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IN THE MATTER OF THE INQUIRIES ACT 2005
AND IN THE MATTER OF THE INQUIRY RULES 2006
THE POST OFFICE HORIZON IT INQUIRY
WRITTEN SUBMISSIONS ON BEHALF OF
THE DEPARTMENT FOR BUSINESS AND TRADE
FOR COMPENSATION HEARING 27 APRIL 2023
Introduction
1. These written submissions are provided on behalf of the Department for Business and
Trade (“the Department”) in advance of the hearing on 27 April 2023, which will be
the fourth hearing on matters relating to compensation.
2. The Department was created on 7 February 2023 to bring together aspects of the work
of the Department for Business, Energy and Industrial Strategy (“BEIS”) with that of
the Department for International Trade. Amongst other areas of government work, the
Department has taken on those functions relating to the Post Office which were
previously carried out by BEIS.
3. These submissions address the four issues referred to in the email to the Core
Participants on 23 March 2023 from the Inquiry Legal Team, namely:
a. Bankruptcy
b. Taxation
c. Factual progress update on the Historical Shortfall Scheme (“HSS”) and
compensation for postmasters with Overturned Historical Convictions
(‘OHC”)
d. Factual progress update on the implementation and administration of the
Group Litigation Order Scheme (“GLO”).
4. The broader points made by Mr Marshall in his written submissions have not been
addressed, as CPs have not been specifically invited to deal with these in advance of
the 27 April hearing. However, the Department is willing to respond on these issues,
to the extent it can, if this would be of assistance to the Chair. Mr Marshall wrote a
letter to Minister Hollinrake raising similar issues on 23 March 2023, copied to the
Chair, and a detailed reply is being prepared, which will also be copied to the Chair
once it is finalised.
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Bankruptcy
Applicable principles of compensation
5. The overarching principle governing each of the schemes is that all claimants,
including any who were made bankrupt as a result of Horizon issues, should be
provided with full and fair compensation, restoring them to the position which they
would have been in had the scandal not happened. This involves compensating them
for both financial and non-financial losses.
6. Whether or not it is agreed that the compensation vests in the bankruptcy estate, the
amount paid to claimants made bankrupt by the scandal will be increased to cover
losses incurred by claimants in respect of the interest and fees arising from the
bankruptcy. Compensation will also cover any Horizon-related debts within the
bankruptcy through other heads of loss, such as loans taken out to repay shortfalls as
well as related costs of debt financing. It will not generally cover debts unrelated to
Horizon issues, such as a mortgage or credit card debt, although certain penalties
suffered under these contractual debt arrangements may be covered by compensation.
If, for example, it is a claimant’s case that by repaying sums demanded under Horizon-
related confiscatory or compensation orders they could not afford to make credit card
or loan repayments on time and therefore suffered further charges or penalties as a
result, then these would be included in the compensation paid.
7. The intention is therefore that postmasters made bankrupt as a result of Horizon will
be left in the same position as others, with any additional losses arising from
bankruptcies covered by extra compensation.
8. The Independent Advisory Panel for the HSS agreed principles in February 2023 for
the determination of claims where bankruptcy is in issue. The Post Office are ina better
position than the Department to provide details about these.
9. Similar principles have been announced for the GLO (these are set out at section 5.7 of
the GLO Guidance!). Under either scheme postmasters can claim for losses arising
from a bankruptcy caused by a Horizon shortfall, including:
a. Diminution in the value of an estate or assets because of the bankruptcy;
b. Other consequential pecuniary loss, e.g. if they suffered a financial loss as a
result of harm to their credit and reputation by reason of bankruptcy;
c. General damages, including injury to feelings as a result of the bankruptcy,
distress and humiliation and non-pecuniary harm to credit and reputation
(anticipated to be in the range of £20,000 to £60,000, although more may be
offered depending on the circumstances of the case);
1 GLO guidance and principles (publishing.service.gov.uk)
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d. The expenses of the bankruptcy (including annulment costs already incurred);
e. The statutory interest payable to creditors; and
f. Reasonable legal fees associated with getting an annulment.
