMRs. These are amounts indicated by
the Horizon system as owing by a SPMR after his accounts showing the weekly inflow and
outflow of money and stock are reconciled. The two key issues with such loss recovery
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appear to be 1) the way in which losses are calculated and 2) the Post Office's entitlement
to claim them.
SPMRs are obliged under the general law and the Contract to account to the Post Office
for money and stock they receive and hold on behalf of the Post Office. We understand
Horizon is the only system used by SPMRs to produce an account and that SPMRs agree
the account by entries made into Horizon. The agreed account entitles the Post Office to
sue on it as a conclusive record of amounts owed, unless the SPMR can re-open the
account by showing that he was mistaken.
The account could only be re-opened if amounts are entered incorrectly by mistake or
Horizon suffers from a particular malfunction which caused the inaccuracy. The latter is
important because the terms of the Contract render the SPMR liable for unintentional
errors in any event. In particular, if there are doubts about the reliability of Horizon, then
this might call into question whether such losses exist in any particular case.
Second Sight have not done a comprehensive investigation into Horizon. The logical and
obvious starting point for their work would have been, without reference to any particular
case, a thorough review and description of how Horizon is supposed to work, its day to day
use by the SPMRs and an in principle identification of any weaknesses and likely points of
malfunction. Second Sight have, instead, descended into the detail of particular cases
without reference to robust evidence or in such a way as to cats doubt on their ability to
form safe conclusions from their investigations.
However, on the basis of the work that they have done, Second Sight have accepted that
there are no systemic problems with Horizon. Comments made in Parliament and expert
evidence given in civil and criminal proceedings by the Post Office's expert witnesses
support this.
As the accounts in Horizon (once agreed) are a conclusive record, a SPMR would need to
lead evidence that as a matter of arithmetic or logic, what Horizon shows could not
possibly be correct i.e. that Horizon itself had malfunctioned (as the Contract renders the
SPMR liable for unintentional error, evidence of such error would not suffice).
Legal entitlement to seek loss recovery
The focus of what we have seen seems to be on the manner in which losses are
calculated, rather than whether the Post Office is entitled in principle to recover them.
However, it is important to establish such entitlement.
The Contract permits loss recovery of amounts caused by (amongst other things) the
SPMR's error, and any loss howsoever caused by his Assistants. This is a low threshold
and allows recovery even where the SPMR unintentionally and with the greatest of care,
makes a mistake. But it would not allow loss recovery where he does not make a mistake
(assuming the loss is caused by him and not his Assistants).
Aside from the Contract, the SPMR is also liable to account in equity to the Post Office as
its agent. This requires the SPMR to enable the Post Office to determine the financial
position between them but it does not entitle the Post Office to recoup any shortfall — that
entitlement comes from the Contract or elsewhere under the general law.
We understand that the Post Office exercises discretion whether to recover losses in some
cases, such as where the Post Office becomes aware of a popular scam perpetrated
against SPMRs. The Post Office may choose not to recover losses in those cases for
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such time as may be reasonable to allow the SPMR to take steps to protect himself.
Applying such discretion narrows or removes the scope for argument that a loss is not due
to the SPMR's error.
We think that there is a sound contractual and/or general law basis for the recovery of
losses.
Compensatory claims
The key question in assessing a complaint which seeks “compensation” is this: did the
Post Office have the right to recover the loss? If it did, there can be no compensation. If it
did not, any claim is for the repayment of any money paid by the SPMR to the Post Office
to which it was not entitled. This is a restitutionary, not compensatory, claim.
While a criminal conviction against a SPMR does not entitle the Post Office to claim any
related losses, its factual basis could do so as a matter of civil law. If the SPMR pleaded
guilty to an offence or was found guilty after pleading not guilty, the Post Office should be
entitled to rely on that outcome in other contexts to claim any losses. But if the Post Office,
as prosecutor, has material which casts doubt on the safety of a conviction, it is under a
duty to disclose the material to the convicted party. The approach set out in the Scheme
Settlement Policy appears consistent with this.
Where the Post Office has a civil judgment for loss recovery from a SPMR, the SPMR is
not entitled to re-open the judgment and the Post Office's right to the loss recovery is clear.
There may be certain circumstances which entitle the SPMR to appeal a civil judgment
after the time period for doing so has expired, but these are likely to be limited.
Accordingly, any decision to repay to SPMRs losses recovered from them would be
voluntary and needs careful consideration given the possible legal and public relations
implications this may have.
If no Court has yet given a decision on a loss recovery, the Post Office has a genuine
decision to make whether to press claims for losses or repay those already recovered.
From what we have seen, such claims appear to turn either on general allegations about
the unreliability of Horizon or specific allegations about how it worked in a particular case.
We think only specific allegations about Horizon provide a basis for casting doubt on the
Post Office loss recovery in any particular case although even then, a SPMR will have the
burden of establishing that the allegations caused the relevant “losses”.
It is not ordinarily a breach of contract to claim money to which you are not entitled,
although it would be a breach of contract to withhold payment from other monies due. This
matters because a SPMR could only claim consequential losses if there is a breach of
contract on which he can rely. If there is no breach of contract, the SPMR's claims is
merely restitutionary; it “reverses” a financial benefit to which the Post Office was not
entitled, but without the right to claim any associated other “losses”.
To the extent there is a breach of contract, normally, no damages can be awarded for hurt
feelings or mental distress, even if such harm is reasonably foreseeable as flowing from
the breach. The harm must be in the reasonable contemplation of the parties as not
unlikely to result from the breach. While it is conceivable that stress leading to a
breakdown in health of a SPMR which is compensable could have been in the reasonable
contemplation of the Post Office and a SPMR, we do not think it is likely. Consequential
loss may be available for loss of reputation which directly causes foreseeable financial
loss, such as a loss of future earning capacity. We think this is also unlikely and that
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consequential only has any real relevance in the context of terminated Contracts
(mentioned below).
Restitutionary claims
If the SPMR can show he made a payment to the Post Office under a genuine but
mistaken belief that he was liable to do so, he has a restitutionary claim for the money
(although again, without a claim to any associated consequential “loss”). Such a claim will
only arise if the Post Office is not legally entitled to the payment i.e. if the settled Horizon
account can be re-opened or the Post Office is not entitled to recover losses. The SPMR
must not have appreciated that there was a risk he was not required to pay, if his claim is
to succeed. This is a fact sensitive issue in each case. If the claim is compromised
(whether before or during proceedings), he will lose the right to a restitutionary claim.
Termination of contracts
The Post Office is entitled under the Contract to terminate it on three months’ notice.
Provided such notice is given, the SPMR will have no remedy for the termination,
regardless of the reason or motivation for it. This means that the most a SPMR could
recover for a termination without sufficient notice is the pay (and any other entitlements) he
would have received during the notice period.
