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Draft Linklaters LLP/149/03/2044.
Dated {20} March 2014) {Commented [CA1}: OK
POST OFFICE LIMITED
REPORT INTO INITIAL COMPLAINT REVIEW AND MEDIATION
SCHEME
PARTA—LEGAL ISSUES
Linklaters
Linklaters LLP
One Sik Street
London EC2Y 8HO
Ref Chvista Band! Jonathan Swil
4
14
12
13
24
22
BACKGROUND
This Report has been commissioned by the Board of the Post Office Limited (‘the Post
Office’) following concerns over the level of claims and costs and other potential legal and
financial exposure for the Post Office in connection with the Initial Complaint Review and
Mediation Scheme (the “Scheme”)
We understand that the Scheme was established in August 2013 with the aim of resolving
various allegations that had by then been made by certain interested parties about the
Horizon financial transaction and accounting system (‘Horizon’) used by the Post Office
and the Post Office’s Subpostmasters (“SPMRs"). It was claimed by a small, but very
vocal, minority of SPMRs that there were problems with Horizon and that if Horizon
recorded that there were losses at a particular Subpostoffice this was not necessarily
because the SPMR had stolen or otherwise lost money or stock but because Horizon was
matfunctioning. This issue attracted political comment and there was debate in Parliament
about it
Importantly, Jo Swinson, the Parliamentary Under Secretary of State for Employment
Relations and Consumer Affairs, noted that there was no evidence of a systemic problem
with Horizon.’ This has also been the Post Office's conclusion on the information so far
available to it. We note that there is, so far as we understand it, no in-deptt-and-objective
Report which describes and addresses the use and reliability of Horizon. We do think
such a report would be helpful, though there is a decision to de about how broad
ugh it needs to be. Fh "i ich. m1 J
is. somodied as-soon.as-possible.
AIMS AND OBJECTIVES
2 were initially inst Fhie Reeport with the aims of te-addressing the
following key issues:
24.1 Whether and to what extent the Post Office has any legal liability with respect to
complaints made by applicants to the Scheme (“Applicants”)
24.2 The nature and extent of the risks arising from and associated with the Scheme in
its current form.
24.3 Whether and to what extent the Scheme, as currently structured, can be sensibly
modified in order to improve the efficiency and effectiveness of its operation, and
mitigate any of the risks identified above.
24.4 The nature of any dispute resolution (or similar) mechanisms that could be
established either in order to replace the Scheme or augment its operation. In
particular, whether adjudication, arbitration and the use of ombudsman services
might be more appropriate than the Scheme.
24.5 Inthe event that a decision is made by the Board to discontinue the Scheme , what
steps the Post Office could take to minimise any existing legal risks.
This PartA of-our Report covers introductory matters and the legal issues identified in
paragraph 2.1.1 above only. Once the Board has beén able to consider the legal issues
Hansard, 9 July 2013.
18178952401) 0404/20 Mar 20140 Mae 20d 10 Mar 2034.
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‘Commented [CA2}: Would suggest that the language be
softened
Js one which we suggest the post office consider
I think that you should also make it clear here that
what you are suggesting is not an in depth drains up audit.
Commented [CA3]: I think that it would be better to say that
the original instructions asked you to prepare a report aimed at
‘addressing the folowing, The reason for this is thatthe feeling
‘around the Board table now is thatthe bit of work aimed at
‘coming up with solutions should be driven by executive, with
input ffor Linklaters, not the other way around, It may
therefore be poltic to state in para 2.2 that you anticipate
‘awaiting the Board's view on this report before assessing with
Executive how best fo provide assistance with respect to items
2.1.3 to 2.15, or some such thing
Gutlined in this Report We should be happy to assess, in conjunction with the Post Office
Execitive, how best we can assis! the Post Office in addressing the issues in paragraphs
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‘You will need to re-work this in ight of
23 ideting_this-Report_and_teachi f 4
Id take-with 4-10-the future_of the Scheme,the Board will
wish have regard to, and come to a view on, the following matters, in light of the
conclusions reached in this Report in order to guide the Post Office's consideration of the
issues in paragraphs 2.1.2 to 2.1.5 above:
234 Does the Post Office wish to consider paying compensation by reference to
principles other than legal entitlement? If so, how will it articulate and apply those
principles? How will it justify its position to all SPMRs (Applicants and those who
have not complained) and to stakeholders?
232 Does the Post Office wish to establish a full baseline audit of the functioning of the
Horizon system?
23.3 How important is it to the Post Office to determine the facts of each individual
claim? In any claim is the Post Office's stance to be more conciliatory than
adversarial? What are the limits of this approach?
234 How and to what extent will the Post Office wish to strike a balance between
resolving past issues and putting the future operation of Horizon and the
relationships with SPMRs on a sound footing?
23.5 How and to what extent will the Post Office wish to strike a balance between the
matters above and achieving a satisfactory political outcome, including with regard
to what has been said in Parliament about the Scheme and Horizon?
2.4 in accordance with our instructions, this Report addresses the issues as a matter of law,
only. We fully appreciate that many of the issues will have political and public relations
implications for the Post Office or may have such implications in the future. We can
certainly, in due course, offer our views as to where such issues may arise in the context of,
the matters outlined in paragraphs 2.1.2 to 2.1.5 above, Some measure of political
engagement will doubtless be called for. It is a decision for the Board what measure of
ctiticism or public relations damage it could and should tolerate ~ this is a factor which
applies whether the Post Office decides to compensate SPMRs otherwise than in
accordance with their legal entitlements or_declines to pay such compensation and thereby
doubtiess frustrates their expectations. The Board may decide that itis sensible to engage
specialist public relations advice to quide the management of this issue,
2A i the Dial Sch tilomont Policy states that the-objectives-of the Sch
"41789524070 4040-40120 Mar
[cna
my comment 3 above.
[CAS]: I don't think that this isan aim or
‘objective ofthis report, but itis good stuff and should be
“incorporated somewhere.
hat the Rost Office's dofensibl
3 BASIS OF THIS REPORT
34—The issues in this Report are discussed primarily from the perspective of the legal rights
and obligations of the parties involved. te-that ithe raat ma
b tical_and_publictolati licationsfor_the-Post-Off bs bh
hi ed_poseible-solutions for-dealing-with thom_wh ‘
butoth hi t provided _anydefint ahi f political
ongagementwill doublless_be called for_itis a decision forthe Board whal-maasure-of
doublless-frust The Board. may decide-thatit io
list public relations advice to.guide.th. tof th
3.23.1_In preparing this Report we have assumed that
324344 the 10 spot reviews and 4 cases with which we have been provided are
indicative of all the types of complaint that have been accepted into the Scheme ~
we have not seen any other cases;
3223.12 all legal issues are governed by English law; and
3.233.13 we have been provided with all relevant Reported decisions. There has
been prior litigation on issues directly relevant to those raised in this Report.
Whether or not si itis-strictly binding (and some may be) they ar
itis-lkely to be persuasive.
3.33.2_Our observations and conclusions are limited by the following:
3343.24 we have only reviewed certain documents prepared by or on behalf of
Second Sight, the Working Group or SPMRs or the JFSA and have otherwise had
no contact with any of those parties;
3323.22 we have had no contact with Fujitsu, the company which designed,
provided and supports the Horizon system;
3333.23 we are not in a position to test the facts of any of the claims; and
including amely-PI
Bh3.2.4 we have been asked not to consider certain matters,
and D&O insurance.
