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Summary of the Common Issues Judgment (ClJ)
(Bates and Others v Post Office Ltd ((No 3) Common Issues) [2019] EWHC 606) (15/3/2019)
Background
The ClJ was one of two key intermediate steps in the Group Litigation brought by 555 Postmasters
under a Group Litigation Order (GLO), seeking civil damages for terminations and prosecutions. The
intention was that each postmaster’s case would ultimately need to be judged individually’, but it was
recognised that there were a number of issues which were common to all or most of the cases, and
that it made sense to try these 23 points together in one central hearing. These common issues
covered how Postmaster contracts were entered into and the way they should be interpreted. Mr
Justice Fraser ruled on these points in the CU in March 2019.
The judgment is 1,122 paragraphs long, so this is the briefest of summaries; please let Neil Wallis know
if there are any aspects where more detailed briefings would be helpful. In particular, we have not
focused on the judge’s assessment of the evidence and witnesses, or issues of procedure, the
postmasters’ individual cases, agency issues, relations with NFSP, or how the Postmaster contracts
were entered into.
The Postmasters’ Case
The approach taken by the Postmasters was that the contracts were very one-sided documents written
by POL and imposed, without negotiation, on Postmasters. They were very light on the obligations
and limitations placed on POL, yet they regulated a long-term relationship which depended on mutual
trust and confidence. The case put forward was that Post Office were required to operate in good
faith, and in particular the Postmasters claimed that:
e alarge number of ‘implied terms’ should be understood as governing the contracts; and
® some other terms, which were unfair, should be deleted from the contracts.
The postmasters argued that there were 211 implied terms, and because the central concern was the
liability for apparent accounting shortfalls, and the prosecutions that had followed, they focused on
issues such as:
¢ the obligation for POL to provide an IT system that was fit for purpose, with ‘error repellency’;
e the need for fair, transparent, consultative investigations of problems;
the need for POL to disclose whether similar issues had occurred elsewhere; and
the need for any remedies (eg terminations, or suspensions without pay) to be proportionate.
The Post Office Case
The Post Office case was effectively the opposite. The approach was that these were commercial B2B
contracts with no overriding duties of good faith and where implied terms should be approached with
the utmost of caution. POL accepted that it should not be dishonest, arbitrary or capricious, but would
not go further than this.
The Judgment
1 jn the end this did not happen, because the parties reached a settlement
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The judgment sided with the Postmasters in almost all areas, and the judge indicated that much of the
evidence provided on behalf of POL was unsatisfactory.
He held that the law recognises a category of commercial contracts as being ‘relational’; and
that in such contracts there would be a duty of good faith between the parties; having set out
a number of factors taken from caselaw that would decide this, he held that the Postmaster
contracts were indeed ‘relational’ contracts, and accepted (with one minor amendment) all
the implied terms the Postmasters had argued for.
He defined the duty of good faith broadly: it included honesty, but went much further, and
required that the parties refrain from conduct which in the relevant context would be regarded
as commercially unacceptable by reasonable and honest people. Transparency, cooperation,
trust and confidence are implicit in this duty.
He also agreed that these contracts were subject to the 1977 Unfair Contract Terms Act, and
noted a significant differential in bargaining power between POL and Postmasters; on this basis
he deleted a number of other clauses which he decided were unfair.
Finally, whilst the wording allowed Post Office to terminate for material breaches of contract,
and for a number of specific breaches, he held that only the most serious (‘repudiatory’)
breaches could actually justify a termination.
The case did not award damages — it was only an intermediate case — but it was clearly a vitally
important victory for the Postmasters’ campaign. It was followed by a second intermediate case, which
focused on the reliability of the Horizon System itself, and on the existence of various bugs.
Key takeaways for today
1
2.
Clauses:
a. The current Postmaster contracts must be read in line with the judgment, with the
additional wording added and with other clauses deleted.
b. Other clauses in the contracts are subject to the overriding duty of good faith; this
makes it more difficult to apply the Postmaster contracts, as the words on the page
are not necessarily the whole obligation once ‘good faith’ is taken into account.
Processes
a. All contractual actions and decisions by Post Office must be made on the basis of the
good faith duty, even if there are no specific words in the contract limiting Post Office’s
discretion.
b. Therefore all processes must be auditable and defendable as being in line with the
good faith duty.