POST OFFICE BOARD PAGE 1 OF 10
PRIVILEGED & CONFIDENTIAL ~ DO NOT FORWARD OR SHARE
Group Litigation Update
‘Author: Ben Foat/Rodric Williams ‘Sponsor: Ben Foat Meeting date: 29 October 2019
Executive Summary
Context
Post Office is awaiting decisions from the courts on the Horizon Issues trial and on Post
Office’s application for permission to appeal the March 2019 Common Issues judgment.
On 3 October 2019 Post Office notified the Claimants and the Court that we had become
aware of the existence of potentially relevant documents (previous versions of Fujitsu’s
Horizon Known Error Log / KEL entries) which had not been disclosed before the Horizon
Issues trial.
Mediation to explore settlement with the Claimant Group is scheduled for 27-28
November 2019. This could be postponed if the Horizon judgment is delayed.
Preparations otherwise continue for the third, “Further Issues” trial scheduled for March
2020.
An update on Post Office’s operational responses to the Common Issues Judgment
handed down on 15 March 2019, and on the Contingency Planning for the Horizon
Judgment will be addressed in a separate Board paper.
Questions addressed in this report
1. What is the update on the Group Litigation (Horizon judgment; Common Issues trial;
third/Further Issues trial)?
2. What is the update on the KEL Disclosure development?
3. What is being done to prepare for mediation and settlement?
a. What is being done to analyse each individual Claimants’ claim?
. What might be driving the Claimants’ perspective on quantum?
. Would it be more cost effective to settle the claim or litigate and lose?
. What is being done to map out the route for shareholder approval of any
settlement?
e. Who will attend the mediation for Post Office?
4. What are the next steps?
aos
Conclusion
1. The Horizon judgment will not be handed down until the end of October at the
earliest. It is possible that the KEL Disclosure development delays this. We are also
preparing for the Court of Appeal hearing on 12 November 2019, and to receive on
POL00327588
POL00327588
POL-BSFF-0163334
PRIVILEGED & CONFIDENTIAL - DO NOT FORWARD OR SHARE
25 October 2019 the Claimant's formal claims for the third, “Further Issues” trial
scheduled for March 2020.
2. Post Office has received the additional KELs from Fujitsu and is reviewing the
additional KELs those requested by the Claimants net previously disclosed to assess
the impact they may have on the litigation. It is also addressing its legal options
and audit rights against Fujitsu. Neither the Court nor the Claimants have as yet
responded substantively to us following our notifications of this development.
3. Mediation to explore settlement with the Claimants has been scheduled for 27-28
November 2019. This could be postponed if the Horizon judgment is delayed (which
is possible given the KEL the Disclosure development). Nevertheless, further work
is being done to refine the analysis of the Claimants’ claims and quantum, and to
put in place arrangements to share information with, and obtain approvals from, our
shareholder concerning settlement.
4. The next key steps between now and the end of November 2019 are attending to
the Horizon judgment once received and the KEL Disclosure development, preparing
for the Court of Appeal hearing on 12 November 2019 and mediation on 27-28
November 2019, and responding to the Claimants’ case for the Further Issues trial
by 25 November 2019.
Input Sought Input Received
1. The Board is asked to note the 3. This paper has been prepared with
updates in this paper. the assistance of external legal
2. The Board is also asked to note the counsel.
approach being taken to mediation,
and to authorise the Board
Subcommittee to delegate to the
General Counsel authority to make
settlement offers at mediation on
terms determined by the
Subcommittee.
The Board is reminded to exercise caution when communicating about potential levels
of settlement. Communications about settlement should therefore only be held orally,
but if that is not possible, advice should be sought from Post Office’s lawyers.
POL00327588
POL00327588
POL-BSFF-0163334_0001
POL00327588
POL00327588
PRIVILEGED & CONFIDENTIAL - DO NOT FORWARD OR SHARE
Litigation Update
Horizon Judgment
On 7 October 2019 the Managing Judge informed the parties that his judgment on the
Horizon Issues Trial was “unlikely to be distributed before the end of the month”. A
further update from the court on when we can expect to receive the judgment will be
provided during the week commencing 21 October 2019.
