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Thursday, January 17, 2019

Claimants' Written Opening for Trial of Common Issues

Read the original on Scribd here, or embedded at the bottom of this post.

THE POST OFFICE GROUP LITIGATION
Claim No. HQ16X01238, HQ17X02637 & HQ17X04248
 IN THE HIGH COURT OF JUSTICE QUEEN’S BENCH DIVISION
  Before The Hon. Mr Justice Fraser B E T W E E N:-
ALAN BATES & OTHERS
Claimants
 – and –
POST OFFICE LIMITED
Defendant
   CLAIMANTS’ WRITTEN OPENING FOR TRIAL OF COMMON ISSUES

Abbreviations & terminology
The following abbreviations are used:-
Lead Claimants, where abbreviated, are “LCs” and are individually referred to by surname Generic pleadings: Particulars of Claim “GPOC”; Defence “GDef”; Reply “GReply” Individual pleadings: Particulars of Claim “IPOC”; Defences “IDef”; Replies “IReply” References to Subpostmasters include all operators
References to Subpostmaster contracts are to the SPMC and NTC
References
References are generally as follows:-
Electronic trial bundle: in square brackets, in the format [Bundle/Tab/Page]
Witness statements: Surname, §para, e.g. Bates, §5
Individual pleadings: Surname/Pleading/ Paragraph number e.g. Bates/IPOC at §14
Suggested Pre-Reading and a table of Contents are set out below.
Internal references within this document are generally provided with an embedded hyperlink; and headings and sub-headings are all viewable in the navigation pane.
 Annexes amplify certain issues; their internal page numbers are prefaced with an ‘A’.
  A/1/1
 
Suggested Pre-Reading
SUGGESTED PRE-READING
 The Claimants respectfully invite the Court to read the following (time estimate 2 days):
(1) Claimants’ Written Opening (and Annexes, as the Court may wish)
(2) Defendant’s Written Opening
(3) Generic Pleadings:
Amended Generic Particulars of Claim
Generic Defence Generic Reply
(4) Individual Pleadings (for some or all six Lead Claimants): Individual Particulars of Claim
Individual Defences Individual Replies
(5) Claimant’s witness statements (in chronological order): Alan Bates
Pamela Stubbs Mohammad Sabir Naushad Abdulla Elizabeth Stockdale Louise Dar
(6) Defendant’s witness statements:
(7) Contract Documents:
Standard SPMC 1994 and 2006 versions NTC (Preface and Conditions)
[A/1] [A/2]
[B3/1] [B3/2] [B3/3]
[B5.1/2] [B5.2/2] etc [B5.1/3] [B5.2/3] etc [B5.1/4] [B5.2/4] etc
[C1/1] [C1/2] [C1/3] [C1/4] [C1/6] [C1/5]
[C2/1] - [C2/14]
[D2.1/3] and [D2.1/6] [D1.6/4/3-34] and [D1.6/3/1]
  A/1/2
 
Contents
INTRODUCTION.................................................................................................................................1
Preliminary Observations ............................................................................................................. 1 Relational Contract & Implied Terms ......................................................................................... 2 Utility of the Common Issues Trial.............................................................................................. 3 Sequencing of Issues ...................................................................................................................... 4 Interdependence of Issues............................................................................................................. 7 Statements of Case ......................................................................................................................... 8 Contracts ....................................................................................................................................... 10 Witness Evidence ......................................................................................................................... 17
SECTION A: FACTS..........................................................................................................................19
Experience Prior to Contracting ................................................................................................. 19 Appointment Process Overview ................................................................................................ 21 Commitment to and Investment in the Relationship..............................................................27 Security of the Position................................................................................................................ 29 Features of the Relationship ....................................................................................................... 31 Assistants ...................................................................................................................................... 32 Training Subpostmasters ............................................................................................................ 33 Support and the Helpline............................................................................................................ 36 Apparent Shortfalls and Horizon .............................................................................................. 37
SECTION B: COMMON ISSUES.....................................................................................................39
Issue 1: Relational Contract ....................................................................................................... 39 Issues 2 and 3: Implied Terms ................................................................................................... 55 Issue 4: Supply of Goods and Services Act 1982 ..................................................................... 83 Issues 5 and 6: Onerous and Unusual Terms .......................................................................... 89 Issue 7: Unfair Contract Terms.................................................................................................. 97 Issues 8 and 9: Liability for Alleged Losses ........................................................................... 107 Issues10and11: PostOfficeasAgent....................................................................................123 Issues12and13: SubpostmastersasAgents.........................................................................131 Issues 14 to 21: Suspension, Termination, etc ....................................................................... 141 Issues22and23: Assistants.....................................................................................................161
SECTIONC: CONCLUSION.........................................................................................................165
–i–
CONTENTS
  A/1/3

AnnexI: ContractualConstruction...................................................................................................1 Annex II: Issue 1 – Relational Contract ............................................................................................7 Annex III: Issues 2 and 3 – Implied Terms.....................................................................................23 Annex IV: Issue 4 – Supply of Goods and Services Act ...............................................................33 Annex V: Issues 5 and 6 – Onerous and Unusual Terms .............................................................37 Annex VI: Issue 7 – Unfair Contract Terms ....................................................................................45 Annex VII: Issues 10 and 11 – Post Office as Agent......................................................................55 Annex VIII: Issues 12 and 13 – Subpostmasters as Agents..........................................................63 Annex IX: Issues 17 to 18 – True Agreement .................................................................................67 Annex X: Issues 22 and 23 – Assistants ..........................................................................................71
– ii –
CONTENTS
  A/1/4

INTRODUCTION Preliminary Observations
–1–
INTRODUCTION Preliminary Observations
  1. The Common Issues Trial will determine important aspects of the legal relationship between Post Office and Subpostmasters, which are central to these proceedings.
2. The Claimant regards Liability for Shortfalls and the Relational Contract issues as central to the resolution of this Group Litigation (amplified briefly below). That said, the Claimants would respectfully make the following preliminary observations:
(1) Express Terms: It remains difficult to identify the universe of express terms in the various documents governing the relationship between the parties as at any particular date, or to do so with confidence and precision.
(2) Subpostmaster Contracts: Nonetheless, the SPMC and the NTC are the primary sources of the parties’ respective contractual obligations. Their provisions fall to be construed in the context of the contract as a whole, including all contractually binding obligations incorporated therein.
(3) Construction of Express Terms: Issues as to the proper construction of the express terms of the contracts broadly fall into two categories: (a) Liability for Alleged Losses; and (b) Suspension, Termination, Compensation for Loss of Office and Subsequent Appointments.
(4) Need for Implied Terms Agreed: Despite the volume of documents actually or potentially having contractual effect (see: Contracts, on p.10), both parties agree that the express terms did not fully describe the agreement between the parties, such that it was necessary to imply additional terms into the contracts. The usual battle over whether any term(s) are to be implied at all is not in play in this case. The parties agree that it is necessary to imply terms. However, they disagree as to the terms to be implied.
(5) Real Target: For the Claimants, the real target of their case on the Common Issues is the Defendant’s extreme and/or opaque case as to the legal relationship between the parties – which gives rise to the Common Issues.
  A/1/5
 
Relational Contract & Implied Terms
–2–
INTRODUCTION Relational Contract & Implied Terms
  3. As noted above, one of the most important aspects of the legal relationship is whether or not Post Office was subject to certain duties by reason of the Subpostmaster contracts being relational contracts (as understood in Yam Seng, below): namely, duties of good faith, fair dealing, transparency, cooperation, and trust and confidence. The Relational Contract issue is dealt with below under Issue 1: Relational Contract, on p.39; and amplified in Annex II: Issue 1 – Relational Contract.
4. Not only will this issue have an important, if not central, bearing on the outcome of these proceedings, but its determination may overlap with (or obviate any distinct need for) a number of the free-standing implied terms (or incidents of those terms) contended for by the Claimants (Issues 2 and 3: Implied Terms, on p.55).
5. To be clear, the Claimants do not contend for the implication of terms which seek to exact a higher degree of cooperation than that which could be defined by reference to the necessities of the contract. On the contrary, they contend for the implication of terms which reflect standards of conduct (e.g. the degree of cooperation) inherent in and necessary to the parties’ respective obligations, and/or necessary to the commercial or practical coherence of the contracts (Issues 2 and 3: Implied Terms). But it is salient background to note that the implication of the terms in Yam Seng v International Trade Corp [2013] EWHC 111 (QB) [2013] 1 All ER (Comm) 1321 (“Yam Seng”) imported, by way of the terms implied, shared values and norms of behaviour, in the light of a considered analysis of the nature of the agreement itself – findings as to which are matters of mixed fact and law for this Court to determine.
6. The evidential picture which emerges from the witness statements of the Lead Claimants (as to their expectations) at least subjectively supports the implication of duties of good faith, fair dealing, transparency, cooperation, and trust and confidence. It remains to be seen how far the Defendant’s evidence will go to establish that the Defendant did not share such expectations, including as to honesty and fair dealing.
7. For reasons developed below, the Claimants will submit that these are obviously relational contracts, into which the duties are, in any event, to be implied in this case.
  A/1/6
 
INTRODUCTION Utility of the Common Issues Trial
8. There is an important difference of approach between the parties, of which the Court should be aware from the outset, as to the clarity of the outcome to be achieved by the Common Issues Trial. Put shortly, the Claimants seek greater clarity; the Defendant disputes that that can be achieved. In particular, the Defendant has refused, thus far, to be drawn as to the import and effect of the two implied terms which it admits.
9. It ought to be uncontroversial that the purpose of the Common Issues Trial is to determine important aspects of the legal relationship between Post Office and Subpostmasters, and thereby to clarify those issues for the purposes of resolving this Group Litigation. The Court has emphasised to the parties the need to make progress in resolving the litigation. The Defendant can be in no doubt about that.
10. Despite this, and being pressed upon the issue for over a year, the Defendant has staunchly refused to be drawn into providing any clarity as to the incidents of the implied terms which it admits and to what extent the Defendant’s admissions resolve, or at least narrow, disputes under Issues 2 and 3: Implied Terms. The Defendant takes this position notwithstanding the agreed words in brackets, having been included in Issue 2 “or incidents of such implied terms”.
11. As explained in more detail below (under Uncertainty as to implied terms (or incidents) admitted, on p.65), the Defendant has stated that this is a matter to address in submissions and has declined to explain the impact of its admitted terms.
12. In short therefore, the Claimants do not yet know the case which the Defendant will advance, even as to the incidents of the admitted implied terms. The Defendant’s approach would have the effect, even if not the aim, of undermining the utility of the Common Issues Trial, by seeking to inhibit the Court from clarifying the legal relationship between the parties which is the very object of the Common Issues Trial.
13. It would certainly assist the resolution of the Common Issues if the Defendant were to clarify its position as to the effect of its admitted implied terms and which of the Claimants implied terms conflict with which express provisions of the contracts.
 Utility of the Common Issues Trial
 –3–
  A/1/7
 
