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POST OFFICE GLO
PRELIMINARY COMMENTS ON SETTLEMENT
IN ADVANCE OF MEETING WITH RICHARD WATSON AND TOM COOPER ON 18 JULY 2019
Introduction
The purpose of this note is to set out our preliminary thoughts on how we envisage the proposed
settlement process working with specific reference to (a) timelines; (b) preparation (including
further information from the Claimant Group); (c) analysis of the Claimant Group; and (d) costs.
Broad Timelines
2. It has been agreed between the parties that (a) a mediation should take place; and (b) the
mediator should be Charles Flint QC.
3. In broad terms, we envisage a staged approach to settlement comprising:
a. an initial mediation designed to obtain information and gauge expectations, ideally in
September or October 2019;
b. a formal settlement offer process designed to protect PO's position in the litigation,
planned for late 2019 or early 2020;
c. a further mediation at which we hope to make meaningful progress towards settlement,
ideally in April/May 2020;
d. further ad-hoc settlement discussions leading to a final settlement; and
e. development of a strategy for dealing with SPMs who are have not joined the GLO but
may bring claims in the future.
4. Mediation is a consensual process and so it is not possible to be prescriptive about timings. We
are presently in correspondence with the Claimants as regards the timing of the first mediation
and the position reached will likely drive the timetable going forward. The current status is as
follows:
a. PO has proposed that a mediation takes place in September 2019 to take advantage of
the lull in the timetable while the Horizon judgment is awaited.
b. The Claimants wish to mediate only after (i) the Horizon judgment has been handed
down; and (ii) the outcome of PO's application for permission to appeal is known. A
mediation which caters for those contingencies would not take place before mid-October,
which may be impractical — at least for the Claimants’ resourcing requirements - as the
parties will then be engaged in a tight timetable leading up to the next (Further Issues)
trial, scheduled for March 2020. The Claimants may use this as an excuse for deferring
the mediation further.
c. Although we cannot force the Claimants to agree to a date, we are hoping to reach an
agreed position that the March 2020 trial date is pushed back which would create a
window for the mediation in the procedural timetable. Discussions are ongoing.
5. If, as we understand, PO will not have settlement authority in excess of £50m for any mediation
that takes place in September/October 2019, it is unlikely that the GLO will settle at that time.
£50m will not cover the Claimants’ expected funding/costs commitments (on current best
estimates, these stand at circa £68m) and, given the success the Claimants have had to date, it
is doubtful the Claimants would be prepared to exit the litigation at a loss. We would, however,
hope to make some progress at the first mediation in understanding the Claimants’ expectations
and, in particular, the true values attached to their funding arrangements.
6. Following the mediation, we would suggest making a Part 36 or Calderbank offer with a view to
(i) obtaining a degree of costs protection going forward; and (ii) putting some corresponding
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pressure on the Claimants to settle. Otherwise, the Claimants may consider they will have a
“free run"Bat PO for the duration of the litigation, which will simply encourage them to persist
with their claims.
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We have then made provision for a second mediation, probably after the Further Issues Trial, at
which we hope to make meaningful progress with regard to settlement.
Preparation
8. We have structured our own preparations in order to be ready to mediate in September/October
2019.
9. Attached is a timeline of the various steps we are taking. In summary, the key workstreams
taking place are:
a.
Quantum verific: Much of the key information needed to calculate the true value of
the Claimants’ claims (for example the size of the shortfalls and the Claimants’ earnings-
based claims) is in PO's systems. We are therefore working with Angela van den Bogard
and Nick Beal to build up a settlement spreadsheet based on PO's own data which can
be used to build up our own, verified picture of the quantum of the claims. In due course
we will also be able to use this spreadsheet to apply our own assumptions to the figures
when analysing settlement scenarios.
Recoverability analysis - We have also begun analysing the recoverability in principle of
the Claimants’ various heads of loss. In some cases, recoverability will depend upon (i)
the outcome of the Common Issues Appeal; (ii) the Horizon judgment; and, in the case
of some heads of loss, (iii) evidence from the Claimants which is not yet to hand. Given
these variables, we would prefer not to offer any concluded views yet. However, we
have reached some provisional conclusions which are summarised below. This exercise
will help us assess risk and take decisions on which heads of loss to carve out when
formulating settlement proposals at an early mediation.
Development of case theory - Work will need to be done to develop a case theory on
liability. The objective of these investigations would be to set up a basis for applying a
percentage discount to the claim value for liability risk and also demonstrate more
broadly to the Claimant Group that their "winning streak" will not continue indefinitely.
What that percentage discount might be will depend on the facts of the individual cases.
