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Post Office Limited
POST OFFICE LIMITED
(Company Number 2154540)
Meeting of the SPARROW SUB-COMMITTEE
to be held from 16.00 — 17.30 on 30 April 2014 in the Boardroom, 148 Old Street, London
EC1V 9HQ
Members of the Sparrow Sub-Committee (the ‘Committee’) will be asked to declare any interest that could
give rise to conflict in relation to any item on the agenda at the beginning of the item in question. All interests
s0 disclosed will be recorded in the minutes of the Committee. If the Chairman of the meeting deems it
appropriate, the member shall absent himself or herself from all or part of the Committee's discussion of the
matter.
46.00 1 Public statements made about the Scheme Mark
Davies
416.05 2 Ex gratia and settlement payments under the Scheme Chris
Aujard
16.25 3 Dissemination of the Linklaters advice and Deloitte report — as Chris Aujard
discussed at the full Board
16.45 4 Recent Correspondence Chris Aujard
16.55 5 The role of Second Sight Chris Aujard
17.10 6 Closure/accelerated completion of the Scheme Chris Aujard
17.30 CLOSE
PRESENT: Alice Perkins (Chair)
Richard Callard
Alasdair Marnoch
Paula Vennells
Chris Aujard
SECRETARY: Alwen Lyons
IN ATTENDANCE: Belinda Crowe
Mark Davies (Item 1 only)
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POST OFFICE LTD BOARD SUB COMMITTEE
Initial Complaints Review and Mediation Scheme
Ministerial Commitments
1. Purpose
This paper has been prepared following the initial meeting of the Board Sub Committee on
the Initial Complaints Review and Mediation Scheme (the Scheme) on 9 April. At that
meeting the programme team were asked to produce a paper setting out the ministerial
commitments with regard to the Scheme and timescales.
2. Background
This paper looks at the ministerial commitments that have been made including within:
* Ministerial statement in Parliament on the 9" July in response to the interim report
produced by Second Sight
¢ Written response to parliamentary questions asked by lan Murray MP on the 31%
October
e Ministerial correspondence.
3. Summary of ministerial commitments
The Minister has said very little about the Scheme itself. The majority of her comments were
made during the debate on the interim report which was before the Scheme was designed or
announced. The following list sets out the key commitments she has made where they
could be deemed relevant to the Scheme:
« Working Party will consider all 47 cases bought forward by JFSA and MPs
¢ Independent figure will chair a review
e Independence of process
« Second Sight and JFSA Working Party
e Further work on cases must be independent
* Working Party must be independent
« James Arbuthnot and JFSA recipient of further cases
¢ Application open from 27th August — 18th November 2013
« Working Group is independent of Government and is responsible for meeting the
recommendations set out in the interim report
4, Ministerial Commitments
Initial Complaints Review and Mediation Scheme
Ministerial Commitments
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Summary Commitment Ministerial Commitments (Statement Correspondence
or PQ)
No Systemic Issues with Statement: ‘No remote
Horizon system It did not find evidence of systemic failures; I access to the
that is not to say there has never been a system or
bug in the system, but I defy anyone to find individual branch
an IT system that has never had a bug. eminale!
wei terminals’
What is important is that when bugs are 07.12.2010
found, they are dealt with and the problems 7“
are rectified. What has not been found,
however, is any systemic problem leading to
the issues faced by sub-postmasters,
although there have been issues with the
support and training provided alongside
_ Horizon.
Working Party will consider all I Statement:
47 cases bought forward by First, it will set up a working party to
JFSA and MPS complete the review of cases started by
Second Sight, and will consider all 47 cases
brought forward by the Justice for
Subpostmasters Alliance—the JFSA—and
. MPs _
Independent figure will chair a I Statement:
review Secondly, an independent figure will chair a
review to determine how best to adjudicate
disputed cases In future. The JFSA and other
stakeholders will also be invited to take part
in this process.
Independence of process Statement:
it is important that any further work is not
only independent, but seen to be
independent __
Second Sight to be part of the I Statement:
Working Party I shall happily give the hon. Gentleman that
assurance (That Second Sight will be part of
. the working party].
Further work on cases is Statement:
independent we need to ensure that the further work on
cases where there are outstanding queries
. is independent
Working Party must be Statement:
independent Yes, Iam happy to give my hon. Friend an
assurance that the working party will be
_ independent.
If other cases should come Statement:
forward we would not want to I On the hon. Gentleman’s first point, I can
deny them the opportunity for I certainly give an assurance that if there are
this to happen other cases that need to come forward, we
would not want to deny those people the
Initial Complaints Review and Mediation Scheme
Ministerial Commitments
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opportunity for that to happen.
JFSA represented in Working
Group
Statement:
The independent working group, which will
include representation from the Justice for
Subpostmasters Alliance, will help to ensure
that that happens swiftly and without
compromising the details that need to be
gone into,
James Arbuthnot and JFSA
recipient of further cases
Statement:
I should point out that one avenue for
highlighting any further cases would be to
bring them to the attention of the Justice
for Subpostmasters Alliance, which will be
part of the independent working group. I
hesitate to suggest, although I am probably
safe in doing so, that my right hon. Friend
the Member for North East Hampshire (Mr
Arbuthnot) would also be happy to continue
in his role as a recipient for any such cases.
‘Further case can
be put forward to
review by Second
Sight’ 11.07.2013
Application open from 27"
August — 18" November 2013
31" October Jo Swinson Written Answer to
lan Murray: ‘Subpostmasters who wish to
have their case considered by the Initial
Mediation Scheme have until 18"
November 2013 to submit their
applications. The scheme opened on 27"
August 2013,’
Working Group is independent I 31* October Jo Swinson Written Answer to
of Government and is lan Murray:
responsible for meeting the
recommendations set out in
the interim report
‘The Working group is independent of
Government, and is responsible for meeting
the recommendations set out in the interim
report’.
Mark Davies
Initial Complaints Review and Mediation Scheme
Ministerial Commitments
Mark Davies
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POST OFFICE LTD BOARD SUB COMMITTEE
Initial Complaints Review and Mediation Scheme
Ex gratia and Settlement payments
1. Purpose
41.1. This paper has been prepared following the initial meeting on 9 April 2014 of the
Board Sub Committee on the Initial Complaints Review and Mediation Scheme (the
Scheme). At that meeting the programme team was asked to produce a paper
providing advice on token (or “ex gratia”) Scheme payments. This paper also
provides briefing on settlement payments and Conditional Fee Agreements (CFAs).
2. Background
2.1. From the establishment of the Scheme it was always envisaged that some form of
payment might be made to some applicants to help resolve their disputes. However,
it was also envisaged (based on legal principles) that any such payment would be
small (ie the order of a few thousand pounds at most).
2.2. Now that the Scheme is up and running and a substantial proportion (45%) of
applicants have submitted detailed claims it is clear that applicants have different
expectations. Post Office has now fully investigated over 20 cases and Is in the
process of writing up investigations on a further 21 cases. This provides an
appropriate point to examine again approaches to settlement with the assistance of
Linklaters advice on liability and both ex gratia and settlement payments.
2.3. We have also heard via JFSA that a “majority” of our applicants have put Conditional
Fee Agreements in place. This paper therefore examines CFAs.
3. Ex Gratia Payments
3.1. It appears possible to make ex gratia payments from public money (though formal
confirmation of the restrictions that might be applied to such payments has yet to be
received but will be available for the meeting), for example if an organisation’s
standards fall short of reasonable behaviour. However, payments made under such
circumstances should provide value for money and be in the public interest,
3.2. An ex gratia payment is a small payment (circa £50 - £250) to another party to
please or give comfort to that party after suffering some actual or perceived wrong
allegedly caused by the paying party. Such payments are not necessarlly paid or
calculated by reference to the legal or moral merits, or any monetary amounts
claimed, of the relevant situation or, indeed, any legal or other principles at all.