The Horizon contingency plans have been developed to respond to an adverse
judgment, the details of which are set out in the separate GLO Operations paper.
Common Issues Appeal
The Court of Appeal will hear Post Office’s application for permission to appeal the
Common Issues Judgment on 12 November 2019, with judgment on the application to
follow shortly after.
The hearing will be based on the Grounds of Appeal and Skeleton Argument we filed on
28 June 2019, and largely influenced by questions from the judge (Lord Justice
Coulson). As part of her preparations for the hearing, Helen Davies QC has outlined
the key points she aims to land during the hearing. In short, these focus on the wide
ranging legal term of good faith Mr Justice Fraser implied into the postmaster contracts
(to which most of the other issues are connected) and challenge both the breadth of
the term and whether it should be implied at all. Helpfully, there has been a recent
judgment in another High Court case which supports our approach to this issue!.
(Formatted: Centered }
Third / Further Issues Trial
The next step ahead of the “Further Issues” trial scheduled for March 2020 is for the
Claimants to file “Particulars of Claim” (PoC) formally setting out the legal basis for their
claims for financial compensation. We know from correspondence with the Claimants
that these could include they dering king-th Ft-to-also-det
whethertheie-claims for harassment He x) d-facts(i.e.a ability
ten} -and-{b- Hi a ind for their litigation funding costs.
The Court has ordered the PoC to be filed by 25 October 2019. The Claimants may
however seek an extension of time so that they can reflect in the PoC the Horizon
judgment’s findings. There is also a Case Management Conference before the Court
scheduled for 7 November 2019 at which any issues with the PoC could be raised. As
matters stand however, Post Office has been ordered to file Defences formally replying
to the PoC by 25 November 2019.
Future Trials
As part of its ongoing review of all 555 individual cases, Post Office is identifying criteria
for selecting “Test Claimants”. These Claimants would then be used as cases
representative of the wider claimant group in an as yet unscheduled trial on breach (i.e.
_A[ Formatted: Font: 8 pt )
{.UTa v Sheed Un Z-(ermatted: Font pt }
POL-BSFF-0163334_0002
PRIVILEGED & CONFIDENTIAL - DO NOT FORWARD OR SHARE
whether Post Office acted wrongly), causation (i.e. did that breach cause the Claimant's
harm), and limitation (i.e. is a Claimant’s claim time-barred).
The parties will each propose selection criteria for choosing test cases on 25 November
2019, which will then be discussed with the Managing Judge at a Case Management
Conference scheduled for 4 December 2019. The approach taken to this exercise will
be set out at the next Board Subcommittee meeting. No date has yet been set for the
selection of test claimant: Ht; -thi Hikely-te-be-for
Horizon Issues Trial - KEL Disclosure
As reported to the Board on 3 October 2019, Post Office failed to disclose all potentially
relevant Known Error Log entries (KELs) prior to the Horizon Issues Trial. Post Office
disclosed only final versions of the KELs, and not any previous versions, acting on
incorrect information from Fujitsu that previous versions were no longer available.
The Court and the Claimants were notified of this on 3 October 2019, and urgent steps
(on which the Board has received separate updates) have been taken to correct the
position. We will understand better the impact this may have on the litigation once we
have completed the reviews now underway of the additionalnewly disclosed versions
of the KELs referred to at trial (e.g. as to whether the versions are materially different),
received substantive responses to our notification from the Claimants and/or Court, and
assessed its influence on the Horizon judgment itself.
The Claimants are, however, likely to contend that the inadequateey ef Pest-Office's
KEL disclosure warrants the Court drawing an adverse inference about the extent of the
bugs in Horizon-issues. They may also press to re-open the trial.
These developments could delay receipt of the draft judgment, {which could in turn
delay mediation scheduled for 27-28 November 2019}. They could also influence the
Judge while drafting his Horizon judgment and ahead of future trials which will consider
for limitation/time-bar purposes whether Post Office concealed known issues with
Horizon.