In cases where the Post Office terminates summarily (i.e. with no notice) but the facts do
not justify summary termination, the SPMR may have a right to claim the three months’ pay
and certain consequential losses, such as a loss of profits, if they are not too remote. The
“remoteness” of the loss is tested by reference to the knowledge of the parties at the time
of the contract and whether the loss is “of the kind” that they reasonably would have
contemplated. As above, the loss must be caused by the defendant's breach. So, for
example, where a SPMR runs an associated business, if his Contract is wrongly
terminated summarily, he might be able to claim for losses in the associated business
caused by his inability to act as a SPMR during the three month notice period or the loss of
a chance to sell the whole business as a going concern during the three month period.
This is a fact-sensitive question.
Inadequate training and support
The Post Office is expressly obliged to provide up to date training under the Contract.
What the training entails is not defined. But as the SPMR is still responsible for the day to
day operation of the Subpostoffice, he accepts the consequences of any lack of training
provided to his Assistants or their failure to put the training into effect. There may also be
an implied term in the Contract entitling the SPMR to reasonable training and support
which he could not be expected to know from his own general knowledge and past
experience, such as in respect of bespoke systems like Horizon.
We think it is possible that the Post Office could have provided adequate training and
support to some SPMRs but not to others (unlike the operation of Horizon itself, which as a
common system, could be expected to provide a similar experience to all or most SPMRs).
However, the SPMR would need to be able to show that inadequate training or support
was causative of losses in order to have a claim against the Post Office. This may be
difficult to establish in any particular case.
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WHETHER AND TO WHAT EXTENT THE POST OFFICE HAS ANY LEGAL
LIABILITY WITH RESPECT TO COMPLAINTS MADE BY APPLICANTS
Duties owed by the Post Office to SPMRs and duties owed by SPMRs to the Post
Office
It is helpful to start this section with an overview of the legal relationship between the Post
Office and the SPMRs. That, self evidently, provides the foundation for the issues
identified in the various complaints made by SPMRs.
Contract
There is a Contract which we are told is in standard form and which all SPMRs are
required to sign. We have a copy described as the 1994 issue of the standard contract
with SPMRs, amended to include all contract variations issued since 1994, although the
document was never issued in this form to SPMRs.
We understand that certain SPMRs dispute whether they signed a contract at all and there
may, in individual cases, be debate about which variations were received and/or are
effective. This would be an issue which would need to be resolved in any particular claim
We have assumed in this Report that the contractual terms which apply are those in the
version of the document which we have received.
Under the Contract, the Post Office owes duties to the SPMRs and in principle breach of
any of those duties could found a claim. That claim would only be valuable, in the sense of
entitling the SPMR to damages, if the breach could be shown to be causative of loss on
the part of the SPMR. We highlight relevant terms of the Contract as appropriate below.
Agency
Clause 1 of the Contract provides that:
“The contract is a contract for services and consequently the SPMR is an agent
and not an employee of Post Office Ltd.”
This is important as the agency relationship gives rise to specific duties on the part of the
SPMR which are detailed further below (see paragraphs 5.25 and 5.45 below).
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No relevant duty of care
Where the parties are in a contractual relationship, that is the starting point for determining
their duties where the conduct in question is covered by terms of the Contract. So if the
conduct relied on for the claim is conduct covered by the Contract, the contract should
determine the extent of the parties’ rights and liabilities. That is not to say that there may
not be an implied (or even an express) term to the effect that the party rendering the
performance should do so with reasonable skill, care and diligence. Where the party in
breach can be said to have performed his contractual duty negligently then the party
suffering the loss can claim in either tort (negligence) or contract. But this does not mean
that he can rely on a duty of care in negligence to extend the duties owed under the
contract.
If the SPMRs wished to allege that the Post Office owed them a broader duty, not covered
by the Contract, then they would need to allege and establish that the Post Office owed
them a duty of care. On the usual principles, this would depend on an assumption of
responsibility by the Post Office in the relevant respects. The existence of the Contract
does not preclude there being a duty of care, but for matters covered by the Contract, the
Court should not find that one party assumed a responsibility which would extend the
duties he owed beyond the Contract.
What the SPMR cannot do is to extend the duties of the Post Office by claiming some ill-
defined and over-arching duty of care covering all aspects of the relationship between the
Post Office and the SPMR, as this would interfere with the allocation of risks under the
Contract.
In the respects which are relevant for the purposes of this Report we do not consider that
the SPMR will be able to establish a duty of care and we think that the relevant obligations
will be defined by, and limited to, the Contract.
Nature of the complaints made
We have reviewed the 10 spot reviews and the 4 case Reports conducted by Second Sight
that have been provided to us. While they represent only a small sample of the 137
Applications which we understand are still currently in the Scheme, we assume that for the
purposes of this Report, they are representative of all the complaints accepted into the
Scheme.*
The spot reviews and case Reports generally show that SPMRs' complaints range from
substantial monetary claims to a general dissatisfaction with their relationship with the Post
Office as a result of their experiences with Horizon and several other or related complaints
somewhere in between (some SPMRs have several of these issues). In particular, we
have seen complaints made about:
2 [2003] ICR 546.
3 [2007] EWHC 5 (QB).
We understand that while the spot reviews themselves were conducted prior to the establishment of the Scheme, all of
the complaints the subject of the spot reviews were subsequently accepted into the Scheme.
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5.12.1. wrongful “loss recoveries” in respect of amounts reported by Horizon as due to the
Post Office, including in some cases, various categories of alleged consequential
losses, in one case, following the determination of the relevant loss recovery
action against the Applicant in Court and in another, after a SPMR had been
suspended and lost access to Horizon;
§.12.2 Horizon-related customer payment malfunctions or lost cheques and transaction
corrections resulting in the loss of limited sums (in some cases, under £100);
5.12.3 unauthorised foreign exchange transactions being entered into the Horizon system
without a SPMR's knowledge, but without any specific allegation of loss incurred by
the SPMR as a result;
5.12.4 printing of excess receipts in respect of a 67p postage transaction;
5.12.5 an inability of Horizon properly to account for GIRO payments and SPMRs having
to trust the Post Office about transaction corrections;
5.12.6 criminal charges: in circumstances where the SPMR has been subject to criminal
allegations of false accounting but where they say the false accounting arises from
cheques being lost in the mail or where they have retracted an admission made
under caution to the criminal conduct;
6.12.7 wrongful termination of SPMRs' contracts;
5.12.8 inadequate training given to SPMRs by the Post office in respect of Horizon; and
5.12.9 inadequate telephone or other day-to-day support services provided by the Post
Office to SPMRs.
We have not, nor are we in a position to, investigate the facts of these complaints. They
would have to be seen on a case by case basis. Our comments below are based on
principles of general application, but the result they produce in any one case will depend
on the particular facts. Horizon is a particular issue in this respect and deserves comment
of its own (see paragraphs 5.20ff below).
Some of the complaints made are no more than observations on, and frustrations with, the
operation of Horizon. They have not been translated from facts into allegations that a
contractual duty has been breached and are not articulated as legal claims.