3.3. Ex gratia payments would usually not be paid in the context of any actual or
threatened legal proceedings. They are paid unilaterally in the sense that the
aggrieved party need not agree to the payment or that it should be tied to any
particular consequences, albelt payment Is usually made with the aim and hope that
the aggrieved party does not pursue further their grievance.
3.4, The key advantages of making an ex gratla payment are the likely low financial
burden on the Post Office, with the potential in some cases of bringing disputes with
applicants to the Scheme swiftly to an end.
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3.5. These advantages are however offset by the following:
making payments without any reference to the merits or principles applicable in
each particular case creates a significant risk that applicants will not be satisfied
by the payments, particularly in cases where the ex gratia payment is a very
small proportion of the amount claimed. This will not only waste the costs of
administering (fruitless) payments, but also leave the Post Office in no better
position for dealing with potentially many of the complaints in the Scheme;
ex gratia payments could be perceived as derisory in some cases, especially
where more substantial amounts are claimed, and potentially inflaming an
already bad situation; and
SPMRs who did not apply to the Scheme may complain that they should be
entitled to an ex gratia payment, because had they known that the Post Office
would take this approach before applications to the Scheme closed they would
have applied to the Scheme to ensure they received payment (irrespective of
their Horizon experience). Given the many thousands of SPMRs who have not
applied to the Scheme, such additional complaints could worsen the current
situation.
3.6. For these reasons, on balance, it is recommended that ex gratia payments are not
offered in the Scheme.
4. Settlement Payments
4.1. Ordinarily, settlement payments are made in the context of threatened or ongoing
legal proceedings. They are made by one party to another as an Inducement to the
other to agree to compromise the claim. Payment is usually made in exchange for
the the other party giving up the right, for a period or in perpetuity, to continue or re-
commence the claim in the future and/or to bring other claims on the facts.
4.2. Settlement payments are thus only meaningfully made once opposing positions are
known with at least some degree of certainty i.e. once the “battle lines have been
drawn” between the parties. They are usually made by reference to the known (or
suspected) facts in issue in the claim and the merits of the respective parties’
positions. In that sense, they differ from ex gratia payments which, by contrast, are
usually paid to a class of recipients according to some generally applicable policy (if
there Is one), without much or any consideration of or reference to the
circumstances or merits of a particular case.
4.3, The key drivers of any settlement are 1) the merits of the case, 2) what is at stake in
the case (financially and otherwise) and 3) the quantum of the settlement involved,
balanced against the potential cost to the paying party of continuing the claim
ultimately being unsuccessful.
4.4. The key point Is that in any case, in the context of a specific case, settlements need
only be deployed If they are determined by the Post Office to be necessary. If they
are paid as part of some generally applicable policy and according to a pre-ordained
calculation or payment structure without reference to the merits of the cases, not
only will they increasingly resemble ex gratia payments, they may also more likely
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be ineffective to achieve the Post Office's desired outcomes or finally resolving
complaints.
4.5. Post Office could assess the merits of each case on the basis of its preliminary
investigations. Having done so, it could then categorise cases by reference to the
tisks of 1) each complaint continuing further, including potentially to threatened or
actual litigation, and 2) the potential financial (and other) impacts on the Post Office,
if no settlement or alternative dispute resolution process were offered at this stage.
Decisions as to whether settlement payments should be offered and if so how much
could then be taken according to how cases are categorised.
4.6. A broader approach could be taken by categorising cases by reference to more
general substantive and/or procedural attributes which may be, but are not
necessarily, linked to legal merit, such as cases in which a) the Post Office
summarily dismissed an applicant or b) when the Post Office considers that it acted
capriciously, Obviously the more settlements can be tailored to the facts and merits
of particular cases, the more likely they are to be effective.
4.7. The calculation of any settlement payment necessarily varies from case to case and
depends very much on the scope of the “drivers”, it is impossible to posit with any
precision what quantum they could be in the context of the Scheme In any particular
case. However, the following principles may provide some guidance:
Asettlement payment must satisfy the recipient to cause him to give up his rights
and cease his complaint. It is often therefore calculated as a proportion to or by
some rational relation to the amount clalmed. Offering a very small or a token
amount to seek to settle a claim Is unlikely to be sufficient.
On the other hand, by its nature, a settlement payment must discount the amount
claimed in order to provide incentive to the other paying party, rather than choose
to bear the risk of continuing to defend the claim.
Given Linklaters’ advice that the legal merits of cases in the Scheme are likely to
be, at best, limited, it is possible that applicants may be satisfied by small
proportions of the amounts claimed. That will in some part depend on the quality
of legal and other advice to which the SPMR has access and the strength of the
SPMR's conviction. {t may be so even in cases where a very substantial amount
has been claimed, because the quantum of a claim bears no relation to Its legal
merits (e.g. someone who claims £5 million may have much lower prospects of
successfully claiming any of it than someone who more realistically claims
£50,000).
However, we appreciate that the quantum of any settlement payments will also
be constrained by the Post Office’s budgetary imperatives, the strength of its
desire to bring an end to the Scheme sooner rather than later, and the strength of
conviction of applicants to “stay the course” and maintain their complaints,
perhaps by threatening or pursuing litigation If they remain unsatisfied.
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5. Conditional Fee Agreements
5.1. Conditional Fee Agreements (“CFAs") involve a party agreeing to pay their solicitor’s
fees only if “successful”. If the party is successful, then they will usually have
agreed also to pay an additional success fee which is statutorily limited to be up to
100% (or double) of the solicitor's base fees.
5.2. What constitutes “success” for the purpose of a CFA will depend on the terms of
each particular CFA. This will be important, for there will be little incentive for a
solicitor to encourage his client to agree any settlement unless and until he has
achieved success and can thus be paid. Equally however, he may not wish to take
the risk of continuing hopeless cases and “throwing good money after bad”. Thus a
CFA in and of itself may not be a barrler to settlement.
5.3. What is certain Is that an applicant is unlikely to agree a settlement which does not
satisfy his liability for his solicitors fees. This may provide incentive for the applicant
to settle more readily with the Post Office (and therefore more so In the Post Office's
favour) so that his liability for fees does not erode the value of any realistic
settlement payment.
5.4. Post Office should be aware that if it agrees to pay an applicant's costs in any
settlement, those costs might include an additional success fee. Post Office can of
course negotiate as it sees fit any part of the applicant's legal costs.
6. Bond Dickinson work on a draft settlement
6.1. ExCo had préviously commissioned, from Bond Dickinson, a piece of work to
examine what a settlement strategy might look like. This was an important part of
understanding how and in what manner Post Office might wish to finally settte
individual cases. The work was necessarily done before Post Office was in receipt
of full and investigated claims and thus before it knew the strength of the claims and
quantum sought. The work has therefore been superseded by the investigation of
the claims and the unrealistically inflated claims being submitted by applicants.
Therefore Post Office will not be using that work going forward.
7. Conclusions
7.1. In conclusion ex gratla payments are not suitable for use in the Scheme given their
small size against the level of claim being received, and the large population of
SPMRs who have not submitted any claim. Settlement payments are more
complicated and need to be examined on a case by case basis, but may be difficult
to agree given the low level of liability compared to the high levels of claims being
experienced.
7.2. The dynamic around settlement is likely to be further complicated by the prevalence
of CFAs within the applicant population (which may substantially increase
applicants’ claims for their solicitors’ fees) and therefore making a decision on
communicating the Post Office position on liability and payments is critical for the
Scheme going forward.