INTRODUCTION Sequencing of Issues
14. Although the Relational Contract issue plainly looms large, it is not the first issue for ultimate resolution. The order in which the Court seeks to resolve the issues is important, as the well-known authorities make clear: although the proper construction of a contract involves an iterative process, it is clear that express terms must be identified and construed before the Court considers the characterisation of the contract and the implication of any terms and the existence (see: Annex I: Contractual Construction, on p.A1).
15. The existence, nature, scope and effect of any agency relationship fall to be determined in the light of any contractual provisions and the conduct of the parties.
16. So, although contractual construction is plainly an iterative process, the Claimants respectfully submit that the correct order in which the Court should ultimately determine the issues, at least broadly, is as follows:-
(1) Identification of Express Terms: Identify express terms which may form part of the contract (as varied over time), including:
(a) terms contained in documents signed by the Subpostmasters;
(b) terms contained in other documents to which those signed documents expressly refer by name (e.g. “the Operations Manual”);
(c) terms contained in documents falling within categories of documents in (a) or (b);
(d) individual variations with particular Subpostmasters (e.g. requiring Subpostmasters to agree not to dispute, and to pay immediately, any subsequent apparent shortfalls, as a condition of not immediately paying an existing disputed alleged shortfall).
(2) Construction of Express Terms: Identify the true construction, scope and effect of the express terms, relevant to the Common Issues (possibly in the following order):
 Sequencing of Issues
 –4–
  A/1/8
 
1 2 3 4
(b) Implied Terms as to the following (Issues 2 and 3: Implied Terms – the terms being enumerated below at paragraph 150, on p. 56):
(i) Training and Support1 (1)
(ii) Horizon and recording transactions2 (2)
(iii) Investigations and shortfalls3 (3) to (12)
(iv) Exercising of powers and discretions4 (13) to (17)
GPOC at §64.1 [B3/1/35]
GPOC at §64.1A to 64.2 [B3/1/35] GPOC at §64.3 to 64.11 [B3/1/36] GPOC at §64.12 to 64.18 [B3/1/37]
INTRODUCTION Sequencing of Issues
(a) the terms providing for liability for alleged losses i.e. Section 12 Clause 12 for the SPMC and paragraph 4.1 of the NTC (Issues 8 and 9: Liability for Alleged Losses);
(b) the terms identified in Issue 5 (rules, instructions and standards; classes of business – see p.89); accounts and liability for loss; assistants; suspension (Issue 14 – see p.142); termination (see also Issues 15 to 18 – see p.142 to 148); no compensation for loss of office (see also Issues 19 and 20 – see p.153);
(c) the terms relating to appointing prospective purchasers of a Subpostmaster’s business, in order to discern what if any restrictions there were on the Defendant’s discretion in that regard (Issue 21 – see p.155);
(d) the terms in Issue 22 (p.161), to determine whether they purport to confer a benefit on Assistants for the purposes of section 1 of the Contracts (Rights of Third Parties) Act;
 (e) the terms relating to the responsibility of Subpostmasters to Assistants (Issue 23 – see p.161)
(3) Implied Terms:
(a) Relational Contract (Issue 1: Relational Contract);
train
 –5–
  A/1/9
 
INTRODUCTION Sequencing of Issues
(c) Whether the Defendant supplied Horizon, the Helpline and / or training / materials as services in the course of its business, such that there was an implied term requiring the Defendant to carry out any such services with reasonable care and skill, pursuant to section 13 of the Supply of Goods and Services Act 1982 (Common Issue 4).
(4) Onerous or Unusual Terms: Whether any such terms were onerous or unusual; and if so what steps would be required to draw them to the attention of Subpostmasters (Issues 5 and 6: Onerous and Unusual Terms, on p.89).
(5) UCTA: Whether any or all of the terms identified in Issue 5 are unenforceable under the 1977 Act (Issue 7: Unfair Contract Terms).
(6) Agency: The agency of the Defendant and Subpostmasters respectively:
(a) The Defendant as agent: Whether the Defendant was the agent of Subpostmasters as alleged and if so, what obligations followed (Issues 10 and 11: Post office as Agent)?
(b) Subpostmasters as agents: What was the extent and effect of the agency of Subpostmasters to the Defendant and did Subpostmasters bear the burden of proving accounts to be incorrect (Issues 12 and 13: Subpostmasters as Agents)?
 (v) Reasonable care5 (18)
 5
GPOC at §64.19 [B3/1/38]
–6–
  A/1/10
  
6 7
GDef at §105(1) [B3/2/47] GDef at §105(2) [B3/2/47]
–7–
INTRODUCTION Interdependence of Issues
 Interdependence of Issues
 17. As noted in the Preliminary Observations above, the real target of the Claimants case on the Common Issues is the extreme construction of the legal relationship between the parties, for which the Defendant contends, one thread of which is highlighted at paragraph 52 of the GReply (as to liability for alleged shortfalls).
18. Success on one issue may diminish the significance or soften the arguments on another. The construction of express terms may well inform the need for and content of implied terms.
19. For example, the burden of proof in establishing liability for shortfalls (Issues 8 and 9: Liability for Alleged Losses) is likely to inform the implication of related terms or their content.
20. Equally, the construction of express terms (such as those governing liability for shortfalls) together with any implied terms, will be essential to the Court’s assessment of whether those express terms were onerous (Issues 5 and 6) or unfair under the Unfair Contract Terms Act 1977 (Issue 7).
21. Therefore, the scope and effect of any implied terms must be determined with clarity, before the Court considers Issues 5 to 7. That is one of the reasons why the Claimants have, as mentioned above, sought to clarify the reality of the Defendant’s concessions in admitting the implication of the Stirling v Maitland Term6 and the Necessary Cooperation Term.7 Unfortunately, the clarity sought has not been forthcoming and the Defendant has refused to explain the content of its admitted terms (see below, at p.63).
22. It is for this reason that the Claimants have characterised many of the Common Issues as interdependent and have commended to the Court the sequencing of determining the issues above.
   A/1/11
  
INTRODUCTION Statements of Case
23. The Court is very familiar with the generic pleadings in this case. The Claimants confine their observations to the following particular points, as to how they broadly relate to the individual pleadings.
Generic Statements of Case
24. The Generic statements of case were prepared on all issues (i.e. not specific to the Common Issues Trial). The GPOC encompass allegations common to each of the Claimants (or groups of them) and provide the foundation for core parts of the IPOCs subsequently served by the LCs for the Common Issues Trial, in particular: Section B Contract Terms – Subpostmasters; and Section E – Agency.
Individual Statements of Case
25. Individual statements of case for each party, in turn, are pleaded in the light of those generic pleadings and indeed refer back to and highlight particular aspects of the respective generic cases. The IPOCs have adopted a common structure in so far as could be accommodated by the facts of each particular case:-
25.1. Section A primarily contains the individual facts (grouped, where possible, under headings common to other Lead Claimants); and
25.2. Section B, which addresses the common issues (these are to a large extent set out under headings common to the Lead Claimants, albeit following the course of the individual facts pleaded in Section A).
26. This division between Section A (Facts) and Section B (Common Issues) is therefore reflected in this Written Opening (see: SECTION A: FACT, on p.19; and SECTION B: COMMON ISSUES, on p.39, below). The Lead Claimants have provided more detail in relation to the Common Issues in the Annexes, in case this is of assistance.
 Statements of Case
 –8–
  A/1/12
  
INTRODUCTION Statements of Case
27.1. a lack of clarity and definition to the express terms applicable between the parties from time to time, or even a reasonably complete overview of how these changed over time;
27.2. the Defendant not nailing its colours to the mast as to the contractual significance of documents provided (or said to have been provided) to Subpostmasters generally or even the Lead Claimants individually;
27.3. a high level of generality, in terms of what events took place or more usually “would have” taken place, when, why and how;
27.4. opacity as to the import of the implied terms which the Defendant has admitted and, in particular, the extent to which any of the terms contended for by the Claimants are incidents of those terms (despite the wording of Issue 2, as agreed between the parties and ordered by the Court); and
27.5. assertions in the IDefs which are expressly stated to be confined to issues of liability or breach.8
 27. Significant features of the Defendant’s case include:
 8
See, for example, Bates/IDef at §44 to 49 [B5.1/3/22-26] –9–
  A/1/13
  
9
Beal , §22 [C2/2/4]
– 10 –
INTRODUCTION Contracts
 Contracts SPMC and NTC
 28. The Defendant contracted with the LCs on two main types of standard form contracts: the SPMC (Bates, Stubbs, Sabir, Abdulla) and the NTC (Stockdale, Dar).
28.1. The SPMC is a set of standard contract terms, of which there are a number of different versions, including the Standard SPMC and the Modified SPMC (the Defendant describes the main difference between these versions as being in respect of remuneration structure).9 The Defendant amended these contracts in such a way that later versions were produced with a list of variations at the front of the 1994 version (i.e. the variations were not actually made in the body of the 1994 contract itself). The versions of the SPMC relevant to Bates and Stubbs are the 1994 Standard SPMC [D2.1/3] (which was Appendix A to the GPOC); for Sabir the 2006 Standard SPMC [D2.1/6] and for Abdulla the 2006 Modified SPMC [D2.1/4].
28.2. The Defendant’s NTC standard terms also had minor variations (for offsite or onsite variants). Stockdale and Dar contracted on these terms, by an Agreement which was in the form of a Preface with Appendices, incorporating standard NTC terms. For Stockdale see [D1.6/4/1] and [D1.6/3/3-34] and Dar at [D1.5/2].
29. Those are the two types of contract to be construed at the Common Issues Trial.
30. By way of background, there are other forms of contract before the Court, including the Temporary SPMC and a Franchise Agreement (Appendices B and D to the GPOC); but none of the LCs contracted on that basis, and the Court is not being invited to make findings on the Common Issues in respect of any Claimants who contracted on that basis.
   A/1/14
  