In that regard, we will need to:
look at the claims of individuals (i.e. are there "bogus" Claimants or Claimants
where there is independent evidence of liability, untainted by Common Issues
duties or adverse findings made in the Horizon trial); and
¢ liaise further with PO's IT expert following receipt of the Horizon judgment to see
if PO will be in a position to demonstrate whether (or not) the bugs found to exist
were in fact the cause of the Claimants’ losses.
WBD have led on individual Claimant investigations thus far but we are now becoming
more involved.
Strategy for dealing with particular categories of Claimants — Particular strategies will be
needed for dealing with (a) convicted Claimants; (b) Claimants who have already entered
into settlement agreements; and (c) time-barred Claimants.
1 The process for doing so in the context of a GLO is not free of difficulties. The right approach will require
further analysis.
2 Provided the Claimants recover something in each trial, they are likely to be treated as the "successful
party" and the working assumption is that they will recover their costs.
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Qutstanding Information
10. As a general point, it is fair to say that, given the way the litigation has progressed, PO does not
have all the information it would need to form a concluded view on the size of its exposure in
respect of any one category of claim
11. That said, the work we have done on quantum verification thus far suggests to us that, in relation
to many of the more crucial heads of loss, we should be able to draw information from PO's own
records and otherwise make rough-and-ready assumptions for the purposes of settlement to fill
the gaps. Doing so will place a practical onus on the Claimants to supply missing information if
they wish to rebut the numbers we have used or the assumptions we have made.
12. In all these circumstances, we would not recommend approaching the Claimants for further
information to substantiate their claims, at least at this stage. Particularly in respect of the more
outlandish heads of claim, we consider PO is better off taking the position that the Claimant has
not discharged the onus of proving the losses in question and, unless and until it does, PO does
not intend taking them into account for the purpose of settlement. If, on the other hand, we invite
further information, that will simply encourage the Claimants to produce material which (or so
they will say) increases their headline numbers.
Analysis of Heads of Loss and the Claimant Group
13. Attached is an outline of the Claimants’ claims, categorised by head of loss and, where
applicable, Claimant cohort.
14. Some preliminary thoughts and notes of progress in relation to each category of claim are set
out below.
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Repayment of Shortfalls - £13m
a
. Assuming liability is established, this head of loss will be recoverable subject to verification of
the sums claimed. The key issue is likely to be the onus of proof. If the Horizon Judgment
concludes that Horizon is not reliable evidence of the size of the shortfalls (e.g. due to bugs) the
onus will be on PO to prove the shortfalls in other ways. In many cases this may be difficult or
impossible to do.
wm
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Convicted Claimants
38. This is likely to be the most problematic cohort of Claimants to deal with for the purpose of
settlement. They are the most vocal, raise the most significant reputational issues for PO and
will also likely be the most difficult to appease. This is unsurprising: if someone was wrongfully
convicted, then they can fairly say that their lives have been ruined. By the same token, if PO
settles with Claimants who were properly convicted, it will in effect be admitting to failures in the
criminal process which PO, exercising its prosecutorial powers, participated in.
39. Although PO has taken advice from time-to-time on how to deal with convicted SPMs and has
undertaken several reviews of old cases, the advice in question does not address the key
question of whether the convictions are in fact unsafe. As a matter of criminal procedure, we are
told that PO's duty is simply to ensure that proper disclosure is given. It is then for the Claimants
to approach the Criminal Appeals Court (through the CCRC or independently) to make a case
on appeal. As a practical matter, parties appear to be awaiting the findings of the civil courts
before taking action. Nor is the advice necessarily current (we note in particular that the findings
made in Horizon may change the landscape). PO will therefore probably need to undertake a
fresh review of the criminal cases once the Horizon judgment is to hand. Subject to the findings
made, it may also have a duty to make additional disclosures to affected parties.
40. In the meantime, there are several observations we can make about convicted Claimants:
a. From a settlement perspective, it is extremely difficult for PO to deal with convicted
b. Given the above, a sensible approach may be to carve out the criminal Claimants from
any settlement proposal to enable them to pursue their appeals in the criminal courts in
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light of the findings in the Horizon trial. PO could facilitate this in various ways - by co-
operating with the CCRC, by offering funding (potentially repayable if the appeals fail)
and/or by facilitating an independent review with a view to making recommendations as
prosecutor. Criminal Claimants who succeed could then be offered the same deal as
other Claimants, with a sweetener to compensate for losses associated with the
convictions.