3.43.3 We reference throughout this Report where appropriate the documents from which we
have derived facts forming the basis of our views. All other facts referred to herein are
based on discussions we have had with the Post Office Scheme project team. We would
welcome any comments on facts or background we have stated in this Report which
appear to be inaccurate or incomplete. They could affect the views and conclusions we
have reached
"41789524070 4040-40120 Mar
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4 EXECUTIVE SUMMARY
4.1___We set out in this executive summary our key conclusions on the legal analysis of the
complaints made by SPMRs about Horizon,
4.2 The relationship between SPMRs and the Post Office is govemed by the standard form
contract which, according to its terms. allows the Post Office to recover losses and is
terminable on three months’ notice without the need to specify a reason. The relationship.
between the SPMRs and the Post Office_is one of principal and agent and the SPMRs are
not employees. There is no broader duty of care which would extend the contractual
duties owed by the Post Office in any respect relevant to the issues in this Report
4.3 The key factual issue is whether and to what extent Horizon might be said to be reliable,
what defects there may be in itand how any such defects might manifest themselves and
translate into errors in the state of the account between an individual SPMR and the Post
Office. Such relevant legal risks as exist arise only in the event that there are provable
malfunctions in the Horizon system which are causative of losses on the part of the SPMR.
4.4 Absent such proof that Horizon is not working as it should, the Post Office should be able
to recover losses which the Horizon records indicate are owing on an individual SPMR's
account, Ifthe Post Office is entitled to recover losses, then there can be no question of a
consequential joss claim on the part of the SPMR relating to their recovery (for example for
damage to the SPMR’s business or for stress).
4.5 fin an individual case, a SPMR is able to show that the account between him and the Post
Office, as evidenced by Horizon, is inaccurate, he has a claim to the recovery of an)
losses he has mistakenly paid. This would not carry with it a right to claim consequential
losses.
4.6 There may be cases in which the Post Office has given inadequate_notice of termination of,
the contract with an SPMR (for example, terminating him summarily without justification)
In those cases, the SPMR is entitled to payment of what he has_lost in netincome over the
period — up to three months. He may also, on the facts, have a consequential loss claim if
he argues and establishes that he has lost a chance to sell his business _as_a goin:
concern in the period for which he should have been entitled to notice.
4.7 Some SPMRs allege that the Post Office has offered them inadequate training and
support, We do not think that these claims, even if established, affect the Post Office's
ability to recover losses evidenced by the accounts shown on Horizon.
4.8 In summary, we think that, absent proof that Horizon is malfunctioning (either generally of
in the specific case) the Post Office has a right to recover losses from SPMRs, the SPMRs
have no right to compensation for such losses and the circumstances in which there will be
a consequential loss claim are limited to those in which inadequate notice of termination
was given, will depend on their facts and should be limited.
4.9 We set out below the legal analysis which supports these conclusions.
44—
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‘Commented [CAG]: I think that you need to add here that, at
{general level, one of the implications of your analysis is tha,
‘save in very limited cases, itis difficult to see how the Post
Office would be held liable for consequential losses suffered by
‘a post master. Something along the ines of 5.67 There can
be no question of a claim for consequential losses based
simply on the recovery by the Post Office of losses if the losses
_were property payable and the Post Office was entitled to the
money.
‘You also need a sentence or 2 setting out the flavour of the
your analysis and what it means with respect to the cases that,
you have seen, or the claims that you are aware of. You have
{0 read @ long way into the report to get any reassurance! I
‘think that you should also sing post the fact that what the
audience is about to read is by its nature fairy technical and
dry.
19178952401) 4040-40120 Mar 20140 Mae 200A 10 Mar 2014.
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43
" aint co-made-that PMRe-have cutfarad_emotional dict
a-tesult of their dealings withthe Rost Office.
Loss-recovery
4,4 —The Rost orn fart “Jossee"from SPMRe—Th is indicated-by
to-bo-t}ih ich Jated-and_2}-the Rost Office: ont
to-ctaienthomn
4,5 —SPMR: bliged-under-th Haw-and-the he Rost Off
i" tho-only systom_used-by SPMR and that SPMR:
th -by-onit de into-H Ibelagroed. ontiles-the Rost Oficate — —-[e ICA7]: I think that you need to spel out for the
" f dof. {s-owed,unlese_the SPM. is lay reader how important a point his is.
accountby showing that he.was-mistaken-
4,6——rhe -could-only_be. it ‘ tered sly -by_mistak
Hk sore ficular_malfunction-which-causod-th The-tatt
rant thot th 4-ronderthe SPMRtiablot entionat
4. \d-Sight-he td . Jigat Hi The-logical_and
b tart {forth k-would-have- ithout-rof 4 tick
a bust-ovid " I doubt_on-their abil “te [CAB]: Casts? }
fois bate conclusions trom Commented [CA9}: For
4.844 /-oR-the-bacie-of the-work-that-they-have-doner \d-Sight-have-accepted-th:
selpeoritis
49. hea i m 4 da SPMRwoukt need
Logalontitlemont te seskloss recovery.
440_—thet fwhat web: to-bo-on_th rich
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44
et
443. derstand that the Rost Off Pt nother to-recover—toi
Jy-as_whare_the Post Oifice_bs " tod
1 SPMRe—The Post Of a 4 f th f
tothe SPMRis-ortor,
444—We- think that th acest! SEN
losses _- I Commented [CA10}: Again I think that you need to spell out. I
wit his means forthe benefit ofthe lay reader. I
Compensatory claime
445 —The-k ‘i Jaint_which-seeks-" tion’ ie-thie:-did-th
4436 as-yet a P he Rost-Ollice-t:
boven the PME will have-th
rs
B
den of establishing that the allegati 1d-the
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stors_be. PMR-could-only ch ial osses_it-th breach-of
4,20—Tothe-extent th breach-of contract, ly nod: ded-for hurt
fe tal-diste it such bly bl
4,24
canbe .ad-or-the-Rost Off -ontitlied.t 4 The SPMR
t Thi fack-onciti " 4£-the-ck m
nether before-or ds .dings}-he-will tose the sight Sitti a
Termination of contracts.
4,22 The Post-Offk titled-under_the tract to-t to it-on_th ths! not
would have received. during the notice period
4,231 fnore-the Post Office-4 i n tb, lida) put_the facts d
justify ion the SPEMB may. he they hs
m a uch-ac-a-loce- ite af-th ot oo-remote.—The- ahora uae.
tonoss’-of the. tested by rok to-the-knowledge-of the-parties-at thet cs
{-the-contract_and_whether thet “of the_kind?that_thi bi dh:
templated. ove, the-k " .d-by-the-delendant’s_braach_So_t
4,24 The Post-Oii y-obliged-t ” date orth tract
Inat-th " 4-defined.But-as the SPMR ie stil ible-for-the-d
ided-to-hi tants_of their failure to-put-the-t to-effectThe: 1s0-bs
ted [CA11]: I think that you need to make it clear
‘that he ths situation is distint from one in which there isa.
called precautionary suspension, which is the mechanism that
4.2
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tt PMRs_but not to-oth ikoth tion-of Hi iself-which
PMB:
4 Ld. ted id n to-all A
dificult to. s6tabish.in-any-particular case
5A
5.2
5.3
54
WHETHER AND TO WHAT EXTENT THE POST OFFICE HAS ANY LEGAL
LIABILITY WITH RESPECT TO COMPLAINTS MADE BY APPLICANTS
Duties owed by the Post Office to SPMRs and duties owed by SPMRs to the Post
Office
Itis helpful to start this section with an overview of the legal relationship between the Post
Office and the SPMRs. That, self evidently, provides the foundation for the issues
identified in the various complaints made by SPMRs.
Contract
There is a Contract which we are told is in standard form and which all SPMRs are
required to sign. We have a copy described as the 1994 issue of the standard contract
with SPMRs, amended to include all contract variations issued since 1994, although the
document was never issued in this form to SPMRs.
We understand that certain SPMRs dispute whether they signed a contract at all and there
may, in individual cases, be debate about which variations were received and/or are
effective. This would be an issue which would need to be resolved in any particular claim.