INTRODUCTION Contracts
31. As foreshadowed above, the Claimants have found it difficult to identify the universe of express terms in the various documents said to govern the legal relationship between the parties, or how that changed over time – or at least to do so with confidence and precision.
32. There are a wide range of documents which the Defendant sought to incorporate by reference or otherwise require LCs to agree or abide by. These differ by LC, but certainly include:
 Other Contractual Documents
 10 11 12
13
32.1. Conditions of Appointment, required by the Defendant at or following interview (Sabir and Abdulla).10
32.2. Acknowledgement of Appointment, signed on branch transfer / opening day (all LCs except Stubbs, and for Sabir, not the Crossflatts branch ).11
32.3. Manuals, instructions and other documents, which Post Office sought to incorporate by reference, by the SPMC,12 NTC,13 and/or Acknowledgement of Appointment.14
Sabir [D1.3/1/1] and [D1.3/3/1], Abdulla [D1.4/1/1]
Bates [D1.1/2/1]; Sabir [D1.3/4/1]; Abdulla[D1.3/3/1]; Dar [D1.5/3/1]; Stockdale[D1.6/5/1]
See GPOC at §51.1 for all relevant SPMC terms, which include Section 1, paragraph 18: "Changes in conditions of service and operational instructions, including those which are agreed with the National Federation of Sub-Postmasters, will appear from time to time in Counter News or by amendment to the Contract. Such changes and instructions are deemed to form part of the Subpostmaster's contract." And Section 1, paragraph 19: "All instructions received from the Regional General Manager should be carried out as promptly as possible."
See GPOC at §51.1 for all relevant NTC terms which include Part 1, paragraph 1.1 "The Operator agrees to operate the Branch on behalf of [the Defendant] in accordance with the express terms of the Agreement (including for the avoidance of doubt the Manual)", and the definition of Manual at Part 5 paragraph 1.1 as follows: “The following list includes the manuals, guidelines and instructions which currently come under the definition of "Manual": - Local Post Office Operations Manual - Horizon online administration and equipment operations manual - National lottery operations manual (where branch offers this product) - Ordering stock and operations manual (where branch offers this product) - Post Office outreach services operations manual (where applicable) - Post Office paystation operations manual - Security operations manual - Horizon system user guide (online) - Horizon online help (online) - Branch Focus - Post Office branch standards - Post Office Ltd's Accessibility Guide - Branch Conformance Standards - Post Office cash and secure stock remittance services manual (online) - FOS project operations manual - FOS project training workbook (x2) - Mailwork specification (where applicable) - Any other instructions to operators or updates to such instructions issued by [the Defendant] from time to time".
– 11 –
  A/1/15
  
INTRODUCTION Contracts
32.4. Variations (below) including, for example, requiring agreement to pay all alleged shortfalls immediately, going forward, as a condition of paying an existing alleged shortfall back by instalments (para. 36.2, below).
Date of Contractual Construction – Variations
Appointment
33. The contracts for each of the LCs fall to be construed on the date each of them accepted their appointment, usually by signing contractual documents prior to branch transfer and/or on the date of branch transfer (or, as may be relevant, at the date of any variation). For each of the LCs the dates on which they appear to have contracted are:
 33.1. Bates: 31 March 1998 (signed three page Conditions of Appointment document;15 and 8 May 1998 (signed Acknowledgement of Appointment, day after branch transfer);16
33.2. Stubbs: 4 August 1999 (the date she agreed to take on the role of Subpostmaster);17
33.3. Sabir:
Cottingley branch: 19 July 2006 (signed Conditions of Appointment);18 and 8 September 2006 (signed Acknowledgement of Appointment);19
Crossflatts branch: 19 August 2006 (signed Conditions of Appointment);20
 14
15 16 17 18 19 20
E.g. for Abdulla [D1.4/3/1], “I accept The Appointment as Subpostmaster at CHARLTON and agree to be bound by the terms of my contract, and by the rules contained in the book of rules and the instructions contained in those postal instructions issued to me.” D’s case is expressed without limitation, that these phrases “were obviously intended to mean (and must have been understood by the Claimant to mean) the rules and instructions issued by Post Office to the Claimant from time to time, including those contained in the Operations Manual” (Abdulla/IDef at §25(1) [B5.4/3/10]).
Bates/IPOC at §15 [B5.1/2/5]
Bates/IPOC at §17 [B5.1/2/5]
Stubbs/IPOC at §5, 88 [B5.2/2/2] and [B5.2/2/19] Sabir/IPOC at §12, [B5.3/2/4]
Sabir/IPOC at §16, [B5.3/2/5]
Sabir/IPOC at §12, [B5.3/2/4]
– 12 –
  A/1/16
  
INTRODUCTION Contracts
33.4. Abdulla: 11 December 2006 (signed Conditions of Appointment);21 and 24 January 2007 (signed Acknowledgement of Appointment);22
33.5. Stockdale: 17 February 2014 (signed Agreement);23 and 8 May 2014 (signed Acknowledgement of Appointment);24
33.6. Dar: 2 July 2014 (signed Agreement);25 and 19 November 2014 (signed Acknowledgement of Appointment).26
Variation - Introduction of Horizon
34. For Bates and Stubbs, their contracts also fall to be construed on the date Horizon was introduced during their appointment, as this marked a fundamental change to how they were required to work, away from the situation that prevailed at the date they had originally contracted with the Defendant.27 It was therefore a material variation. The relevant dates are:
34.1. Bates: in or around October 2000;28
34.2. Stubbs: mid 2000.29
Variation – Assistants
35. It is the Defendant’s evidence that variations were applied to the Subpostmaster Contract, including in July 2006, in respect of training assistants.30 Stubbs (appointment 1999 – 2010) was unaware of this alleged variation, but on the Defendant’s case, her contract would again fall to be construed as at July 2006 when the Defendant contends the variation was made.
  21 22 23 24 25 26 27 28 29 30
Abdulla/IPOC at §12, [B5.4/2/4]
Abdulla/IPOC at §15, [B5.4/2/5]
Stockdale/IPOC at §13 [B5.6/2/4]
Stockdale/IPOC at §17 [B5.6/2/5]
Dar/IPOC at §16 [B5.5/2/5]
Dar/IPOC at §20 [B5.5/2/6]
GPOC at §14 [B3/1/5], Bates/IPOC at §85 [B5.1/2/24] and Stubbs/IPOC at§88 [B5.2/2/19] Bates/IPOC at §40 [B5.1/2/12], Bates §102 [C1/1/23]
Stubbs/IPOC at §16[B5.2/2/5], Stubbs §38-42 [C1/2/9-10] Beal, §38.9 [C2/2/8]
– 13 –
  A/1/17
  
INTRODUCTION Contracts
36. For Dar and Stockdale, their contracts also fall to be construed on the date that the Defendant imposed new / further conditions upon them, as follows:
36.1. Dar: letter dated 28 August 2015 following a period of suspension;31
36.2. Stockdale: email dated 5 November 2015, after deductions taken from her
remuneration.32
Liability for Loss
37. An important issue before the Court is the interpretation of the clauses in the contracts which govern liability for loss, particularly as to the burden of proof and the scope and basis of such liability.
38. In the SPMC the relevant term is Section 12 Clause 12:
"The Subpostmaster is responsible for all losses caused through his own negligence, carelessness or error, and also for losses of all kinds caused by his Assistants. Deficiencies due to such losses must be made good without delay."
39. The short point is that the literal words of this provision confine the Defendant’s ability to hold a Subpostmaster responsible for losses to those which were “caused through his own negligence, carelessness or error”. That is plainly a matter for the Defendant to establish, if and when it is queried or disputed by the Subpostmaster. Furthermore, as to liability for Assistants, on a true construction of this provision, a Subpostmaster is liable “also for [such] losses of all kinds caused by his Assistants” that is to say, any such
losses caused by Assistants, regardless of whether it is due to the negligence, carelessness or error by the Assistant or by the Subpostmaster, since the Subpostmaster is effectively vicariously responsible for what his or her Assistants do.
40. Any interpretation imposing wider liability for Assistants would defy commercial common sense.
 Variation - New Conditions
  31 32
Dar/IPOC at §60.2 [B5.5/2/15] Stockdale/IPOC at §49 [B5.6/2/11]
– 14 –
  A/1/18
  
INTRODUCTION Contracts
41. This is easy to demonstrate by the following example: If the Defendant accepts, as it appears to, that Subpostmasters would not be liable if, for example, they were personally at the terminal when it was afflicted by the (known) Payments Mismatch bug, any wider liability for Assistants falls into sharp focus. Does the Defendant really contend that if, perchance, it was an Assistant at the terminal when it was so afflicted, the Subpostmaster would then be liable? Apparently so; this appears to be precisely the case advanced by the Defendant, at paragraphs 94(2) of the Generic Defence,33 repeated in the Individual Defences.34 It is demonstrably absurd and such a construction ought to be rejected, if persisted in by the Defendant at trial.
42. In the NTC it is Part 2, paragraph 4.1:
"The Operator shall be fully liable for any loss of or damage to, any Post Office Cash and Stock (however this occurs and whether it occurs as a result of any negligence by the Operator, its Personnel or otherwise, or as a result of any breach of the Agreement by the Operator) except for losses arising from the criminal act of a third party (other than Personnel) which the Operator could not have prevented or mitigated by following [the Defendant's] security procedures or by taking reasonable care. Any deficiencies in stocks of Products and/or any resulting shortfall in the money payable to [the Defendant] must be made good by the Operator without delay, so that, in the case of any shortfall, [the Defendant] is paid the full amount when due in accordance with the Manual".
43. The Claimants contend that a natural reading of this provision really imposes liability in similar terms to Section 12 Clause 12 of the SPMC and any ambiguity resolved against the Defendant. Certainly, the phrase in the first parentheses appears to contemplate fault as an ingredient of liability, when it is read as a whole.35
44. However, the Court is already aware that there is a central dispute between the parties as to the burden of proof when a Subpostmaster queried or disputed an alleged shortfall
    33 34 35
[B3/2/43]
e.g. Bates/IDef at §93(1) [B5.1/3/52]
Interpreted "ejusdem generis".
making reference to "fire, flood, storm, tempest" means other accidents of a similar kind: see e.g. Saner -v- Bilton (1878) 7 Ch D 815; Manchester Bonded Warehouse Co. -v- Carr (1880) 5 CPD.
For example, the words "or other inevitable accident" in a clause
– 15 –
  A/1/19
  
