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Tab 1 Postm
ster Litigation: Common Issues Judgment Appeal
POST OFFICE LIMITED PAGE 1 OF 12
Board Litigation Sub-Committee
Postmaster Litigation
Meeting date: 24 April 2019
Executive Summary
CONFIDENTIAL AND SUBJECT TO LEGAL PRIVILEGE
Context
1. As the Committee is aware, the judgment in the Common Issues Trial was handed
down on 15 March 2019 and found against Post Office in a number of material
respects. An application was made to the Judge - Sir Peter Fraser, to recuse
himself on the grounds of apparent bias which was heard on 3 April 2019 and
rejected on 9 April 2019. The Application to the Court of Appeal to allow an appeal
from that decision was filed on Thursday 10 April 2019 (the “Recusal Appeal”).
2. The Committee is now requested to consider: whether an appeal should be made
against the decision in the Common Issues judgment itself (the “Common Issues
Appeal”); if so, the scope of the Common Issues Appeal; and whether Post Office
should seek to have the Common Issues and Recusal Appeals heard together.
Questions
. What was the strategy behind the litigation and is that still appropriate?
. Are there grounds on which the Common issues judgment could be appealed?
. What is the timing and process for making the Common Issues Appeal?
. Are there any aspects of the Common Issues judgment that Post Office should
accept?
. What are the risks and benefits of hearing the appeals together or separately?
Conclusion
3. The Post Office legal team (which for the purposes of this note means collectively
Post Office legal, Womble Bond Dickinson and Counsel) recommend:
. appealing the Common Issues judgment;
. that the scope of the Common Issues Appeal focus on rejecting a legal duty
of good faith and therefore also the consequential terms implied into the
postmaster contracts by the Common Issues judgment. In addition, the
Common Issues Appeal should also appeal certain findings of fact extraneous
to the Common Issues. The rationale for this recommendation is set out in
paragraphs 21 to 26; and
. that Post Office seek to have the Common Issues Appeal heard together with
the already filed Recusal Appeal. The rationale for this is set out in
paragraphs 41 to 44.
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4. There are significant risks attached to any litigation, and the risks in relation to
these recommendations are also discussed in the relevant sections. Decisions
made by the Managing Judge to date have been very critical of Post Office and as
a result, there is considerable concern around the tone of Post Office’s defence.
These concerns are understood by the external Counsel team. The tone of the
legal strategy is however more relevant to the interaction with the Managing
Judge, as the Court of Appeal will look objectively and dispassionately at the
matters before it - these are about the application of the law, not how Post Office
conducts its business. Decisions about the scope of an appeal should be made
accordingly.
6. The Committee should note however that while a settlement may
litigation to an end, it does not :
ring the current
. address the claims of anyone other than the Claimant group;
. necessarily provide a repeatable framework for resolution of similar
complaints from postmasters outside the Claimant group; or
. address the findings in the Common Issues judgment as to the correct
interpretation of the Contract, and the operational impacts of those findings
will remain.
Input Sought
7. The Committee is requested to consider:
° appealing the Common Issues judgment and, if thought fit, approve the scope
of the Common Issues Appeal; and
° whether Post Office should seek to have the Common Issues Appeal heard
together with the already filed Recusal Appeal.
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Tab 1 Postmaster Litigation: Common Issues Judgment Appeal
The Report
What was the strategy behind the litigation and is that still appropriate?
8. The dispute between Post Office and a number of mainly former postmasters has
been ongoing for a number of years. Despite attempts to resolve these previously
without recourse to litigation, a claim was issued against Post Office in early 2016.
9. Post Office considered that absent litigation, the matters under dispute would
continue without resolution and that it was therefore in the interests of both Post
Office and the affected postmasters to bring matters to a conclusion which would
provide a fair and repeatable basis for resolving issues arising from in-branch
losses. This basis would apply to both those claimants in the Group Litigation, and
to claims (current, legacy or future) arising outside the current litigation.
10. Post Office expected that the litigation would address the following issues (among
others):
. whether Horizon is ‘robust’, and whether it is likely to be the cause of in
branch losses;
. who bears the responsibility for demonstrating the cause of in-branch losses;
° if Post Office is determined to be responsible for in branch losses (from
whatever cause), but has previously held a postmaster accountable, what
liability does Post Office have to the postmaster and how is compensation
fairly calculated?
. does Post Office have a legal liability to recompense all postmasters, or only
those who have raised/ notified their claims in accordance with the Limitation
Act (which would therefore exclude most claims arising before 2010)?
11. Additionally, there was concern that the lack of certainty around the contractual
framework, and the challenges to the robustness of the Horizon point of sale
system, operated as a disincentive to potential agents to contract with Post Office
and disrupted business-as-usual activity, as well as causing concern to key
(government) stakeholders.
12. Other desired outcomes from the Group Litigation therefore also included
establishing with a reasonable degree of certainty the terms of contracts and ways
of working that are effective in supporting agents and defending Post Office’s
interests
13. It was also Post Office's view that Horizon, although not perfect or error-free, was
generally reliable. This was based on, amongst other matters, assurances from
Fujitsu and the findings of Second Sight that there was no systemic problem in the
system. Further, Post Office was of the view that the legal position it had adopted
with its postmasters (including in civil and criminal court proceedings) for over 20
years was broadly sound; this was reinforced by legal advice from a number of
sources including WBD and Linklaters during the mediation scheme and latterly
from Leading Counsel.