We have assumed in this Report that the contractual terms which apply are those in the
version of the document which we have received.
Under the Contract, the Post Office owes duties to the SPMRs and in principle breach of
any of those duties could found a claim. That claim would only be valuable, in the sense of
entitling the SPMR to damages, if the breach could be shown to be causative of loss on
the part of the SPMR. We highlight relevant terms of the Contract as appropriate below.
‘A1789524010 100A
that “in theory.
[CA42}; isnt this better expressed by saying
5.5
5.6
5.7
58
5.9
5.10
Agency
Clause 1 of the Contract provides that:
“The contract is a contract for services and consequently the SPMR is an agent
and not an employee of Post Office Ltd.”
This is important as the agency relationship gives rise to specific duties on the part of the
‘SPMR which are detailed further below (see paragraph s 5.25 and 5.45 below).
Non-employment
The SPMRs are not employees of the Post Office. This is critical as it means that there
are certain legal protections, both statutory and at common law, to which SPMRs are not
entitled. Not only is this clear from Clause 1 of the Contract it was also established in
Commissioners of Inland Revenue v Post Office Limited? and we note that in later cases,
for example Moeze Lalji v Post Office Limited,? the position seems to have been accepted
and the contrary not argued.
No relevant duty of care
Where the parties are in a contractual relationship, that is the starting point for determining
their duties where the conduct in question is covered by terms of the Contract. So if the
conduct relied on for the claim is conduct covered by the Contract, the contract should
determine the extent of the parties’ rights and liabilities. That is not to say that there may
not be an implied (or even an express) term to the effect that the party rendering the
performance should do so with reasonable skill, care and diligence. Where the party in
breach can be said to have performed his contractual duty negligently then the party
suffering the loss can claim in either tort (negligence) or contract. But this does not mean
that he can rely on a duty of care in negligence to extend the duties owed under the
contract.
Ifthe SPMRs wished to allege that the Post Office owed them a broader duty, not covered
by the Contract, then they would need to allege and establish that the Post Office owed
them a duty of care. On the usual principles, this would depend on an assumption of
responsibility by the Post Office in the relevant respects. The existence of the Contract
does not preclude there being a duty of care, but for matters covered by the Contract, the
Court should not find that one party assumed a responsibility which would extend the
duties he owed beyond the Contract.
What the SPMR cannot do is to extend the duties of the Post Office by claiming some ill.
defined and over-arching duty of care covering all aspects of the relationship between the
Post Office and the SPMR, as this would interfere with the allocation of risks under the
Contract.
In the respects which are relevant for the purposes of this Report we do not consider that
the SPMR will be able to establish a duty of care and we think that the relevant obligations
will be defined by, and limited to, the Contract.
Nature of the complaints made
® (2003) 1OR 546.
* 2007] EWHC 5 (a8),
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5.14
512
5.13
5.14
5.15
We have reviewed the 10 spot reviews and the 4 case Reports conducted by Second Sight
that have been provided to us. While they represent only a small sample of the 137
Applications which we understand are still currently in the Scheme , we assume that for the
purposes of this Report, they are representative of all the complaints accepted into the
‘Scheme.
The spot reviews and case Reports generally show that SPMRs’ complaints range from
substantial monetary claims to a general dissatisfaction with their relationship with the Post
Office as a result of their experiences with Horizon and several other or related complaints,
somewhere in between (some SPMRs have several of these issues). In particular, we
have seen complaints made about:
5.121 wrongful “loss recoveries” in respect of amounts reported by Horizon as due to the
Post Office, including in some cases, various categories of alleged consequential
losses, in one case, following the determination of the relevant loss recovery
action against the Applicant in Court and in another, after a SPMR had been
suspended and lost access to Horizon;
5122 Horizon-related customer payment malfunctions or lost cheques and transaction
corrections resulting in the loss of limited sums (in some cases, under £100);
5423 unauthorised foreign exchange transactions being entered into the Horizon system
without a SPMR’s knowledge, but without any specific al legation of loss incurred by
the SPMR as a result;
5.12.4 printing of excess receipts in respect of a 67p postage transaction;
5.42.5 an inability of Horizon properly to account for GIRO payments and SPMRs having
to trust the Post Office about transaction corrections;
5.2.6 criminal charges: in circumstances where the SPMR has been subject to criminal
allegations of false accounting but where they say the false accounting arises from
cheques being lost in the mail or where they have retracted an admission made
under caution to the criminal conduct;
5.12.7 wrongful termination of SPMRs' contracts;
5128 inadequate training given to SPMRs by the Post office in respect of Horizon; and
5.429 inadequate telephone or other day-to-day support services provided by the Post
Office to SPMRs.
We have not, nor are we in a position to, investigate the facts of these complaints. They
would have to be seen on a case by case basis. Our comments below are based on
principles of general application, but the result they produce in any one case will depend
on the particular facts. Horizon is a particular issue in this respect and deserves comment
of its own (see paragraphs 5.20ff below).
‘Some of the complaints made are no more than observations on, and frustrations with, the
operation of Horizon. They have not been translated from facts into allegations that a
contractual duty has been breached and are not articulated as legal claims.
Generally, the complaints fall into a number of categories:
We understand that while the spot reviews themselves were conducted prior to the establishment of the Scheme, all of
the complaints the subject ofthe spot reviews were subsequently accepted into the Scheme.
"AATBO52401 OAD AaIOO Mar DOO Mae DOTA TO Mar aoa
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5.15.1 wrongful recoveries of “loss” from SPMRs by the Post Office and consequential
loses arising therefrom;
5.15.2 _ wrongful terminations of the Contract and consequential losses arising therefrom ;
5.15.3 inadequate training and support leading to losses, both direct and consequential.
The reference to consequential losses covers variously lost earings (beyond a three
month period), damage to other business interests, damage to reputation, stress and ill
health.
5.16 We turn to considering each group of claims.
Wrongful loss recovery
5.17 The Post Office regularly recovers “losses” from SPMRs. This happens by one of four
methods:
5474 The SPMR notices that there is a loss shown in his statement of account and
makes good that loss without a formal request from the Post Office;
5.7.2 The Post Office requests that the SPMR makes good a loss and the SPMR pays in
response to that demand;
57.3 The Post Office, after an investigation process which envisages the participation of
the SPMR, holds back money from the next payment due to the SPMR to cover a
loss which has arisen; or
5.47.4 The Post Office takes civil proceedings for the recovery of a loss and is successful.
5.18 We note that the Post Office recovers losses through any and all of the above methods on
a regular basis. The vast majority of SPMRs accept not only the Post Office's legal right to
recover such losses, but also the way in which they are calculated through Horizon. The
decisions made by the Board now as to the circumstances in which such losses will be
“repaid” or reversed will potentially affect not only those SPMRs who have brought
complaints to date but also all those SPMRs who have paid losses without complaint.
5.19 There are two main issues in the recovery of losses:
5.19.1 the way in which losses are calculated; and
549.2 the Post Office's legal entitlement to seek those losses from a SPMR.
The way in which losses are calculated
5.20 It is this question which has given rise to the dispute between aggrieved SPMRs and the
Post Office. It focuses on the operation of Horizon.