Generally, the complaints fall into a number of categories:
5.15.1 wrongful recoveries of “loss” from SPMRs by the Post Office and consequential
loses arising therefrom;
5.15.2 wrongful terminations of the Contract and consequential losses arising therefrom;
5.15.3 inadequate training and support leading to losses, both direct and consequential.
The reference to consequential losses covers variously lost earnings (beyond a three
month period), damage to other business interests, damage to reputation, stress and ill
health.
We turn to considering each group of claims.
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Wrongful loss recovery
The Post Office regularly recovers “losses” from SPMRs. This happens by one of four
methods:
5.17.1. The SPMR notices that there is a loss shown in his statement of account and
makes good that loss without a formal request from the Post Office;
5.17.2. The Post Office requests that the SPMR makes good a loss and the SPMR pays in
response to that demand;
5.17.3 The Post Office, after an investigation process which envisages the participation of
the SPMR, holds back money from the next payment due to the SPMR to cover a
loss which has arisen; or
5.17.4 The Post Office takes civil proceedings for the recovery of a loss and is successful.
We note that the Post Office recovers losses through any and all of the above methods on
a regular basis. The vast majority of SPMRs accept not only the Post Office's legal right to
recover such losses, but also the way in which they are calculated through Horizon. The
decisions made by the Board now as to the circumstances in which such losses will be
“repaid” or reversed will potentially affect not only those SPMRs who have brought
complaints to date but also all those SPMRs who have paid losses without complaint.
There are two main issues in the recovery of losses:
5.19.1 the way in which losses are calculated; and
5.19.2 the Post Office's legal entitlement to seek those losses from a SPMR.
The way in which losses are calculated
It is this question which has given rise to the dispute between aggrieved SPMRs and the
Post Office. It focuses on the operation of Horizon.
We do not know what was said to SPMRs at the time of Horizon’s introduction in 2000 as
to its purpose and status. Nevertheless, it seems to be accepted by all involved that
Horizon produces and maintains the accounts on which all parties rely.
The SPMR is, day to day, responsible for inputting transactions to the Horizon system. It
provides a record not only of what the SPMR has received from the Post Office by way of
stock but also what he has sold, and the cash he has received. Horizon is the only system
used to record transactions; no other relevant records exist. We understand that at least
once a month and potentially as often as at the end of every week a SPMR is obliged to
prepare and sign a document entitled “Cash Account (Final)” and send it to the Post Office.
(Post Office, please confirm. Taken from skeleton in Castleton]. The SPMR will also
conduct a manual hand count of cash and stock in the branch and compare them to the
levels recorded in Horizon.
Our understanding of the operation of the Horizon system is far from complete but we note
that it is likely that it is only certain transactions which the SPMR carries out which are
capable of leading to “losses.” It would be helpful to understand more about the way in
which the statement of account shows the losses. Is it, for example, clear which relate to
transactions with or for the benefit of other companies and organisations, for example the
DVLA or the DHSS? This may be important when it comes to considering what “caused”
the losses in an individual case.
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Section 12, paragraph 4 of the Contract provides:
“The Subpostmaster must ensure that accounts of all stock and cash entrusted to
him by Post Office Ltd are kept in the form prescribed by Post Office Ltd. He must
immediately produce these accounts, and the whole of his Post Office branch cash
and stock for inspection whenever so requested by a person duly authorised by
Post Office Ltd.”
This duty to keep an account also arises under the general law by virtue of the
principal/agent relationship. An agent is required to keep an accurate account of all
transactions entered into within the scope of his agency and he has to be ready to produce
that account at any time to his principal. If he fails to keep and produce accounts then the
principal is entitled to assume everything against him.®
SPMRs are asked to agree accounts regularly. We understand that they signify their
agreement by an appropriate entry on Horizon. If a SPMR disputes the state of his
account, he is free not to agree that account on Horizon.
An agent is usually held bound by his own accounts save if he can show that he made a
mistake. Once an account is agreed, the principal can sue on it. We think that there is a
good argument that at law, once the SPMR signifies his agreement to an account on
Horizon which shows a balance due to the Post Office, the Post Office can sue on this as
an account stated. This appears to be the basis of the decision in the Castleton case. The
principle of an account stated also applies where debts are owed in both directions. So,
once Horizon has set amounts owed by the Post Office to the SPMR (if any) against
amounts owed by the SPMR to Post Office in Horizon and the SPMR signifies his
agreement to them, the accounts are settled. Generally, settled accounts will not be re-
opened, unless drawn up under a mistake or the agent is guilty of fraud. ®
Horizon is an electronic point of sale IT system used in Post Office branches. It tracks
transactions and also records levels of cash and stock. We are told, and can readily
appreciate, that Horizon is a complex double entry accounting system, made the more
complicated because of the range of products and services which the Post Office sells. It
also connects to other systems for particular services, for example, banking.
Suffice it to say for present purposes that it is possible that Horizon will, at the end of every
day and therefore week, show either a shortfall or a surplus. There are two ways in which
Horizon could present an inaccurate picture of the “true” state of account between SPMRs
and the Post Office. Either the SPMR could have keyed in transactions incorrectly, or
there could be some malfunction with Horizon itself. User error is a risk with any system.
The Contract would entitle the Post Office to recover in any case where there was user
error on the part of the SPMR and this would be the result even if it could be said — as
some SPMRs have - that Horizon is confusing or that its user-friendliness could generally
be improved.
It is the reliability of the Horizon system as a matter of principle which is important. If there
are doubts about the reliability of the system then this could obviously impact on the Post
Office's ability to claim losses since it calls into question whether such losses exist at all.
This is the fundamental question and one which has not yet been satisfactorily addressed.
5 See Bowstead & Reynolds on Agency, 19" Edition, Article 50, paragraph 6-092.
® Ibid, paragraph 6-097 and 6-098
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Second Sight have not done what we would have expected them to do in terms of an
investigation into Horizon. The logical and obvious start for their work would have been a
thorough review and description of how Horizon is supposed to work, its day to day use by
the SPMRs and an in principle identification of any weaknesses and likely points of
malfunction. This should be done without reference to the facts of any particular case and
must be done in conjunction both with the Post Office and Fujitsu. Second Sight should
have produced a report which clearly and objectively sets out what is known about Horizon
at a level of detail which can then be used as a baseline in any individual case where the
complaint is that Horizon was not working properly.
Second Sight are due to produce a generic report about Horizon. We do not know, since it
is not yet available, whether this report will fulfil the objectives we here describe, but in any
event in our view this report should have been done first. Instead, what Second Sight
seem to have done is to descend into the detail of individual cases and comment on the
particular issues of which complaint is made. They do so without reference to any robust
evidence as to how and why there may have been malfunctions with Horizon or how any
such malfunctions could have caused the losses in the particular case. The views which
Second Sight have expressed in individual cases are not supported by the sort of detail or
evidence which would enable any conclusions to be safely drawn from them. There may
be a question as to whether Second Sight have the expertise which would allow them to do
the work required to a satisfactory standard.