14. Post Office has always recognised that there are likely to be individual cases where
its treatment of postmasters has not met appropriate standards and/or it has acted
wrongly. In such cases, Post Office should acknowledge failures and the
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postmaster should be compensated. However, although some evidence has been
put forward, the court process mandated by the Judge should not have allowed for
those individual issues to be properly scrutinized until at least Trial 3 in late 2019.
15. Permeating all decisions was a strong belief that any acknowledgment of past
failures should be balanced against the risk of significant numbers of unrealistic
demands for compensation from undeserving Claimants and encouraging more
historic claims from postmasters who were not yet Claimants.
16. Against the above objectives, it was recognised that litigation will always come
with risks and that an adverse finding against either the postmaster contracts or
Horizon could be seriously damaging to the business. Of particular concern was
the risk that Post Office may be left in the position of not being able to recover
shortfalls in branch from postmasters, putting its cash and stock at risk.
17. Finally, there was a commercial objective to bring the litigation to a close as quickly
and cost effectively as possible.
18. Having considered the above factors, Post Office decided to contest the first two
phases of the litigation, namely the legal framework of the postmaster contracts
and Horizon.! Post Office would try to secure some positive Court decisions with a
view to building a platform for settlement,
19. In light of the adverse findings in the Common Issues judgment, and Mr Justice
Fraser's very dim view of Post Office in general, consideration should be given to
whether the above objectives are still best served by continuing to contest the
litigation beyond the first two phases of the litigation (recognising that the second,
“Horizon Issues Trial” phase is currently part-heard before the Managing Judge in
the High Court).
20. Against this background, the first point addressed below is whether the Common
Issues judgment could, as a matter of law, be successfully appealed, and then
consideration is given to whether this is an appropriate course of action and what
alternative options there are.
Are there grounds on which the Common issues judgment could be appealed?
21. As previously advised, the Common Issues judgment was formally handed down
on 15 March 2019. Since then, Post Office has engaged Lord Grabiner, one of the
most senior practising barristers in the country, and Lord Neuberger, the former
President of the Supreme Court, to advise on appealing the Common Issues
judgment. They have considered this alongside David Cavender QC who
represented Post Office at the Common Issues trial.
22. WBD and Counsel believe that Post Office has good prospects of successfully
appealing large parts of the Common Issues judgment. The Counsel team will be
able to address this with the Committee at the meeting on 24 April 2019.
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Tab 1 Postmaster Litigation: Common Issues Judgment Appeal
23.
24.
There are also strong business reasons for seeking the appeal. These include:
The
While operational improvements and contractual changes may be
implemented to address the impact of the judgment going forward, the
retrospective impact of the judgment can only be addressed through a
successful appeal.
The implication of a legal duty of ‘good faith’ creates significant uncertainty
around Post Office’s ability to make operational changes going forwards -
including changes to contracts and termination of agents, as Post Office must
now take into account the impact of such changes on specific agents as well
as agents generally, in reaching decisions. A more detailed summary of these
issues is set out in the attached advice from Womble Bond Dickinson and
David Cavender QC.
The implication of a general legal duty of good faith creates uncertainty as to
the scope of duties owed to postmasters historically such that in any
particular case, it will be unclear whether Post Office has discharged that
duty.
The adverse findings in the Common Issues judgment make it significantly
more likely that Post Office will be found to be liable to a larger number of
the Claimants and significantly increase the extent of its liability.
Post Office’s position in any discussions to try to settle the litigation will be
improved by appealing the Common Issues judgment.
main areas where Post Office should consider appealing include:
The implied legal duty of good faith, whilst superficially sounding
uncontentious, poses significant difficulties to Post Office due to the
uncertainty of its meaning and application. In a business sense, good faith
is commonly understood to mean being honest; and that as a principle is
obviously not objectionable. However the Common Issues judgment has
gone much further than that, imposing a legal good faith duty that is defined
to require Post Office to subjugate its legal rights to the interests of
postmasters and take steps that are commercially onerous.
As part of this legal duty of good faith, the Judge has then imposed a further
20 specific duties which he states were necessary for “reasons of business
efficacy or as incidents of the contracts being relational contracts”. While a
number of these duties appear anodyne, legally it is difficult to accept certain
duties while rejecting others, or without undermining the challenge to the
general legal duty of good faith.
Post Office’s rights to terminate agency contracts (and indeed the rights of
agents to terminate) on ‘not less than x months’ notice’ are subject to the
legal good faith obligation such that the period of notice to be given in any
particular case must be considered taking into account all relevant factors.
Not only is this interpretation contrary to normal commercial practice, but
imposes burdensome operational considerations on both Post Office and the
agent to take into account a range of other factors when deciding what notice
is reasonable in the circumstances. Similar considerations will apply to
suspensions.
The Managing Judge has determined that the Unfair Contract Terms Act
applies to the provisions of postmaster contracts which means that many of
them could be considered to be unreasonable and therefore unenforceable.
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This applies irrespective of the type of agent - individual, multiple or
corporate.
° There are a number of findings that address losses and the agents’ liability
for losses which make recovering losses much more difficult, if not
impossible. These different findings need to be considered together so as to
ensure that the outcome is consistent.
. The Managing Judge held that a disputed Branch Trading Statement is not an
‘account’ for the purposes of the agent’s fiduciary duty to account to Post
Office as its principal. We believe that the judge has based this decision on
an incorrect understanding of how agents dispute transactions. He then
found on the basis of this that there is no obligation on agents to demonstrate
that Branch Trading Statements are wrong in respect of a disputed period.
25. The Counsel team have also reviewed whether there are any findings of fact in the
Judgment that should be appealed on the grounds that those findings are perverse.