5.21 We do not know what was said to SPMRs at the time of Horizon’s introduction in 2000 as
to its purpose and status. Nevertheless, it seems to be accepted by all involved that
Horizon produces and maintains the accounts on which all parties rely
5.22 The SPMR is, day to day, responsible for inputting transactions to the Horizon system. It
provides a record not only of what the SPMR has received from the Post Office by way of
stock but also what he has sold, and the cash he has received. Horizon is the only system
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5.23
5.24
5.25
5.26
5.27
5.28
used to record transactions; no other relevant records exist. We understand thatI during,
the leme, at least once a month and potentially
as often as at the end of every week, a SPMR iwas obliged to prepare and sign a
document entitled “Cash Account (Final)" and send it to the Post Office or complete ai
equivalent process by confirming via_an electronic system the cash that hi
vetiod covered by the complaints to the
mount o
will_also conducted a manual hand count of cash and stock in the branch and compare
them to the levels recorded in Horizon.
ds. (Post Office, pl Se os
Our understanding of the operation of the Horizon system is far from complete but we note
that it is likely that it is only certain transactions which the SPMR carries out which are
capable of leading to “losses.” It would be helpful to understand more about the way in
Which the statement of account shows the losses. Is it, for example, clear which relate to
transactions with or for the benefit of other companies and organisations, for example the
DVLA or the DHSS? This may be important when it comes to considering what “caused”
the losses in an individual case.
Section 12, paragraph 4 of the Contract provides:
“The Subpostmaster must ensure that accounts of all stock and cash entrusted to
him by Post Office Ltd are kept in the form prescribed by Post Office Lid. He must
immediately produce these accounts, and the whole of his Post Office branch cash
and stock for inspection whenever so requested by a person duly authorised by
Post Office Ltd.”
This duty to keep an account also arises under the general law by virtue of the
principal/agent relationship. An agent is required to keep an accurate account of all
transactions entered into within the scope of his agency and he has to be ready to produce
that account at any time to his principal. If he fails to keep and produce accounts then the
principal is entitled to assume everything against him. °
SPMRs are asked to agree accounts regularly. We understand that they signify their
agreement by an appropriate entry on Horizon. If a SPMR disputes the state of his
account, he is free not to agree that account on Horizon.
‘An agent is usually held bound by his own accounts save if he can show that he made a
mistake. Once an account is agreed, the principal can sue on it. We think that there is a
good argument that at law, once the SPMR signifies his agreement to an account on
Horizon which shows a balance due to the Post Office, the Post Office can sue on this as
an account stated. This appears to be the basis of the decision in the Castleton case. The
principle of an account stated also applies where debts are owed in both directions. So,
once Horizon has set amounts owed by the Post Office to the SPMR (if any) against
amounts owed by the SPMR to Post Office in Horizon and the SPMR signifies his
agreement to them, the accounts are settled. Generally, settled accounts will not be re-
opened, unless drawn up under a mistake or the agent is guilty of fraud. ©
Horizon is an electronic point of sale IT system used in Post Office branches. It tracks
transactions and also records levels of cash and stock. We are told, and can readily
appreciate, that Horizon is a complex double entry accounting system, made the more
* See Bowstead & Reynolds on Agency, 19" Edition, Article 60, paragraph 6-092
Ibid, paragraph 6-097 and 6-098
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‘Commented [CA13}: During the period covered by the
I compliants
+The SPMR____/ Commented [CA14]:
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Dr to perform the equivalent act by
‘confirming via an electronic system the amount of cash that he
holds
5.29
5.30
5.34
5.32
5.33
complicated because of the range of products and services which the Post Office sells. It
also connects to other systems for particular services, for example, banking.
Suffice it to say for present purposes that itis possible that Horizon will, at the end of every
day and therefore week, show either a shortfall or a surplus. There are two ways in which
Horizon could present an inaccurate picture of the “true” state of account between SPMRs
and the Post Office. Either the SPMR could have keyed in transactions incorrectly, or
there could be some malfunction with Horizon itself. User error is a risk with any system.
The Contract would entitle the Post Office to recover in any case where there was user
error on the part of the SPMR and this would be the result even if it could be said ~ as
some SPMRs have - that Horizon is confusing or that its user-friendliness could generally
be improved.
Itis the reliability of the Horizon system as a matter of principle which is important. If there
are doubts about the reliability of the system then this could obviously impact on the Post
Office's ability to claim losses since it calls into question whether such losses exist at all
This is the fundamental question and one which has not yet been satisfactorily addressed.
Second Sight have not done what we would have expected them to do in terms of an
investigation into Horizon. The logical and obvious start for their work would have been a
thorough review and description of how Horizon is supposed to work, its day to day use by
the SPMRs and an in principle identification of any weaknesses and likely points of
matfunction. This should be done without reference to the facts of any particular case and
must be done in conjunction both with the Post Office and Fujitsu. Second Sight should
have produced a report which clearly and objectively sets out what is known about Horizon
ata level of detail which can then be used as a baseline in any individual case where the
‘complaint is that Horizon was not working properly.
derstand that Second Sight are due to produce a generic report wi
themes and the types of loss that they have identified from the Applications
and deser
tt
yetavailable whether Such athis report would not it full the objectives we here describe.-
but a Lnould_have-bson-done-frst—Inctead,-w_ Nor does
C I [CA15}: We believe thal this report will focus on
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the workhat Second Sight -seem to have done so far fulfil those objectives either The
have is4e descended into the detail of individual cases and commented on the particular
issues of which complaint is made. They hav do so without reference to any robust
evidence as to how and why there may have been malfunctions with Horizon or how any
such maffunctions could have caused the losses in the particular case. The views which
‘Second Sight have expressed in individual cases are not supported by the sort of detail or
evidence which would enable any conclusions to be safely drawn from them. There may
be a question as to whether Second Sight have the expertise which would allow them to do
the work required to a satisfactory standard,
We would, further, have expected Second Sight to have discussed its work in progress
with the Working Group. Drafts should be available and the parties should have an
opportunity to comment. Second Sight seem to have a good working relationship with the
JFSAT but this does not seem to be replicated so far as the Post Office is concemed.
‘These factors further illustrate the idiosyncratic nature of Second Sight's approach
‘See, for example, paragraph 4.1 ofthe Second Sight Interim Report of July 2013,
‘AA78952407) JOD DO Mar DOT ao Mae OIA TO Mar 203
13
describing the various themes (or heads of loss) that they have
‘dentifed from the applications that been submited to the
‘Scheme. As such itis not a description of the system —
accordingly, you need to re-word this sentence slightly as you
‘seem to be implying that they should have done this first,
‘whereas I think you are saying that they should have done a
feport describing the system first,
5.34
5.35
5.36
5.37
5.38
5.39
Even without the baseline report which Second Sight should have produced, it seems to be
accepted generally that there are no systemic weaknesses in the Horizon system. This
much has been made plain by:
5.341 the Post Office. Anne Chambers, a Fujitsu system specialist, gave evidence in the
Castleton case to the effect that there was no evidence whatsoever of any
problems with the system. We understand that a Dr Gareth Jenkins of Fujitsu
provided expert reports for the Post Office in several criminal cases. These reports
dealt with the Horizon system. He gave oral evidence in only one case (that of
‘Seema Misra). That case resulted in a conviction. In all other cases the fact that he
was not required to give oral evidence strongly suggests to us that there was no
substantive challenge to his evidence.
5.34.2 Parliament;® and
5.34.3 Second Sight. Its Interim Report of July 2013 concluded: * We have so far found no
evidence of system wide (systemic) problems with the Horizon software ".®
We find it surprising that, against such a conclusion as to Horizon’s general reliability,
‘Second Sight find it possible to make comments in individual cases that itis likely that it is
a difficulty with Horizon which has led to the losses. The reasons for such a view are not
explained nor is there any general evidence on which to draw which could provide further
illumination.
Audits are carried out by the Post Office on a regular basis and we assume that these are
considered in determining whether Horizon shows an accurate state of account. Given the
lack of any sensible information about the operation of Horizon we are unable to comment
as to the likelihood that in a particular case the conclusion could or should be reached that
it was problems with Horizon which caused the account of a particular SPMR to show a
loss.