INTRODUCTION Contracts
- both as to establishing whether there is a real loss to the Defendant, and if so the cause of the loss.36
45. It is said to be an important part of the Defendant’s positive case that “losses do not arise in the ordinary course of things without fault or error on the part of Subpostmasters or their Assistants”, and that “the truth of the matter lies peculiarly within the knowledge of Subpostmasters” as the persons with responsibility for branch operations and the conduct of transactions in branches.37
46. As the Court is now well aware, following the Defendant’s unsuccessful application to strike out the Lead Claimants’ evidence to the contrary, those propositions are highly controversial, to say the least.
47. The Defendant’s case is in direct opposition to the central premise of this litigation: namely that was excessively difficult, if not impossible, for Subpostmasters to identify the cause of alleged shortfalls, or even whether they represented a real loss at all.
48. The experience of the Lead Claimants does not support the Defendant’s case.
49. Furthermore, the Defendant’s own knowledge of such difficulties and its acceptance that Horizon is not a perfect system (taken together with clear evidence of errors affecting branch accounts and the agreed statement filed by the experts, for the Horizon trial) will be important in considering those assertions upon which the Defendant’s pleaded case relies and the proper construction of the contracts.
  36
37
GPOC at §55 [B3/1/24]; GDef at §94 [B3/2/43]; GReply at §95 [B3/3/43] and Bates/IPOC at §98; Stubbs/IPOC at §101.1; Sabir/IPOC at §77.1; Abdulla/IPOC at §75.1; Stockdale/IPOC at §89.1; Dar/IPOC §90.1.
GDef at §93(1)(a) and (b), incorporated by GDef at §94(1) [B3/2/42-43] – 16 –
  A/1/20
  
Defendant’s Evidence – fourteen Witnesses
52. The Defendant has served witness statements for fourteen witnesses, many of which are wholly or partly generic and unbounded in time. Angela Van Den Bogerd is the Defendant’s main witness, who speaks to an overview of many of the matters in issue, referring to colleagues who deal with particular points in more detail.
53. Some of the witnesses give evidence directed to the appointment of individual LCs, on particular dates.
54. The Defendant intends to call those witnesses in the order identified in the table (below), which identifies each witnesses’ role and the period covered by their evidence, as well as whether the evidence is generic or relates to an individual Lead Claimant, or both.
– 17 –
INTRODUCTION Witness Evidence
 Witness Evidence
Claimant’s Evidence – the six Lead Claimants
 50. The Claimants’ witness evidence is provided by six Lead Claimants, who have each given an account of how they came to be appointed by Post Office and evidence in respect of the Common Issues, including as to the burden of proof, and in response to the Defendant’s case.
51. The table below identifies the period of appointment and branch for each of the Lead Claimants. The Claimants will call this evidence chronologically in order of start date.
        Lead Claimant
  Period of Appointment
      Branch
   1.
   Alan Bates
 31 March 1998 to 5 November 2003
     Craig y-Don
   2.
    Pamela Stubbs
   4 August 1999 to 8 June 2010
      Barkham
     3.
 Mohammad Sabir
9 September 2006 to 2 October 2009 12 October 2006 to 2 October 2009
  Cottingley Crossflatts
   4.
    Naushad Abdulla
   24 January 2008 to 8 May 2009
      Charlton
     5.
  Elizabeth Stockdale
  8 May 2014 to 16 September 2016
   Sandsacre
    6.
 Louise Dar
 19 November 2014 to 27 March 2017
   Lenzie
   A/1/21
  
    INTRODUCTION Witness Evidence
          PO witness
    Position
    Period covered
       Generic/LC
     1.
  Nicholas Beal
  Head of Agents Development and Remuneration
  Unbounded
   Generic
     2.
 Paul Williams
Restrictions Advisor for Post Office
 1994 to 1999
  Generic Bates
   3.
    Sarah Rimmer
   Agent Remuneration & Expenses Manager
   Unbounded
      Generic
     4.
 John Breeden
Head of Agency Contracts
 Unbounded
  Generic
   5.
    Angela Van Den Bogerd
   People Services Director
   Unbounded
      Generic
     6.
 Timothy Dance
Retail Transformation Integration Manager
 Unbounded
  Generic
   7.
    Helen Dickinson
   Security Team Leader
   Unbounded
      Generic
     8.
 Michael Shields
Temporary Subpostmaster Advisor
 Unbounded
  Generic
   9.
    Elaine Ridge
   Network Contract Advisor
   November 2006
      Abdulla
     10.
 David Longbottom
Training and Audit Advisor
 Unbounded
  Generic Stockdale
   11.
    Michael Webb
   Training and Audit Advisor
   September 2006
      Sabir
     12.
 Michael Haworth
Network Engagement Manager
 July 2006
  Sabir
   13.
    Andrew Carpenter
   Agents Contract Advisor
   February 2014
      Stockdale
     14.
   Brian Trotter
  Network Contract Advisor
  December 2013
   Dar
   – 18 –
 A/1/22
  
SECTION A: FACTS Experience Prior to Contracting
 SECTION A: FACTS Experience Prior to Contracting
 55. The LCs had varied backgrounds prior to their appointment by the Defendant, covering project management (Bates), medical sales (Abdulla) accountancy (Sabir), IT support helpdesk (Dar), and retail admin work (Stockdale). With the exception of Stubbs (who had been an assistant in the branch when it was operated by her former husband as Subpostmaster), none of the LCs had worked in a Post Office branch prior to their first day of opening following branch transfer.38
56. Most of the LCs also had very limited or no relevant IT experience (Bates and Dar are notable exceptions).39
57. In making the switch from other careers, and/or or taking on the role of Subpostmaster, a theme in the LC evidence is the extent to which the LCs had trust in the Defendant as an established brand and a national institution:
 38
39
“A key attraction to working with Post Office was that it would provide secure employment, based on the fact that it provides a community service and has an established brand in the community.” (Bates, §9)
“I believed that Post Office would support me during this difficult time of my husband’s death and I placed a large amount of trust in them.” (Stubbs, §14)
“Post Office was a well-respected name in the community and I trusted that they would be a good company to work with.” (Sabir, §9)
“I perceived Post Office to be a reliable, trustworthy, national institution – a contrast to the pharmaceutical industry in terms of stability and the way it dealt with people.” (Abdulla, §9)
For completeness, Sabir was appointed in relation to two branches. He had technically been working in the first branch (Cottingley) for a month prior to the branch transfer of the second branch (Crossflatts).
Bates had experience commissioning and using Electronic Point of Sale (EPOS) systems (Bates, §7), and Dar had experience as an IT support helpdesk analyst, involved in testing and programming the Hilton Hotels reservation system (Dar, §5).
– 19 –
  A/1/23
  
SECTION A: FACTS Experience Prior to Contracting
“Running a Post Office, together with a retail business, sounded like a safe and secure option as I would be backed by the help of a large, trusted institution.” (Stockdale, §13) “I was looking forward to working with Post Office and I trusted Post Office as an organisation and that what I was signing were standard terms that would be fair and reasonable.” (Stockdale,
§64)
“I thought Post Office was a big company with old fashioned values, which was at the centre of the community. I expected Post Office to be a good company to work with, and that I would be able to build a food future for my family. Post Office had a respectable reputation, and throughout the appointment process, Post Office came across as approachable and supportive. I remember they provided me with glossy brochures about how they would support and help me and that I could build my future with them.” (Dar, §8) “In the interview preparation guide there was a reference to a sense of pride, and a requirement to “Share with us why you want to be part of our Post Office community, operating a Post Office branch” ... which fitted with my expectations about how it would be working with Post Office.” (Dar, §22)
58. This evidence is presumably uncontentious, the Defendant itself placing reliance on its “trusted” brand and reputation as being “deeply embedded in the hearts and minds of many local communities”.40
59. The Defendant’s pleaded description of its having contacted with individual Subpostmasters on a “business to business basis” 41 is not a good fit for the evidence, and is apt to minimise the extent to which Subpostmasters were reliant upon and trusted the Defendant during this period and, as addressed further below, beyond.
60. One final point as to the differing prior experience of the Lead Claimants emerges from considering their evidence as a whole. With their different backgrounds, skills and experience, all six of them struggled with alleged shortfalls shown on Horizon. Although their difficulties with Horizon and coping strategies differed, their evidence, considered together, speaks with an eloquence beyond any one individual account.
  40 41
Van Den Bogerd, §38 [C2/1/9]
GDef at §6(2): “Subpostmasters contracted with Post Office on a business
relied on by the Defendant as an “important aspect of the factual matrix” – 20 –
to business basis”,
  A/1/24
  
SECTION A: FACTS Appointment Process Overview
 Appointment Process Overview Appointment of Lead Claimants
 61. In broad overview, the appointment process for each of the LCs was as follows:
 42 43 44
61.1. Bates:42 after initial enquiry, received 6 January 1998 letter, completed application form and business plan and provided documents on 15 January 1998; attended interview; received 30 March 1998 letter confirming application successful, enclosing two short conditions of appointment documents; signed three page conditions of appointment on 31 March 1998; classroom training in April 1998; branch transfer on 7 May 1998 and 5 days initial training/support, signed Acknowledgement of Appointment and other documents on 8 May 1998.
61.2. Stubbs:43 Husband who was Subpostmaster died on 3 August 1999; Area Manager visited on 4 August 1999; Stubbs (who had been assistant) agreed to take over the branch, recalls signing a document relating to her appointment around this date;
61.3. Sabir:44 For the Cottingley branch: registered interest, received 18 May 2006 letter, completed application form and business plan and provided documents in May/June 2006; received 30 June 2006 invitation to interview enclosing “brief summary” of Subpostmaster Contract terms, attended interview on 10 July 2006 when conditions of appointment re: branch improvements and opening hours discussed, received letter dated 13 July 2006; signed Appendix 1 “conditions of appointment” document on 19 July 2006; classroom training in August 2006; branch transfer on 8 September 1998 when signed Acknowledgement of Appointment and other documents, followed by onsite training/support. For the Crossflatts branch: registered interest, received 3 July 2006 letter, completed application and business plan
Bates/IPOC at §8-23, and Bates, §34-86 [C1/1/8-19] Stubbs/IPOC at §8-23, and Stubbs, §12-37 Sabir/IPOC at §3-32, 35, and Sabir, §21-101
– 21 –
  A/1/25
  
  45 46 47
SECTION A: FACTS Appointment Process Overview
in July 2006; interview on 15 August 2006; received letter dated 16 August 2006; signed Appendix 1 “conditions of appointment” document on 19 August 2006; branch transfer on 11 October 2006 when signed Acknowledgement of Appointment and other documents.
61.4. Abdulla:45 registered interest, received 6 September 2006 letter, completed application form and business plan and provided documents in September/October 2006; received 9 November 2006 invitation to interview enclosing “brief summary” of Subpostmaster Contract terms, attended interview on 22 November 2006 when conditions of appointment re: branch improvements and lottery discussed, signed Appendix 1 “conditions of appointment” document on 11 December 2006; classroom training in January 2007; branch transfer on 24 January 2007 when signed Acknowledgement of Appointment and other documents, followed by onsite training/support.
61.5. Stockdale:46 registered interest, received 8 November 2013 email from Defendant with guidance, information and forms; completed application form and business plan and provided documents in November 2013, Defendant’s scoping visit 27 November 2014 to determine required works; interview on 5 February 2014; received letter dated 14 February 2014, enclosing subject to contract Agreement including works required prior to opening, signed Agreement 17 February 2014; 25 March 2014 letter identifying works required; fit out works arranged and completed; 3 days classroom training in April/May 2014; branch transfer 8 May 2014 8 when signed Acknowledgement of Appointment and other documents, followed by one week onsite training/support.
61.6. Dar:47 visited by Defendant in retail premises in September 2012 and April 2013, registered interest (multiple times); received 9 August 2013 email from Defendant with guidance, information and forms; completed application form and business plan and provided documents in October/November
Abdulla/IPOC at §3-19, and Abdulla, §13-74 [B5.4/2/2-7] and [C1/3/4-14] Stockdale/IPOC at §3-20, and Stockdale, §20-83 [B5.6/2/2-6] and [C1/6/4-17] Dar/IPOC at §5-25, and Dar, §9-101 [B5.5/2/2-7] and [C1/5/3-19]
– 22 –
  A/1/26
  