Appeals of this nature are less common and more difficult, and should therefore
be used sparingly, both as a legal tactic and because it comes with a higher risk
of Post Office looking like an aggressive litigant. The recommendation is that the
following findings of fact should be challenged:
. Mr Bates' receipt of his SPMC contract. This is a single issue. On its face this
may seem to be unnecessary, however it is a clear example where the Judge
has wholly ignored the documents to get to his desired conclusion and so it
should strike the appeal court as very odd.
. Findings adverse to Post Office's behaviour and witnesses. These findings
are unfair and are directly relevant to the Claimants’ claim for indemnity
costs. There are 6 of these. These overlap with some of the recusal grounds.
. Litigation conduct of Post Office. There are two of these. They are relevant
to indemnity costs arguments made by the Claimants.
26. Set out in the Diligent Reading Room is a detailed table setting out the specific
findings from the judgment and the appeal recommendation in relation to each.
Are there any aspects of the Common Issues judgment that we should accept?
27. There are a number of legal grounds on which an appeal could be sought but given
the way the Common Issues Judgment has been constructed, it is difficult to
disentangle the various issues so as to be able to accept some points and not
others. In addition, the Managing Judge has expressed a number of findings ‘in
the alternative’ which mean that even if he was found to be wrong on one ground,
then there is at least another on which he also relies to achieve the same outcome.
In those cases, it is therefore necessary to appeal against both findings.
28. Our Counsel team are of the view that ‘concessions’ should only be made in limited
circumstances, as even accepting a few clauses could suggest to the Court of
Appeal that the agency contracts are incomplete and open to further implied
terms. There is a need to mount any appeal in a legally coherent manner
otherwise the merits of the whole appeal could be undermined.
29. They therefore advise that the following 4 terms could be accepted (subject to
some drafting modifications) as incidents of the "necessary cooperation" term
rather than freestanding implied terms in their own right. This is still a concession,
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Tab 1 Postmaster Litigation: Common Issu
30.
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s Judgment Appeal
although delivered in a way that runs less risk of undermining the wider legal
arguments on when terms should and should not be implied.
° “to provide reasonable training and support if Post Office imposed new
working practices or systems or required the provision of new services”
. “to ensure that the Horizon computer system was reasonably fit for purpose”
. “properly and accurately to effect all transactions using Horizon and to
maintain and keep records of such transactions for a reasonable time”
. “that Post Office take reasonable care in performing its functions under the
SPMC and NTC contracts which could affect the accounts of Subpostmasters”.
There are other points in the Common Issues Judgment that Post Office could
decide to concede, although it should be noted that the Counsel team advise
against any such concessions:
. The finding that Post Office faces the burden of proving every loss in
every branch. Post Office will always face some difficulty in trying to prove
the root cause of a loss in a branch because it has no first-hand knowledge
of what has happened. That difficulty is manageable if addressed at the time
the shortfall arises when information is freshly available and the cooperation
of the postmaster can be sought (and which the postmaster is required to
provide under the mutual duty of cooperation). The difficulty comes when a
dispute is raised long after the events in question or where a postmaster has
been false accounting (which by its nature means that the postmaster has
been rendering undisputed, albeit false, accounts). The Common Issues
Judgment would require Post Office to retrospectively determine what
happened long after the events in question. That is exactly what most of the
Claimants are seeking to do in this litigation. The Post Office legal team
consider this to be unfair on Post Office and wrong in law. The case advanced
by Post Office seeks to strike a fairer balance between the parties. It allows
postmasters to raise timely disputes about shortfalls and put the onus on Post
Office to investigate those shortfalls at that time, whilst also holding
postmasters to any undisputed accounts, unless they can later prove there
was no loss or it was not their fault. These points are explained more fully in
the Appeal Table in the Reading Room.
. The various implied terms that require Post Office to pro-actively
communicate information about shortfalls and Horizon to the whole
network. Although these sound innocuous, in practice they would be difficult
to comply with. Conceding them would also contradict the core legal
argument that there should be no duty of good faith and terms should only
be implied where necessary.
° The implied terms and findings to the effect that Post Office's right
to suspend and terminate must be exercised in good faith and only
when Post Office is not in breach of contract. Conceding these would
contradict the core legal argument that there should be no legal duty of good
faith and terms should only be implied where necessary. From a business
perspective, the judgment erodes the certainty and scope as to when Post
Office can suspend and terminate postmasters, which is needed in order to
protect cash and stock in the network.
. The finding that Post Office must pay postmasters when suspended.
This is not recommended because it would expose Post Office to significant
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historic claims for withheld remuneration. If Post Office wishes to change this
practice going forward, it could do so through an operational change /
contractual variation.
31. It should be noted that it is not legally possible for Post Office to appeal generally
but concede a duty of good faith. The legal duty of good faith pervades the entire
judgment. A decision not to appeal the finding of a legal duty of good faith would
undermine nearly all other grounds of appeal. If Post Office wished to accept the
legal duty of good faith, this would require it not to appeal at all.
What are the risks of bringing the Appeal?
32. While the Counsel team believe that “Post Office has reasonable to strong
prospects of success on nearly all of the above recommended legal grounds of
appeal” (albeit some stronger than others), appealing against the Common Issues
Judgment is not risk free.
33. First, although appealing a decision on the interpretation of contracts is common
place, and the Common Issues Judgment states several times “in the event that I
have got it wrong” which language is not unusual where a judge anticipates that
a point may be subject to appeal, nevertheless an appeal is implicitly a criticism
of the decisions of the trial judge and could be seen by the Managing Judge as a
further aggressive step Having made a recusal application and appealed that
application, an appeal on the Common Issues Judgment is however a lesser and
more ordinary step by comparison and one that this Managing Judge is very much
expecting to happen by his comments in Court.