There is an important question in this regard: who bears the burden of showing that in a
particular case, Horizon did not accurately reflect the state of the account between the
SPMR and the Post Office? The SPMR will have regularly signified his agreement to an
account — i.e. by signing the “Cash Account (Final) at the end of each week (RGwAuOWies
{@22GHRAA - which confirms the existence and extent of losses and the Post Office is able
to rely on this as a settled account.
In Castieton the Post Office relied on authority to the effect that an agent (the SPMR) who
produces accounts for his principal which contain statements that money has been
received is bound by those accounts unless he can show that the statements in the
accounts were made unintentionally and by mistake.
The question, therefore, is how would a SPMR show that there had been a mistake and
what sort of evidence would be required before he would be allowed to reopen a settled
account? The SPMR would need to adduce evidence which when tested and compared
against the account in Horizon, showed that he had unintentionally made an error inputting
information into Horizon (although even in that case, the terms of the Contract would not
absolve the SPMR, as we explain below) or that as a matter of arithmetic or logic, the
© See nt
* See paragraph 8.2(a).
"© Shaw v Picton (1825) 4 B&C 715: Camilo Tank Steamship Co Limited v Alexandria Engineering Works (1921) Times
LR 134
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5.40
5.44
5.42
5.43
5.44
5.45
5.46
account stated by Horizon could not possibly be correct. In other words, he would need to
do what the SPMR tried but failed to do in Castleton.
The Post Office's legal entitlement to seek losses from a SPMR
In everything we have seen, no point appears to have been taken as to the Post Office's
right, as a matter of principle, to recover losses from the SPMR. Alll the debate seems to
focus on the way in which the losses are calculated. Nonetheless, it is important to
determine the legal foundation for the Post Office's claim to losses.
Section 12, paragraph 12 of the Contract is headed Losses. It provides:
“The Subpostmaster is responsible for all losses caused through his own
negligence, carelessness of error, and also for losses of all kinds caused by his
Assistants. Deficiencies due to such losses must be made good without delay .”
Paragraph 13 makes it clear that this obligation does not cease on the SPMR relinquishing
his appointment and extends to losses which come to light after he leaves.
Section 12, paragraph 17 is also relevant here. It provides under the heading “Relief’
“Counter losses: A Subpostmaster may exceptionally not be required to make
good the full amount of certain losses at his office. If he feels entitled to relief in
making good a loss he should apply to Post Office Ltd.”
This paragraph contemplates that the circumstances in which a SPMR will not be required
to make good a loss will be “exceptional” although clearly this issue only arises if the
‘SPM is liable for the loss in the first place.
The wording of paragraph 12 is curious. It makes a SPMR responsible for losses caused
by his “negligence, carelessness or error’ but makes him strictly responsible, with no such
qualification, for all losses caused by his Assistants. We do not know what the thinking was
behind this distinction.
In any event, the fact that the SPMR must be in “error” is a low threshold and implies no
mental element: the SPMR can be mistaken without being careless and without there
being any question of dishonesty on his part. Taken at face value, however, and where the
loss is caused by the SPMR rather than his assistant, the SPMR would not, under
paragraph 12 be automatically responsible for all losses if it could not be shown that he
was at least in error.
There is another basis for the recovery of losses which requires attention. As noted, the
SPMRs are agents of the Post Office. The characterisation of the relationship as that of
principal and agent gives rise to a number of duties as a matter of law, though where, as
here, there is also a Contract, they have to be seen in the context of what the parties have
thereby expressly agreed.
The agent is required to account in equity to his principal."" This is effectively a procedure
which enables the financial position as between the principal and agent to be determined.
It does not of itself entitle the principal to claim any shortfall. In order to claim whatever
losses are highlighted by the taking of the account, the principal has to establish his right to
them. For example, this may be through breach of contract or the common law duty of an
agent who holds money for his principal to pay over or account for that money at the
" Bowstead & Reynolds on Agency, 19" Edition, Article 51, paragraph 6-084.
AATBO52401 OAD AaIOO Mar DOO Mae BOTA TO Mar Dota
15
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5.47
5.48
5.49
5.50
5.51
request of his principal.” Moreover, where the agent cannot satisfactorily explain what has
happened to the principal's property or money, presumptions may be made against him
which will lead to substantive liabilities such as those mentioned above.
We understand that the Post Office does exercise discretion as to the recovery of losses
where circumstances make that a reasonable reaction. For example, we were told that if
there is a “scam” which is recognised to be popular the Post Office will take steps to warn
SPMRs, it will issue a procedure giving guidance as to how the scam can be combatted
and will not recover losses due to the scam for such period as it is reasonable to expect
the SPMRs to be familiarising themselves with the procedure. Only once it is reasonable
to think that SPMRs should be able to protect themselves from the scam will the Post
Office recover losses due to it. We include this point not because it impacts on the legal
liability to repay losses per se but because such a practice would narrow very
considerably, or remove completely, the scope for argument as to whether a SPMR was
negligent, careless of in error in relation to any losses shown to exist
In summary, we think that there is a sound contractual basis for the recovery of losses,
which is supported or in any event, supplemented, by the general law governing an agent's
duties to his principal.
Claims for “compensation” for the recovery of losses by the Post Office from
‘SPMRs
Whilst the issue in the complaints is sometimes referred to in terms of “compensation” , this
is not an accurate expression for the particular claim insofar as it relates to losses. The
question is: in the particular case, did the Post Office have the right to recover losses? If
the Post Office did, then there is no question of the SPMR being entitled to
“compensation.” If the Post Office d id not, then again no question of compensation arises:
the Post Office is simply unable to claim the money and if it has been paid, the SPMR has
a right to recover it. This is a restitutionary, not a compensatory, claim
In practical terms, the issue is cases in which the Post Office has, in fact, claimed and
been paid the losses and the SPMR is now disputing its entitlement to do so and seeking
to “reverse” that payment. It is important to distinguish three groups of cases:
50.1 those in which the Post Office has secured a conviction for theft and the SPMR is
now seeking to claim back the losses on which that conviction was based;
5.50.2 those in which the Post Office has secured a civil judgment for the recovery of the
losses; and
5.50.3 those in which there has been payment of the losses (or potentially a claim on the
part of the Post Office which has not yet been satisfied but from which the SPMR.
now seeks relief) but the Post Office's entitlement has not been determined by the
civil or criminal Courts.
The Scheme is only apt to deal with cases in the third group. _ [tis worth noting at this point
ection 2 Of the Diatl Scheie Settiement Policy states thal thé objectives of the
that
neers.
"Ibid paragraph 6-099.
"Ibid paragraph 6-096.
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‘Commented [CA16}: I don't think that this is an aim or
‘objective ofthis report, but itis good stuff and should be
incorporated somewhere.
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551.5 demonstrate that the Post Office is being transparent; and
5 ensure that the Post Office's sible.
Cases in which there is a criminal conviction
5545.52 A criminal conviction does not of itself entitle the Post Office to claim the losses
from the SPMR but where the SPMR has been so convicted itis clear that the Post Office
would be entitled to recover the losses on which the conviction is based as a matter of the
civil law, or through ancillary orders made in the criminal proceedings .
5.525.53__The two offences with which SPMRs are most often charged are theft and false
accounting, both of which are offences of dishonesty. If the conviction followed a guilty
plea, the SPMR can be properly taken to have made an unequivocal admission as to all
the elements of the offence, since the criminal law of England and Wales does not
recognise “pleas of convenience”. If the SPMR pleaded not guilty, the high standard of
proof in criminal proceedings means that itis likely to be appropriate for the Post Office to
rely on it in other contexts. In cases involving allegations of theft or false accounting, a
conviction necessarily involves a finding that the SPMR acted dishonestly, this being a
critical element of those offences. In such cases, there could be no strict liability basis for
either a guilty plea or a finding of guilt. Moreover, SPMRs facing such allegations would in
general have been eligible for legal aid under representation orders (if they could not fund
legal representation themselves). It may safely be assumed, therefore, that in general they
were legally advised and represented, or had the opportunity to be so.