10. Where the Post Office was the original petitioning creditor, postmasters can also claim
for:
a. Malicious institution of proceedings, where the bankruptcy proceedings were:
(1) without foundation; (2) brought without reasonable and probable cause;
and (3) brought without just cause, excuse or proper motive.
b. Abuse of process, where the bankruptcy proceedings were initiated and/or
conducted for an improper purpose, in that the predominant purpose was for
the Post Office to obtain an extraneous benefit.
11. In either of these cases, aggravated damages may also be awarded. Compensation for
general damages and aggravated damages are personal to the postmaster and
therefore will not form part of the bankrupt’s estate.
12. There has not so far been a final settlement reached with any OHC claimant who was
subject to a Horizon-related bankruptcy, and so the principles applicable in such cases
are still in development. However, these will be shared with claimants’ representatives
shortly and are likely to be substantially similar to those applicable in the HSS and
GLO.
Rights of creditors
Hss
13. It has been agreed with insolvency practitioners that, for HSS compensation, those
elements of the postmaster’s claim that fall within the postmaster’s bankruptcy estate
would vest in such. Those parts of the claim that are personal to the postmaster are
then offered directly to them. The Department will leave for the Post Office any more
detailed submissions on how this is operating in practice for HSS claimants.
14. In relation to the GLO claimants, the Department’s view is that GLO ex gratia
compensation payments do not amount to property which would automatically form
part of the estate in bankruptcy. Therefore, if a postmaster has been discharged from
bankruptcy, the creditors have no right to claim the money. The Department is grateful
for sight of the opinion received by the Inquiry from Catherine Addy KC, which
reaches very similar conclusions on this issue, albeit with two caveats which she sets
out at paragraph 62.
15. The Department was concerned that, absent a binding court direction, insolvency
practitioners could take their own view of the law. Given the desire to make interim
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payments to GLO claimants urgently, there was not time to seek such a direction. The
Department was therefore obliged to negotiate with practitioners on whether sums
vested or not. All but one insolvency practitioner agreed with the Department's
position and signed a waiver for GLO interim and final payments. The remaining
insolvency practitioner took the view that it was arguable that GLO compensation did
vest in the bankruptcy (notably Ms Addy KC disagrees with this analysis - see
paragraph 63 of her opinion). This practitioner had 16 GLO cases. The Department
entered into a settlement agreement with this practitioner which set out how much of
the interim compensation should go to creditors. This agreement was without
prejudice to the position of either side with respect to final payments. The Department
understands that the interim compensation was enough to clear the debts of all but
nine of these GLO claimants.
16. As Ms Addy KC suggests (paragraph 64 of her opinion), it may be appropriate for the
Department to apply for a court direction under s.303 of the Insolvency Act 1986 (as
amended) before final GLO compensation is to be paid. The Department is considering
whether it should take this step.
17. The Department's view is that the OHC compensation payments also do not vest in
the estate, if the postmaster has been discharged from bankruptcy. Issues raised by the
aforementioned insolvency practitioner have now been resolved on the basis that
compensation sums do not vest in the bankruptcy estates, enabling compensation
payments to be made to those OHC claimants.
18. Other insolvency practitioners, including the Official Receiver, have confirmed they
do not have a claim to OHC compensation in relation to the estates of OHC claimants
to which they act as trustee in bankruptcy.
Taxation
Income tax
19. Pursuant to The Post Office Horizon Compensation and Infected Blood Interim
Compensation Payment Schemes (Tax Exemptions and Relief) Regulations 2023 (SI
2023/184) (“the Regulations”) and The Social Security (Contributions) (Amendment)
Regulations 2021 (SI 2023/186), OHC and GLO payments are exempt from income tax,
capital gains tax and national insurance contributions.
20. HSS offers have been calculated on a gross basis with tax on the final amount withheld
and paid over. This is expected to be sufficient to cover the tax due on compensation
by most postmasters.
21. As set out in the Department's letter of 10 March 2023 to the Chair, an outstanding
issue has been identified on the tax treatment of some postmasters with claims for loss
of earnings under the HSS, particularly those with larger claims, where postmasters
may be pushed into a higher tax bracket due to receiving compensation in a lump sum
as opposed to receiving those earnings over several tax years. The Department wants
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to see fair compensation for all victims and is working urgently to address this issue
with the Post Office, HMT and HMRC. If possible, an update on the steps that the
Department will take will be provided orally at the 27 April 2023 hearing, or in writing
at the earliest opportunity thereafter.
