Sub-postmasters win first trial over accounting IT issues

A group of over 500 former sub-postmasters (SPMs) have won an important first step in a series of trials relating to claims that the Post Office incorrectly and unfairly held them responsible for accounting discrepancies, which they held were due to failings with the Post Office’s Horizon IT system

The litigation has been brought by the Justice for Sub-postmasters Alliance, which maintains the Post Office has abused its position to unlawfully suspend, sack and prosecute SPMs who were found to have shortfalls in their weekly accounting, including requiring them to pay back the sums involved and threatening prosecution in some cases.

The complexity of the issues and the length of time which it has taken to come to court mean that the judge has decided to divide the case into several parts. The first is the so-called ‘common issue’ trial which looked at the nature of the contracts between the SPMs and the Post Office. [Alan Bates and Others and Post Office Ltd, 2019] EWHC 606 (QB)].

This considered whether the SPMs had ‘relational contracts’ with the Post Office, such that the Post Office was subject to duties of good faith, fair dealing, transparency, co-operation, and trust and confidence.

It heard from six lead claimants. They included Alan Bates who uncovered a £1,000 discrepancy in his accounts at a branch office in Wales for which he could find no explanation other than a software problem. Horizon showed an unexplained variance of over £6,000 in respect of Giro deposits, which Bates worked out to be the result of some Giro items of approximately £5,000 being wrongly duplicated, caused by an overnight software update. This was disputed by the Post Office, which asked him to pay for the shortfall.

Another case concerned Pamela Stubbs, who initially reported a small shortfall of around £300 at the end of 2009. The court heard that ‘not only did losses then continue, they appeared in sizeable amounts and accumulated to staggering levels. Over the Christmas and New Year period, when the branch had been closed for some days, they jumped up to over £9,000, when she knew that this amount of cash unaccounted for simply could not be possible.’

In February 2010 Stubbs received a further demand from the Post Office, showing the sum of £9,033 due as ‘balance brought forward’ and also a further sum of £8,636 as ‘new transactions’, hence the total claimed by the Post Office from her was now £17,670. She was asked to settle the account by cheque or debit/credit card.

At her insistence, a Post Office auditor went to her branch on two occasions to observe all the transactions and inspected her records. Shortfalls occurred during his first morning of £190. He could not identify the cause of these either.

The judge stated: ‘The case by the Post Office is that careful and/or diligent and/or honest SPMs and/or their assistants do not experience shortfalls. Therefore, so far as the Post Office is concerned, in each branch where such shortfalls occurred, either the claimants and/or their assistants must have at least some, and potentially all, of those characteristics. If it were otherwise, the Post Office edifice would run the risk of collapse.’

In his conclusion, the judge found that the contracts formed between the Post Office and SPMs are relational contracts, which means that there is an implied duty of good faith in the agreement, such that the Post Office is not entitled to act in a way that would be considered commercially unacceptable by reasonable and honest people.

In particular, he highlighted a clause which imposed liability for losses upon SPMs based on their negligence or fault.

The judge noted: ‘Horizon was introduced in 2000, and from then onwards unexplained discrepancies and losses began to be reported by SPMs. Internal documents obtained in this litigation show that some personnel within the Post Office believed at the time that at least some of these were caused by Horizon.

‘The Post Office’s position in this litigation remains that Horizon is what is called “robust” and that none of the claimants experienced shortfalls or discrepancies in their branch accounts due to problems caused by Horizon.’

Under Horizon, the way in which a SPM was required to compile branch trading statements each trading period (usually every four weeks) meant that they had no choice but to accept into that statement disputed amounts with which they expressly disagreed, and transaction corrections that they either did not understand, or disputed.

The Post Office treated disputed amounts as debts which they were entitled to claim under debt recovery procedures from SPMs. There was no mechanism adopted by the Post Office to resolve such disputes.

The Post Office accepted during the trial that amounts that were ‘settled centrally’ were treated by it as being legally due and owing to the Post Office, even if they were disputed by SPMs.

The judge said: ‘I find that the Post Office is not therefore entitled to rely upon the branch trading statements, for any period in respect of which a SPM notified a dispute to the Helpline, as a settled account between agent and principal. Nor do SPMs bear the burden of demonstrating that the branch trading statement is wrong for such a period.’

The judgment for this trial, which concluded in December 2018, does not contain any findings as to breach, causation or loss, which remain to be decided in future judgments. The judgment is the first substantive step in resolving the group litigation, but it does not dispose of all the issues between the parties.

It is being followed by the ‘Horizon issues’ trial, taking place in March and April 2019, which is addressing the issues relevant to the operation of the Horizon system itself, including expert evidence from IT experts.

Each side will be calling an expert witness to give opinion evidence in IT matters, and resolution of those issues will help narrow the areas of dispute between the parties in this litigation. Further issues are to be tried in the autumn of 2019.

Alan Bates and Others and Post Office Ltd, 2019] EWHC 606 (QB) is here.

Report by Pat Sweet

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