5,535.54 __If the SPMR has been convicted of a relevant offence the only basis as a matter of,
law on which the Post Office should entertain a claim for the repayment of sums claimed
from the SPMR is if it were to conclude that there were doubts about the evidence on
which the conviction was based. However, if the Post Office did so conclude, the situation
would be much more complex than simply dealing with certain individual claims for
“compensation.”
5,545.55 ___The Post Office in its capacity as a prosecutor has duties of disclosure which
extend beyond the date of conviction in any particular case. In R v Belmarsh Magistrates
Court (Ex p Watts),"* it was observed that private prosecutors are subject to the same
obligations to act as ministers of justice as the public prosecuting authorities. Any material
in the possession of the Post Office which might cast doubt on the safety of any particular
conviction ought therefore to be disclosed to the convicted party. The “Settlement
Principles” in the Draft Settlement Policy of December 2013 state
“5.6 Settlements involving convicted Applicants should only be offered where
there is clear evidence of a miscarriage of justice.”
This is consistent with the above analysis.
Cases in which there is a civil judgment
[1999] 2 Cr App R 188,
‘AA78952407) LOAD Aa DO Mar DOT OMe OIA TO Mar 203d.
7
5,555.56 __If the Post Office has obtained a civil judgment against the SPMR, the Post Office's
entitlement is clear and established. The SPMR will have had an opportunity to dispute
the claim and an opportunity to appeal the decision should he have been unhappy with it at
the time. Indeed, as a matter of law he is prevented from seeking to re-open any issue
covered in the prior claim: it is now res judicata. This means that the SPMR could not
bring a civil claim seeking to reopen the issues covered by the judgment. In certain
circumstances, however, he could seek to reopen the issues by seeking permission to
appeal the civil judgment after the period within which he is ordinarily only entitled to do so.
The appeal Court has a discretion whether to allow such a late appeal and will weigh
various factors including the interests of the administration of justice, whether the failure to
appeal in time was intentional and whether there is a good explanation for it. A SPMR
who has had a civil judgment awarded against him would probably need to show a
substantial change of circumstances , such as leading new and material evidence about the
workings of Horizon, to have any chance of being given permission to appeal out of time.
5,565.57 __The considerations outlined above in relation to criminal convictions do not apply in
relation to civil litigation: in principle the Post Office could repay to a SPMR the sums
Which it received under the judgment andlor relieve the SPMR of any liability for the
judgment debt. But any decision to do so would be entirely voluntary and need careful
thought and clear rationalisation. fit could be interpreted as a recognition that Horizon is
in fact unreliable then there are obvious consequent complications both for further civil
litigation but more importantly in the criminal context (both retrospective and prospective)
as detailed above. It may also have political or public relations ramifications.
5,575.58 __The Scheme information memorandum states that Applicants “may put [their] case
through the Scheme even if the Courts have already given judgment against [them].”
Rejecting claims simply because there is a civil judgment covering the matter would seem
to run counter to this. We do not know the thinking behind including this wording in the
‘Scheme memorandum.
Cases in which the Post Office's entitlement is not yet established _by a Court
5,585.59 __If no Court has yet given a decision in relation to a SPMR, the Post Office has a
genuine decision to make as to whether or not to press claim s for losses or to repay those
already recouped
5,595.60 ___ Each case would have to be considered on its own facts and depend on what the
‘SPMR alleged about the reasons why the Post Office is not entitled to claim the losses.
So far as we can see from the cases considered to date, there are:
5,59.45,60.1__general allegations as to the unreliability of Horizon; and
5.59.25.60.2__specific allegations as to factors which may have affected Horizon in the
particular case.
5,605.61 __General allegations about Horizon do not, we think, help. It would be far more
satisfactory were there to be a reasoned Report as to why Horizon is thought to be working
properly (if that is the case) but even without that , a general claim that there are “problems
with Horizon” is not, we think, enough to cast doubt on the Post Office's claim for losses.
The Horizon system works satisfactorily for the vast majority of those who use it and
accounts will have been agreed, as noted above
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5,615.62 ___ Specific allegations as to Horizon’s malfunctions have also been made and to
some extent “investigated” by Second Sight. These have included or been said to be
caused by’
5.6445,62.1___ power cuts;
5.64,25.62
incompatible use of telephone lines with Horizon;
5.64.25.62.3__intermittent internet connectivity; and
5464.45.62.4 _ the ability to “centrally input” transactions and thus directly, and without a
‘SPMR's knowledge, adjust Horizon data sent by a SPMR.
5,625.63 __Second Sight have certainly expressed concern — and more — in relation to certain
of these supposed deficiencies in or effects of Horizon. But since they have singularly
failed to support their views with any reasoned explanations, stil less any clear evidence, it
is not possible to conclude that any of these allegations have merit. If brought before a civil
Court in this form the Court would have little difficulty in concluding that the case that
Horizon was at fault and resulted in losses being inaccurately recorded was not made out.
5,635.64 __There is a further point: not only would the SPMR have to establish that there was
a fault with Horizon or some external factor which would have affected its operation, it
would also have to be shown that those facts caused the “losses” which the SPMR is now
seeking relief from. Second Sight’s work, so far as we have access to it, is entirely silent
as to their reasoning on this point.
5,645.65 __If the Post Office concludes, in a particular case, that there are reasons for
doubting the record which Horizon has provided and on which the claim for losses is based
= in other words, where the Post Office concludes that there may be a mistake in the
account and there may therefore be a basis for re-opening it - the question arises of how
the SPMR’s claim for recovery would work. As a matter of common sense, if the Post
Office decides that in a particular case it has no entitlement to claim the losses, we
anticipate that the Post Office would simply refund the money/relieve the SPMR from the
liability without the need for any formal claim or proceeding. But the SPMR would have a
claim at law to recover the money and this is important since if the Post Office were
repaying/relieving in such a case it may well wish to be sure that it was doing so in
satisfaction of a legal obligation.
5.655.608 ___The Post Office's right to seek payment of the losses arises both under the
Contract and the general law because of the agency relationship. If the losses do not exist
= because the records produced by Horizon are not accurate, then there is no right on the
part of the Post Office to claim them. Absent express provision to the contrary, it is not a
breach of contract to claim money to which you are not entitled. Though it would be a
breach of contract to withhold payment from other monies due. So , the question whether a
loss recovery is also a breach of contract may turn on how the Post Office recouped the
loss. This matters since there may be a claim for consequential losses if there is a breach
of contract claim.
5,665.67 ___The SPMR would have the burden of showing not only that there were losses but
also that there was a causal link between the losses and the actions of the Post Office on
which he relies for his claim. Several cases we have seen suggest that there is at best a
tenuous link between the alleged failings of Horizon and the loss incurred (if any such link
is even alleged). For example, case M014 alleges that long running problems operating
Horizon which gave rise to over £8,000 in loss recoveries to Post Office were largely fixed
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when a phone line was unplugged in a back office. This suggests a) there was nothing
wrong with Horizon per se b) that the incorrect use of the phone line was an unfortunate
error that might have been caused by inadequate training or support or could have been
due to incompetence on the part of the SPMR or is an unusual set of circumstances which
is not reasonably foreseeable-. However, this could still give rise to liability on the part of
the Post Office (albeit not in respect of Horizon failures specifically) if the Post Office is
found not to be entitled to recover loss in those circumstances because the relevant
‘SPMR's conduct was not negligent or in error, within the meaning of Section 12, paragraph
12 of the Contract.