Chris Aujard
Initial Complaints Review and Mediation Scheme
Ex Gratia and Settlement Payments
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POST OFFICE LTD BOARD SUB COMMITTEE
Initial Complaints Review and Mediation Scheme
Dissemination of Linklaters advice and Deloltte assurance report
4. Purpose
1.1. This paper has been prepared following the initial meeting on 9 April 2014 of the
Board Sub Committee on the Initial Complaints Review and Mediation Scheme (the
Scheme). At that meeting the programme team was asked to produce a paper
setting out approaches to disseminating the Horizon report from Deloltte and the
essence of the legal position from Linklaters to advisors, applicants and MPs,
including action planning, comms and stakeholder engagement.
2. Background
2.1. The Board discussed the Linklaters advice at their meeting on 26 March 2014
fotlowing its concern at the growing size of the so called “expectation gap". The
Board was reassured by the advice on the legal liability and sought further
assurance through commissioning a short piece of work on Horizon. Deloitte have
been commissioned to deliver this work, the first stage of which is due to report in
draft on 28 April. The Board will be provided with an update from the CIO at its full
meeting on 30 April in advance of the Sub-Committee meeting.
2.2. To inform this paper, further advice was taken from Linklaters on the options for
dissemination of Post Office's legal position and how best to ensure that Post Office
avoided waiving legal privilege.
3. Dissemination Options
3.1, This paper examines a number of different options for dissemination:
a) Publication of the legal advice (not recommended)
3.2. Legal advice is private and confidential and usually withheld from open publication.
Any publication of legal advice may be seen as waiving the privilege of keeping the
advice confidential, potentially not just for the Scheme but also for other Post Office
advice. Any waiver may lead to numerous requests for disclosure of legal advice
under the Freedom of information Act and although Post Office could resist these
requests it is not guaranteed that they would be successful in all cases. For this
reason this option was discounted as too risky.
b) Linklaters letter (not recommended)
3.3. Consideration was given to Linklaters providing a letter to go in their name to the
Chair or to all applicants setting out publicly Post Office’s legal position (as informed
by Linklaters’ advice). It was felt that this option risked being portrayed as Post
Office bullying SPMRs and on that basis it was decided that this option should be
discarded.
c) Post Office letter to the Chair of the Working Group (recommended)
3.4. Linklaters suggested that an open letter from the Post Office to the Chair of the
Working Group setting out the legal position (without detailed analysis) could be the
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most effective way of disseminating Post Office’s legal position and the Deloitte
report. The letter to the Chair could then be disseminated to Scheme applicants,
and other interested parties, and made available via the Post Office website. This is
the preferred option as it positions Post Office in control and does not place privilege
at risk. However it might lead to criticism from applicants, JFSA, MPs and Second
Sight.
3.5. It should also be noted that the dissemination of the advice does tisk causing some
members of the Working Group to resign and consequent fracture of the current
governance arrangements. The media reaction to any resignations and the
dissemination of the position Is likely to be severe (from those who have previously
covered the issue) but we have been advised that it is very manageable.
3.6. A first working draft of such a letter, drafted by Linklaters, to go from Post Office is
annexed to this paper. It is important that use of this letter is viewed within the
context of the overall decision on the Scheme.
d) Tony Hooper Commissioning legal advice on liability (not recommended)
3.7. There was discussion at the Sub Committee as to whether fresh advice could be
commissioned by Tony Hooper and then disseminated on behalf of the Working
Group. Further consideration has been given to this option and it is not thought to
be feasible for the following reasons:
3.8. If the Chair were to commission advice on the merits of claims, he may feel he is
compromising his current role as an independent overseer of all claims made under
the Scheme.
3.9. Post Office have been clear that it is not for Second Sight, JFSA or indeed the Chair
to comment on the value (or indeed merit) of any given claim — therefore they are
very likely to resist being asked to “manage down” the claim value at this point.
3.10. The advice needs to clearly represent the Post Office position to make clear to
applicants that it is not worth them pursuing multi million pound claims so it is not felt
that it would be as effective as option (c).
4. Action Planning including Communications and Stakeholder Engagement
4.1. The actions needed to deliver the preferred option are set out in appendix A.
§. Conclusions and Recommendation
5.1. Action is needed to manage the so called “expectation gap” and this needs to be
done in a transparent manner to protect Post Office’s integrity. To that end it Is
recommended that the legal position and the Deloitte report are disseminated via a
letter to the Chair of the Working Group. This would provide a strong signal of Post
Office's intent.
5.2. The letter to the Chair provides an appropriate and managed medium for the
message and although the Impact will need substantial management and may
indeed lead to the fracture of the Working Group It will leave Post Office ina much
stronger position and SPMRs more appropriately informed of the likely outcome of
thelr claim.
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Action planning Including Communications and Stakeholder Engagement
ii.
fil.
vi.
vii.
viii.
ix.
xi.
xii.
xiii,
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Annex A
Board agree overall approach to the Scheme to ensure comms on the legal position
are aligned to overall decision.
Agreement of BIS and the Minister secured.
Finalise the letter and draft a press statement to be used on a reactive basis
including finalising the commentary on Second Sight which will be informed by the
decision the Sub Committee takes under the Second Sight agenda item.
Statements to be prepared in case of JFSA or Second Sight resignation from the
Working Group (this will be influenced by the overall decision on the future of the
Scheme ie are Second Sight still engaged and is the Working Group still running).
Comms to identify potential supportive voices who could be approached to provide a
quote/voice in the SPMR community
Discussion with Tony Hooper to inform him of the intention to write and share a copy
of the letter with him.
Subject to Tony's views embargoed briefing for NFSP with objective of securing their
support for the proposed course of action.
Final revision of the letter in light of discussion with Tony.
Dispatch letter to Tony Hooper.
Paula to call James Arbuthnot to inform him of the letter and brief him on its contents.
Upload letter to Post Office website with statement and simultaneously (and
separately) brief Second Sight and JFSA on the contents of the letter.
Comms to call key interested MPs and flag the letter to them.
Reactive briefing of key media contacts on the development.
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WORKING DRAFT
[Post Office Limited Letterhead]
{Chairman of the Working Group]
0) 2014
Dear [Sir]
Initial Complaint Review and Mediation Scheme
As you know, Post Office Limited (the “Post Office”) set up the Initial Complaint Review and Mediation
Scheme (“the Scheme”) to seek to provide a mechanism for resolving complaints which certain Sub-
Postmasters (“SPMRs”) had about the operation of the Horizon transaction reporting system. Much work
has now been done in the context of the Scheme and the Post Office has carefully considered the
information so far available as to the operation of Horizon, the nature of the individual complaints brought
and the Post Office's preliminary response to the issues raised in those complaints.
The result of the Post Office’s own work in relation to the Scheme is that the Post Office now has certain
views on issues which arise in many, if not all, complaints, and the Post Office believes that it would be
appropriate to share those with the Working Group through this letter. I shall also be arranging for a copy
of this letter to be posted on the (website] so that all those interested can read it. I should stress that each
complaint is and will be addressed individually and on its own merits. Nothing in this letter should be
taken as leading to a firm conclusion in relation to the merits of any individual complaint. Nevertheless, to
the extent to which this letter sets out the Post Office's thinking in relation to a particular point, the
likelihood is that there would need to be specific facts in an individual complaint to lead the Post Office to
form a different conclusion on that issue.
The Post Office would be happy to explain its thinking on any of these issues further or to clarify any point
where you, as Chairman of the Working Group, thought that that would be of assistance.
The Post Office recognises that certain SPMRs have been frustrated and upset about their dealings with
the Horizon system (though I note that it is only a very small minority of SPMRs who describe their
experience with Horizon in these terms). The Post Office is and remains concerned about any and all
such reactions and wishes to work with SPMRs both to understand their complaints and also to ensure,
so far as possible, that individual SPMRs are able to work with Horizon to ensure a problem-free
relationship in the future. Where a SPMR has translated his or her reactions to Horizon into a complaint it
is inevitable that the analysis will turn on the legal framework between the SPMRs and the Post Office and
the question of whether such a complaint is made out will be one answered by reference to legal
principles. The Post Office is bound to consider complaints in this way, not least because it has a number
of stakeholders to whom it is answerable and has also to bear in mind the interests of other users of
Horizon from whom the Post Office may have claimed losses but who have not complained. The Post
Office believes that the right course is for it only to consider paying compensation to SPMRs where that is
the correct conclusion as a matter of the law.