34. Second, Post Office may lose the Common Issues Appeal with the following
consequences:
. Mr Justice Fraser's comments about Post Office may be vindicated, leading to
further negative publicity.
° Mr Justice Fraser will feel emboldened to treat Post Office even more harshly
in further hearings and trials.
. The Claimants will be in an even stronger negotiating position.
. Post Office will have incurred further legal costs and be liable for the
Claimants’ legal costs.
. Post Office will still have to implement the Common Issues Judgment but
after a 6-12 month delay (see further below on timing).
35. Third, even if the appeal is successful, there is a further right of appeal open to
the Claimants to the Supreme Court. Getting permission to appeal to the Supreme
Court is more difficult, but the legal duty of good faith arguments are new law and
something that the Supreme Court may be prepared to hear.
What is the timing and process for making the appeal?
36. The Recusal Appeal was lodged with the Court of Appeal on 11 April 2019. Unless
we file the Common Issues Appeal rapidly and seek to have the two appeals heard
together (see below), the Court of Appeal will shortly consider the Recusal Appeal
as standalone question.
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Tab 1 Postmaster Litigation: Common Issues Judgment Appeal
37. The Managing Judge has set aside time on 16 May 2019 to allow either party to
seek permission to appeal the Common Issues Judgment. Assuming the Managing
Judge allows an appeal, then Post Office has a further 21 days within which to file
its appeal. If permission to appeal is refused, then as with the recusal judgment,
we could apply to the Court of Appeal directly (again within 21 days). In either
case, Post Office will lose its right to appeal unless the Appeal Notice is filed with
the Court of Appeal by 6 June 2019.
38. The Counsel team believe that it is unlikely that the Managing Judge will give
permission to appeal based on his approach to date and therefore recommend
making an application directly to the Court of Appeal as soon as possible (which is
a permitted way of proceeding under the Court rules).
39. Assuming that permission is given for the Common Issues Appeal, in the absence
of the Recusal Appeal, there are limited grounds to argue for an expedited hearing
which means that it could be 6-12 months before the Common Issues Appeal is
heard.
40. Once both appeals are lodged (and assuming that permission to appeal is granted
in both cases), the Court of Appeal will then decide whether to hear them together
or separately. If separately, the Recusal Appeal will likely move faster, perhaps
being heard within 1-3 months. The Common Issues Appeal, being more complex,
will likely take 6-12 months. If the two appeals are heard together, they will likely
move on the slower timetable but with more chance of being towards the shorter
end of that timetable.
Should Post Office seek to have the two appeals heard together?
41. The Counsel team believe that the two appeals should be heard together as they
believe that there is a better prospect of winning both appeals by having them
heard together rather than separately:
e The Recusal Appeal will require the Court of Appeal to form a view on whether
the Managing Judge has pre-judged issues outside the scope of the Common
Issues trial. It will therefore need to consider certain of the issues which
would be raised in the Common Issues Appeal in forming that view. It is also
the case that the findings of fact that Counsel recommend appealing in the
Common Issues Appeal are the same findings that are the subject of the
Recusal Appeal. If the appeals are not heard together the Court of Appeal
would need to consider the same points twice. This is inefficient and there is
doubt as to whether the Lord Justice managing the appeal will allow this to
happen.
. The two appeals give complementary impressions. The extent of the errors
of law in the Common Issues Appeal reinforce that the Recusal Appeal is one
of substance not just form. The Common Issues Appeal makes clear that the
Managing Judge has not made a trifling error for which he should not be
recused and lays out the full extent of the flaws in his reasoning and helps
justify (publicly and to the Court) why Post Office has sought the sanction of
recusal. The Common Issues Appeal therefore makes a recusal more likely.
. This will be the most efficient use of resources. One hearing will always take
less work and cost less than two separate ones, which will benefit both parties
and be attractive to the Court of Appeal.
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Tab 1 Postmaster Litigation: Common Issues Judgment Appeal
. Even if the Recusal Appeal receives the Court of Appeal’s permission and goes
forward separately and quickly, the litigation could not be fully re-started (if
re-started at all) before the Common Issues Appeal was determined.
. We anticipate that the Claimants may want the two appeals heard together.
Their principal argument against recusal is that the Common Issues
Judgment, and the Managing Judge's approach in it, was correct. They will
therefore want to argue that the Common Issues Judgment should properly
be the subject matter of the any appeal.
42. A further benefit of joining the appeals is that they are not likely to be heard before
the Autumn which creates a window for mediation and settlement discussions over
the Summer. Although settlement can be discussed at any time, the present
litigation timetable is densely packed with the Horizon trial due to continue in June
and July and Trial 3 still currently scheduled to start in November 2019. This will
strain the Claimants’ resources and may restrict their lawyers’ ability to engage in
settlement discussions. A combined appeal should (but this is not guaranteed)
lead to all other activity in this litigation being paused, freeing the Claimants up to
focus on settlement over the Summer. The Claimants appear to be open to this,
having sought to push further court activity (including completion of the Horizon
Issues trial) back until the Autumn (they have also previously refused to mediate
where that overlapped with their preparations for the Horizon Issues trial).