SECTION A: FACTS Appointment Process Overview
2013; interview on 9 December 2013; told unsuccessful and should reapply to operate from existing premises; Defendant’s scoping visit 6 January 2014 to determine required works; submitted revised business plans and applications, attended meeting on 4 June 2014; received subject to contract Agreement including works required prior to opening 18/19 June 2014, signed Agreement 2 July 2014; fit out works arranged and completed; 3 days classroom training in November 2014; branch set up 17-18 and opening 19 November 2014 when signed Acknowledgement of Appointment and other documents, followed by 6/7 days onsite training/support.
Appointment Themes
62. There are significant themes in the LC evidence about the appointment process.
     48
62.1. Early commitment: Compliance with the Defendant’s requirements prior to interview (including the completion of business plans, projections and provision of documents e.g. loan offers) itself represented a commitment of time, energy and money by LCs.
62.2. Increasing commitment: The LCs became increasingly committed to the appointment – by paying deposits, taking out loans, purchasing freehold or leasehold premises, goodwill and stock, and arranging and paying for works prior to opening. (See further Investment by the Claimants, below).
62.3. Business Plans – long-term: The standard form business plans which the Defendant required the LCs to complete reflected the long-term nature of the commitment, by requiring LCs to give an account of their long-term plans / projections for the branch.48
E.g. versions sent to Sabir and Abdulla required 1, 3 and 5 year objectives to be provided: Sabir, §28 [C1/3/5-6]; Abdulla, §24 [C1/4/5]; Stockdale a 1 and 5 year forecast Stockdale, §31 [C1/6/6-7]. For business plans of Bates see [E1/2] and Dar see [E5/56] and [E5/84]
– 23 –
  A/1/27
  
       49
50 51
52 53
SECTION A: FACTS Appointment Process Overview
62.4. Business Plans – no provision for losses: None of the LCs made any provision for losses in their projections49 - albeit it appears the Defendant in its own calculations did.50
62.5. Interview: The main focus of the interview was generally a discussion about the LCs’ business plan, employment history and any conditions of contract required by the Defendant e.g. about works to be done and opening hours (in contrast to a discussion of the terms of the SPMC).51
62.6. Personal Service: Some LCs were told, or records indicate, that personal service was a requirement of the appointment.52
62.7. Missing documentation: Contractual documents were either not sent at all, or not available to LCs until on or after branch transfer. E.g. Bates did not receive a full copy of the 114 page SPMC until over a year after his appointment; Stubbs didn’t receive a copy of the SPMC (she later received an extract from the CAB), nor did she have a copy of the Operations Manual; and Sabir didn’t see the Operations Manual until after branch transfer day.53
62.8. Unclear documentation: Contractual documents provided were not explained or understood, or were understood differently to how the Defendant contends they were intended. E.g. Bates understood the reference to “my contract” in his Acknowledgement of Appointment to refer to the 2 and 3 page documents he had been sent, not the 114 page SPMC he had not seen; Sabir understood the document headed “conditions of appointment” which he was required to sign related to the Post Office requirements to repaint the exterior of the branch and opening hours (which had been advertised and referred to using that phrase), and LCs did not
Bates §42-43 [C1/1/10]; Sabir §29-30,79 [C1/3/6] [C1/3/14]; Abdulla, §30 [C1/4/6]; Stockdale, §33 [C1/6/7]
Sabir, §38 [C1/3/7]; Abdulla, §30 [C1/4/6-7]
Bates, §48-51; Sabir, §42-45; Abdulla, §37-45; Stockdale, §45; (for Dar the position was slightly different as she was not successful at interview, and did not attend a formal second interview: Dar, §38-42, 55-58
Bates, §57 [C1/1/13]; Sabir, §44 [C1/3/8]; Abdulla, §44-45 [C1/4/10] Bates, §52-62,105-110; Stubbs, §26-33; and Sabir, §64
– 24 –
  A/1/28
  
SECTION A: FACTS Appointment Process Overview
know what “Book of Rules” and “postal instructions” referred to in the Acknowledgement of Appointment meant.54
62.9. Branch Transfer: The LC experience of branch transfer was that documents were presented as a formality with little or no explanation, and the day itself was busy, rushed and hectic;55
62.10. No legal advice: None of the LCs took legal advice in relation to their appointment with the Defendant.56 This possibility either wasn’t mentioned by the Defendant at all (Bates, Stubbs, Sabir, Abdulla), or wasn’t raised until a late stage in the process (Stockdale and Dar), in the latter case negated by the Defendant having previously conveyed to the LC that this wasn’t really necessary.57
62.11. Non-negotiable terms: The Defendant’s standard contractual terms were in any event non-negotiable. The LCs (correctly) understood the terms to be imposed by the Defendant, and not open for negotiation – they had no choice but to contract on the Defendant’s terms.58 (And on this matter, the Defendant’s evidence is also clear.)59
63. The Defendant’s evidence about the appointment process in many respects paints an unrealistic picture of consistent good practice, persisting over a long period of time, often based on evidence outside the individuals’ direct knowledge, and either not referenced to documents or sources at all at all, or so imprecisely referenced as to be meaningless. For example Mr Williams states: “As far as I was aware, for both my Region and other Regions (based on my management meetings with other Team Leaders) the same
     54
55
56 57 58
59
Bates, §76 [C1/1/18]; Sabir, §47 [C1/3/9]; Abdulla, §57 [C1/2/12]; and Bates, §77 [C1/1/18]; Stockdale, §81 [C1/6/16]; Dar, §95 [C1/5/18]
Bates, §73-77 [C1/1/17] ; Sabir, §95-97 [C1/3/16-17]; Abdulla, §55-61 [C1/4/11-12]; Stockdale, §81 [C1/6/16]; Dar, §94-97 [C1/5/18]
Bates, §59; Stubbs §23; Sabir §68,98; Abdulla, §47; Stockdale, §64,87; Dar, §58,68-69,95.
Stockdale, §64,87 [C1/6/13] [C1/6/17]; Dar, §58,68-69,95 [C1/5/11] [C1/5/14] [C1/5/18]
Bates, §49; Stubbs, §23; Sabir, §44; Abdulla, §43; Stockdale, § 65; Dar, § 70 and Bates/IPOC at §120.3; Stubbs/IPOC at §123.3; Sabir/IPOC at § 99.3; Abdulla/IPOC at § 97.3; Dar/IPOC at § 112.3; Stockdale/IPOC at §111.3.
Beal, §16 “If a Subpostmaster requested a change to the standard contract offered, the request would not be acceptable to Post Office” [C2/2/3]
– 25 –
  A/1/29
  
SECTION A: FACTS Appointment Process Overview
Transfer Pack was utilized for transfers carried out when there was a Death in Service appointment. ...60”, and the account then given of the Defendant’s process in relation to Death in Service is provided without reference to a single document or any defined period of time. Where evidence is given by the Defendant’s witnesses involved with the appointment of LCs, it is almost exclusively in the format of what the Defendant says “would have” happened, e.g. what “would have” been said at interview, and will in many respects be the subject of challenge by the Claimants.
  60
Williams, §39
– 26 –
  A/1/30
  
SECTION A: FACTS Commitment to and Investment in the Relationship
Commitment to and Investment in the Relationship
64. The LCs made significant investments in their relationship with Post Office. In many cases, prior to branch opening, but also continuing thereafter.
65. The nature of the investments included purchasing or leasing premises and goodwill, fixtures, fittings and stock: Bates paid £175k for the freehold, goodwill and fixtures and fittings, Sabir paid a total of £9,150 in deposits for the two branches as well as a total purchase price of £55,000 plus stock for the Cottingley branch, and £36,000 for the goodwill of the Crossflatts branch. Abdulla paid £80k plus stock, and entered a 12 year term lease at £14.5k per annum, Stockdale paid £1,309.77 to the former Subpostmaster for newspaper round balances and £900 in relation to the lease assignment. These financial commitments were financed by either savings (e.g. Bates), family loans (e.g. Abdulla), and/or in most cases, by long-term bank loans on commercial terms (e.g. Bates had a 15 year loan with RBS, Sabir had 10 and 8 year loans with Lloyds, Abdulla had a ten year loan with Barclays Bank).
66. All of the LCs operated the branch together with connected retail business – consistent with the Defendant’s evidence across the network to this effect.61 Two of the LCs (Bates and Stubbs) resided in residential accommodation connected to the branch, a relatively common arrangement as reflected in s13 clause 8 of the SPMC, and e.g. the Defendant’s application forms62, but not mentioned at all in the Defendant’s evidence.
67. The LCs were in many cases required by Post Office to carry out updating or more substantial renovation works to the premises before or soon after branch opening. For the SPMC LCs Sabir and Abdulla, these requirements were imposed as “Conditions of Appointment”, and consisted of cleaning and clearing the interior and repainting the exterior of the branch and refurbishing lighting, ceiling and carpets.63 For the NTC LCs, Stockdale and Dar, the Defendant required substantial refit works to be carried out,
   61
62 63
Van Den Bogerd, §27 “The majority are owned by independent small business owners, who usually locate the branch within a larger retail offering like a newsagent or convenience store” [C2/1/7]
See e.g. [E3/31.1/1] and [E3/96/1]
Sabir, §74 [D1.3/1/1], [D1.3/3/1], Abdulla, §72 [D1.4/2/1]
– 27 –
  A/1/31
  