[We should try to say something about the entrance requirements Into the Scheme. The SPMRs
will ask why they are In the Scheme if they don’t have claims.]
WORKING DRAFT
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For the reasons set out more fully in this letter, the Post Office considers that many, if not most, of the
complaints in the Scheme lack or are likely to lack a reasonable legal basis. The Post Office is keen to
moderate the expectations of SPMRs who have brought complaints and hopes that this letter may assist
in that process.
Against that background, the issues addressed in this letter are as follows:
(a) The proper functioning of the Horizon system;
(b) The contractual relationship between the Post Office and SPMRs;
(c) The legal framework for the recovery of losses by the Post Office;
(d) The Post Office's obligations in relation to training and support;
(e) The right of the Post Office to terminate a contract with a SPMR;
(fy) The legal right of SPMRs to compensation; and
g) The application of the Limitation Act 1980.
The proper functioning of the Horizon system
The complaints in the Scheme, necessarily, are about or are associated with Horizon. They are not about
other aspects of the Post Office/ SPMR relationship. The Post Office's liability to any particular applicant,
therefore, depends in large measure on there being, generally or in any particular case, a flaw in Horizon.
The Post Office notes Second Sight's preliminary conclusion, that they “found no evidence of system wide
(systemic) problems with the Horizon software.” [The Post Office has, of course, read what Second Sight
has produced and taken it into account. However, it is concerned that the work of Second Sight does not
address the operation of Horizon in comprehensive terms. The Post Office is also concerned about the
level of detail in Second Sight's work and the lack of evident substantiation for Second Sight's views.]
By way of supplement to Second Sight's work, therefore, the Post Office has commissioned a report from
Deloitte (the “Deloitte Report’). The Deloitte Report [confirms what the Post Office [believes/has been
confident} has always been the case: Horizon is fit for purpose and functions in accordance with its design
specifications; it is not fundamentally flawed; it does not suffer from any systemic issues. In particular, the
Deloitte report:
{Set out key findings of the Deloitte Report]]
[A copy of the Deloitte Report is enclosed./ The Post Office has distributed /will be distributing [in due
course] copies of the Deloitte Report fo you and to other relevant interested parties.]
The Post Office believes that the conclusions Deloitte have reached about Horizon removes any doubts
over its functionality or its fitness for purpose.
The Post Office will, of course, consider carefully specific allegations made in a particular case. But in
doing so the Post Office will be guided by what Deloitte's view is as to the likelihood of the particular issue
impacting on the performance of Horizon. [This needs further. thought as to how the Post Office
wishes to position It. Moreover, what does the Post Office want to say about Second Sight?]
The contractual relationship between the Post Office and SPMRs
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The legal relationship between SPMRs and the Post Office is governed by the 1994 standard form
contract (the “Contract”). It is important to recognise that the Contract (together with the general law)
provides the framework for the allocation of risk between the Post Office and SPMRs. That framework
must guide the determination of any liability owed, in either direction, between applicants to the Scheme
and the Post Office.
The legal framework for the recovery of losses by the Post Office
Clause 1 of the Contract makes it clear that the relationship is one of principal and agent and that the
SPMRs are not employees of the Post Office. The Contract, and agency relationship, have several key
consequences. First, they give rise to certain, clear duties owed by SPMRs to the Post Office (which I
mention further below). Secondly, SPMRs do not enjoy the legal protections and benefits that they
otherwise might if they had the status of employees (see, for example, Commissioners of Inland Revenue
v Post Office Limited [2003] ICR 546 and Moeze Lalji v Post Office Limited [2007] EWHC 5 (QB)). Thirdly,
such duties as the Post Office might owe SPMRs are established and circumscribed by the terms of the
Contract i.e. there can be no broader duty of care which would extend the contractual duties owed by the
Post Office in any respect relevant to the subject matter of complaints in the Scheme.
There are two main issues in the recovery of losses: 1) the way in which losses are calculated and 2) the
Post Office's legal entitlement to seek those losses from a SPMR. It is accepted by all that Horizon
produces and maintains the accounts on which all parties rely. The Post Office’s position is that, as a
matter of principle, Horizon accurately reflects the account between the Post Office ([.e. it accurately
calculates losses) and that the Post Office is entitled to recover such losses fram SPMRs, including the
applicants to the Scheme.
The SPMR is, day to day, responsible for inputting transactions to the Horizon system. Horizon 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; the Post
Office holds no other relevant records. Ouring the period covered by the complaints to the Scheme, at
least once a month and potentially as often as at the end of every week, a SPMR was obliged to prepare
and sign a document entitled “Cash Account (Final)" and send it to the Post Office or complete an
equivatent process by declaring via an electronic system the amount of cash that he holds. The SPMR
also conducted a manual hand count of cash and stock in the branch and compared them to the levels
recorded in Horizon.
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.”
Therefore, there is a clear contractual basis on which SPMRs are required to account to the Post Office
whenever requested to do so. In any event, the 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. 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.
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An agent is bound by his own accounts unless he can show that he made a mistake. Once an account is
agreed, the principal can sue on it. In other words, once a SPMR signifies his agreement to an account
on Horizon which shows a balance due to the Post Office, the Post Office is entitled to sue on this as an
account stated (see, for example, Post Office Limited v Lee Castleton [2007] EWHC 5 (Q8)). Generally,
settled accounts will not be re-opened, unless (as mentioned) drawn up under a mistake or if the agent is
guilty of fraud.
Thus, as I mention above, it is the reliability of the Horizon system as a matter of principle which is
important because Its reliability places the burden on the SPMR to show why, on the basis of the limited
exceptions above, the amounts said to be owing are not in fact owed. But, there can now be no real
doubt as to its reliability. The circumstances, therefore, in which any applicant to the Scheme could
realistically “re-open an account” and object to a particular loss recovery will be limited indeed.
The complaints to the Scheme do not appear to take issue with the Post Office’s right, as a matter of
principle, to recover losses from SPMRs. However, there can be no doubt that such a right exists. First,
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. Further, the fact that the SPMR
must be in “error” is a low threshold and implies the Post Office need not establish any “mental element”
on the part of the SPMR: he can simply be mistaken without being careless and without there being any
question of dishonesty on his part.
Absent the right contained in section 12, paragraph 12, the Post Office would in any event be entitled
under the general law to seek loss recovery pursuant to the duly of an agent who holds money for his
principal to pay over or account for that money at the request of his principal. Thus there is a sound
contractual basis for the recovery of losses, which is supported and supplemented by the general law
governing an agent's duties to his principal.
The Post Office’s obligations in relation to training and support
The Post Office is obliged to provide training under section 15, paragraph 7 of the Contract. In particular,
the Post Office agrees to 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, inform the
SPMR 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 (as necessary) update such training and materials.
However, it is the SPMR's responsibility to ensure the proper deployment within his Post Office branch of
any material and processes provided by the Post Office and to ensure that his Assistants receive all the
training which is necessary in order to be able properly to provide the Post Office Products and Services.
In other words, the Post Office must provide training and keep it up to date but the SPMR is still
responsible for the day to day operation of the Subpostoffice and accepts the consequences of any lack of
training provided to his Assistants or their failure to put the training into effect.
In any event, in order to show that a claimed failure to provide proper training or support gave rise to a
complaint, the SPMR would have to show how any alleged inadequate training or support has caused the
loss he claims. The Post Office believes that this will be difficult to do in most if not all cases.