We would, further, have expected Second Sight to have discussed its work in progress
with the Working Group. Drafts should be available and the parties should have an
opportunity to comment. Second Sight seem to have a good working relationship with the
JFSA’ but this does not seem to be replicated so far as the Post Office is concerned.
These factors further illustrate the idiosyncratic nature of Second Sight's approach.
Even without the baseline report which Second Sight should have produced, it seems to be
accepted generally that there are no systemic weaknesses in the Horizon system. This
much has been made plain by:
5.34.1 the Post Office. Anne Chambers, a Fujitsu system specialist, gave evidence in the
Castleton case to the effect that there was no evidence whatsoever of any
problems with the system. We understand that a Dr Gareth Jenkins of Fujitsu
provided expert reports for the Post Office in several criminal cases. These reports
dealt with the Horizon system. He gave oral evidence in only one case (that of
Seema Misra). That case resulted in a conviction. In all other cases the fact that he
was not required to give oral evidence strongly suggests to us that there was no
substantive challenge to his evidence.
5.34.2 Parliament;® and
5.34.3 Second Sight. Its Interim Report of July 2013 concluded: “We have so far found no
evidence of system wide (systemic) problems with the Horizon software”.?
We find it surprising that, against such a conclusion as to Horizon's general reliability,
Second Sight find it possible to make comments in individual cases that it is likely that it is
a difficulty with Horizon which has led to the losses. The reasons for such a view are not
7 See, for example, paragraph 4.1 of the Second Sight Interim Report of July 2013,
® Seent
® See paragraph 8.2(a).
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explained nor is there any general evidence on which to draw which could provide further
illumination.
Audits are carried out by the Post Office on a regular basis and we assume that these are
considered in determining whether Horizon shows an accurate state of account. Given the
lack of any sensible information about the operation of Horizon we are unable to comment
as to the likelihood that in a particular case the conclusion could or should be reached that
it was problems with Horizon which caused the account of a particular SPMR to show a
loss.
There is an important question in this regard: who bears the burden of showing that in a
particular case, Horizon did not accurately reflect the state of the account between the
SPMR and the Post Office? The SPMR will have regularly signified his agreement to an
account — i.e. by signing the “Cash Account (Final) at the end of each week [Post Office
to confirm] - which confirms the existence and extent of losses and the Post Office is able
to rely on this as a settled account.
In Castleton the Post Office relied on authority to the effect that an agent (the SPMR) who
produces accounts for his principal which contain statements that money has been
received is bound by those accounts unless he can show that the statements in the
accounts were made unintentionally and by mistake."°
The question, therefore, is how would a SPMR show that there had been a mistake and
what sort of evidence would be required before he would be allowed to reopen a settled
account? The SPMR would need to adduce evidence which when tested and compared
against the account in Horizon, showed that he had unintentionally made an error inputting
information into Horizon (although even in that case, the terms of the Contract would not
absolve the SPMR, as we explain below) or that as a matter of arithmetic or logic, the
account stated by Horizon could not possibly be correct. In other words, he would need to
do what the SPMR tried but failed to do in Castleton.
The Post Office’s legal entitlement to seek losses from a SPMR
In everything we have seen, no point appears to have been taken as to the Post Office's
right, as a matter of principle, to recover losses from the SPMR. All the debate seems to
focus on the way in which the losses are calculated. Nonetheless, it is important to
determine the legal foundation for the Post Office's claim to losses.
Section 12, paragraph 12 of the Contract is headed Losses. It provides:
“The Subpostmaster is responsible for all losses caused through his own
negligence, carelessness or error, and also for losses of all kinds caused by his
Assistants. Deficiencies due to such losses must be made good without delay.”
Paragraph 13 makes it clear that this obligation does not cease on the SPMR relinquishing
his appointment and extends to losses which come to light after he leaves.
Section 12, paragraph 17 is also relevant here. It provides under the heading “Relief”:
“Counter losses: A Subpostmaster may exceptionally not be required to make
good the full amount of certain losses at his office. If he feels entitled to relief in
making good a loss he should apply to Post Office Ltd.”
"© Shaw v Picton (1825) 4 B&C 715: Camillo Tank Steamship Co Limited v Alexandria Engineering Works (1921) Times
LR 134
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This paragraph contemplates that the circumstances in which a SPMR will not be required
to make good a loss will be “exceptional” although clearly this issue only arises if the
SPMR is liable for the loss in the first place.
The wording of paragraph 12 is curious. It makes a SPMR responsible for losses caused
by his “negligence, carelessness or error” but makes him strictly responsible, with no such
qualification, for all losses caused by his Assistants. We do not know what the thinking was
behind this distinction.
In any event, the fact that the SPMR must be in “error” is a low threshold and implies no
mental element: the SPMR can be mistaken without being careless and without there
being any question of dishonesty on his part. Taken at face value, however, and where the
loss is caused by the SPMR rather than his assistant, the SPMR would not, under
paragraph 12 be automatically responsible for all losses if it could not be shown that he
was at least in error.
There is another basis for the recovery of losses which requires attention. As noted, the
SPMRs are agents of the Post Office. The characterisation of the relationship as that of
principal and agent gives rise to a number of duties as a matter of law, though where, as
here, there is also a Contract, they have to be seen in the context of what the parties have
thereby expressly agreed.
The agent is required to account in equity to his principal.! This is effectively a procedure
which enables the financial position as between the principal and agent to be determined.
It does not of itself entitle the principal to claim any shortfall. In order to claim whatever
losses are highlighted by the taking of the account, the principal has to establish his right to
them. For example, this may be through breach of contract or the common law duty of an
agent who holds money for his principal to pay over or account for that money at the
request of his principal.'2 Moreover, where the agent cannot satisfactorily explain what has
happened to the principal's property or money, presumptions may be made against him
which will lead to substantive liabilities such as those mentioned above. '>
We understand that the Post Office does exercise discretion as to the recovery of losses
where circumstances make that a reasonable reaction. For example, we were told that if
there is a “scam” which is recognised to be popular the Post Office will take steps to warn
SPMRs, it will issue a procedure giving guidance as to how the scam can be combatted
and will not recover losses due to the scam for such period as it is reasonable to expect
the SPMRs to be familiarising themselves with the procedure. Only once it is reasonable
to think that SPMRs should be able to protect themselves from the scam will the Post
Office recover losses due to it. We include this point not because it impacts on the legal
liability to repay losses per se but because such a practice would narrow very
considerably, or remove completely, the scope for argument as to whether a SPMR was
negligent, careless or in error in relation to any losses shown to exist.
In summary, we think that there is a sound contractual basis for the recovery of losses,
which is supported or in any event, supplemented, by the general law governing an agent's
duties to his principal.