Legal advice is being provided about our prospects of making a claim against Fujitsu
arising from this incident and in respect of the proceedings more generally _(any
recommendation will however have to wait until the impact of this on the litigation is
better known). We are also proposing to audit Eugitsu! 's work on the extraction of the
historic KELs-seeping: cite th pport Full has—provided
agether-with-the broad ! e-the Fujitsu-relk hip. A verbal update can
be given at the time of the meeting.
Mediation / Settlement Update
At its September 2019 meeting, the Board approved the broad approach to settlement
outlined in the paper prepared for that meeting. The Board also raised a number of
further matters, which are addressed below.
POL00327588
POL00327588
POL-BSFF-0163334_0003
PRIVILEGED & CONFIDENTIAL - DO NOT FORWARD OR SHARE
Individual Claimant Analysis
The Board noted that further work needed to be done to investigate each individual
Claimant's case.
HSF has already assessed the claims on a claimant-by-claimant basis for quantum
analysis purposes, based on data collated from Post Office's records (principally
remuneration, notice period, suspension period and settlement data). Nevertheless,
assumptions may still be required for some cases, e.g. if data is not available or cannot
be verified from Post Office's records.
The cases are now being analysed so that Post Office can make informed decisions
about liability (both individually and collectively), and make strategically useful
settlement offers as part of the settlement strategy.
We aim to complete the case reviews by 31 October 2019 and also refine the quantum
analysis in light of the Claimants’ Further Issues PoC so that a more informed view can
be formed prior to mediation.? We aim to present the outcomes from this exercise at
the Board Subcommittee meeting prior to the mediation.
Claimants’ Perspective on Quantum
The Board wanted to understand what might be driving the Claimants’ funders
investment in the GLO, .
Office’s legal _liabilit
The fact that the Claimants are now proposing to
bring a claim for their litigation funding costs tends-te-suggests that-a-they recognise
this delta -deesindeed-exists.
Litigation funding arrangements are highly confidential, so we do not as yet have any
insight into how the funders assessed this particular case (we hope to learn more at
Mediation). The gap might however be explained by:
+ The Claimants may have exceeded their budget: HSF's funding analysis is based
on costs incurred, which are substantial. The funders' original assessment would,
however, have been based on budgeted costs and it is likely they did not budget
for Fraser J's approach of holding numerous, costly trials.
Including recovery for convicted Claimants: A convicted Claimant whose
conviction is overturned is likely to have stronger claims for stigma damages,
personal injury, harassment and malicious prosecution.
POL00327588
POL00327588
POL-BSFF-0163334_0004
PRIVILEGED & CONFIDENTIAL - DO NOT FORWARD OR SHARE
* Interest: HSF estimated interest at LIBOR plus 1% / Addin
recovery for convicted Claimants as above could increase interest to!
or more if higher rates of interest or compound interest awarded.
* Other possible factors: These might include the Claimants making less generous
assumptions around the extent of recoverable losses than in HSF’s analysis, in
particular around post termination losses, capital/investment losses, and the
unquantified claims, and/or expecting Post Office to pay a premium for
reputational or operational concerns.
In summary, although we do not yet have any insight into the funders’ approach, the
above could explain how they put a greater valuation on the claims than HSF's
estimates, thereby justifying their investment in the GLO.
Costs to Settle vs. Costs to Litigate to Conclusion
The Board wanted to understand whether it would be cheaper to settle or to fight and
lose in Court.
HSF cannot express a concluded view on this question until we understand better the
Claimants’ settlement expectations (which should come through mediation), have
clarity on the claims that will be made and as to their quantification (we will be better
informed once we have the Further Issues trial PoC). Nevertheless, the following points
can now be made:
+ If the Claimants’ expectations are driven by their funding commitments and a per
Claimant recovery on top, we estimate the Claimants will be looking for a
and potentially more.
The cost of fighting and losing in Court will be driven by the heads of recoverable
loss and their values, plus legal costs and interest. Although this gives rise to a
large number of permutations, the following benchmarks (which are based on
certain assumptions‘) may be helpful:
) If the Claimants succeed on all their quantified claims and make a recovery for
reasonably estimated un
damages, harassment),
> If the Claimants' claims for post-termination loss of earnings are capped at 5
years, with other damages awarded in line with HSF's current model, Post
POL00327588
POL00327588
POL-BSFF-0163334_0005
PRIVILEGED & CONFIDENTIAL - DO NOT FORWARD OR SHARE
» Post Office would also need to bear its own costs of progressing matters to
trial which, subject to the way the litigation develops, could be in the order of
a further £10-15m.
