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MEETING WITH KELLY TOLHURST MP
Change in strategy
Post Office recognises that there have been some strategic missteps in the approach taken
to the litigation to date. We recognise that there has been too much focus on running the
litigation and defending Post Office's legal position and insufficient focus on broader
strategic considerations, including necessary improvements to Post Office's policies and
processes and the potential resolution of the litigation.
Following the Common Issues judgment, we have:
o Appointed a new General Counsel, Ben Foat.
o Appointed Herbert Smith Freehills to provide strategic advice to the Board and
provide oversight of the GLO litigation.
o Replaced our lead QC on the Common Issues, David Cavender QC, with Helen
Davies QC of Brick Court on HSF's recommendation.
Having put in place a new legal team, we have:
o Made the decision not to conjoin the appeal of the Common. Issues Trial with the
appeal of the recusal of the Managing Judge.
o Reduced the grounds on which we are appealing the Common Issues Trial to
focus only on the key legal issues which we think have a real prospect of success
or which may otherwise have operational significance.
We think that the above two steps, which focus attention on important legal issues, both
increase the likelihood that the Court of Appeal will grant permission to appeal and
demonstrate Post Office is not pursuing unnecessary issues.
The new legal team is also putting in place a settlement strategy (see below) and there
has been a renewed focus on operational improvements (see below).
Current status of the litigation
As outlined in our recent letter:
o The Common Issues judgment: was handed down in March 2019 and the
Claimants were successful on the vast majority (but not all) issues.
= Post Office applied to the Managing Judge for permission to appeal
against the Common Issues judgment on 23 May 2019, which was
refused. This is unsurprising as trial judges rarely give permission to
appeal their own judgments.
= Post Office applied to the Court of Appeal on 13 June 2019 for permission
to. appeal. The Court of Appeal's decision is expected before the end of
the court term in 6 weeks’ time, however we are in the Court of Appeal’s
hands as to timing.
= Post Office has asked for the appeal to be heard expeditiously, however
the Court of Appeal list is extremely busy, including because we
understand that the Court has set aside time in the autumn for dealing with
potential Brexit-related issues. We hope that the appeal may be able to be
heard in the early part of next year, but it may take up to 12 months for the
appeal to be heard.
= Once we know whether we have leave to appeal, we intend to obtain
advice from Helen Davies QC as to the prospects of success in the
appeal, which will also inform our settlement strategy.
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o The Horizon Tri
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I; concerning technical issues relating (in broad terms) to the
functions and reliability of Horizon will be completed on 2 July 2019.
Based on the time taken for the Common Issues Judgement, we would
expect the Horizon Judgment within 3-4 months. However, the timing of
this is a matter for the Judge and there is a possibility that he may seek to
deliver his judgment more swiftly to encourage settlement discussions. It
is fair to say that Post Office is not anticipating a positive judgment on
Horizon.
The factual evidence fared worse than anticipated. While Post Office was
able to successfully challenge the Claimants’ key witness, Richard Roll
(portrayed as a Fujitsu "whistle-blower"), the Post Office's own witnesses
performed poorly. In particular, the witnesses called from Fujitsu did not
have a good grasp of their evidence.
The experts have performed more or less along the lines as expected —
neither expert has dominated. . Post Office was able to secure helpful
admissions from the Claimants’ expert Dr Coyne. The Claimants were
able to undermine the methodology used by Post Office's expert Dr
Worden. Above all, there is a concern that there is enough before the
Managing Judge that if he wishes to find against Post Office he has the
material to do so.
This is also underlined by a procedural issue of Post Office providing late
disclosure. ..Post Office has already been criticised for withholding
documentation, which has continued in the Horizon trial. The Claimants
have been able to play to the Managing Judge on this by suggesting that
their expert Mr Coyne had not been provided with full and timely access to
relevant documentation.
On that basis we are anticipating a difficult judgment. We are working
closely with the Horizon legal team to. ensure that we use the closings
submissions to try to bring the Managing Judge back around to the
relevant issues, rather than focussing on the procedural points that will
otherwise resonate with him.
[Assuming that we have met with Tony de Garr Robinson before the KT
meeting — include further feedback from Tony on likely outcome of Horizon
Trial]
o “Further Issues Trial”: concerning breach, liability and limitation issues in two lead
claims is currently listed to be heard in November 2019, although directions have
been stayed since March 2019.
As this trial is affected by the answers to the Common Issues (which
provide the platform for determining what constitutes a breach of duty), if
the Court of Appeal grants permission to appeal the Common Issues,
there is a compelling case for this trial to be stayed pending the outcome
of that appeal. However, the Managing Judge may decide to proceed in
any event. This has yet to be canvassed with the Managing Judge,
although will be addressed on conclusion of the Horizon Trial.