I Bowstead & Reynolds on Agency, 19" Edition, Article 51, paragraph 6-094
® Ibid paragraph 6-099
* Ibid paragraph 6-096
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Claims for “compensation” for the recovery of losses by the Post Office from
SPMRs
Whilst the issue in the complaints is sometimes referred to in terms of “compensation”, this
is not an accurate expression for the particular claim insofar as it relates to losses. The
question is: in the particular case, did the Post Office have the right to recover losses? If
the Post Office did, then there is no question of the SPMR being entitled to
“compensation.” If the Post Office did not, then again no question of compensation arises:
the Post Office is simply unable to claim the money and if it has been paid, the SPMR has
a right to recover it. This is a restitutionary, not a compensatory, claim.
In practical terms, the issue is cases in which the Post Office has, in fact, claimed and
been paid the losses and the SPMR is now disputing its entitlement to do so and seeking
to “reverse” that payment. It is important to distinguish three groups of cases:
5.50.1 those in which the Post Office has secured a conviction for theft and the SPMR is
now seeking to claim back the losses on which that conviction was based;
5.50.2 those in which the Post Office has secured a civil judgment for the recovery of the
losses; and
5.50.3 those in which there has been payment of the losses (or potentially a claim on the
part of the Post Office which has not yet been satisfied but from which the SPMR
now seeks relief) but the Post Office's entitlement has not been determined by the
civil or criminal Courts.
The Scheme is only apt to deal with cases in the third group.
Cases in which there is a criminal conviction
A criminal conviction does not of itself entitle the Post Office to claim the losses from the
SPMR but where the SPMR has been so convicted it is clear that the Post Office would be
entitled to recover the losses on which the conviction is based as a matter of the civil law,
or through ancillary orders made in the criminal proceedings.
The two offences with which SPMRs are most often charged are theft and false
accounting, both of which are offences of dishonesty. If the conviction followed a guilty
plea, the SPMR can be properly taken to have made an unequivocal admission as to all
the elements of the offence, since the criminal law of England and Wales does not
recognise “pleas of convenience”. If the SPMR pleaded not guilty, the high standard of
proof in criminal proceedings means that it is likely to be appropriate for the Post Office to
rely on it in other contexts. In cases involving allegations of theft or false accounting, a
conviction necessarily involves a finding that the SPMR acted dishonestly, this being a
critical element of those offences. In such cases, there could be no strict liability basis for
either a guilty plea or a finding of guilt. Moreover, SPMRs facing such allegations would in
general have been eligible for legal aid under representation orders (if they could not fund
legal representation themselves). It may safely be assumed, therefore, that in general they
were legally advised and represented, or had the opportunity to be so.
If the SPMR has been convicted of a relevant offence the only basis as a matter of law on
which the Post Office should entertain a claim for the repayment of sums claimed from the
SPMR is if it were to conclude that there were doubts about the evidence on which the
conviction was based. However, if the Post Office did so conclude, the situation would be
much more complex than simply dealing with certain individual claims for “compensation.”
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The Post Office in its capacity as a prosecutor has duties of disclosure which extend
beyond the date of conviction in any particular case. In R v Belmarsh Magistrates’ Court
(Ex p Watts),'4 it was observed that private prosecutors are subject to the same obligations
to act as ministers of justice as the public prosecuting authorities. Any material in the
possession of the Post Office which might cast doubt on the safety of any particular
conviction ought therefore to be disclosed to the convicted party. The “Settlement
Principles” in the Draft Settlement Policy of December 2013 state:
“5.6 Settlements involving convicted Applicants should only be offered where
there is clear evidence of a miscarriage of justice.”
This is consistent with the above analysis.
Cases in which there is a civil judgment
If the Post Office has obtained a civil judgment against the SPMR, the Post Office's
entitlement is clear and established. The SPMR will have had an opportunity to dispute
the claim and an opportunity to appeal the decision should he have been unhappy with it at
the time. Indeed, as a matter of law he is prevented from seeking to re-open any issue
covered in the prior claim: it is now res judicata. This means that the SPMR could not
bring a civil claim seeking to reopen the issues covered by the judgment. In certain
circumstances, however, he could seek to reopen the issues by seeking permission to
appeal the civil judgment after the period within which he is ordinarily only entitled to do so.
The appeal Court has a discretion whether to allow such a late appeal and will weigh
various factors including the interests of the administration of justice, whether the failure to
appeal in time was intentional and whether there is a good explanation for it. A SPMR
who has had a civil judgment awarded against him would probably need to show a
substantial change of circumstances, such as leading new and material evidence about the
workings of Horizon, to have any chance of being given permission to appeal out of time.
The considerations outlined above in relation to criminal convictions do not apply in relation
to civil litigation: in principle the Post Office could repay to a SPMR the sums which it
received under the judgment and/or relieve the SPMR of any liability for the judgment debt.
But any decision to do so would be entirely voluntary and need careful thought and clear
rationalisation. If it could be interpreted as a recognition that Horizon is in fact unreliable
then there are obvious consequent complications both for further civil litigation but more
importantly in the criminal context (both retrospective and prospective) as detailed above.
It may also have political or public relations ramifications.
The Scheme information memorandum states that Applicants “may put [their] case through
the Scheme even if the Courts have already given judgment against [them].” Rejecting
claims simply because there is a civil judgment covering the matter would seem to run
counter to this. We do not know the thinking behind including this wording in the Scheme
memorandum.
Cases in which the Post Office's entitlement is not yet established by a Court
If no Court has yet given a decision in relation to a SPMR, the Post Office has a genuine
decision to make as to whether or not to press claims for losses or to repay those already
recouped.
* [1999] 2 Cr App R 188.
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Each case would have to be considered on its own facts and depend on what the SPMR
alleged about the reasons why the Post Office is not entitled to claim the losses. So far as
we can see from the cases considered to date, there are:
5.59.1 general allegations as to the unreliability of Horizon; and
5.59.2 specific allegations as to factors which may have affected Horizon in the particular
case.
General allegations about Horizon do not, we think, help. It would be far more satisfactory
were there to be a reasoned Report as to why Horizon is thought to be working properly (if
that is the case) but even without that, a general claim that there are “problems with
Horizon” is not, we think, enough to cast doubt on the Post Office's claim for losses. The
Horizon system works satisfactorily for the vast majority of those who use it and accounts
will have been agreed, as noted above.
Specific allegations as to Horizon's malfunctions have also been made and to some extent
“investigated” by Second Sight. These have included or been said to be caused by:
5.61.1. power cuts;
5.61.2 incompatible use of telephone lines with Horizon;
5.61.3 intermittent internet connectivity; and
5.61.4 the ability to “centrally input” transactions and thus directly, and without a SPMR's
knowledge, adjust Horizon data sent by a SPMR.