Consequential losses
5,675.68 ___There can be no question of a claim for consequential losses based simply on the
recovery by the Post Office of losses if the losses were properly payable and the Post
Office was entitled to the money.
5,685.69 __Even if the Post Office was not entitled to, but did, claim losses in a particular case,
the SPMR has no claim for consequential losses since the SPMR does not have a claim
for damages for breach of contract to which the other losses could be “consequential”. We
think that the better analogy is that the claim is a resitutionary one and the aim of such a
claim is to reverse a financial benefit which has otherwise been received. It carries with it
no notion of attendant “losses.”
5,695.70 _As we mention above, if the Post Office has, in order to recover losses, withheld
money to which the SPMR claims to be entitled then there is in principle a breach of
contract claim. However, normally damages for breach of a commercial contract relate to
financial losses only, as damages are only awarded for losses reasonably in the
contemplation of the parties as not unlikely to result from the breach. Normally, no
damages would be awarded for injury to feelings, mental distress, anguish or annoyance.
This is so even though such reactions might have been perfectly foreseeable at the time of
the contract.’ Whilst stress which is so severe that it causes an actual breakdown in
health may be compensable if it was in the contemplation of the parties as a not unlikely
consequence of the breach, it seems highly unlikely that that test would be met here. The
SPMR would also have to show, by clear and cogent evidence, that the damage to his
health had been caused by the Post Office’s conduct in recovering losses to which it was
not entitled
5.705.71___Damages are also not normally awarded for loss of reputation flowing from a
breach of contract, unless the loss of reputation in tum directly causes foreseeable
financial loss. So, for example, an employee of a business run corruptly might be able to
claim damages for consequential financial loss suffered as a result of reduced future
employment prospects by reason of the loss to his reputation as a result of being
associated with the business. It seems unlikely such consequential loss would be
recoverable here for any loss recovery by the Post Office that is in breach of contract - the
fact of the loss recovery would need to be made known widely and the SPMR__ would need
to be able to show that this somehow harmed his future earning capacity ."°
5745.72 ___We think that the better analysis is that the question of consequential losses only
arises if the Contract has been terminated on less than three months’ notice, as to which,
see paragraph 5.77 to 5.83 below.
"© Chitty on Contracts, 31° edition, paragraph 26-137, 138
°© Chitty on Contracts, 31* edition, paragraph 26-141 - 142
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Restitutionary claim
5.725.73___If an SPMR can show that he made a payment on the basis that he was liable to
make that payment to the Post Office when in fact he was mistaken as to the existence of
the liability, he has a restitutionary claim for the repayment of the money.” That claim
focuses on the “unjust enrichment” which the Post Office will have received. It is not a
damages claim but a restitutionary action for money had and received. For practical
purposes this means that there is no question of a claim to consequential loss on the part
of the SPMR. All that the SPMR would have to show is that there was no liability to. make
the payment but he believed that there was and this caused him to make the payment.
There is no requirement for fault on the part of the Post Office and it does not matter if the
‘SPMR has himself been careless. '*
5,735.74 __Such a claim can only work on behalf of the SPMR if the Post Office is not
contractually (or otherwise legally) entitled to the payment. ? On the basis of that analysis,
it would mean, therefore, that a settled account would have to be re-opened or that the
‘SPMR would need to show that the Post Office is not entitled to recover loss.
5745.75 __The restitutionary claim for money had and received will not be available to the
‘SPMR where he appreciated that there was a risk that the Post Office was not entitled to
the money but decided to pay on the basis that he accepted that risk. In those cases, the
SPMR will effectively have settled the Post Office's claim and this is treated as a
compromise which the Courts will not allow the SPMR later to reopen.” This is a fact
sensitive issue and would need to be explored in each case. The real question is whether
in paying the money the SPMR was prepared to take the risk that it might not be legally
due but it was in his interests to pay the money anyway.
5,755.76 __Itis also clear that if the SPMR was once entitled toa restitutionary remedy based
on his mistake in making the payment, he will lose that right if the dispute with the Post
Office is resolved and cannot be reopened. That would be the case if the civil Court had
given judgment in favour of the Post Office. Then the SPMR could not recover without
also setting aside the judgment. Even if there is no judgment, if proceedings have been
started and the SPMR then pays to settle the claim he will be treated as having
compromised. The law will not allow such bargains to be reopened, not least because of
the concern to achieve and respect finality in ltigation.2" f litigation has not been started
then there needs to be a contract of compromise before a restitutionary remedy will be
ruled out.
5,765.77 __The Post Office's Draft Settlement Policy of 2013 sets out, in section 5, certain
“Principles for Settlement.” Those principles indicate the Post Office's approach to settling
claims with SPMRs. These include that the SPMR needs to establish that the matters
raised have caused them loss, that the alleged harm arises directly out of or was an
obviously foreseeable consequence of a breakdown in the business relationship between
the SPMR and the Post Office and that settlements will generally be driven by commercial
fairness rather than legal principles.
Termination of contracts
‘Kelly v Solar (1841) 9 M&W 54; Aiken v Short (1858) 1 H&N 210
Barclays Bank v Simms [1980] QB 677
Portman Building Society v Hamlyn Taylor Neck [1998] 4 All ER 202
‘See Kelly v Solan, Barclays Bank v Simms.
‘Marriot v Hampton (1797) Term Rep 269
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5,775.78 ___The Post Office is entitled to give three months’ notice to terminate the Contract
with the SPMR. If in a particular case the SPMR’s Contract has been terminated on three
months notice, he can have no remedy arising out of that termination. It does not matter
that the Post Office based its decision to terminate on facts which turned out to be
disputed, flawed or mistaken (such as the reliability of Horizon) the Post Office is entitled to
terminate the Contract on three months’ notice for any or no reason.
5,785.79 __The effect of this is that the most that a SPMR may be entitled to is the pay (or
whatever entitlements) were due during the notice period, reduced for any costs of doing
business if they were not incurred. Moreover, the SPMR is under a duty to mitigate his or
her losses and so should look for alternative employment during that three month period.
Any unreasonable failure to find an alternative source of income would reduce the claim
(though with a three month notice period this is not of huge practical relevance).
§:795.80___There may well be cases in which the Post Office has terminated the contract
summarily ~ in other words on no notice. Here different considerations may arise. The
facts of a particular case may justify summary termination ~ for example theft by a SPMR
may well justify the conclusion that the SPMR is in breach of his obligations and the Post
Office can accept that breach as terminating the contract. However, if the facts do not
entitle the Post Office to accept the breach as terminating the contract summarily, not only
would the SPMR be entitled to claim the three months’ remuneration which he would have
received had notice been given, he may also have a right to consequential losses within
the principles which govern consequential loss claims for breach of contract.
5,805.81 __The normal rule for assessment of contractual damages is to compensate the
claimant such that they are put in the position they would have been in had the contract
been properly performed. Consequential losses (such as loss of use or lost profits) are
also recoverable where they are not considered to be too remote.
5,815.82 ___The traditional test for remoteness is whether the loss “may fairly and reasonably
be considered either as arising naturally, ie. according to the usual course of things, from
such breach of contract itself, or such as may reasonably be supposed to have been in the
contemplation of both parties, at the time they made the contract”.®? The Courts have
decided that the meaning of “reasonable contemplation” will depend on the knowledge of
the parties at the time of the contract, and that the loss must be “of that kind” contemplated
by the parties.
5825.83 __In any damages claim, there must be a clear link between the defendant's breach
and the claimant's loss, or in any event the breach must be the “dominant cause” of the
loss. An intervening act of a third party or the claimant itself may break the chain of
causation, depending on the court's appraisal of the circumstances of the case, as may
intervening events which were reasonably foreseeable by the parties.
5,835.84 _In the case of a SPMR who runs an associated business, such as a convenience
store or a newsagent, it may be said by the SPMR that terminating his Contract as a
'SPMR would be likely to have a knock on effect on the viability of his associated business.