43. The alternative view is that Post Office does not proactively seek to have the
appeals heard together (which is in any event a case management issue for the
Court of Appeal to determine). Reasons why Post Office may want to hold the
appeals separately include:
° the Recusal Appeal concerns a very sensitive subject, which may influence
how the Court of Appeal approaches the otherwise more objective legal issues
in the Common Issues Appeal (the outcome of which is of greater operational
significance for Post Office);
° Post Office may be able to test how the Court of Appeal assesses its case and
conduct of the litigation in the Recusal Appeal, applying any “lessons learned”
to a subsequent Common Issues Appeal;
. it avoids any suggestion that Post Office is looking to delay the Recusal Appeal
by joining it with the Common Issues Appeal so that it can delay the Horizon
trial; and
. it avoids a possible criticism that by joining the two appeals together the
immediate next step in this litigation (a joint appeal) is more expensive and
that Post Office are promoting this as a tactical step to put the Claimants
under financial pressure (although the overall cost should be cheaper than
two separate appeals in the long run).
44. The potential consequences of the Appeals being heard separately include:
° if the Recusal Appeal is successful and the Managing Judge is recused, a new
Managing Judge will be appointed, but will be unlikely to make any further
directions for the subsequent conduct of the litigation until the Common
Issues Appeal is resolved, given its relevance to issues in dispute overall; or
. if the Recusal Appeal is rejected, the Managing Judge can be expected to
continue with the existing timetable for Trials 3 and 4 on the assumption that
his findings in the Common Issues judgment are correct, even though many
of the issues in those trials will be affected by the outcome of a Common
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Issues Appeal. The work done for those trials would therefore be wasted if
the Common Issues Appeal alters the Managing Judge’s findings in the
Common Issues judgment.
Options
45. Against the above background, Post Office has the following options for the future
conduct of this litigation.
(a) Appeal the Common Issues judgment so as to try to obtain a more
favourable judgment and then use that as a platform to settle - whether or
not through mediation (or potentially cause the Claimants to give up).
(b) Appeal the Common Issues judgment and then look to settle before the
appeal is heard. The Common Issues judgment has put the Claimants in a
stronger negotiating position and appealing the judgment will put this
negotiating position at risk such that they may want to settle now.
(d) Do not appeal, wait for the judgment on the Horizon Issues and then seek
to settle. The merits of this approach will turn on the outcome of the Horizon
Issues trial. That trial should turns on the expert evidence which has not
yet been heard but, if the Managing Judge is not recused, Post Office has a
serious risk of another adverse judgment.
(e) Contest the litigation through further trials, until Post Office resolves all 557
individual cases or the Claimants’ funding collapses. This would take years
of further litigation, risk further adverse judgments and reinforce the
impression that Post Office is an overtly aggressive organisation. This is an
unattractive option but it is included for completeness.
Recommendations
46. The Post Office legal team recommends Option A. In parallel, Option B should be
explored with the Claimants so to better understand the settlement range and to
keep open the possibility of an earlier settlement.
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Tab 1 Postmaster Litigation: Common Issues Judgment Appeal
47. If Post Office does appeal the Common Issues judgment, it will also need to
consider the scope of the appeal and how it is progressed alongside the Recusal
Appeal. For the reasons stated above, it is recommended that the Common Issues
Appeal is conducted in a legally coherent manner, which would mean minimising
concessions and seeking for it to be joined with the Recusal Appeal.
48. The Common Issues judgment made astringent criticisms of Post Office and left a
bad impression of the business. A successful recusal of the Managing Judge and/or
a successful Common Issues Appeal will mitigate some of that harm by showing
that Post Office was the recipient of poor judicial decision making. However, if the
appeals go against Post Office, it may reinforce the message that it is a
litigious/aggressive organisation. The legal team will therefore be instructed to
avoid polemic language wherever possible but ultimately an appeal is, by its very
nature, a criticism of a Judge's work.
49. Post Office must therefore determine whether it is more important to achieve the
right legal outcomes in the interests of the business, as against the tonal risks of
being seen to be aggressive in the way it conducts the litigation or engages with
the Managing Judge going forward should he not be recused. Arguably these risks
have already crystallised in the Common Issues judgment and Post Office has
already taken the more emphatic step of seeking the Managing Judge's recusal.
In comparison, appealing the Common Issues judgment, if done with care and
sensitivity, is a reasonable course of action.
50. The Board sub-committee is requested to:
a) Approve the making of the application to appeal to the Court of Appeal in
respect of the Common Issues judgment;
b) Approve the scope of the Common Issues Appeal as set out in the Appeal
Table in the Reading Room;
c) Approve the proposal that we request the Court of Appeal to hear both appeal
applications together.
d) Note the proposals to explore a settlement with the Claimants, subject to the
Post Office legal team reverting to a separate meeting with a more detailed
outline of the options.
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Tab 1 Postmaster Litigation: Common Issues Judgment Appeal
18 of 26 Board GLO Sub Committee-24/04/19.
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Confidential and legally privileged advice
Post Gyr Litigation pone
DICKINSON
21
2.2
Common Issues Judgment: Appeal Advice
THIS PAPER
This paper outlines the advice of WBD and David Cavender QC on whether and how Post Office
might appeal the Common Issues Judgment handed down on 15 March 2019 (the Judgment). It
assumes that the reader is broadly familiar with the Post Office Group Litigation and the
Judgment. This advice will be expanded on at a conference scheduled for 11 April 2019.
REASONS FOR APPEALING
We see three key reasons for appealing the CIT Judgment.