Second Sight have certainly expressed concern — and more — in relation to certain of these
supposed deficiencies in or effects of Horizon. But since they have singularly failed to
support their views with any reasoned explanations, still less any clear evidence, it is not
possible to conclude that any of these allegations have merit. If brought before a civil Court
in this form the Court would have little difficulty in concluding that the case that Horizon
was at fault and resulted in losses being inaccurately recorded was not made out.
There is a further point: not only would the SPMR have to establish that there was a fault
with Horizon or some external factor which would have affected its operation, it would also
have to be shown that those facts caused the “losses” which the SPMR is now seeking
relief from. Second Sight's work, so far as we have access to it, is entirely silent as to their
reasoning on this point.
If the Post Office concludes, in a particular case, that there are reasons for doubting the
record which Horizon has provided and on which the claim for losses is based — in other
words, where the Post Office concludes that there may be a mistake in the account and
there may therefore be a basis for re-opening it - the question arises of how the SPMR's
claim for recovery would work. As a matter of common sense, if the Post Office decides
that in a particular case it has no entitlement to claim the losses, we anticipate that the
Post Office would simply refund the money/relieve the SPMR from the liability without the
need for any formal claim or proceeding. But the SPMR would have a claim at law to
recover the money and this is important since if the Post Office were repaying/relieving in
such a case it may well wish to be sure that it was doing so in satisfaction of a legal
obligation.
The Post Office's right to seek payment of the losses arises both under the Contract and
the general law because of the agency relationship. If the losses do not exist — because
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the records produced by Horizon are not accurate, then there is no right on the part of the
Post Office to claim them. Absent express provision to the contrary, it is not a breach of
contract to claim money to which you are not entitled. Though it would be a breach of
contract to withhold payment from other monies due. So, the question whether a loss
recovery is also a breach of contract may turn on how the Post Office recouped the loss.
This matters since there may be a claim for consequential losses if there is a breach of
contract claim.
The SPMR would have the burden of showing not only that there were losses but also that
there was a causal link between the losses and the actions of the Post Office on which he
relies for his claim. Several cases we have seen suggest that there is at best a tenuous
link between the alleged failings of Horizon and the loss incurred (if any such link is even
alleged). For example, case M014 alleges that long running problems operating Horizon
which gave rise to over £8,000 in loss recoveries to Post Office were largely fixed when a
phone line was unplugged in a back office. This suggests a) there was nothing wrong with
Horizon per se b) that the incorrect use of the phone line was an unfortunate error that
might have been caused by inadequate training or support or could have been due to
incompetence on the part of the SPMR or is an unusual set of circumstances which is not
reasonably foreseeable . However, this could still give rise to liability on the part of the
Post Office (albeit not in respect of Horizon failures specifically) if the Post Office is found
not to be entitled to recover loss in those circumstances because the relevant SPMR's
conduct was not negligent or in error, within the meaning of Section 12, paragraph 12 of
the Contract.
Consequential losses
There can be no question of a claim for consequential losses based simply on the recovery
by the Post Office of losses if the losses were properly payable and the Post Office was
entitled to the money.
Even if the Post Office was not entitled to, but did, claim losses in a particular case, the
SPMR has no claim for consequential losses since the SPMR does not have a claim for
damages for breach of contract to which the other losses could be “consequential”. We
think that the better analogy is that the claim is a resitutionary one and the aim of such a
claim is to reverse a financial benefit which has otherwise been received. It carries with it
no notion of attendant “losses.”
As we mention above, if the Post Office has, in order to recover losses, withheld money to
which the SPMR claims to be entitled then there is in principle a breach of contract claim.
However, normally damages for breach of a commercial contract relate to financial losses
only, as damages are only awarded for losses reasonably in the contemplation of the
parties as not unlikely to result from the breach. Normally, no damages would be awarded
for injury to feelings, mental distress, anguish or annoyance. This is so even though such
reactions might have been perfectly foreseeable at the time of the contract.'> Whilst stress
which is so severe that it causes an actual breakdown in health may be compensable if it
was in the contemplation of the parties as a not unlikely consequence of the breach, it
seems highly unlikely that that test would be met here. The SPMR would also have to
show, by clear and cogent evidence, that the damage to his health had been caused by the
Post Office's conduct in recovering losses to which it was not entitled.
*® Chitty on Contracts, 31* edition, paragraph 26-137, 138
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Damages are also not normally awarded for loss of reputation flowing from a breach of
contract, unless the loss of reputation in turn directly causes foreseeable financial loss.
So, for example, an employee of a business run corruptly might be able to claim damages
for consequential financial loss suffered as a result of reduced future employment
prospects by reason of the loss to his reputation as a result of being associated with the
business. It seems unlikely such consequential loss would be recoverable here for any
loss recovery by the Post Office that is in breach of contract - the fact of the loss recovery
would need to be made known widely and the SPMR would need to be able to show that
this somehow harmed his future earning capacity.
We think that the better analysis is that the question of consequential losses only arises if
the Contract has been terminated on less than three months’ notice, as to which, see
paragraph 5.77 to 5.83 below.
Restitutionary claim
If an SPMR can show that he made a payment on the basis that he was liable to make that
payment to the Post Office when in fact he was mistaken as to the existence of the liability,
he has a restitutionary claim for the repayment of the money.” That claim focuses on the
“unjust enrichment” which the Post Office will have received. It is not a damages claim but
a restitutionary action for money had and received. For practical purposes this means that
there is no question of a claim to consequential loss on the part of the SPMR. All that the
SPMR would have to show is that there was no liability to make the payment but he
believed that there was and this caused him to make the payment. There is no
requirement for fault on the part of the Post Office and it does not matter if the SPMR has
himself been careless. '®
Such a claim can only work on behalf of the SPMR if the Post Office is not contractually (or
otherwise legally) entitled to the payment.'? On the basis of that analysis, it would mean,
therefore, that a settled account would have to be re-opened or that the SPMR would need
to show that the Post Office is not entitled to recover loss.
The restitutionary claim for money had and received will not be available to the SPMR
where he appreciated that there was a risk that the Post Office was not entitled to the
money but decided to pay on the basis that he accepted that risk. In those cases, the
SPMR will effectively have settled the Post Office's claim and this is treated as a
compromise which the Courts will not allow the SPMR later to reopen.2” This is a fact
sensitive issue and would need to be explored in each case. The real question is whether
in paying the money the SPMR was prepared to take the risk that it might not be legally
due but it was in his interests to pay the money anyway.
It is also clear that if the SPMR was once entitled to a restitutionary remedy based on his
mistake in making the payment, he will lose that right if the dispute with the Post Office is
resolved and cannot be reopened. That would be the case if the civil Court had given
judgment in favour of the Post Office. Then the SPMR could not recover without also
setting aside the judgment. Even if there is no judgment, if proceedings have been started
and the SPMR then pays to settle the claim he will be treated as having compromised.
® Chitty on Contracts, 31* edition, paragraph 26-141 - 142
Kelly v Solari (1841) 9 M&W 54; Aiken v Short (1856) 1 H&N 210
“8 Barclays Bank v Simms [1980] QB 677
*® Portman Building Society v Hamlyn Taylor Neck [1998] 4 All ER 202
See Kelly v Solari, Barclays Bank v Simms.