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The right of the Post Office to terminate a contract with a SPMR
Some complaints concern the alleged wrongful termination of Contracts. The Post Office is entitled to
give three months’ notice to terminate the Contract with the SPMR (under section 1, paragraph 10) for any
reason. 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. The Post Office is able, contractually, to terminate the
Contract for any reason or, indeed, for no reason.
Section 1, paragraph 10 also entitles the Post Office to terminate a Contract with a SPMR summarily for
breach of a condition or non-performance of an obligation by the SPMR. Such cases must be treated on
their facts. The Post Office believes that it is likely that in most or all cases, any such loss flowing from
the wrongful summary termination of a Contract would be limited to the loss of the SPMR’s entitlements
during the three months following the termination, because the Post Office would have otherwise been
entitled to terminate the Contract (for any reason) on giving such notice. The same comments above as
to causation of loss also apply.
The legal right of SPMRs to claim compensation
As a matter of principle, if in each particular case, the Post Office has a right to recover losses, then there
can be no question of the relevant applicant being entitled to “compensation”; in short, there is nothing for
which compensation is due. Even if the Post Office was not in a particular case entitled to claim losses
(and as I say above, such cases, if any, are likely to be very limited), then it may be that the applicant has
a right to recover only the specific amount of losses that he paid to the Post Office. This is a restitutionary,
not a compensatory, claim. It does not entitle the applicant to supposed related or consequential other
amounts, such as for lost earnings, distress, hurt feelings etc.
In particular, in cases where the courts have determined criminal or civil liability against an applicant in
respect of loss recovery that forms the subject of the complaint, there can be no doubt whatsoever that
the Post Office was entitled to the losses. There can also, for that reason, be no doubt that the Post
Office is not liable to pay restitution to such applicants for any alleged wrongful loss recovery.
Cases which a court has not been asked to decide (the majority) seem to fall roughly into general
allegations as to the unreliability of Horizon and specific allegations as to factors which may have affected
Horizon in the particular case. Particularly in light of the Deloitte Report, general, largely unsubstantiated
allegations about Horizon would not establish that a particular loss recovery exercise was wrongful and
therefore that restitution to the applicant is due.
More specific allegations about the functionality of Horizon need to be looked at on a case by case basis.
{The Post Office accepts that in some, albeit limited, cases there may be specific reasons why loss
recovery should not have occurred. These will need to be fully investigated and dealt with.)
However, a couple of important points should be recognised here. First, the Post Office can only be lable
to pay restitution for wrongful loss recovery for which it is legally responsible i.e. for things which it has
caused. For example, some complaints refer to such things as power cuts, incompatible use of other
technologies with Horizon, intermittent internet connectivily etc. as being the basis for the complaint.
Others claim compensation where there is a real question over whether Horizon or any of the matters of
which complaint is being made caused the “loss” at all. It would be very difficult in such cases to establish
liability on the part of the Post Office to pay restitution (or compensation).
Secondly, as I say, the basis for any claim for wrongful loss recovery is restitutionary - i.e. the recoupment
of the specific amounts originally paid by the applicant. Even to the extent an applicant could show that
the loss recovery was, somehow, a breach of the Contract by the Post Office — thus entitling him to
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compensation - this would only entitle the applicant to damages for losses that were reasonably in the
contemplation of the parties. This would not include such consequential “losses” as loss of reputation,
hurt feelings, mental distress or ill health etc. (even if such matters could be shown to have been caused
by the wrongful loss recovery, itself a difficult prospect), as several complaints seem to claim.
I trust that this letter clearly conveys the Post Office’s overall position in respect of the issues raised by
complaints made to the Scheme. I would welcome any comments or questions you may have in
response to it.
Yours sincerely
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Department
for Business 1 Vitota Suet
: io
Innovation & Skills SWIM OT
Paula Vennells
Chief Executive Officer
148 Old Street
London vaww.gov.ukibis,
EC1V 9HQ ‘Our ref: MCB2014/08461
ox 2014
Dow Porm har ,
I have recently received a letter from Alan Bates, Chair of the Justice for Subpostmasters
Alliance (“JFSA") regarding the Initial Case Review and Mediation Scheme.
As you will be aware, the Government, as shareholder in Post Office Ltd, does not play a role
in operational matters relating to Post Office Ltd, or the Working Group but is supportive of the
aim to resolve concerns raised by subpostmasters and believes it is in the interests of all
parties for that fo happen in a timely manner, especially for those who have lodged
applications with the Scheme.
In that spirit, I am forwarding to you correspondence from the JFSA that sets out their
concerns about the operation of the Scheme and Post Office Ltd's engagement in the process.
This is provided without prejudice, and I have informed Mr Bates that I would be sending his
letter to you to respond. I have also sent a copy to Sir Anthony Hooper, independent Chair of
the Working Group.
JENNY WILLOTT MP
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Justice For Subpostmasters Alliance
Jo Swinson MP Alan Bates
Minister for Postal Affairs 3 Bod Ellan
Department for Business, Innovation & Skills Llanelian-yn-Rhos
1 Victoria Street N Wales
LONDON LL29 8UY
SW1H OET
16" April 2014
Your Ref: 2013/04327
Dear Minister
Thave previously written to you with regard to the progress of the Initial Case Review & Mediation
Scheme whenever matters have arisen that are of concern, and regrettably this is another letter to
inform you that such is the current position with the Scheme.
You will probably be aware that the way the Scheme was meant to work was as follows:-
« Applications by ex and serving Subpostmasters (SPMRs) could be submitted during a 12
week window which ran from August 27" until 18" November 2013.
+ Those Applicants suitable for the Scheme would then receive a detailed Case Review
Questionnaire (CRQ), which had been tailored to that particular case by 2"? Sight, the
independent forensic investigations firm appointed to the Scheme. The CRQ would be
accompanied by a list of Professional Advisors (RAs) comprising of lawyers and forensic
accountants, for which there would be £1,500 of funding available towards the cost of the
Applicant's selected PA to assist with completing the form. A period of 4 weeks had been
allowed for the CRQ to be completed and returned to 2" Sight,
« Once 2” Sight deemed the completed CRQ to contain adequate information for
investigation, the CRQ would be accepted by the Working Group (WG) and a copy of the
CRQ submitted to Post Office (POL), In order for POL to produce their own report of the
case to submit to 2" Sight at the end of the 4 week period that was allowed for this
particular stage.
« 2" Sight, upon receipt of POL's case report, would then have up to 8 weeks to complete
their Case Review Report which would be based upon the Applicants CRQ, the POL report
and the results of 2" Sight’s own investigation into the case.
* The completed 2" Sight Case Review Report, together with their conclusion and
recommendation about the case would then be returned to the WG for either approval of
the case being sent to CEDR, the Case Resolution and Dispute Resolution organisation
appointed to run the Mediation process, or for its outcome to be discussed further by the
WG,
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Once a case was sent to CEDR, they would take it over and make all further arrangements,
and it is at this point that the case leaves the control of the WG. However, it was expected
that any mediation meeting between POL and the Applicant accompanied by their PA would
take place about 4 weeks later. In order to assist the Mediator to understand the context
of the issues, earlier this year it was decided that a Mediator’s briefing pack was also to be
prepared. The pack would consist of not just the 2" Sight Case Review Report, but also an
explanation of Horizon and the computer system and how it was meant to work, a glossary
of the terms and abbreviations to be found in the documentation, a copy of the Applicant's
PA's report, the POL report of the case and a 2™ Sight report into what they refer to as the
Thematic Issues,
The above structure was agreed and published online at the Scheme launch in August 2013 and
the full documentation is still available for downloading from jfsa.org.uk/Documents.aspx.