Determining the amount at which settlement can be justified will be a risks-based
exercise. Recognising the number of unknown factors that remain (e.g. the outcomes
of the Horizon Issues trial and application to appeal the Common Issues judgment, and
the potential for additional or more substantial claims to be brought), our approach has
been to start with a reasonable and justifiable assessment of quantum based on the
claims as they are currently pleaded.
However, taking into account the financial risk associated with these unknowns, the risk
of the Claimants succeeding on some of their arguments (which is exacerbated by the
wide discretion afforded to the court on matters of quantum and Fraser J's clear distaste
for Post Office's case) and the broader impact to the business in managing this litigation,
the Board could be justified in offering more than HSF's preliminary analyses, and
ultimately offering around £100m to resolve this claim.
Settlement strategy and authority for mediation
Our recommended strategy for mediation is as follows:
+ HSF will meet with the mediator prior to the mediation and explain that Post
Office's key concern is that the claims are not worth what the Claimants claim.
* At the plenary session on the first morning, Post Office will emphasise its desire to
bring this matter to a satisfactory conclusion for commercial reasons and
reassure the Claimants that it is negotiating in good faith.
* Much of the first day will be devoted to getting the parties to understand the
principles upon which the value of the claims will need to be assessed.
POL00327588
POL00327588
POL-BSFF-0163334_0006
PRIVILEGED & CONFIDENTIAL - DO NOT FORWARD OR SHARE
* As defendant, Post Office is likely to be pressed to make the first offer. We intend
to make a low first offer (probably between 10 and 20 million) which is credible
and can be justified by reference to the HSF quantum analysis spreadsheet.
* Over the remainder of the mediation, if the Claimants engage substantively, Post
Office will progressively improve its offer up to an approved maximum (below
£50m) by conceding (for settlement purposes only) certain assumptions built into
the quantum analysis.
+ How far to go within the approved range, and in what increments, is a question
that will need to be judged on the day. That is because if (as is likely) settlement
at a palatable level is not available at the mediation, Post Office's final offer will
set the floor for future negotiations. Post Office will not therefore want its best
numbers on the table too soon.
* If (but only if) a deal at a palatable level above £50m can be done on the day,
Post Office can seek further authority from the Special Shareholder to conclude
that deal.
Addressing the Board’s request to map out the route for Shareholder approval through
BEIS and HMT in advance of mediation, arrangements are in hand with UKGI to finalise
a protocol for Post Office's shareholder to authorise settlement if required. Specifically:
« UKGI/BEIS and HMT representatives have formed a committee to assess and
respond to requests for authorisation.
« Arrangements are in place for Post Office to share information with that committee,
so that it can ask questions and form provisional views before any formal request
for approval is made.
* The committee will require confirmation of how Post Office plans to fund any
settlement. Al Cameron has confirmed that Post Office could fund the sums
presently under consideration from its own resources.
The precise form the authorisation protocol takes will depend on further feedback from
the committee.
Managing messages coming out of Mediation
The Board enquired about the extent to which we could manage the messages coming
out of a settlement, and noted that BEIS input should be sought if we were considering
the use of confidentiality agreements.
Mediation is a confidential process where the parties should be free to explore
settlement with the mediator and each other without fear of their discussions becoming
more widely known. Mediation cannot work without confidentiality.
Mediation is also a consensual process where the parties agree the terms of settlement
where one is reached. Settlement agreements routinely impose confidentiality
obligations (with consequences for breach), which may also be accompanied by a
statement the parties agree can be made public. These terms will be subject to
negotiation along with all other settlement terms. BEIS’s input on any such terms could
therefore be sought through the information sharing and approvals process as
POL00327588
POL00327588
POL-BSFF-0163334_0007
PRIVILEGED & CONFIDENTIAL - DO NOT FORWARD OR SHARE
appropriate. Post Office will also act consistently with Law Society guidance on the use
of confidentiality clauses.
