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POST OFFICE LTD BOARD
Initial Complaints Review and Mediation Scheme: Sub Committee Recommendation
1. Purpose
1.1. This paper and accompanying annexes:*
« Updates the Board on the discussion of the Sub Committee today (6 June
2014)
« Seeks agreement to a recommended way forward subject to the clarification
of an outstanding legal point on likelihood of Judicial Review
2. Background and current position
2.1. The detailed background is set out in the annexed Sub Committee paper and
attachments but in summary:
e The Scheme progress is picking up pace, and as early as next Thursday (12
June 2014) the Working Group will seek to make a decision on whether a
further two cases should be recommended for mediation. This pattern will
continue and adds urgency to the need for a firm decision if Post Office
intends to depart from the status quo.
e Of the 136 applicants still in the scheme only three have received a draft
Second Sight report. But the Working Group Chair is now applying more
pressure to Second Sight to deliver their reports promptly — we believe this is
in response both to pressure from the JFSA and the knowledge that we may
seek to change the Scheme.
¢ Second Sight have committed to producing three cases a week, at this rate
of productivity (which we consider highly unlikely to be delivered) they will
have completed their work on all cases in about a year from now, and
allowing additional time for mediation, a best case and extremely optimistic
scenario would be for the Scheme to complete in August 2015. But a more
realistic assessment would be that Second Sight would produce no more
than two cases a week and the Scheme would not end until November 2015.
3. Options
3.1. Against this backdrop, the Sub Committee considered three options:
1. Continuing with the Scheme as currently configured and managed.
2. Continuing with the Scheme but seeking to refine its work within the existing
Terms of Reference, with Post Office taking a firmer more proactive line to
defend its position and ensure a greater degree of transparency around our
1 Paper and slides that went to Sub Committee
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approach to the Scheme with mediation being based on our understanding
of the legal position and desire to control programme costs and timescales.
3. Completing the Post Office investigation in each case and moving the
governance and management of the Scheme in-house (ending Second
Sight’s engagement and dissolving the Working Group).
4. Summary of Sub Committee Consideration
4.1. In reviewing the options the Sub Committee took account of the time, cost, legal
risk, communications and stakeholders and the best interests of the business.
1.1. The Sub Committee reviewed the initial appraisal of legal risk and in particular the
potential susceptibility of the Post Office to Judicial Review (JR) under the Scheme.
The Sub Committee asked the General Counsel to obtain more detailed advice and
asked that this should be disseminated to the Board to inform their final decision. In
the interim, they noted that all of the gains from modifying the Scheme would be
outweighed if the revised Scheme was likely to be subject to successful JR. Even
an application for JR has the potential to become a story in and of itself, or may act
as a lightning rod for public scrutiny of any changes being proposed to the
Scheme.
1.2. The Sub Committee noted that options two and three present (very) difficult
stakeholder handling challenges and the prospect of negative PR. The PR
issues are ones that we believe could be contained as it is unlikely that the
Scheme would remain “in the news” for any length of time.
1.3. The stakeholder challenges are more complex. While the Scheme plays into a
number of Post Office stakeholders, the critical relationships are those with our
shareholder, Sir Anthony Hooper and James Arbuthnot MP. Detailed stakeholder
planning approaches would of course be developed for the relevant option and
more details on this and communications approaches are included in the
annexed slide pack.
1.4. This approach has been tested with Brunswick PR and they support the analysis
above with their conclusion set out below:
“We would concur with the Communications Director and his team that, from
a PR point of view, simply continuing unchanged is not a desirable option.
Refining or reforming the working group is expected to cause disaffection
amongst the ‘implacables’ leading to as much negative ‘noise’ as if the group
were to be disbanded.
If disbanding the group and taking the process back in-house is deemed the
preferred option from an operational point of view, we would support this.”
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2. Deloitte Report and Linklaters Advice
2.1.
2.2.
2.3.
2.4.
2.5.
3.1.
The Deloitte report raises two types of issues: the first relates to Sparrow, the
second to wider business learnings. This second set of issues will be dealt with
through the Risk and Compliance Committee and the business assurance
functions.
As regards the Sparrow-related issues it is believed that given the limited scope
of the work Deloitte were able to undertake it is highly unlikely that we will be able
to extract any further comfort or assurance without their doing substantially more
work. Furthermore, it is also clear that Deloitte will not consent to the publication
of their report or the use of their name to publicly assert that the system is
working with integrity unless they undertake specific testing. That said, the report
does give some comfort for the Board on the design for processing and storing
transaction data with integrity’.
Against that background, the public facing version of the Linklater’s advice is
being reworked to reflect this in a narrative about our legal position. That
narrative focuses on three important features in connection with those
complaints: firstly, Horizon produces and maintains the accounts between POL
and its Sub-postmasters and other agents; secondly, unless there is proof that
Horizon is not operating as intended, POL can enforce its legal rights against
agents relying on those accounts; and thirdly, in the unlikely event that Post
Office has any financial liability to applicants, it would not include any liability for
consequential losses (e.g. loss of reputation, injury to feelings, mental distress
etc).
For the avoidance of doubt Deloitte are not recommending any further “backward
looking” review of the Horizon system would be appropriate. In fact they have
said “One could thus do a lot of work and not be any further forward.” They have
however though gone on to say that, if POL were looking to gain a greater
degree of assurance over the Horizon system there are approaches that could be
considered - none of which could be delivered in the near term. These will be
brought to the ARC (or Board) via the R&C C.
We propose to produce a version of the Linklater’s advice for the Sub
Committee’s consideration as soon as possible so that it is ready for wider
release, whatever approach the Board should choose to take.
Conclusion and Next Steps
It is the view of the Sub Committee that the third option — where the Scheme is
effectively moved in-house — is the one which on the face of it is in the best
? Subject to the limitations and assumptions expressed in their reports, Deloitte “have not become
aware of anything to suggest that the system as designed would not deliver the objectives of
processing of baskets of transactions and keeping copies of them in the Audit Store with integrity.”
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interest of the business. We must however have regard to wider considerations
such as the possibility of JR. In considering the best (long term) interests of the
business we must also take into account our relationship with the Government.
We recognise that we would place the Post Office’s shareholder, and particularly
the minister, in a difficult position were we to move ahead with our preferred
option without first taking steps to discuss it with the Shareholder Executive and
the minister, and to set out other options and our handling plans.
3.2. In conclusion, there appears to be a consensus developing around:
e Continuing as is, option one, is rejected as untenable given the challenges it
poses to the best interests of the business and value for money.
¢ That subject to the further legal advice on JR the Board agrees that the Chair
explores with the Minister the extent to which she would be prepared to
support option three and explain the alternative approach of option two as a
fall-back position.
e That the programme team and the Communications and Public Affairs
Directorate continue to plan for the implementation of both option two and
option three on a contingency basis.
3.3. The Sub Committee also invites the Board to note that it would be imprudent to
announce option three in recess, on that basis there is a large amount of work to
be conducted urgently to deliver the option in the short window before Parliament
rises on 22 July.
Chris Aujard and Mark Davies
6 June 2014
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