Unfortunately the reality of where the Scheme is actually at, is very different,
As of the date of writing, the position with the Scheme is:-
During the time the Scheme was open for Applications, 150 cases were accepted, although
it should be noted that since the Scheme has closed, there have been others who would
have applied if they had been aware of Its existence. JFSA’s advice to these enquiries is to
raise the matter through their MPs until such time as a permanent solution for dealing with
on-going enquiries is established.
Of the 150 cases, the earliest that POL became aware of the names of the individuals and
the identity of the post offices that were to be Involved in a case review, was:-
© 20 cases during September 2013; a further
o 40 cases during October 2013; and then
o 60 cases during November 2013,
o The majority of the 30 other cases that applied during the time the Scheme was
open are still serving SPMRs. As POL became aware of serving SPMRs submitting
application forms, POL requested these cases to be held back from fully entering
the Scheme until such time as POL had had an opportunity to discuss those cases
directly with the SMPRs. Some of these cases remain in that position,
Once the criteria to enter the Scheme had been met, and the WG had approved the initial
application, the personalized CQR was sent out to the relevant Applicant for completion
with the assistance of their PA. So far the returned completed CQRs that have been
accepted by 2nd Sight and the WG, number:-
o 9-during October 2013
o 8- December
o 17- January 2014
o 3- February
o 12-March
o 4--April, so far
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Yet to date, POL has not finalized a single case report to the point where it is ready for the WG to
consider its suitability for being sent to Mediation, and realistically that could still be a considerable
time off.
What has emerged about the process and the timescale is the underestimation of how much work
is involved with many of the cases, At the outset of the Scheme it was thought that the amount of
work that would be required for a PA to prepare a case for an Applicant might be in the order of
15 hours, and based upon a Legal Assistance Fee rate, that equated to £2000, but this was cut to
£1,500 which only allowed for 11 ¥2 hours of a PA’s time. However the amount of work the PA has
to undertake in many of the cases has proved to be significantly more. We have heard figures of
30 hours of work for a case or Applicants delivering 10 boxes of documentation as not being
unusual; then at the other extreme, there are the Applicants having almost no documentation as
POL retained it all at the time of the contact termination.
Regardless of how it has come about, the significant extra work and time required for each case
has resulted in the majority of Applicants agreeing to a supplementary Conditional Fee
Arrangement (CFA) with their PAs and their PAs requesting time extensions, which in many cases
Is an extra 2-4 weeks, just in order to complete all the work, But even then, this is still not
managing to move the cases through the process.
To me, and trying to be objective, the main hold up is with POL. At the time of writing, not one
case report by them has been completed and submitted to 2nd Sight in a way that 2nd Sight can
complete its own Case Review Report, As I mentioned earlier, POI. first became aware of the
details of the Applicants to be involved with the Scheme from September 2013, but POL are
constantly seeking extension after extension to further investigate the cases, which in some
Instances has been going on for months.
At the meeting held in Portcullis House on 24th March 2014 to provide an update of the Scheme to
the MPs who have constituents taking part, Paula Vennells, CEO Post Office, informed MPs that
POL had 22 trained investigators working on these cases. But stil! nothing is appearing.
The point about the 22 trained investigators is highly relevant in light of one of the major systemic
failures of POL that Is being exposed during the course of the Scheme, Ata recent WG meeting
chaired by Sir Anthony Hooper, 2 case reports that POL were preparing for submission to 2nd
Sight, were analysed in order to examine whether the format of the report met the requirements
of the WG, During the In-depth discussion and analysis of the data and evidence, it was
abundantly clear to me, and I think to many others at the table, that if any investigation had taken
part at the actual time of the incidents then the outcome would have been very different in
certainly one, if not both cases.
Despite POL having a contractual obligation to investigate where they believe crime has taken
place, they did not do so in these cases, and on the surface, it seems that they did not do so in
any of the 150 cases involved with this Scheme. POL in these two cases, as they have done with
so many others, went straight to prosecution using a fall-back contractual clause that the SPMR is
liable for all losses regardless of how they occurred, without ever bothering to Investigate the
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cause behind the Incidents. Furthermore, the current investigations they are meant to be
undertaking as part of the Scheme, seem to be little more than a fisting of what is already known,
and finding the truth is the last thing they are interested in.
Tam sure that you are aware of the direct results of POL’s actions upon many of the SMPRs who
have applied to this Scheme. In many of the cases there have been instances of suicides,
attempted suicides, numerous serious medical conditions brought about, imprisonments,
bankruptcies, destroyed family lives and businesses. These are just a few of the outcomes that can
be directly attributed to POL’s failure to address Horizon associated Issues since it was introduced.
Regardless of what it says publicly, POL in practice seems not only to be hardening its corporate
defence, but now seems to be prepared to invoke the protection of the public purse as their last
line of justification for not righting the wrongs they have inflicted on so many. It appears that
whatever POL can block, it does; for some reason POL Is the only one that doesn’t seem to be able
to recognize what everybody else can see so clearly.
Many observers to the process now believe that the only way we are really going to resolve this
matter is through the media and the courts, as fortunately so much more has come to light during
the course of this Scheme. But whilst JFSA will stay engaged and support the Scheme for the
present we have had to begin considering other options for the future.
Thave tried to address these concerns In not only a balanced manner but also as a realist who has
been dealing with POL for many years. 2nd Sight are probably the only company presently able to
offer an independent, professional and reasoned insight into what has been going wrong within
POL and Horizon over the years. Otherwise I fear you are reliant upon POL for Information that
we believe Is based upon reports and assurances given from the lower and medium ranks of POL
who, for whatever reason, are telling the upper management what they want to hear rather than
the truth, But one way or another, the truth will come out, far too many people have seen it now,
the only one refusing to accept it, is POL.
I would like to believe I am wrong, but from what I can see, I doubt POL will ever change its
stance on this issue until It has had to answer to a select committee or a full independent inquiry is
held. However if there Is anything you or your department can do to head off the impasse I
belleve we are now heading towards, there are many people who would be very grateful.
Alar aes -
Chairman, Justice For Subpostmasters Alliance
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Strictly Confidential - NOT FOR ONWARD DISTRIBUTION
POST OFFICE LTD BOARD SUB COMMITTEE
Initial Complaint Review and Mediation Scheme
The role of Second Sight In supporting the Scheme
1. Purpose
1.1. As requested by the Board Sub Committee on the Initial Complaints Review and
Mediation Scheme (the Scheme) on 9th April 2014 this paper considers options to
support Second Sight or reduce their role. Likely stakeholder views are reflected to
inform the analysis.
1.2. This paper should be read in conjunction with the paper on options for
closure/accelerated completion of the Scheme.
2. Background and current position
2.1. The background to this issue, and the concerns about Second Sight, has been set
out a number of times in the past and is not, therefore, rehearsed again here.
2.2. Even were there no concerns about the manner in which Second Sight are
performing their role, their resource is limited to three people and it is unlikely that
they could process the c140 cases in the Scheme within a reasonable timeframe.
2.3. Itis acknowledged that there is no right option and this paper represents the
theoretical analysis carried out by the project team. It is intended to provide a basis
for discussion as the Sub Committee consider the future of the Scheme more
broadly.
3. Analysis and Options
3.1. Second Sight appear to enjoy the support of JFSA and a number of MPs, in
particular the Rt Hon James Arbuthnot MP. Further, the Minister has committed to
Second Sight’s ongoing involvement, albeit before the actual Scheme was
announced, That commitment should therefore be seen in the light of how the
Scheme has operated and Second Sight's performance within it.
3.2. However, it is appears increasingly evident that Second Sight’s ongoing involvement
in the Scheme (at least in terms of fulfilling their role as the providers of expert
advice to assist the parties resolve their disputes) is unsatisfactory.
3.3. Three alternative options (with the high level pros and cons set out in more detail in
Annex 1) have been considered:
i. Provide additional support to work alongside Second Sight to enable them to
fulfil their role as it is presently defined.