SECTION A: FACTS Commitment to and Investment in the Relationship
which were largely paid for by the Defendant, but nonetheless with obligations on the LCs to arrange, undertake and/or pay for parts of those works.64
68. The investments made by the Claimants continued during their appointment, including for Bates, a 25% deduction from his remuneration made by Post Office during the first 12 months’ of his appointment, for all LCs, by the employment of assistants, and substantial refurbishment works to the premises carried out by Bates (in mid-2000)65 and Stubbs (in 2009).66
69. The Defendant’s pleaded position is defensive on the issue of investment by Claimants,67 but there can be no serious challenge to the fact that each of the LCs did invest in the relationship, and that the nature of their investments and commitment to the relationship was substantial and long-term.
70. The Claimants also rely on the Defendant’s positive assertion in the Generic Defence: “Post Office incurred long-term and expensive commitments in respect of the Subpostmaster relationship, including by providing valuable cash, stock and equipment to Subpostmasters on an unsecured basis”,68 admissions in individual LC defences,69 and the generic evidence as to the investments made by the Defendant.70
  64 65 66 67
68 69
70
Stockdale, §77 [C1/6/15]; Dar, §73-79 [C1/5/14-15]
Bates, §92.4-92.5 [C1/1/21]
Stubbs, §49-50 [C1/2/11]
GDef at §79(1), and each of the individual defences: Bates/IDef at §37-38; Stubbs/IDef at §21-22; Sabir/IDef at §40; Abdulla/IDef at §29; Stockdale/IDef at §23-24; Dar/IDef at §/29
GDef at §79(2)
E.g Stockdale/IDef at §24 “Post Office paid £15,089.59 for Post Office equipment and
at the Branch.”
installation costs
E.g. Van Den Bogerd §65.5 statement: “Post Office provides the equipment, including IT equipment, needed to conduct customer transactions and maintain the branch accounts, including safes, mail scales, Horizon, printers, barcode scanners and chip and pin machines. It also provides the back-end IT infrastructure that connects each branch with Post Office’s clients.”; Van Den Bogerd §100, identifying the “relatively high cost” to Post Office of providing training which “can be very labour intensive”, and subsequent paragraphs referring to initial classroom and in branch training; and Dance §31- 38 in respect of investment in NT branches by enabling costs and equipment costs [C2/1/18]
– 28 –
  A/1/32
  
SECTION A: FACTS Security of the Position
71. The LCs were generally attracted to the position of Subpostmaster because of the security of the role: LCs variously describe perceiving the role as “a safe option”; being led to believe they could “build a good future” and that it was a “very secure position and long-term commitment” and that the role was “secure and stable”.71
72. They made their investments into the relationship on this basis, and in the expectation of return: e.g. “It was a large amount of money, but we were willing to invest it in this way because we were sure there was a large measure of security in running a Post Office branch, which was, to our mind, a relatively safe investment upon which we would likely receive a return”;72
73. The LCs did not expect the Defendant to terminate their appointments, at least absent serious wrongdoing on their part, and the Defendant did not prior to contracting inform the Claimants otherwise.73
74. The Defendant in reality recognises the investment of Subpostmasters and their expectation of return by its practice of compensating Subpostmasters when closing branches, and the existence of a long-term arrangement for compensation to this effect – as pleaded and evidenced for the Claimants by Bates,74 a principle now further supported by evidence as to compensation given by the Defendant’s witness, Beal.75 The Claimants further note the evidence of the Defendant’s witness Breeden that the Defendant would typically not terminate on notice unless there was a capability or performance issue and eventhenonlyafterdiscussionsaimedatimprovingperformance,76 andfurtherthatthe 3 month notice period in the written SPMC terms
 Security of the Position
  71
72 73 74 75 76
Bates, §11 [C1/1/3]; Dar, §150 [C1/5/28-29]; Abdulla, §10 [C1/4/2]; Sabir, §9 [C1/3/2]; Stockdale, §13 [C1/6/3]
Bates, §27 [C1/1/6]
E.g. Dar, §150; Stubbs, §129; Sabir, §123; Bates/IPOC at §27 and Bates, §94-97 Beal, §32
Breeden, §60
– 29 –
  A/1/33
  
SECTION A: FACTS Security of the Position
was in reality insufficient for an Subpostmaster to sell the business and premises and find an incoming Subpostmaster.77
  77
Breeden, §62
– 30 –
  A/1/34
  
SECTION A: FACTS Features of the Relationship
75. Whilst the Claimants do not contend that their relationship with Post Office was that of an employee and employer, the relationship was in many respects akin to employment, noting e.g. the imbalance of power between the Defendant and Subpostmasters;78 the degree of the Defendant’s discretion and control in the relationship; the Defendant’s requirements for personal service (paragraph 62.6 above); payments made by PAYE and payment of holiday pay;79and, the verbal warning issued by the Defendant to Sabir.80
76. It is a theme of the LC evidence that they considered themselves to be working as partners or in partnership with Post Office.81 The Defendant’s evidence is indeed consistent with that view, Trotter conceding that in his interview with Dar “I may have used the colloquial term of “partnership” in relation to the fact that Ms Dar and Post Office would be working together to make the most of the Local branch.”82
 Features of the Relationship
  78 79 80 81 82
GPOC at §47 et seq
Rimmer, §59
Sabir, §73
Bates, §47, 84, 98 ; Sabir, §103; Abdulla, §9; Stubbs, §20; Dar, §42 Trotter, §10
– 31 –
  A/1/35
  
SECTION A: FACTS Assistants
77. All of the LCs employed assistants, who generally transferred to their employment by TUPE transfer at the outset of their appointment,83 and the LCs relied on the experience of those assistants when taking up appointment as Subpostmaster - in some cases they were expressly encouraged to do so.84
78. The Defendant had control over assistants by vetting them prior to permitting the Subpostmasters to appoint them, the decision as to the training to offer to them, and effective control as to whether they should continue to be employed by the Subpostmaster.85
79. It is part of the Claimants’ case that Subpostmasters were not in a position to provide training to Assistants that went beyond the training provided by the Defendant to them.
 Assistants
  83 84 85
E.g. Bates, §92.1 [C1/1/21] E.g. Dar, §125 [C1/5/24] E.g. Dar, §126 [C1/5/25]
– 32 –
  A/1/36
  
SECTION A: FACTS Training Subpostmasters
80. With the exception of Stubbs, prior to or immediately following their appointment as Subpostmaster, all LCs were provided with a combination of classroom and in branch training.
81. In respect of the classroom training prior to appointment:
81.1. Bates: received 2 days classroom training in April 1998.86
81.2. Sabir: received 5 days classroom training in August 2006.87
81.3. Abdulla: received 10 days classroom training in January 2007.88
81.4. Stockdale: received 3 days classroom training in April 2014.89
81.5. Dar: received 3 days classroom training in November 2014.
82. The themes in the LC evidence about the pre-appointment classroom training include, the generality of training and its focus on sales, and the inadequacy of the training as preparation for the reality of opening and running a branch: e.g. “When we worked on the dummy Horizon terminal, we would simulate someone coming in to buy a stamp. The terminal was not live and I don’t think we covered balancing or how to deal with a transaction correction. If we did then this was not covered in any detail.” (Abdulla, January 2007);90 “The training focused mainly on sales and processing day-to-day transactions, and I do not feel that it adequately prepared me for running a branch on my own. The training environment was completely different from the real branch environment and the reality of operating the Horizon system day to day.” (Sabir, August 2006);91 and “I did not find the classroom training to be adequate at all. Given my background as an IT analyst at Hilton Hotels, I was very aware of the amount of training required to equip users with the necessary knowledge to enable them to use a
 Training Subpostmasters
  86 87 88 89 90 91
Bates, §68-70 [C1/1/16] Sabir, §51 [C1/3/9] Abdulla, §51-54 [C1/4/11] Stockdale, §71-76 [C1/6/15] Abdulla, §53 [C1/4/11] Sabir, §53 [C1/3/10]
– 33 –
  A/1/37
  
SECTION A: FACTS Training Subpostmasters
complex IT system such as Horizon and the many complex tasks which a user may need to carry out. In my opinion the training should have been far more thorough.” (Dar, November 2014)92
83. Where the classroom training did cover balancing or resolving apparent shortfalls, it was very limited, e.g.: “Balancing and the signing off on trading statements was covered only briefly. As I recall when we did a dummy balance using Post Office paperwork all of the Subpostmasters on the course had problems. We weren’t given any guidance about signing off on trading statements other than that we had to do it. The training didn’t involve any information on how to investigate or resolve discrepancies. We were simply told that if a shortfall arose we would be required to make it good.” (Sabir, August 2006);93 “One of the sessions of the classroom training covered the basic process for balancing, which was essentially explained as counting all of the cash, checking stock and inputting the figures into Horizon. I recall being told that if there is problem you just need to re-count the cash. It was suggested that any problems with balancing would be a result of mistakes such as giving the wrong change or inputting a figure wrong, such as adding an extra zero. It was made to seem like mistakes such as these would be easy to fix. There was no mention of how to investigate and deal with settling shortfalls or disputing them.” (Stockdale, April 2014);94 and “During the training I asked the trainer what should we do if we had problems with balancing and the trainer said we should check over the figures and if in doubt, call the helpline. I asked about troubleshooting and was told that this would be covered during the onsite training (Dar, November 2014).95
84. The LCs’ experience of Branch training provided immediately on or following branch opening was that it was also very limited and did not make up for the limitations in the classroom training e.g. “[The trainer] was not present for the full working day, and she mainly just shadowed me and stepped in if I had specific questions” (Sabir);96 “Having the trainers on site was helpful, but it didn’t greatly increase my understanding about how to use Horizon as they
 mainly observed me rather than actively training me;” (Stockdale)97
Dar, §86 Sabir, §55 Stockdale, §75 Dar, §85 Sabir, §69 Stockdale, §82
and “Ms
 92 93 94 95 96 97
– 34 –
  A/1/38
  
SECTION A: FACTS Training Subpostmasters
Guthrie was shadowing me, and intervening in customer transactions. I often didn’t find her interventions helpful, ...” (Dar).98
85. If problems with balancing and resolving discrepancies was covered at all during this time, the advice was essentially to call the Helpline e.g. “I wasn’t told in any detail how to investigate or resolve discrepancies or apparent shortfalls showing on Horizon, or how I could use any of the Horizon functionality to do this, I was just told to contact the Helpline. I think this was the main area where the Post Office training provided was lacking.” (Abdulla),99 “I ... specifically asked Ms Guthrie what to do if the system wasn’t balancing, but she just said to call the Helpline and that they would resolve any problems I told Ms Guthrie that I wasn’t comfortable opening the branch without any troubleshooting training and I asked if any could be provided, but she didn’t offer anything more ,she told me that I would just have to get on with it and call the Helpline if I had problems.”(Dar)100
86. Bates and Stubbs, who were each appointed prior to the introduction of Horizon, each had training when Horizon was introduced. The limitations in this training are plain from their evidence - Bates received 1.5 days in a hotel with 150 others;101 Stubbs received 1 day of training with 12-15 others, on terminals set up in a pub.102
87. The Defendant’s evidence in relation to training is provided by Van Den Bogerd, and is in conflict with that of the LCs in key respects.103 However, on her own evidence, the quality or otherwise of training is relevant to the prevalence of apparent shortfalls. 104
  98 99 100 101 102 103 104
Dar, §98
Abdulla, §62-71, at 66 Dar, §93
Bates, §132-140 Stubbs, §61-65
Van Den Bogerd, §99.
Van Den Bogerd, §99.1,99.6 “There are strong incentives for Post Office to deliver effective training: It reduces the chance of an accounting or cash / stock handling error in branch, thereby reducing shortfalls; ...It may reduce other costs at Post Office (e.g. back office processing of transaction corrections; ...).
– 35 –
  A/1/39
  