Impact on Post Office's business
2.2.1
2.2.2
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The Judgment's imposition of a duty of good faith cuts across and restricts many of the
contract rights that Post Office needs to manage the relationship with its SPMs and
operate its business. Since the Judgment was handed down, we understand that there
have been few immediate operational problems: SPMs are still accounting to Post
Office and shortfalls have not gone up. However when issues do arise with shortfalls
and/or the need to suspend or terminate SPMs real problems will doubtless emerge.
We however see the real problems being longer term. The duty of good faith as
applied by the Judge turns SPMs into “super-employees’” and gives them significantly
more rights than even an employee would enjoy. In particular, it requires Post Office to
take account of the interests of SPMs when making decisions. This fetters its freedom
to make changes to its business. Amongst other matters, the introduction or
withdrawal of products, changes to contractual conditions and remuneration and the
opening and closing of branches are all now required to be assessed and balanced
against the impact on SPMs. It is unclear from the Judgment how this balance is to be
struck and whether Post Office is supposed to balance its business interests against
the interests of SPMs as a whole network or against the interests of individual SPMs in
their particular situation (indeed these interests may often be in conflict). This is an
onerous obligation to comply with in form: it might require consultations across the
network and / or a branch by branch impact assessment. In substance it may make
unlawful some business transformation activities that have a considerable adverse
effect on a large number of branches.
Moreover, in our view Post Office's current organisational setup creates a real risk of
Post Office not dealing in good faith with an individual SPM. Its current structure has
many different touch points between SPMs and Post Office. There is no central point
for information about an SPM and no single decision maker with accountability for that
relationship. Although there is often communication between departments this is
fragmented; there is not, as far as we are aware, an end-to-end process or overarching
policy on how Post Office manages SPMs. This has, in some of the cases we have
seen, led to silo decision making within departments. We understand that work is
underway to address these issues, however the operational risk remains that in any
particular case, Post Office may be determined not to have acted in good faith.
The above way of working was legally permitted under the old pre-Judgment legal
framework which placed the onus on the SPM to be accountable and self-sufficient. In
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2.2.5
2.2.7
2.2.8
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that framework, it was appropriate for the SPM to be responsible for raising issues and
contacting the correct department for help and support. A duty of good faith however
requires Post Office to act in a coordinated way, ensuring that its decisions are taken in
full knowledge of its entire relationship and history with an SPM. Put another, it would
not be acting in good faith to allow a decision maker to act where they did not have the
full picture.
Although not experts in business transformation and organisation, we believe that
compliance with the duty of good faith in the long term would require a deep
restructure of Post Office's support functions for SPMs together with the necessary
technology to centrally store information about each SPM. We understand that a new
case management system is being implemented, however unless it included all
information about a SPM — from the moment of first application, then there would be a
continuing risk that Post Office staff did not have the full picture when dealing with a
SPM
Even if the above points could be addressed through organisational change, the
ambiguous nature of a duty of good faith means that it will be difficult for Post Office to
know (even having had legal advice) what it can and cannot do. We anticipate that the
duty of good faith and other fetters on Post Office's legal rights will have consequences
in ways that are currently unforeseeable. This will inject an additional measure of legal
risk (in the form of claims and complaints as well as general resistance from SPMs to
Change) into its business activities. Post Office may then need to offer more generous
remuneration and compensation to get SPMs to support changes in the network
because it is unable to unilaterally procure those outcomes through its weakened legal
rights.
We do not believe that the above difficulties could be fully resolved by making
improvements to existing operational practices or re-drafting SPM contract terms. The
Judgment goes to the heart of the SPM relationship and challenges the core balance
of the relationship between Post Office and SPM. The findings of the Judgment will
therefore pervade any changes made by Post Office and, although their effects might
be mitigated, they cannot, in our view, be eliminated via this course of action.
For the avoidance of doubt, we are not advocating that Post Office ignores the thrust of
the criticisms in the Judgment. There are ways of working highlighted above and in the
Judgment that require improvement. But there is a substantial difference between
being legally required to implement changes and implementing changes for good
business reasons. It is perfectly ordinary for a large organisation like Post Office,
faced with many competing pressures, to set its legal obligations lower than its best
practice objectives. This allows a fair margin of error should it fall short without
creating legal risk. It also gives it flexibility to adapt and change its business in the long
term.
2.3 Litigation merits
2.3.1
2.3.2
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The Judgment is central to all the claims in the litigation. The adverse findings in the
Judgment make it significantly more likely that Post Office will be found to be liable to a
larger number of the Claimants and to dramatically increase the extent of its liability.
This is because it weakens some of Post Office's best defences, namely responsibility
for demonstrating that SPMs losses were not due to the Post Office operating system,
that a large number of the claims should be time-barred, and that even successful
claims should only result in limited compensation being awarded.
The legal team universally believe that an appeal is the correct and obvious course of
action when considered from the perspective of the litigation. An appeal in these
circumstances would be entirely ordinary. Indeed, not appealing would be considered
by many as a peculiar decision, particularly where:
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(a) The Judge's decision on the implication and, in particular, the width of application
of the good faith term is in our view obviously wrong and an attempt to make new
law.
(b) Post Office are appealing the decision of the Judge not to recuse himself for
apparent bias and doing so on the basis that he introduced large amounts of
irrelevant and inadmissible material into his decision making process in the trial
To not appeal the decision itself in those circumstances would be at best
surprising.
(c) The Judge himself in the Recusal Judgment says that the proper remedy for
some of the complaints of Post Office is to appeal his decision — not to seek to
recuse him.