Second Sight’s role in supporting the Scheme
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ji. Limit Second Sight's role to a place on the Working Group, removing their
involvement in investigating cases.
ii. I Terminate Second Sight's engagement.
(i) Provide additional support
3.4. Discussions with a possible alternative and international professional services
provider have highlighted that the commercial issues arising in respect of liability
and professional indemnity make this an unworkable solution. In essence, no
professional services provider would work alongside Second Sight in this way.
(ii) Limit Second Sight’s role to a place on the Working Group
3.5. There are variations on this option depending on the extent to which it would be
desirable to allow Second Sight to have a more active role:
i. Second Sight continue to be members of the Working Group and provide a
general challenge function to the findings of the investigation reports; and
li. As above but also allowing Second Sight to compile a report, possibly their so-
called ‘thematic report’, at the conclusion of the Scheme.
3.6. Neither of these options is likely to work effectively. Based on the evidence of their
approach to date it is unlikely that Second Sight would engage objectively with the
results of investigations undertaken by others. This could result in both JFSA and
Second Sight continuing to ask further otiose questions thus limiting the benefits of
removing them from the investigation process. Moreover, allowing Second Sight to
produce a further report at the end of the Scheme allows them fo look more at the
wider issues beyond Horizon and risks reopening matters that the investigation of
individual cases may have closed down.
3.7. In relation to this option, and option (iii) below, consideration would need to be given
to how Second Sight’s investigation role” is performed. The options include
removing the Second Sight investigation stage from the process, and limiting the
investigation stage to that undertaken by Post Office, or engaging an alternative
professional services provider to fulfil the role. A very initial assessment of the cost
of the latter option is that it would be of the order of £1m, depending on the exact
scope of the task but further consideration of that option is dependent on a decision
about the future shape of the Scheme.
(iii) Terminate Second Sight’s engagement
3.8, Second Sight have been working for the Post Office on Horizon and associated
issues since 2012, they have been working specifically on the Scheme since its
launch in August 2013. Their track record thus far has not demonstrated that they
will be able to deliver the Scheme’s requirements in a timely manner.
Second Sight’s role in supporting the Scheme
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3.9. Although it is acknowledged that a theoretical analysis of this situation would lead to
the conclusion that Second Sight's engagement should be terminated, there are
wider political and stakeholder considerations in play which may obstruct delivery of
this solution.
4. Conclusion and recommendation
4.1. As stated in 3.1 above, Second Sight appear to enjoy the support of a number of key
stakeholders, and any change to their role would require careful handling and is
likely to be opposed. Moreover, itis almost certain that, particularly because of
JFSA's support for Second Sight, any decision which affects Second Sight's
involvement in the Scheme may result in the JFSA leaving the Working Group.
4.2. This paper deals solely with the role of Second Sight, but the decision about Second
Sight's future engagement in the Scheme is a multifaceted one and should not be
considered in isolation but in the broader context of the future of the Scheme.
Accordingly, this paper should be considered as background to the paper on options
for closure/accelerated completion of the Scheme.
Chris Aujard
28 April 2014
Second Sight’s role in supporting the Scheme
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4.4.
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Annex 1
Option 1: Provide additional support for Second Sight to enable them to fulfil
their role as it is presently
Pros
Cons
Would address capacity and capability
issues, and potentially speed up the
time taken to complete the Scheme
Continues Second Sight involvement
therefore staying true to the Ministerial
commitments
Subject to Second Sight’s reaction,
would satisfy stakeholders who
consider only Second Sight have the
knowledge and independence to
investigate claims.
Commercial/liability issues for
alternative providers makes it unlikely
that another professional service
provider would be willing to engage.
Would significantly increase the cost
of delivering the Scheme — paying two
investigation teams instead of one
Any change to current arrangements
will be considered to be Post Office
interference.
Second Sight are unlikely to be
satisfied with results which do not
accord with their own assessment.
Option 2: Limit Second Sight’s role to a place on the Working Group
Pros
Allows Post Office to take control of
the “flow’ of cases through the
Scheme.
Continued involvement of Second
Sight remains consistent with
Ministerial commitments.
Limits Second Sight direct
engagement (and therefore influence)
with applicants and their advisors.
Creates opportunity (if desirable) to
bring in a professional services
provider.
Cons
inconsistent with Post Office public
commitments and agreements made
with JFSA and Second Sight when
designing the Scheme.
Could be viewed as Post Office
interference/fettering Second Sight’s
independence.
Second Sight may adopt an
adversarial role on the Working Group
There will still be cost for Second
Sight’s engagement and the
management overhead in managing
the relationship will remain (albeit to a
lesser extent).
Second Sight's role in supporting the Scheme
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Option 3: Terminate Second Sight’s engagement
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Pros
Cons
Significantly streamlines the process
to allow faster resolution
Enables Post Office to manage
engagement with applicants and their
professional advisers
Will enable completion of the Scheme
to be accelerated, reducing operating
costs and senior management
overheads
Creates opportunity (if desirable) to
bring in a professional services
provider.
Inconsistent with Ministerial
commitments about Second Sight’s
involvement.
Any change to current arrangements
will be considered to be Post Office
interference/whitewash.
Will attract adverse publicity.
Will lead to conflict with JFSA and
Second Sight, may alienate the
Working Group Chair (if not properly
handled)
May result in parliamentary activity
(e.g debate/PQs therefore involving
the Minister).
Second Sight’s role in supporting the Scheme
Chris Aujard
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POST OFFICE LTD BOARD SUB COMMITTEE
Initlal Complaints Review and Mediation Scheme
Options for the closure/accelerated completion of the Scheme
1. Purpose
1.1 This paper has been prepared following the initial meeting of the Board Sub
Committee on the Initial Complaints Review and Mediation Scheme (the
Scheme) on 9 April 2014 and considers both options for closure of the Scheme
and for accelerating its completion. The paper summarises the options analysis
that was tabled at the last Board Sub Committee.
1.2 This paper should be read in conjunction with the papers on the future role of
Second Sight, Ex Gratia and Settlement payments and Dissemination of the
Linklaters advice and Deloitte report as the implications of decisions made on
those matters will have a bearing on the future of the Scheme.
1.3. The options in this paper are based on a theoretical analysis carried out by the
programme team. The paper is intended to stimulate discussion and to provide a
means for the Sub Committee’s views to coalesce around a particular option.
2, Background
2.1 The background to the Scheme has been set out previously and is not rehearsed
again here. It has been assumed that any proposed way forward should address
the following points:
«the cost of administering the Scheme;
«the likely timescales for concluding the Scheme; and
«the extent to which any changes to the Scheme are consistent with Ministerial
or other public statements about the Scheme.
3. Options for the future of the Scheme
3.1 In considering the options for the future of the Scheme it has been assumed that
continuing the Scheme as currently structured is not acceptable because it is not
delivering its aims because of:
* the delays by applicants’ advisors submitting full details of their case (CQR);
«the longer than anticipated Post Office investigation and legal clearance
process ;
¢ continued concerns about the role of Second Sight and the way they are
fulfilling that role;
* concerns about the costs of administering the Scheme;
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Options for the closure/accelerated completion of the Scheme
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«the need to address the ‘expectations gap’ and the potential implications of
doing so.
3.2 There are three broad options for accelerating the closure or completion of the
Scheme:
* Closure of the Scheme with immediate effect;
* Continue investigating cases but bring it within the full control of the Post
Office; or
e Redefine the Scheme and the role of the Working Group.
3.3 The options are not mutually exclusive, each could be varied slightly and would
require the development of a detailed handling plan. All three options are likely
to lead to media criticism from commentators who have previously engaged on
the issue. It is envisaged that although this will be difficult it will be manageable.
All three would also involve the publication of the Linklaters’ advice and Deloittes
report which is deait with in a separate paper.