Post Office Mediation Representatives
Beyond ensuring that attendees are properly authorised, there are no rules as to who
can attend mediation for a party. As matters stand, it is proposed that the key Post
Office representatives at mediation will be General Counsel Ben Foat and Alan Watts of
HSF.© Consideration is being given to CEO Nick Read attending to make introductory
commercial remarks. Others from Post Office's operations and legal teams will be
available on the day to assist as required, either in person in breakout rooms or
remotely.
We do not intend bringing our Leading Counsel to the mediation, given that the purpose
of mediation is to explore commercial possibilities for settlement rather than debate
each side’s legal case. The Claimants’ solicitors have confirmed that that is also their
understanding, and that although their Leading Counsel (Patrick Green QC) will attend
the mediation, he is doing so to satisfy their funders’ requirements.
Consistent with the mediation strategy outlined at the September 2019 Board meeting,
we do not recommend there be any shareholder representation at the mediation.
However, as noted above arrangements will be finalised to keep shareholder
representatives informed of progress in the mediation.
Next Steps
‘An overview of the main court and settlement-related activity in the Group Litigation
through to October 2020 is set out in the “Group Litigation Timetable” at Appendix 1.
Between now and the end of November 2019 we are preparing to:
* resolve the KEL Disclosure issue, including assessing the legal claims that could
be pursued against Fujitsu and pursuing audit rights;
* receive the Horizon judgment;
* attend mediation on 27-28 November 2019, which includes finalising in advance
the protocol for shareholder settlement authorisation if required;
* attend the Court of Appeal on 12 November 2019 for the hearing on permission
to appeal the Common Issues Judgment;
* respond to the Claimants’ Further Issues trial PoC due on 25 October 2019; and
* identify “Test Claimant” criteria by 25 November 2019.
A timeline of the key milestones to the end of November 2019 is set out at Appendix
2
The operational responses to the Common Issues Judgment and Contingency Planning
for the Horizon Judgment are addressed in a separate Board paper.
POL00327588
POL00327588
POL-BSFF-0163334_0008
POL00327588
POL00327588
PRIVILEGED & CONFIDENTIAL - DO NOT FORWARD OR SHARE
Appendices
1. Group Litigation Timetable
10
POL-BSFF-0163334_0009
PRIVILEGED & CONFIDENTIAL - DO NOT FORWARD OR SHARE
2. Timeline of Key Litigation and Settlement Milestones to end of November 2019
wic 21 October
Horizon: Court to provide an update regarding judgment
2. I 22 October Post Office Board Sub-Committee
3. I 25 October Further Issues Trial: Deadline for Lead Claimants to file/serve Individual Particulars of Claim
4. I 29 October Post Office Board Meeting
5. I 1 November Horizon: judgment expected to be handed down on or after this date
6. I 4 November Case Management: Deadline for Post Office to file any applications before the 7 November case management
conference
7. I 7 November Case Management Conference
8. I 12 November Common Issues: Oral hearing of Permission to Appeal application
9. I 13 November Post Office Board GLO Sub-Committee on or after this date
10. I 18 November Further Issues Trial: Internal deadline for legal team to draft Defences and provide to Post Office for sign off.
11. I 25 November Further Issues Trial: Deadline for Post Office to serve individual Defences
12. I 26 November Post Office Board Meeting
13. I 27 November Parties to serve and file their proposed Selection Criteria for Test Claimants
14. I 27 — 28 November Mediation. UKGI/BEIS authority to be obtained if required.
15. I 3 December Parties to set out assumed facts and issues to be decided at Further Issues Trial
16. I 4 December Case Management: Case Management Conference to resolve any disputes about issues to be dealt with at FIT
11
POL00327588
POL00327588
Formatted: Heading 3, Left, Numbered + Level: 1 +
Numbering Style: 1, 2, 3, ... + Start at: 1 + Alignment:
Left + Aligned at: 0 om + Indent at: 0.63 om, Tab
stops: 2.91 cm, Left
POL-BSFF-0163334_0010