Inheritance tax
22. As set out in the Department’s 10 March 2023 letter, OHC payments are exempt from
inheritance tax under the Regulations, whereas HSS and GLO payments remain
subject to inheritance tax. This is because of the different basis of the OHC payments.
OHC claimants are all receiving compensation for the malicious prosecution to which
they have been subjected, and their claims have a significant focus on non-pecuniary
damages. The view of HMRC and HM Treasury is that this makes them consistent in
nature with previous schemes compensating people for harm or hurt which received
an exemption from inheritance tax under Schedule 15 to the Finance Act 2020 (e.g. the
Troubles Permanent Disablement Payment Scheme and Windrush Compensation
Scheme).
23. By contrast, GLO and HSS payments are based on the principle of restoring the
recipient to the financial situation which would have applied, had the Horizon scandal
not happened and Post Office not breached its contractual obligations. Although some
of these claimants may also have claims for malicious prosecution, the claims generally
have a significant focus on pecuniary losses. The view of HMRC and HM Treasury is
that such compensation is subject to inheritance tax on the basis that, had postmasters
continued in the financial situation they should have been in but for the scandal, their
estate would have been subject to inheritance tax in due course.
24. The estates of deceased postmasters who have received compensation will not pay
inheritance tax if the value of the estate at death is below the £325,000 inheritance tax
threshold (£500,000 if the home is left to the children), or if everything above the
inheritance tax threshold which does not qualify for one of the inheritance tax reliefs is
left to a spouse or civil partner.
25. Where a claim has not been made or accepted by the date of a postmaster’s death it
will not have any value for inheritance tax purposes, so estates claiming compensation
on behalf of a deceased postmaster can return a nil value in relation to the claim if they
are required to complete an inheritance tax account.
Factual update
26. As the Chair is aware, the Department is responsible for delivery of the GLO scheme,
scrutiny of the Post Office’s delivery of the HSS and OHC compensation schemes, and
the maintenance of consistency across all three schemes.
HSS
27. As of 4 April, the Post Office has made offers to 99% of the original tranche of 2,417
eligible applications to the HSS. Of these, 81% have been accepted. 398 have entered
wo
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the dispute resolution procedure. 119 of these disputes have been resolved, leaving
279 outstanding.
28. In each of the remaining 24 cases in which no initial offer has been made, responses
are awaited from claimants or third parties: the cases will be resolved as soon as
possible once these have been received.
29. The Department has agreed with the Post Office that late applications to the HSS
should be considered without examining the reasons for lateness. As of 4 April, the
Post Office has received 245 further applications, of which 189 have been accepted so
far. 32 are yet to be assessed and 23 have been deemed ineligible for reasons
unconnected with lateness of submission. There is also 1 additional claim with an
outstanding query. The HSS has to date made offers in respect of 15 of these
applications.
OHC
30. The Department is pleased that the interim payment limit has been raised from
£100,000 to £163,000 and the Post Office has made further interim payments where
appropriate, including in cases of hardship. As of 4 April, interim compensation had
been paid to 79 of the 84 individuals whose convictions have so far been overturned.
Of the remaining five, one has decided not to apply for interim payment and has
received an offer for non-pecuniary damages. Another submitted an application for
interim compensation on 7 March and the Post Office has made an offer.
31. The remaining three are the ‘public interest’ cases (those in which the Post Office did
not consider Horizon evidence to be essential to the prosecution but decided that it
would not have been in the public interest to hold a retrial and therefore did not
oppose the quashing of these convictions). The Post Office has now agreed
compensation settlements with two of these individuals and a without prejudice offer
was made to the third.
32. As of 4 April, over £18m had been paid out in OHC compensation. In terms of final
compensation, the strategy agreed between the Post Office and the Department for
compensating those with overturned convictions has been to enable as much money
as possible to be paid out rapidly to as many postmasters as possible by focussing first
on settling non-pecuniary claims.
33. As of 4 April, the Post Office had received 67 non-pecuniary claims. The Post Office
had made offers to 66, of which 53 had been accepted. The Department welcomes this
good progress on payment of non-pecuniary claims, which was unlocked by the Early
Neutral Evaluation process which took place in Summer 2022.