Moreover, it might be said that depriving an SPMR of the three month notice period also
deprives him of a three month window in which to seek a purchaser of his business as a
going concer. If the business does in fact close because of the termination of the
‘SPMR's Contract and there is evidence that it might have been capable of being sold had
% Hadley v Baxendale (1854) 9 Ex. 341, 954-355.
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the SPMR had three months in which to do so, there is the possibility of a claim for such
losses. Whether such an argument could be made depends on the facts, not least
whether there was an associated business.®* In practice in this sort of claim, because the
Court is asked to consider a counterfactual which has not arisen, the Court makes an
assessment of the prospects of a sale “the loss of a chance” and applies a discount to the
claim to reflect this.
Inadequate training and support
5,845.85 ___Under the Contract the Post Office is obliged to provide training. Section 15
paragraph 7 provides:
TA
Post Office Ltd will:
7.4.1 provide the Subpostmaster with relevant training materials and
processes to carry out the required training of his Assistants on the Post
Office Products and Services;
7.1.2 inform the Subpostmaster as soon as possible where new or
revised training will be necessary as a result of changes in either the law or
Post Office Services; and
7.1.3. where appropriate (for example where clause 7.1.2 of this section
16 applies) update the training materials (or processes) to provide new
training materials (or processes) to the Subpostmaster
However, it is the Subpostmaster’s responsibility to ensure the proper
deployment within his Post Office branch of any material and processes
provided by Post Office Ltd and to ensure that his Assistants receive all the
training which is necessary in order to be able to properly provide the Post
Office Products and Services.”
855.86 This seems clear: the Post Office must provide training and keep it up to date.
This is not defined but could well extend to a help-line or other day to day advice on the
operation of Horizon. But the SPMR is still responsible for the day to day operation of the
Subpostoffice. In other words, the SPMR accepts the consequences of any lack of training
provided to his Assistants or their failure to put the training into effect.
5,865.87 ___ Section 15, paragraphs 1 and 2 of the Contract are also relevant here. They
provide that:
“A Subpostmaster must provide, at his own expense, any suitable assistants with
the relevant skills which he may need to carry out the Post Office work in his sub
Post Office branch ("Assistants").
Assistants are employees of the Subpostmaster and the Subpostmaster will
consequently be held wholly responsible for any failure on the part of his Assistants
to:
2.1 apply Post Office rules or instructions as required by Post Office Ltd;
2.2 complete any training necessary in order to properly provide Post Office
Services
® See Lali'v Past Office Limited [2003] EWCA Civ 1873, CA
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The Subpostmaster will also be required to make good any deficiency of cash or
stock which may result from his Assistants’ actions or inactions.”
5,875.88 ___Itis also likely that there would be a term implied into the Contract to the effect that,
the SPMR should be entitled to reasonable training and support, particularly in relation to
bespoke systems or practices, such as Horizon, which he could not be expected to know
from his own general knowledge and past experience.
5,885.89 __ Many SPMRs do not seem to have a complaint as to the level of training and
support which the Post Office has given them. We do not think that this is conclusive.
Whilst Horizon operates as a common system and one person's experience of it should be
similar to another's, the same could not be said for training and support. It would be quite
possible for the Post Office to have failed to meet its obligations in relation to one SPMR
whilst easily fulfiling them in relation to many others.
5,895.90 _ Moreover, in order for this to translate into a claim against the Post Office, it would
have to be shown that it was causative of losses. It is clearly not enough to say: “I was
given bad support and any deficiencies in my account must be due to that.” There would
have to be an investigation of how and why the deficiencies had arisen. Were they in any
sense attributable to a failure of training? This may be difficult to establish in any particular
case,
5,905.91 __The Settlement Principles contemplate that compensation might be paid where
training is inadequate or poor. The principles make clear that compensation will not be
paid for general complaints about the standard of training and that the Applicant needs to
demonstrate facts peculiar to his circumstances which justify compensation.
Regulation
5,945.92 __It does not appear to us that SPMRs would have a basis for complaint in respect of
Horizon by reason of any regulation governing the Post Office’s conduct. Although
OFCOM has since October 2011 had responsibility for regulating the provision of postal
services, OFCOM's own website makes it clear that it does not regulate the Post Office.
The Post Office does not appear on the FCA register as an FCA-authorised entity. It does
appear as an “appointed representative” (in connection with its provision of financial
products on behalf of principals such as the Bank of Ireland) and a “payment services
agent” (in connection with its provision of money transfer services on behalf of, for
example, MoneyGram International). Neither of these functions requires the Post Office to
have separate FCA authorisation.
Limitation
5,925.93 __Limitation is a factor which may well be relevant in certain claims. The standard
limitation period for claims in contract is six years from the date of breach. For tort claim s it
is six years from the date on which the loss was suffered. Restitutionary claims are time
barred six years from the date of the enrichment on which the claim is based. Any claim
brought outside the limitation period can be met with the defence that it is out of time and
no further consideration of the merits is required.
5,935.94 __Where the claim is based on a mistaken payment or a fact deliberately concealed
from the claimant by the defendant, time does not start to run until the claimant has
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discovered the mistake or concealment, or could with reasonable diligence have done so. **
Some of the cases we have seen suggest that SPMRs have been aware well before the
‘Scheme was instituted of the matters about which they have complained to the Scheme.
At least in those cases, the deferral of the commencement of any limitation period may not
make any difference to the barring of the SPMR's claim,
5,945.95 __The Settlement Principles state:
“5.11 Settlements should reflect the fact that for the purposes of the Scheme,
Post Office will not be relying on any legal limitation or time-bar defence and will
consider all Complaints regardless of age.”
We do not know what publicity has been given to this statement and whether the Post
Office is free to, or indeed wishes to, reconsider its position,
6—_The-nat d-oxtont_of_the-rieks_arising-f w jated_with th
Schomeinits-currention.
6-4-_The Sch diation-sch Mediati technique-tor-faciital ‘i
bi ofthe R. other ther s
6.2. thinktts fectively four-trisks" inh the Scheme-namel
thei cost siad-swith individual-t
the public relat .d reputational tod-with-not-setiling-ch m"
haved fo-settk A iLit be forced silement-thanit
dviced-to-and fortabl Mediation will not ti the Post
Office,
6.4—Th fh dof d-Sight-will-need: be m ms
the Scheme Rules
6.5 —Even-if-the Post Off Judesthat-th - tablished, legal tiability-4
yticular SPMR-h ni d-with-not-setth Jalen This-ie-difficul- both.
6.6 —Thi 1 tion-of-legal-liability_on-the-part-of the Rost Office but-will call-for
2 See Limitation Act 1980, s 32(1) and Kleinwort Benson Limited v Lincoln City Count [1999] 2 AC 349
"41789524070 4040-40120 Mar
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6.7—Th n hs bility th ‘i ho-think-thattheyt
ifthe fiorod. ‘i think-that-thie-rick-is-low It
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‘The public relations Jegal-and reputational tod .with settling cl
6.8—Th ° tionalratherthanlegal ted-with Winget bs
th Jaar-legalliability 1o-do-so-also-entails risk —Th tw ‘ ”
6.9. have already outlined the sit hich the Rest Office is-tikely-to-be-undera legal
criticions from-stakeholders
6-401 is-also-important to bear in-mind_the-tikel: tof 15-08 r th
1 r .d-1o-date Ifthe Post Off ion _to-those-wh
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fable for the Schemelélaniying “the “Post _Olfice’s pasta lation tosuch
aime:
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(a0 Mar 203610 Mar aod
26
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i i a Sight sna eee oer
th . ch he tetanic Commented [CA17]: I think that this section should be
deleted.
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