In any event, given directions have been stayed since March 2019, it is
likely that the start date for the Further Issues Trial will need to be pushed
back to give the parties time to catch up with the directions.
o A fourth trial has also been listed to commence March 2020. It is currently
unclear what this trial will address — but it is likely to include liability, causation and
loss for a selection of lead claimants. The timing of this trial will depend on what
happens with the Further Issues Trial.
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Settlement strategy
The parties have been ordered by the Court to use reasonable endeavours to attend
mediation and have agreed that a mediation should be held.
Charles Flint QC of Blackstone Chambers has been mutually selected as mediator.
The Claimants' QC has indicated that a mediation could be held after the Horizon Issues
Trial has completed (c. September 2019). Post Office will confirm that it agrees that a
mediation should be held in this window and will liaise with the Claimants on the
arrangements.
The Claimants have not provided an overall claim value but each Claimant has produced a
Schedule of Information which summarises their claim and provides some high level
information on the damages which they are seeking to recover. The aggregate claim value
in the Schedules of Information is £224 million, which breaks down as follows:
Post termination loss of earnings £150m
Loss of investment/diminution in capital value of I £38m
branch
Repayment of shortfalls £13m
Loss of earnings for failure to give notice £6m
Loss of earnings during suspension £3m
Other — including loss of earnings relating to I £14m
bankruptcy and prosecution
Stigma damages and personal injury Unquantified
The other major financial factor in any settlement will be the Claimants’ costs. We know
that Freeths are operating under a CFA, the Claimants are funded by Therium, that they
have ATE insurance and will have incurred costs in providing security to Post Office.
While our work reviewing the losses claimed is ongoing, it is fair to say that we think that
the Claimants’ losses as set out in the Schedules of Information are significantly
overvalued at £224 million. Indeed, it seems that the Claimants’ expectations may also be
materially lower than that, as reflected in their Skeleton Argument lodged for a court
hearing on 5 June 2018, which said: "The likely aggregate value of the case is estimated to
be of the order of £80 to £90 million (or in excess thereof, subject to further quantum
analysis and formulation)."
In anticipation of mediation, we will:
o Identify and advise on which heads of loss are most likely to be recoverable if the
Claimants are successful.
co At face value the following three heads of loss appear to be the most realistically
arguable: payment of alleged shortfalls; loss of income during suspension period;
and loss of income during notice of termination period - totalling approximately £22
million.
co In any event, these three heads of loss should be capable of being verified using
Post Office's own records.
o Wewill consider whether any further information is required from the Claimants in
advance of mediation and may wish to provide a revised schedule to them, if the
figures that we are able to verify from Post Office's systems are materially different
to those advanced by the Claimants.
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We will also need to consider whether Post Office is willing to resolve the litigation
with the following categories of Claimant:
= Claimants who settled their claims, for instance as part of the earlier
mediation scheme or on_ leaving/converting under the network
transformation (112 Claimants). These Claimants are seeking to unwind
these settlement agreements on the basis of a fraud/concealment claim
* Time barred Claimants who issued their claims outside the normal 6 year
limitation period for contractual claims (197 potentially fully time barred,
154 partially time barred — total 351). These Claimants are also seeking to
extend limitation on the basis of fraud/concealment.
= Convicted Claimants (61 Claimants).
We are also giving consideration to different settlement structures i.e. single pot of
compensation and for all the Claimants, Freeths and their funder (Therium) to
distribute it amongst themselves; settlements to specific Claimants or sub-groups
of Claimants; verification process for each individual claim.
e If the Claimants’ expectations are as set out in the Schedules of Information, the first
mediation is unlikely to be successful, but will nevertheless be useful to establish the
distance between the parties and to identify the issues in dispute.
e We therefore anticipate the it is likely to be necessary to have a second more focussed
mediation in early 2020.
e Two other key considerations that will need to be addressed:
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The interaction with the Common Issues appeal: If a settlement is reached with
the Claimants before the Common Issues appeal is heard, then the appeal would
stop and Post Office would be left with the Common Issues Judgment as handed
down. We are currently working to review whether Post Office can live with the
Common Issues judgment (for example because we are altering our processes
and policies in any event)or whether the appeal needs to be advanced.
The impact on other historic SPMs: a settlement with the 557 current Claimants
would not prevent claims from other SPMs (over 11,000). We are considering how
best we seek to manage this risk. For instance, we may want to put in place a
remediation scheme that could reflect the principles of any settlement with the
Claimant SPMs.
ation costs
Operational consequences
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