34. As of 4 April 2023, of the 67 who had submitted non-pecuniary claims, 14 had also
submitted pecuniary claims, and the Post Office had made offers to 9, of which 4 had
been accepted and paid. This includes the two settled ‘public interest’ cases noted
above. In parallel to making offers on pecuniary claims already received, the Post
Office has been developing principles to enable it to change its approach from
individual negotiation to a remediation scheme, in line with comments made in
6
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previous inquiry hearings. The Post Office is now consulting claimants’ lawyers about
details of this scheme. The Department and the Post Office are continuing to urge
claimants’ lawyers to submit more pecuniary claims.
35. The Department hopes that the change of approach to a new principles-based
remediation model process will speed up the delivery of pecuniary compensation and
reduce waiting times for claimants.
36. Whilst OHC claimants have a right to take Court action if they wish, the Department
strongly believes that this would be undesirable. The new remediation model process
will provide an opportunity for disputed heads of loss to be addressed by an
independent assessor, which should also help to facilitate settlement of claims.
GLO
37. The Minister announced on 23 March 20232 that the GLO compensation scheme is
open for applications. Full details of the scheme are on the Department's website.3 The
Department is very grateful for the help which the scheme’s Advisory Board, the JFSA.
and claimants’ lawyers have provided - and continue to provide - in the development
of the scheme’s principles, guidance and process, using an ADR approach. In the
interests of fairness, care has been taken to ensure that, wherever possible, postmasters
in the HSS and GLO schemes who are in similar situations will receive similar
compensation. The Principles and Guidance for the GLO scheme reflect this aim.
38. For some heads of loss, the Principles and Guidance set out bands for compensation
for non-financial losses. Any financial losses would be the subject of additional
compensation. The amounts ascribed to each band reflect awards made in the HSS by
the HSS Independent Advisory Panel which are based on established legal precedents.
The text indicates the range with which offers will generally fall but does not set
absolute limits. Offers will be determined according to the relevant facts on a case-by-
case basis.
39. The Department recognises that there has been some recent speculation about the
bandings in the Principles and Guidance. For instance, there have been some
statements that £10,000 is the maximum limit being applied to compensation relating
to reputational harm. This is not correct: £10,000 is not a cap or maximum. Moreover,
it is important to look at overall compensation offers in the round, recognising that
each one will be determined with reference to the specific facts of that case. For
example, the Department would expect a number of GLO applicants to receive more
than £10,000 for reputational damage, either within the reputational harm head of loss
or under the broader head of distress and inconvenience.
40. The Department expects awards for mental distress and damage to reputation for
postmasters who were prosecuted but not convicted to be in the range of £10,000 -
2 https://questions-statements. parliament.uk/written-statements/detail/2023-03-23/hcws664
3 https://www.gov.uk/government/publications/compensationscheme-for-group-litigation-order-case-
postmasters
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41.
42.
43,
44,
45.
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£40,000, as stipulated in the malicious prosecution principles section of the Principles
and Guidance.
The Department's legal powers to make payments under the scheme expire in August
2024. The Department intends to complete delivery of the scheme well in advance of
that date. It has recently procured Dentons LLP to act as independent claims
facilitators and Addleshaw Goddard as its legal advisors. It is working with these
firms and with claimants’ legal advisors to agree a detailed timetable for the scheme,
against which delivery will be monitored and publicly reported. The timetable will be
reported to the Inquiry when it has been agreed.
The Department has undertaken to meet the reasonable legal costs which postmasters
will incur in seeking compensation under the scheme. A tariff for these costs agreed
with claimants’ legal advisors was published on 10 February 2023. Advisors’ general
costs will be reimbursed at four milestones: on submission of a registration form; on
submission of an overview of the claim; on submission of a substantially complete
claim form; and when the claimant agrees the award.
To date, the Department has received 377 scheme registration forms and two
applications for support for the costs of expert evidence, both of which have been
agreed.
One claim for substantive compensation has been received in respect of a postmaster
in urgent and acute difficulty. The Department has undertaken to make every effort to
make an early offer in respect of this claim, accompanied by a further payment.