SECTION A: FACTS Support and the Helpline
88. The Claimants do not accept the Defendant’s evidence to the effect that the Helpline was an effective means of obtaining information and support or that further training would readily be made available to them during their appointment if only they would ask.105 The universal experience of the LCs was that whereas they were reliant on the Helpline, and expected it to provide a high level of support, the Helpline support was in fact very poor, and not an effective way to resolve their problems in relation to apparent shortfalls.106 Further, a number of the LCs specifically asked for additional training which was refused: Bates specifically asked for more training prior to the installation of Horizon, and Dar asked for training on a number of occasions with her area manager.107
89. The Claimants do rely on what is implicit in Van Den Bogerd’s evidence, namely that to the extent training was deficient to prevent errors occurring, the obligation was on Post Office to provide further training and additional support.108
 Support and the Helpline
  105 106 107 108
Van Den Bogerd, §114-115 [C2/1/32-33]
Bates, §142-143; Stubbs, §69-73; Sabir, §110-113; Abdulla, §83-87; Stockdale, §95-98; Dar,§116-122. Bates, §143.3; Dar, §115
Van Den Bogerd, §99.4, 99.5 “It may reduce the amount, and therefore cost, of other support needed by Subpostmasters (e.g. calls to the NBSC helpline); It avoids the cost of having to repeat training” [C2/1/29]
– 36 –
  A/1/40
  
SECTION A: FACTS Apparent Shortfalls and Horizon
 Apparent Shortfalls and Horizon
 90. The experience of the LCs was that:
90.1. they encountered apparent shortfalls for which they were unable to ascertain the cause using information to which they had access, and the Helpline was not an effective way to resolve their problems (paragraph 88 above);
90.2. the apparent shortfalls which they experienced far exceeded the small discrepancies that, in many cases, they had been led to believe during training might arise;109
90.3. the Defendant’s auditors with access to the same information as the LCs in branch were also unable to ascertain cause;110
90.4. LCs were reliant on the Defendant to find the cause of apparent shortfalls, and the Defendant had greater knowledge than they did in relation to transactions and transaction data;111
90.5. LCs received transaction corrections which they were told they had to accept, even when they did not agree with it or the basis for it;
90.6. LCs were treated as liable for lost cheques or where any other documentation was missing;
90.7. when apparent shortfalls were recorded by the Defendant during audits which led to LCs being suspended, they were then excluded from their branches and records, and unable to investigate;
90.8. apparent shortfalls were pursued by the Defendant post termination of contract when the LCs were again unable to investigate.
91. There is no acknowledgment in the Defendant’s evidence of any of these problems, or
that that Horizon might be the cause of apparent shortfalls.
The evidence of Van Den
 109 110 111
Bates, §187; Dar, §43
Bates, §155, 179; Dar, §125, 157
Bates, §176; Stubbs, §131; Sabir, §130; Abdulla, §126; Dar, §153; Stockdale, §134
– 37 –
  A/1/41
  
SECTION A: FACTS Apparent Shortfalls and Horizon
Bogerd in relation to shortfalls and transaction corrections will be subject to challenge by the Claimants.
92. The Claimants will also rely on the experts’ joint report for the Horizon trial, which records at point 1, areas of agreement:
“Evidence exists that that bugs/errors/defects have caused actual discrepancies or shortfalls relating to Subpostmasters’ branch accounts/transactions.
Each time any IT system (including Horizon) is changed there is the potential to introduce new bugs/errors/defects.
Once bugs/errors/defects are discovered, they take time to resolve and therefore systems such as Horizon often continue to operate with bugs/errors/defects with or without workarounds in place.
Theoretically, bugs/errors/defects that existed within Horizon have the potential to cause apparent or alleged discrepancies or shortfalls in relating to Subpostmasters’ branch accounts/transactions.
In the event that any specific bug/error/defect had such an effect, the experts have differing views as to the ‘extent’ of the impact that such bugs/errors/defects may have had on branch accounts.”
93. The LCs were not aware of any of the matters at paragraph 90 above prior to their appointments, did not prepare their business plans on this basis (paragraph 62.4 above), and did not expect the Defendant to operate the contract in this way. For example:
“I certainly did not think that I would be taking on open-ended responsibility for any and all losses including those for which I was not responsible, still less significant sums ... It did not occur to me that I would ever be held liable for losses that were not my fault, as this concept seems so unjust that I did not consider it a possibility” (Bates, §37 [C1/1/8]); E.g. “I had understood (despite not being provided with a contract) that I would only be liable for losses in the event that I was negligent or had done something wrong that gave rise to the losses”(Stubbs, §28 [C1/2/6]); “Prior to contracting I expected that if Post Office could prove there is a loss which is a Subpostmaster’s fault then yes the Subpostmaster is responsible. If the Subpostmaster is doing something wrong on purpose or is careless then he will have to pay. I thought that Post Office had to show that was the case, not that the Subpostmaster had to prove the opposite” (Sabir, §132 [C1/3/24]); “If I had been told at interview that...I would be held liable for hundreds and thousands of pounds of alleged shortfalls, I would have never accepted the appointment (Abdulla, §42 [C1/4/9]).
 – 38 –
  A/1/42
  
94. As the Court is well aware, it is in important part of the Claimants’ case that the contracts between Subpostmasters and the Defendant are properly to be characterised as ‘relational contracts’, as described by Leggatt J in Yam Seng v International Trade Corp [2013] EWHC 111 (QB) (“Yam Seng”), such that duties of good faith, fair dealing, transparency, cooperation and/or trust and confidence are to be implied.
95. As foreshowed in the Introduction (above, on p.2), the Claimants contend that these are, even as a matter of preliminary impression, obviously relational contracts.
96. On analysis, the Claimants will respectfully submit that this is beyond doubt.
97. The Claimants recognise that this question overlaps to some extent with those questions arising under Issues 2 and 3: Implied Terms (below); but the Claimants have sought to treat them distinctly as far as possible.
98. For the reasons explained below, the basis upon which the Defendant denies the implication of the above duties and that these were relational contracts is both threadbare and flawed.
– 39 –
SECTION B: COMMON ISSUES Issue 1: Relational Contract
 SECTION B: COMMON ISSUES Issue 1: Relational Contract
 Issue 1: Was the contractual relationship between Post Office and Subpostmasters a relational contract such that Post Office was subject to duties of good faith, fair dealing, transparency, cooperation, and trust and confidence (in this regard, the Claimants rely on the judgment of Leggatt J in Yam Seng Pte v International Trade Corp [2013] EWHC 111)?
    Statements of Case
   Particulars
    Defence
     Reply
   Generic
    43 to 44, 63
    103
      55 to 56
   Bates
   82 to 84
  51 to 53
    57 to 61
   Stubbs
 85 to 87
 36 to 38
  49 to 53
   Sabir
    61 to 63
    50 to 52
      54 to 58
   Abdulla
 59 to 61
 38 to 40
  48 to 51
   Dar
    74 to 76
    38 to 40
      47 to 51
   Stockdale
   74 to 76
  33 to 35
    42 to 45
    A/1/43
  
99.
SECTION B: COMMON ISSUES Issue 1: Relational Contract
The Defendant’s overall case on this issue is considered below at p.49. However, it is useful, by way of specific example, to consider the ingredients of the Defendant’s pleaded case in relation to the duty of good faith:–
99.1. The Defendant flatly denies all the duties contended for, including that of good faith, in the context of relational contracts at GDef §103.112
99.2. As to the implied terms pleaded at GPOC §64, and specifically the duty to exercise any contractual, or other power, honestly and in good faith for the purpose for which it was conferred at GPOC §64.16, the Defendant denies these at GDef §106(2) on various bases including:
“Many of them would obviously have been rejected by Post Office had they been proposed and/or are unreasonable and/or make no commercial sense.”113
99.3. However, in the IDefs, the Defendant admits an implied term that it would not exercise its power to change the contract and its operational instructions (without the agreement of the NFSP) “dishonestly or in an arbitrary, capricious or irrational manner”114 although the Defendant denies any such qualification to its “power to change the contract and its operational instructions with the agreement of the NFSP” – presumably because of the NFSP’s role, which is (as Mr Beal explains in his witness statement)115 “an independent members’ organisation supporting Subpostmasters”.
It remains to be seen how far the Defendant will go in its evidence to establish that it would “obviously have rejected” an obligation that: (a) it generally act in good faith; or (b) exercise its power to change the contract honestly – had either of those been proposed when the contract was made. The Defendant’s case appears awkward.
Although the Defendant has reserved its position, at least on the case law, at GDef at §103(4).
 Example: the Defendant’s case on good faith
  100.
112 113
114 115
Other aspects of the Defendant’s stance in this respect are dealt with in more detail 2 and 3: Implied Terms, below at p.56 onwards
e.g. Bates/IPOC at §65(2)
Beal, §44; and as contractually stipulated by the Defendant at Clause 1.3 of theNTC
under Issues
 – 40 –
  A/1/44
  
SECTION B: COMMON ISSUES Issue 1: Relational Contract
101. The Claimants are positively contending for the implication of terms which do no more than reflect standards of conduct (e.g. the degree of cooperation) inherent in and necessary to the parties’ respective obligations, and/or necessary to the commercial or practical coherence of the contracts.
102. However, before addressing the implication of the duties for which the Claimants contend, it may be helpful to spell out what the Claimants are not contending for in relation to implication of the terms in issue here (to avoid straw men being set up by the Defendant):
 Straw men
  116
102.1. TheClaimantsdonotcontendfortheimplicationoftermswhichseektoexact a higher degree of cooperation than that which could be defined by reference to the necessities of the contract.
102.2. These are not contracts in which the Court can infer that the parties have considered making express provision for a duty of good faith and then chosen deliberately to step back from an express agreement that they would owe each other such a duty116 – there is no such inference to be drawn here and, in any event, the Defendant’s standard contracts are very far from the commercially negotiated contracts in issue in many other cases (individual Subpostmasters having no say at all over their terms).
102.3. The Claimants do not contend that such duties are to be implied into every contract or can never be excluded – that is not the law.
102.4. The Claimants do not contend that the implication of these duties follows simply from the general nature of the agreement (save to the extent that some terms are implied in certain classes of contractual relationship e.g.
See: Fujitsu Services Ltd v IBM United Kingdom Ltd [2014] EWHC 752 (TCC) (21 March 2014); 153 Con LR 203 – express good faith term pleaded but rejected, at [162]; and Portsmouth City Council v Ensign Highways Ltd [2015] EWHC 1969 (TCC) (14 July 2015) – implied term asserted and defeated, not least because there were “specific and narrow” express duties of good faith at numerous points throughout the agreement, at [82] and [93], and other differently framed but express qualifying obligations, such as a requirement to use reasonable endeavours, at [83] and [93].
– 41 –
  A/1/45
  