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The law will not allow such bargains to be reopened, not least because of the concern to
achieve and respect finality in litigation.2' If litigation has not been started then there
needs to be a contract of compromise before a restitutionary remedy will be ruled out.
The Post Office's Draft Settlement Policy of 2013 sets out, in section 5, certain “Principles
for Settlement.” Those principles indicate the Post Office's approach to settling claims with
SPMRs. These include that the SPMR needs to establish that the matters raised have
caused them loss, that the alleged harm arises directly out of or was an obviously
foreseeable consequence of a breakdown in the business relationship between the SPMR
and the Post Office and that settlements will generally be driven by commercial fairness
rather than legal principles.
Termination of contracts
The Post Office is entitled to give three months’ notice to terminate the Contract with the
SPMR. If in a particular case the SPMR's Contract has been terminated on three months
notice, he can have no remedy arising out of that termination. It does not matter that the
Post Office based its decision to terminate on facts which turned out to be disputed, flawed
or mistaken (such as the reliability of Horizon) the Post Office is entitled to terminate the
Contract on three months’ notice for any or no reason.
The effect of this is that the most that a SPMR may be entitled to is the pay (or whatever
entitlements) were due during the notice period, reduced for any costs of doing business if
they were not incurred. Moreover, the SPMR is under a duty to mitigate his or her losses
and so should look for alternative employment during that three month period. Any
unreasonable failure to find an alternative source of income would reduce the claim
(though with a three month notice period this is not of huge practical relevance).
There may well be cases in which the Post Office has terminated the contract summarily —
in other words on no notice. Here different considerations may arise. The facts of a
particular case may justify summary termination — for example theft by a SPMR may well
justify the conclusion that the SPMR is in breach of his obligations and the Post Office can
accept that breach as terminating the contract. However, if the facts do not entitle the Post
Office to accept the breach as terminating the contract summarily, not only would the
SPMR be entitled to claim the three months’ remuneration which he would have received
had notice been given, he may also have a right to consequential losses within the
principles which govern consequential loss claims for breach of contract.
The normal rule for assessment of contractual damages is to compensate the claimant
such that they are put in the position they would have been in had the contract been
properly performed. Consequential losses (such as loss of use or lost profits) are also
recoverable where they are not considered to be too remote.
The traditional test for remoteness is whether the loss “may fairly and reasonably be
considered either as arising naturally, i.e. according to the usual course of things, from
such breach of contract itself, or such as may reasonably be supposed to have been in the
contemplation of both parties, at the time they made the contract”.22 The Courts have
decided that the meaning of “reasonable contemplation” will depend on the knowledge of
the parties at the time of the contract, and that the loss must be “of that kind” contemplated
by the parties.
2 Marriot v Hampton (1797) Term Rep 269
Hadley v Baxendale (1854) 9 Ex. 341, 354-355.
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In any damages claim, there must be a clear link between the defendant's breach and the
claimant's loss, or in any event the breach must be the “dominant cause” of the loss. An
intervening act of a third party or the claimant itself may break the chain of causation,
depending on the court's appraisal of the circumstances of the case, as may intervening
events which were reasonably foreseeable by the parties.
In the case of a SPMR who runs an associated business, such as a convenience store or a
newsagent, it may be said by the SPMR that terminating his Contract as a SPMR would be
likely to have a knock on effect on the viability of his associated business. Moreover, it
might be said that depriving an SPMR of the three month notice period also deprives him
of a three month window in which to seek a purchaser of his business as a going concern.
If the business does in fact close because of the termination of the SPMR's Contract and
there is evidence that it might have been capable of being sold had the SPMR had three
months in which to do so, there is the possibility of a claim for such losses. Whether such
an argument could be made depends on the facts, not least whether there was an
associated business.” In practice in this sort of claim, because the Court is asked to
consider a counterfactual which has not arisen, the Court makes an assessment of the
prospects of a sale “the loss of a chance” and applies a discount to the claim to reflect this.
Inadequate training and support
Under the Contract the Post Office is obliged to provide training. Section 15 paragraph 7
provides:
“7.1 Post Office Ltd will:
7.1.1. provide the Subpostmaster with relevant training materials and
processes to carry out the required training of his Assistants on the Post
Office Products and Services;
7.1.2 inform the Subpostmaster as soon as possible where new or
revised training will be necessary as a result of changes in either the law or
Post Office Services; and
7.1.3. where appropriate (for example where clause 7.1.2 of this section
16 applies) update the training materials (or processes) to provide new
training materials (or processes) to the Subpostmaster.
However, it is the Subpostmaster’s responsibility to ensure the proper
deployment within his Post Office branch of any material and processes
provided by Post Office Ltd and to ensure that his Assistants receive all the
training which is necessary in order to be able to properly provide the Post
Office Products and Services.”
5.85 This seems clear: the Post Office must provide training and keep it up to date. This is not
defined but could well extend to a help-line or other day to day advice on the operation of
Horizon. But the SPMR is still responsible for the day to day operation of the
Subpostoffice. In other words, the SPMR accepts the consequences of any lack of training
provided to his Assistants or their failure to put the training into effect.
5.86 Section 15, paragraphs 1 and 2 of the Contract are also relevant here. They provide that:
2 See Lalji v Post Office Limited [2003] EWCA Civ 1873, CA
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“A Subpostmaster must provide, at his own expense, any suitable assistants with
the relevant skills which he may need to carry out the Post Office work in his sub
Post Office branch (“Assistants”).
Assistants are employees of the Subpostmaster and the Subpostmaster will
consequently be held wholly responsible for any failure on the part of his Assistants
to:
24 apply Post Office rules or instructions as required by Post Office Ltd;
2.2 complete any training necessary in order to properly provide Post Office
Services ...
The Subpostmaster will also be required to make good any deficiency of cash or
stock which may result from his Assistants’ actions or inactions.”
It is also likely that there would be a term implied into the Contract to the effect that the
SPMR should be entitled to reasonable training and support, particularly in relation to
bespoke systems or practices, such as Horizon, which he could not be expected to know
from his own general knowledge and past experience.
Many SPMRs do not seem to have a complaint as to the level of training and support
which the Post Office has given them. We do not think that this is conclusive. Whilst
Horizon operates as a common system and one person's experience of it should be similar
to another's, the same could not be said for training and support. It would be quite
possible for the Post Office to have failed to meet its obligations in relation to one SPMR
whilst easily fulfilling them in relation to many others.
Moreover, in order for this to translate into a claim against the Post Office, it would have to
be shown that it was causative of losses. It is clearly not enough to say: “I was given bad
support and any deficiencies in my account must be due to that.” There would have to be
an investigation of how and why the deficiencies had arisen. Were they in any sense
attributable to a failure of training? This may be difficult to establish in any particular case.