2
The resistance PO would face is that this would be perceived as excluding convicted
Claimants from settlement and creating additional hurdles to recovery. The true position,
we understand, is that is an abuse of process for convicted Claimants to pursue their
claims in the civil courts while their criminal convictions stand. PO could therefore try to
deal with this by forcing Fraser J to make the decision as to whether convicted Claimants
can form part of the litigation pending the outcome of the criminal process. This could
Claimants eligible for selection. That way, the decision is taken out of PO's hands.
nM
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Potential Settlement Structures
44. There are a number of ways to approach the settlement of this litigation:
a. A ground-up recoverability analysis: This is the conventional approach and involves
analysing the legal merits of the Claimants’ claims (both in principle and as a matter of
quantum) and applying appropriate percentage discounts for risk. If this approach is
taken, PO may face the issue that the Claimants are unwilling to settle at a value which
approximates PO's true legal liability - either because the Claimants feel they have been
wronged or because their funding and costs liabilities will eat up the lion's share of any
any liability-based offer that is made. Given the reputational considerations at stake, PO
will need to assess whether it is willing to over-pay in order to dispose of the litigation.
a
A"PO is better off paying" scenario analysis: This approach aims to provide an answer
to unrealistic demands from the Claimant Group driven by their costs and funding
arrangements by identifying the amount it would cost to simply pay the claim. This
amount would exclude sums payable in respect of the Claimants’ funding and costs
commitments because those are not losses recoverable at law. It is bound to involve
taking into account heads of loss which would not be recoverable at law.
9
A pragmatic analysis, which budgets for (a) payment of the Claimants' funding/costs
commitments and (b) a (proportionately reduced) top-up payment to each individual
Claimant, at a level acceptable to the Claimants in question. This option has advantages
for PO's future dealings with SPMs who may have claims but are not Claimants in the
litigation. Such Claimants will not be saddled with weighty costs and funding
commitments. PO could therefore offer them "the same deal" that Claimants in the GLO
received at significantly lower cost.
45. The claims spreadsheet we are building aims to be able to produce verified figures in all these
scenarios which can then be considered in order to arrive at an appropriate settlement range.
Key to the analysis, however, will be the Claimants' expectations — hence our recommendation
for a staged settlement approach.
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Cost:
49. In the latest costs update to the Court (in late May / early June 2019), the Claimants’ legal costs
were £12.6m (excluding any funding costs). The Claimants have not provided a further update
on their legal costs. It is anticipated that the Claimants will have incurred a further £1m in costs
up until the end of the Horizon trial
50. Post Office's legal costs up until the end of the Horizon trial are estimated to be around £14.9m.
51. Womble Bond Dickinson has provisionally estimated that the cost of the Further Issues trial will
be £3m - £5m. This estimate will be revised when the Claimants set out their cases for this trial.
It is anticipated that the Claimants’ costs will be substantially less than PO's costs because they
have significantly fewer documents to disclose and fewer witnesses to call.
52. We anticipate that our costs for the advisory and mediation workstreams will be around £1m to
the end of the year. In the event that Permission to Appeal the Common Issues judgment is
awarded we will revise this estimate.
Herbert Smith Freehills LLP
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PO: Group Litigation Settlement Timetable
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Wie Wie Wie Wie
Aduly I 8July I 15 July I 22 July
Wie Wie Wie Wie Wie Wie Wie
Wie
2oJuly I SAug I 12Aug I 19Aug I 26Aug I 2Sep I 9Sep I 16Sep
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23 Sep
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30.Sep
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7Oct
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21 Oct
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Wee
14 Oct 28 Oct
ation of Claims
Databé
Analysis of SOls
Collation of base remuneration data
Verify service and contractual data
Verify shortfall data
Transfer data to HSF Belfast
HSF Belfast analysis of data
Creation of verified claims
spreadsheet
lopment of
Theory case:
a.
b,
Collate advice from Cartwright King and Brian Altman QC
Review historic position
Strategy for settlement of GLO
PO approach to resolving issues with convicted Claimants
Analysis of reputational considerations
Identity and develop evidence on areas of weakness in the Claimants
Identify and develop evidence on individual Claimants
Expert evidence that bugs could not have caused shortfalls?
Impact of
grant/refusal o'
permission to appeal
Settlement
mmendation:
and PO
Author
Mediation
Preparatior
‘* Prepare position paper
‘Analyse impact of order made (e.g.
permission given on some grounds not
others)
Merits advice on appeal
+ Exchanges of information (if applicable)
Mediation
‘Analysis of legal position on costs protection
available under group and individual offers in
GLO scenario
Formulation
of offer(s)
I {4
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Freeths' legal fees Headline fees: £12.7m
Conditional Fee Uplift: £12.7m (WBD
estimate)
Total: £25.4m
Litigation insurance / Security for Costs £5.9m (WBD estimate)
Funders retum (Therium) £37m (WBD estimate)
Total £68.3m
® This information is based on WBD's Settlement Briefing Paper dated 19 May 2019 and the accompanying presentation. The figures have not been verified by HSF.
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