3.4 Detailed pros and cons for each option are set out in Annex 1 together with the
actions needed to deliver them. A summary analysis follows.
Option 1: Closure of the Scheme with immediate effect
3.5 Although this option would provide the quickest and most cost effective way of
completing the Scheme, the fact that the Scheme is already underway, and
some applicants would not have received a completed Post Office investigation
make this option unappealing. Post Office could not be sure that the applications
do not contain an issue which needs to be addressed making it difficult for Post
Office to mount a robust defence of its approach.
Option 2: Continue investigating cases but bring it within the control of the
Post Office
3.6 Under this option all cases would be investigated but Post Office would take
contro! of all aspects of the Scheme, Second Sight's engagement would be
ended and the Working Group disbanded. Post Office would take positive steps
to manage expectations and would set and enforce timelines for all cases. There
would be substantial time savings in the investigative process and significantly
reduced the management overhead would be reduced by allowing the Scheme
to transition into BAU.
3.7. Variations on this option, could include:
« Continued involvement of the Chair to provide challenge to the Post Office
investigation (which he has already, helpfully, done in a few cases) to ensure
it addresses the core issues raised in the case
Initial Complaints Review and Mediation Scheme
Options for the future of the Scheme
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« Publication of a final report at the end of the Scheme setting out the approach,
a high level assessment of case outcomes (for example x cases investigated,
X cases mediated, x cases settled)
« Engaging a professional services provider to undertake all investigations.
3.8 This option provides best value for money whilst also being seen to “do the right
thing” for SPMRs. That said, it does not meet the Ministerial commitment about
the continuing involvement of Second Sight, although it generally meets all
others in terms of investigating cases and an element of independence through
the Deloitte report and, if agreed, the continued involvement of the Chair. The
independence of the process could be strengthened by engaging a professional
services provider to investigate cases.
3.9 This option could result in savings of c£1.4m, depending on the number of cases
reaching mediation. However that figure would be reduced should a professional
services provider be engaged (taking account of savings from reduced Post
Office investigative resource we envisage reducing the saving to c£0.5M). With
this approach it should be possible to complete the Scheme by the autumn.
Option 3: Redefine the Scheme and the role of the Working Group
3.10 As with Option 2, all cases would be investigated by Post Office but not by
Second Sight. The Working Group would continue to oversee the Scheme and
challenge the Post Office investigation results, but Post Office would have
greater role in setting timescales and making the final decision on whether or not
cases should be mediated, taking the views of the Working Group into account.
3.11 Variations on this option could include:
¢ Engaging a professional services provider to undertake all investigations.
e Allowing Second Sight to complete a thematic report at the end of the
Scheme.
3.12 Option 3 stays closest to Ministerial commitments and maintains the Working
Group and Second Sight’s involvement. Whilst it should provide a more efficient
administration of the Scheme, and a reduced role for Second Sight, the amount
saved is estimated to be less than £500k depending on how many cases.
resulted in mediation. It should also be noted that option 3 would still require a
considerable amount of senior engagement in order to manage Second Sight’s
involvement.
4. Conclusion
4.1. Experience of the Working Group to date suggests that any changes to the
Scheme are likely to be met with resistance and would potentially cause some
members of the Working Group to “resign”. We are already aware that JFSA
have reservations about the way the Scheme is working and their continued
Initial Complaints Review and Mediation Scheme
Options for the closure/accelerated completion of the Scheme
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membership of the Working Group may not, in any event, survive the first
decisions on whether cases should be advanced for mediation.
4.2. On balance we believe that the most appropriate option for the business is one
which “does the right thing” by SPMRs whilst managing down the cost, risk
exposure and senior management overhead. Subject to a satisfactory outcome
from the Deloitte assurance assessment, it is recommended that the sub-
committee authorises in the programme team to develop an implementation plan
coalesced around option 2 (or one of the other 2 options if the Sub Committee so
decide).
Chris Aujard
28 April 2014
Initial Complaints Review and Mediation Scheme
Options for the future of the Scheme
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Annex 1 Pros and Cons and Actions to Implement
Strictly Confidential
Option 1 Closure of the Scheme
Pros
Cons
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Quick and simple
Enables senior management attention
to be focused on core business.
Limits operating costs and financial
liabilities in the short term.
Could be argued that the court system
is a more appropriate forum for these
cases to be discussed.
Could be seen as failing to meet
commitments made to SPMR
community to properly investigate all
issues, and to give them the
opportunity to be heard.
Any underlying process issues may
not be uncovered, which may not be
in Post Office's best interests.
Will lead to conflict with JFSA and
Second Sight and may alienate
Working Group chair
Likely to lead to increased
parliamentary scrutiny
Post Office are still committing
substantial resource to the
investigation phase
Key Actions to Implement
iii.
vi.
Initial Complaints Review and Mediation Scheme
Cease all investigations (or complete those where a detailed CQR has been
received).
Notify all applicants and advise them of their right to persue their complaint
through the Courts.
Pay all fees incurred by applicants/advisors (in line with the Post Office
published contribution).
Disband the Working Group.
Terminate Second Sight’s engagement (this would probably require giving
them one month’s notice).
Retrieve all information currently held by Second Sight and members of the
Working Group.
Options for the closure/accelerated completion of the Scheme
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Option 2 Continue with the Scheme but bring it within Post Office control
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Pros Cons
+ Fairness and transparency * Will lead to conflict with JFSA and
+ Continued engagement with all Second Sight
stakeholders * May alienate Working Group chair
* Thorough process, consistently + Likely to lead to increased
applied parliamentary scrutiny
* Minimises short term conflict + May damage relationships with
+ Will enable completion of the Scheme SPMRs impacted
to be accelerated * Could lead to accusations of a Post
+ Reduces Scheme operating costs Office whitewash
+ Post Office are still committing
substantial resource to the
investigation phase
Key Actions to Implement
i.Secure Ministerial approval
ii.Secure Working Group Chair’s agreement and on-going involvement
iil. Disband the Working Group
iv. Terminate Second Sight’s engagement
v.Appoint a professional services firm to act as independent investigator (if
required)
vi.Notify applicants/advisors to submit CQRs within a deadiine or they will be
excluded from the Scheme
vii. Post Office continue to investigate all cases (combining investigations and
triaging cases where possible)
viii. Make no decisions on settlement/mediation until all cases have been
investigated and assessment made of issues arising across the whole
caseload.
ix.Provide all applicants with the report of the investigation report including an
assessment of the merits of the case and a proposal for next steps (e.g No
further action on the part of Post Office, offer of settlement, offer of
mediation).
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Options for the future of the Scheme
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Option 3 Redefine the Scheme and the role of the Working Group
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Pros Cons
« Fairness and transparency
« Continued engagement with all
stakeholders
Operating costs remain high
Time to settle remains lengthy
High senior management overhead
* Thorough process, consistently Investigation costs remain high
applied Potential substantial mediation costs
« Minimises short term conflict given size of caseload
e Post Office likely to be pressed for
adviser costs at mediation
e Second Sight have not demonstrated
impartiality, or expert knowledge to
date
Key Actions to Implement
i.Amend the Terms of Reference of the Working Group
ii.Revise Second Sight’s letter of engagement
iii. Notify applicants/advisors to submit CQRs within a deadline or they will be
excluded from the Scheme
iv.Post Office continue to investigate all cases (combining investigations and
triaging cases where possible)
v.Make no decisions on settlement/mediation until all cases have been
investigated and assessment made of issues arising across the whole
caseload.
vi.Provide all applicants with the report of the investigation report including an
assessment of the merits of the case and a proposal for next steps (e.g No
further action on the part of Post Office, offer of settlement, offer of
mediation).
Initial Complaints Review and Mediation Scheme
Options for the closure/accelerated completion of the Scheme
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