2.3.3 David Cavender can expand on these points as needed at the conference.
Settlement
2.4.1
2.4.2
The above three factors represent the key reasons for lodging an appeal. In our view, the first
factor alone would justify an appeal
There is no real risk of appealing the Judgment except for the costs of doing so (to which see
below). Even Mr Justice Fraser would find it difficult to say that Post Office is acting oppressively
in bringing an appeal. Appealing a decision on the interpretation of contracts / agency
relationship is common place. That this is so is clear from the terms of the Judgment itself where
Mr Justice Fraser makes numerous alternative findings “in the event that I have got it wrong” on
the good faith point.
Further, having made a recusal application and appealed that application, an appeal on the
Judgment is a lesser and more ordinary step by comparison. Making an appeal should not in
itself lead to criticism but care is needed to only appeal important points, to avoid the impression
that Post Office is seeking to fight every point in an oppressive manner. It is that which is the real
challenge given the extent of the errors contained in the Judgment.
SCOPE OF THE APPEAL
The Judgment covers 23 interlocking issues, with several dozen more sub-issues. The
Judgment entwines these issues closely together, often using decisions on one issue to justify
and amplify decisions on other issues. The Judge has also included several alternative
formulations, meaning that if one part of his judgment fails there is a secondary argument that
would produce the same result. Surgically dissecting the judgment for a few cornerstone points
that could be appealed with significant benefit for Post Office is not therefore possible. Any
appeal will, due to the shape of the issues and the structure of the Judgment, necessarily need
raise a large number of points.
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3.2
3.3
3.4
3.5
3.6
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Where possible, however, Post Office is advised to make concessions. When going before the
Appellate Courts it is better to have accepted any points that will be difficult to overturn or will be
of limited utility in resolving the wider litigation. This would also help counteract the impression
that Post Office is acting oppressively if it were to concede some ground.
It is therefore recommended that Post Office concedes four of the implied terms which the Judge
implied, not under the “good faith” rubric, but because they were “necessary”. Counsel has re-
drafted the four terms to narrow their ambit and make them more reasonable and acceptable.
These terms are such that they could have fitted within the agreed “Reasonable Co-operation”
implied term that Post Office acknowledged early in the proceedings but to which the Judge failed
to give any meaning.
« Implied term (a) “to provide reasonable training and support if Post Office imposed new
working practices or systems or required the provision of new services”
¢ Implied term (b): “to ensure that the Horizon computer system was reasonably fit for
purpose”
« Implied term (c): “properly and accurately to effect all transactions using Horizon and to
maintain and keep records of such transactions for a reasonable time"
« Implied term (t): “that Post Office take reasonable care in performing its functions under
the SPMC and NTC contracts which could affect the accounts of Subpostmasters”
In our opinion Post Office should however appeal the points below. These are all points of law
and commonly subject to appeal. Although this is a large number of points they are all inter-
linked and so need to be appealed together.
3.4.1 The implication of a duty of good faith.
3.4.2 The other implied terms not conceded above.
3.4.3 The proper construction of the express terms of the contract, in particular the clauses
that entitle Post Office to recover losses.
3.4.4 The striking down of express terms as unfair and unenforceable
3.4.5 An SPM's obligations as agent of Post Office and the binding nature of the Branch
Trading Statement as an account rendered by an agent.
3.4.6 The fettering of Post Office's rights to suspend and terminate.
3.4.7 The notice of contractual terms given to SPMs under the SPMC by the contractual
paperwork sent to SPMS in the days of Mr Bates and Mrs Stubbs.
Further, in our opinion Post Office ought to seek an order from the Court of Appeal that it quash
the large number of findings made by the Judge on matters extraneous to the Common Issues
before him — as those matters are to be determined in future trials on the basis of full disclosure
and witness evidence. There are a large number of these. These are the same points as raised
on the recusal appeal. They are the manifestation of the same points in the guise of an appeal to
actually get those findings quashed. That is a form of relief that is not sought in the recusal
appeal itself — as it might well muddy the waters in that appeal which would be unwelcome.
Careful consideration has been given to appealing findings of fact in the Judgment on the
grounds that those findings are perverse. Appeals of this nature are less common and more
difficult. They should be used sparingly, both as a legal tactic and because it comes with a
higher risk of Post Office looking like an aggressive litigant. There are however a number of
findings of fact that we believe should be challenged. This has however been limited to following
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4.2
4.3
5.1
5.2
5.3
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findings which are only a small fraction of the total findings in the Judgment. We have placed
them in three categories:
3.6.1 Mr Bates: receipt of SPMC contract. This is a single issue. On its face this may seem
to be unnecessary but we think that it should be included as it is a clear example
where the Judge has wholly ignored the documents to get to the conclusion that he
wanted to get to and so it will strike the appeal court as very odd.
3.6.2 Findings adverse to Post Office's behaviour and witnesses. These findings are unfair
and are directly relevant to the Claimants’ claim for indemnity costs. There are 6 of
these. These overlap with some of the recusal grounds.
3.6.3 Litigation conduct of Post Office. There are two of these. They are relevant to
indemnity costs arguments made by the Claimants.
MERITS OF APPEALING
The legal team's view is that Post Office has reasonable to strong prospects of success on nearly
all above recommended legal grounds of appeal, with some points stronger than others. The
appeals of factual findings are most finely balanced but we believe they should still be pursed.
To validate this decision, Lord Neuberger has been instructed to review the draft Grounds of
Appeal and will advise on (i) whether the scope of the appeal is appropriate and (ii) the likely
reaction of the Court of Appeal to an initial reading of the Grounds of Appeal.
In the longer term, Lord Neuberger could be engaged to review Common Issues entirely and
offer his view on the likely outcome of the appeal. This is however a significant task that would
take weeks / months to complete.