Generic interim compensation totalling £19 million has been paid. The only claimants
who have not yet received interim compensation are:
a. 7 deceased claimants in respect of whom grant of probate has not yet been
received;
b. 8 company claimants, many of which are wound-up companies. Action is
being taken to identify the legal successor to these companies who can receive
the compensation due to them and the creditor position where relevant;
c. 2 persons subject to individual voluntary agreements (“IVAs”) in relation to
whom discussions are continuing with their IVA supervisors;
d. 1 bankrupt claimant who had until recently not responded to the offer of
compensation: details are now being collected so that the Department can
commence discussions with the Official Receiver in relation to payment being
made; and
e. 4 people who had until recently not responded to the offer of interim
compensation - details are now being collected so that compensation can be
paid.
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46. The Department has agreed to pay additional interim compensation of £75,000 to any
member of the GLO group who was maliciously prosecuted but acquitted. As
previously announced, so that convicted people receive more interim compensation
than those who are acquitted, such payments are subject to a cap of £100,000 on the
total of compensation received to date (including both the amounts which postmasters
received under the High Court settlement and the generic interim compensation
described in the preceding paragraph). That cap will not, of course, apply to final
compensation payments. Payment has now been made.
47. Professor Richard Moorhead, who leads Exeter University’s Post Office project, has
been added to the GLO Compensation Advisory Board, joining Professor Christopher
Hodgson, Lord Arbuthnot and Rt Hon Kevan Jones MP. Reports of the Board’s
meetings, together with its Terms of Reference, are published on the Department's
website.*
Consistency between schemes
48. The Department is working to achieve consistency between schemes through the
following measures:
a. The principles of each scheme are based on the same established principles of
law;
b. The Department's oversight of all three schemes is led by the same Senior
Responsible Officer (“SRO”), with input from the same lawyers, policy
officials, accountants and analysts;
c. There is considerable cross-membership of the internal governance bodies for
all three schemes;
d. The published GLO principles were developed with the HSS principles as a
starting point, and whilst subsequent changes aimed to improve the
accessibility of the guidance to postmasters and provide additional
transparency about the approach in the light of HSS experience, those changes
did not lead to any material disparity between the principles of the two
schemes; and
e. So far as the compensation schemes delivered by the Post Office are concerned,
there is extensive discussion across the Department's team about cross-cutting
issues and solutions, aimed at maintaining consistency.
49. For most claimants and most heads of loss the Department is confident that these
efforts are successful. In some cases, apparent inconsistencies between compensation
streams have been brought to light through external comment, including through
evidence to the Inquiry, such as the issues of tax treatment described above.
50. The Department works to prevent other such issues arising in the first place, and
where they do arise, it acts as quickly as possible to resolve them, whilst being careful
4 https://www.gov.uk/government/groups/group-litigation-order-glo-compensation-scheme-advisory-board
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that the solutions do not cause unintended and unfair consequences, including delay
to settlements. To provide greater assurance of this oversight, and taking into account
the Chair’s comments in his 9 January 2023 statement on compensation issues, the
Department has recently taken the following two additional steps:
a. The remit of the GLO Compensation Advisory Board has been extended to
include the Department's oversight of the HSS and OHC. This will ensure a
holistic view of all compensation schemes, and will aid in the consistent
treatment of postmasters regardless of what scheme or programme they are in.
b. Anew internal Programme Board of senior civil servants has been established,
covering all three schemes, which will meet every four weeks. The Programme
Board will review and resolve any interactions between the schemes relating
to groups of claimants, heads of claim, processes, resources, risks,
communications and lessons learned.
51. The Department wishes to ensure that the schemes are taking a consistent approach to
restorative justice and welcomes the Post Office’s offer of an in-person apology from
senior Post Office leaders to those postmasters involved in all three schemes. Whilst
not all postmasters will want to take up such an offer, for some this may help achieve
closure on the hurt and trauma that the Horizon scandal caused them.
Conclusion
52. The Department hopes that these submissions are helpful to the Inquiry and looks
forward to providing such further assistance as it can at the hearing on 27 April 2023.
6 April 2023
NICHOLAS CHAPMAN
Temple Garden Chambers
ALASDAIR HENDERSON
1 Crown Office Row
10
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