The Settlement Principles contemplate that compensation might be paid where training is
inadequate or poor. The principles make clear that compensation will not be paid for
general complaints about the standard of training and that the Applicant needs to
demonstrate facts peculiar to his circumstances which justify compensation.
Regulation
It does not appear to us that SPMRs would have a basis for complaint in respect of
Horizon by reason of any regulation governing the Post Office's conduct. Although
OFCOM has since October 2011 had responsibility for regulating the provision of postal
services, OFCOM's own website makes it clear that it does not regulate the Post Office.
The Post Office does not appear on the FCA register as an FCA-authorised entity. It does
appear as an “appointed representative” (in connection with its provision of financial
products on behalf of principals such as the Bank of Ireland) and a “payment services
agent” (in connection with its provision of money transfer services on behalf of, for
example, MoneyGram International). Neither of these functions requires the Post Office to
have separate FCA authorisation.
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6 The nature and extent of the risks arising from and associated with the
Scheme in its current form
6.1 The Scheme is a mediation scheme. Mediation is a technique for facilitating negotiations
with the hope of arriving at an agreed settlement. The only pre-requisites are a dispute
and a willingness on the part of the parties to explore the possibility of resolving it through
agreement rather than some form of adjudication. The question which will be addressed in
this section of the Report is whether there are risks in the Scheme.
6.2 We think there are effectively four “risks” inherent in the Scheme, namely:
6.2.1 the financial costs associated with individual claims;
6.2.2 the costs of the Applicants and Second Sight;
6.2.3 the public relations and reputational issues associated with not settling claims; and
6.2.4 the public relations, legal and reputational issues associated with settling claims
The financial cost associated with claims
6.3 This first “risk” and the extent of it is entirely within the control of the Post Office. It does
not have to agree to settle any claim, nor will it be forced to pay more in settlement than it
is advised to, and is comfortable, paying. Mediation will not impose a solution on the Post
Office
The costs of the Applicants and Second Sight
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The costs of the applicants and of Second Sight will need to be borne in accordance with
the Scheme Rules.
The public relations and reputational issues associated with not settling claims
Even if the Post Office concludes that there is no, or no established, legal liability to a
particular SPMR there is a risk associated with not settling a claim. This is difficult both to
gauge and to manage. It may also vary from case to case.
This is not a question of legal liability on the part of the Post Office but will call for some
careful management.
There is always the possibility that Applicants who think that they have a strong case may
sue if they are not offered a satisfactory settlement. We think that this risk is low. If an
Applicant does proceed to litigation, the Post Office should give such claims very careful
thought and steps can be taken to resolve them at an early stage if appropriate.
The public relations, legal and reputational issues associated with settling claims
There are risks — reputational rather than legal — associated with not settling large numbers
of claims. There is a counterbalancing factor: settling large numbers of claims where
there is no clear legal liability to do so also entails risk. There are two issues to consider:
6.8.1 The reaction of stakeholders to the payment of compensation to SPMRs where
there is no legal liability to do so;
6.8.2 The effects of such payments on the criminal convictions secured to date and
sought in the future.
We have already outlined the situations in which the Post Office is likely to be under a legal
liability to SPMRs. Payment of appropriate compensation in cases of legal liability should
not be problematic. But payment where there is no liability to do so may well attract
criticism from stakeholders.
It is also important to bear in mind the likely impact of payments of compensation on the
criminal convictions secured to date. If the Post Office pays compensation to those whom
it has already prosecuted and convicted of relevant offences (in other words the conviction
is closely linked to the matters of which the SPMR now complains) it could be seen to
illustrate doubt in the Post Office's eyes as to whether there was further information casting
doubt on the conviction. Why, it might be asked, would the Post Office otherwise be
paying compensation? We have commented above that there is a risk from settling claims
and an opposing risk which would arise if no or very few claims were settled. There is also
an over-arching point in this respect: consistency of approach is likely to be important to
all concerned.
Whether and to what extent the Scheme, as currently structured, can be
sensibly modified in order to improve the efficiency and effectiveness of its
operation, and mitigate any of the risks identified above
The Scheme has closed to new entrants. We make no suggestions at this stage as to the
need for, or shape of, any further Scheme.
It is worth noting what entry into the Scheme means and does not mean.
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The options which we will consider for the modification of the current Scheme include the
following:
7.3.1 closing the Scheme altogether — declining to mediate any cases;
7.3.2 clarifying that no case in which there is a criminal conviction or civil judgment is
suitable for the Scheme/clarifying the Post Office's position in relation to such
claims;
7.3.3 formalising and revising the terms on which Second Sight are appointed;
7.3.4 terminating Second Sight's engagement;
7.3.5 _ clarifying the position of the Post Office independently of the facts of any individual
claim including the production of a full and objective report on Horizon;
7.3.6 formulating criteria by reference to which “standard” compensation would be paid
to Applicants irrespective of the legal merit of their claims; and
7.3.7 reviewing the basis on which the Working Group operates and putting the Post
Office in greater control of the Working Group.
The nature of any dispute resolution (or similar) mechanisms that could be
established either in order to replace the Scheme or augment its operation.
In particular, whether adjudication, arbitration and the use of ombudsman
services might be more appropriate than the Scheme
The outcome of any one dispute resolution mechanism can never be known with any
certainty nor is it likely to be a “silver bullet” in any particular case, but especially when
implemented on a broader scale. Each mechanism will have its own advantages and
disadvantages, particularly in circumstances, such as the present, where the nature of
complaints vary (amongst other things) as to:
8.1.1 their subject matter;
8.1.2 the nature of legal liability (if any) involved;
8.1.3 the time at which the conduct the subject of the complaints occurred;
8.1.4 their monetary value; and
8.1.5 the quality of evidence available and ability or likelihood of cases being made out
to any reasonable standard.
Further, choosing an alternative mechanism and abandoning the Scheme in its entirety at
would likely present difficult issues for the Post office.
Therefore, we will consider the respective merits of negotiation/direct engagement,
adjudication, arbitration and the Financial Ombudsman Service (if applicable) as an
adjunct to the Scheme.
In the event that a decision is made by the Board to discontinue the
Scheme, what steps Post Office could take to minimise any existing legal
risks
We will identify and discuss the following issues relevant to the minimisation of risks
associated with the discontinuance of the Scheme:
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9.1.1 the underlying liability of Post Office to Applicants either exists or does not;
discontinuing the Scheme will make no difference to that;
9.1.2 indirect risk of claims being litigated or otherwise some unsuitable dispute
resolution process imposed on Post Office for political reasons if no clear viable,
and agreed alternative is in place at time of termination;
9.1.3 the need for clear, consistent, messaging from the Post Office about the next steps
it proposes to take; and
9.1.4 terminating Second Sight’s engagement and paying them a fair amount for what
they are owed to seek to avoid any protracted dispute or the longer term impact of
them maintaining an adverse position to the Post Office.
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