TIMING AND PROCESS FOR AN APPEAL
There is a hearing on 16 May 2019 before Mr Justice Fraser at which Post Office can seek
permission to appeal. If this is refused, or simply in the alternative, Post Office can apply direct to
the Court of Appeal for permission to appeal. With or without permission from Mr Justice Fraser,
Post Office will need to lodge an Appeal Notice with the Court of Appel by 6 June 2019 or it will
lose its right to appeal.
Having refused to recuse himself, Post Office is required to lodge its recusal appeal by 11 April
2019. The recusal appeal and the main appeal are two separate appeals but with much overlap.
It would be beneficial if draft Grounds of Appeal for the main appeal were submitted to support
the recusal appeal. A Lord Justice looking at the recusal appeal will be expecting the main
appeal to follow and will be interested in understanding the scope of the main appeal before
deciding how to proceed.
Given Mr Justice's Fraser's refusal to give permission to appeal the recusal decision, we believe
there is little chance of him giving permission on the main appeal - and even if he did it would
likely be limited to the “good faith” finding. He is very unlikely to give permission on all the
grounds so that Post Office will need to go to the Court of Appeal in relation to those grounds in
any event. Also — expedition for the appeal is sought which can only be given by the Court of
Appeal. Therefore, in these circumstances, the only real reason to seek permission from the
Judge is out of a sense of politeness - which alone does not seek to justify the delay involved.
We therefore advise that Post Office does not seek permission from Mr Justice Fraser but
proceeds straight to the Court of Appeal. The appeal will therefore need to be lodged in good
time before the 16 May 2019 hearing.
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5.5
5.6
6.1
6.2
6.3
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Once both appeals are lodged (and assuming that permission to appeal is granted in both
cases), the Court of Appeal will then decide whether to hear them together or separately. If
separately the recusal application will likely move faster, perhaps being heard within 1-3 months.
The main appeal, being much more complex, will likely take 6 — 12 months but we would ask for
this to be expedited given the ongoing impact of the Judgment on Post Office's business. If two
appeals are heard together, they will likely move on the slower timetable.
In our view, there are strong reasons for the two appeals to be heard together:
5.5.1 The recusal appeal will require the Court of Appeal to form a view on whether Mr
Justice Fraser has pre-judged issues outside the scope of the Common Issues trial. It
will therefore need to consider the issues in the main appeal to an extent in forming
that view. It is also the case that the findings of fact that Post Office seeks to quash on
the main appeal are the same findings that are the subject of the recusal appeal. If the
appeals are not heard together the Court of Appeal would need to consider the same
points twice. This is inefficient. It is very unlikely that the single Lord Justice managing
the appeal will allow this to happen.
5.56.2 The two appeals give complimentary impressions. The extent of the errors of law in
the main appeal reinforce that the recusal appeal is one of substance not just form.
The main appeal makes clear that Mr Justice Fraser has not made a trifling error for
which he should not be recused, but lays out the full extent of the flaws in his
reasoning and helps justify (publicly and to the Court) why Post Office has sought the
sanction of recusal. The Judge’s findings on the law are so bad that they will dissolve
any sympathy the Court of Appeal might otherwise have.
5.5.3 This will be the most efficient use of resources. One hearing will always take less work
and cost less than two separate ones, which will benefit both parties and be attractive
to the Court of Appeal
5.5.4 Even if the recusal appeal went forward separately and quickly, the litigation could not
be fully re-started (if re-started at all) before the main appeal was determined.
5.5.5 We anticipate that the Claimants may want the two appeals heard together. Their
principal argument against recusal is that the Judgment, and the Judge's approach in
the Judgment, was correct. They will therefore want to argue for the Judgment which
should properly be the subject matter of the main appeal
The outcome of these appeals if successful would be:
5.6.1 A new judgment on the Common Issues from the Court of Appeal that is more
favourable to Post Office.
5.6.2 The recusal of Mr Justice Fraser and either a re-trial of the Horizon Issues trial or a
new Managing Judge ordering a new trial process.
RECOMMENDATION
There is clear recommendation from the legal team that appealing the Judgment maximises the
chances of a successful result in the litigation, whether that be future Court decisions or
settlement.
We also believe that there are good business reasons for lodging the appeal, but that is a
decision for Post Office.
If Post Office approves lodging an appeal against the Judgment, we would recommend that:
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6.3.1 Post Office should continue to implement short-term operational changes so that its
current practices do not directly collide with the Judgement (and we understand this
work is underway).
6.3.2 It may also wish to implement more extensive changes that both satisfy the Judgment
and deliver the best practice that Post Office would want to achieve in any event. Even
if the appeal is successful, this work will still deliver benefit to the business.
63.3 In parallel with the appeal, Post Office should also plan for, but not yet commit to, the
longer term and deeper structural changes that would be needed to comply as fully as
possible with the Judgment should the appeal fail. These changes are in fact in
planning.
64 Even on pessimistic timetable of the appeal taking 12 months, our view is that this would be a
faster, cheaper and more effective route than implementing the long term operational and
contractual changes that would be needed to comply with the Judgment, particularly given that
achieving full compliance through operational and contractual change alone is unlikely to be fully
successful given the broad and imprecise impact of the Judgment on Post Office's business over
many years into the future. In any event, operational and contractual change (even if successful)
will not have retrospective effect and so Post Office would continue to carry the risk of adverse
outcomes arising from pre-judgment operational activity.
David Cavender QC.
Womble Bond Dickinson
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