SECTION B: COMMON ISSUES Issue 1: Relational Contract
employment – see Two categories of implied terms, at p.59 below). The implication of such duties flows only from a thoughtful consideration of the agreement, as well as the functions and obligations of the parties, including the practical demands upon the parties inherent therein.
102.5. TheClaimantsdonotcontendthattheCourtshouldconstrueobligationssuch as the duties to 'cooperate' or 'to act in good faith' as cutting across more specific provisions and any limitations in them.117
The Claimants’ case
103. These contracts are paradigm examples of relational contracts, into which duties of good faith, fair dealing, transparency, cooperation and/or trust and confidence are to be implied.
104. Those duties govern the Defendant’s exercise of all powers and discretions under Subpostmaster contracts and relating to the relationship arising therefrom; and they extend to sharing information relevant to the performance of the contracts.118
105. As the judgment of Leggatt J in Yam Seng itself makes clear, the implication of such duties in English law is not new. Indeed, well before the decision in Yam Seng, authoritative commentators regarded the implication of a duty of good faith as uncontroversial – see, for example, Conaglen on Fiduciary Loyalty119 (2010):
"Undoubtedly, fiduciaries must act in good faith [but] it is suggested that the duty of faith is not peculiar to fiduciaries. In particular, a duty of good faith has frequently been recognised in circumstances that are not traditionally considered to be fiduciary relationships and when fiduciary analysis played no part in reaching the court's conclusion. In numerous cases, for example, courts have held that discretionary powers in contracts had to be exercised in good faith ...”
106. Relational contracts are a developing area of the law. It is salient in the present case to note that these contracts bear many of the hallmarks of employment contracts, yet the
  117 118 119
Beatson LJ (in what?)
Yam Seng, [142]
p.43 – see also the lines of authority referred to therein and by Leggatt J in Yam Seng at[145]
– 42 –
  A/1/46
  
SECTION B: COMMON ISSUES Issue 1: Relational Contract
liabilities centrally in issue in this case are not commonly found in the employment context.
107. These hybrid characteristics mark them out as unusual contracts, at the nexus of two (usually distinct) classes of contractual relationship. It is interesting to note, however, that the duty of trust and confidence contended for by the Claimants is one which is automatically implied in employment relationships. To the extent that this context relied upon by the Claimants120 bears upon whether the Subpostmaster contracts are to be characterised as relational contracts, it tends to support such a characterisation – on one view, strongly.
108. Re-focusing on the approach in pure commercial contracts, as per Yam Seng, the Claimants’ submissions are set out below. However, in case it is of assistance to the Court, a more detailed treatment as to the approach to ascertaining of the nature of the contractual relationship for these purposes, and the implication of such duties, is set out in Annex 2.
109. The approach in Yam Seng follows the established methodology in English law for the implication of terms in fact, based on the presumed intention of the parties.121 There appears to be little controversy as to the image of Post Office in the minds of those hoping to become Subpostmasters or Subpostmistresses and their expectations.
110. The background reasonably available to the parties, in this context, includes not only matters of fact known to the parties, but also the norms of behaviour specific to the particular commercial activity in question and arising from the features of the contract.122 As the Defendant has made clear, it is essentially performing a public service and, even today, remains wholly owned by the state. It controls almost all aspects of what it contends is a business to business relationship. There is no way that it can work without a high degree of cooperation and trust. Furthermore, in this context, it would seem fanciful to suggest that honesty and fair dealing would not be regarded as shared values or norms by both the Defendant and Subpostmasters and
  120 121 122
GPOC at §45 (and §9) Yam Seng at [131] Yam Seng at [134]
– 43 –
  A/1/47
  
 111.
SECTION B: COMMON ISSUES Issue 1: Relational Contract
indeed there is no such suggestion in the evidence. All this forms part of the background against which the relationship with Subpostmasters falls to be considered.
A ‘relational contract’ in which the duties set out above may be implied is a longer term relationship involving substantial commitment, in which:123
111.1. there is a high degree of commitment, cooperation and predictable performance;
111.2. based upon mutual trust and confidence and expectations of loyalty which are not legislated for in the contract;but
111.3. are implicit in the parties’ understanding and necessary to give business efficacy124 to the arrangements.
The Claimants will invite the Court to find, on the evidence to be heard at trial, that the Subpostmaster contracts at issue in these proceedings are paradigm examples of ‘relational contracts’. On the relevant facts: -
112.1. They are of a long-term nature and involved a high degree of commitment, cooperation and predictable performance of the nature described.
112.2. The mutual trust and confidence upon which those requirements are based are plainly not legislated for in their express terms.
They are both implicit and necessary in this context, and the implied duties thereby arising are essential features of the legal relationship. The Claimants deal with each of these factors in turn.
112.
113.
Long-term commitment, cooperation and predictable performance
114.
123 124
First, that the contractual relationship between Subpostmasters (of all types) and the Defendant is a commitment that made commercial sense over the long-term and one which involved a high degree of commitment by both parties in the relationship.
Yam Seng at [142]
Now understood to mean achieving practical and commercial coherence
 – 44 –
  A/1/48
  
SECTION B: COMMON ISSUES Issue 1: Relational Contract
115. That “Post Office incurred long-term and expensive commitments in respect of the Subpostmaster relationship, including by providing valuable cash, stock and equipment to Subpostmasters on an unsecured basis” is admitted, for example, by the Defendant.125
116. It is beyond serious dispute that the Claimants themselves made a significant commitment to the relationship over the long-term. The Claimants will rely upon the evidence set out in Section A: Factual Context above, under ‘Commitment to and Investment in the Relationship’ and such further evidence as will be heard at trial on the factors relevant to implication of the duties relied upon.
  125 126
116.1. Each of the Lead Claimants, for example, made significant financial investments. These were not only in their own retail business, or the premises from which the branch operated, but were also investments whose value depended upon being in a working relationship with the Defendant for the long-term.
116.2. Without limitation, the investments made by the Lead Claimants included:
a. purchasing the goodwill of the business, including the branch itself, from the previous Subpostmaster;
b. entering into a contract to purchase or lease premises from which to operate the branch, with associated borrowing from banks or other lenders;
c. taking up residential accommodation on those or linked premises;
d. entering into, or taking on, employment contracts with assistants;
e. investing in the training of those assistants; and
f. incurring refurbishment, fit out and/or decorating costs for the Branch – including as a condition of appointment imposed by the Defendant.126
116.3. Many of the investments made by the Lead Claimants were directly aimed at increasing Branch business – to the benefit of both parties to the relationship.
GDef at §79(2) [B3/2/38]
E.g. Sabir [D1.3/3/1] and Abdulla [D1.4/2/1]
– 45 –
  A/1/49
  
SECTION B: COMMON ISSUES Issue 1: Relational Contract
116.4. AsatleastoneLeadClaimantmakesclear,suchinvestmentswouldnothavebeen made had it been known that the investment could be put at risk, still less undermined entirely, by Post Office terminating the appointment without cause or compensation.127
116.5. AlloftheLeadClaimantspurchasedretailbusinesswhichtheyranalongsidetheir Branch, but it is clear that such businesses were reliant upon the existence of the branch and (as was the case with at least one Lead Claimant) likely not viable without it in the same premises.128
116.6. In some cases, the contract provided for the withholding of 25% of the Subpostmasters’ remuneration during the first 12 months of trading “in recognition of the opportunity to operate a Post Office on behalf of Post Office...”129 The Claimants will say, as one Lead Claimant (Bates) observes,130 that such requirements made a longer term commitment to running a Post Office branch necessary, in order to amortise and recoup the investment made by the Subpostmaster.
117. Second, the operation of the contractual relationship necessarily required a high degree of cooperation and predictable performance.131
118. The Defendant admits that “the operation of the relationship between a Subpostmaster and Post Office required communication and cooperation”.132 That this was required to a high degree appears beyond any sensible dispute.
119. The Claimants will nevertheless rely upon the following:
  127 128 129 130 131 132
119.1. The Defendant’s requirement that detailed business plans be provided that included long-term financial projections for the branch in the future of which
Bates, §30 [C1/1/7] Stockdale, §17 [C1/6/ 3-4] Bates/IPOC at §8 [B5.1/2/2-3] Bates, §90 [C1/1/20]
GPOC at §43 to 44 [B3/1/15] GDef at §80 [B3/2/38]
– 46 –
  A/1/50
  
  133 134 135 136 137 138 139
SECTION B: COMMON ISSUES Issue 1: Relational Contract
both parties were invested, and the commitment to the application process otherwise required by the Defendant.133
119.2. The shared expectations of cooperation and support as evidenced by representations made by the Defendant during the appointment process, and the impression given to some Lead Claimants that Subpostmasters were to operate the branch (in colloquial/business terms) in partnership with the Defendant.
119.3. The significant level of trust reposed in the Defendant by Subpostmasters by reason of its role in the Community, that fact of it being a national institution,134 and by its established brand.
119.4. The Defendant’s own evidence as to that brand135 as to the Defendant and Subpostmasters mutual interest in both “a strong and sustainable network and brand” and in “the success of any particular branch”136 and as to the importance placed upon Subpostmasters supporting the brand.137
119.5. The aspects of the business of the Branch that it is common ground the Defendant provides to Subpostmasters, which include the Post Office brand (as above), the ability to sell a wider range of products, working capital, provision of IT equipment, back-end IT infrastructure, cash management planning, banking and transaction services and the benefit of the Defendant’s expertise.138
119.6. The Defendant’s imposition of a contractual requirement to provide personal service at the branch – half of the Lead Claimants were either told, or their documents indicate, such a requirement was imposed upon them.139
As to which, see Section A above, under ‘Appointment Themes’ on p.23 As to which, see Section A, under ‘Experience Prior to Contracting on p.19 Van Den Bogerd, Section B, esp. §38 to §42
Van den Bogerd, §32
Van den Bogerd, §41
Van Den Bogerd, §65
Bates, §57, 83 and [AB1/98-99]; Sabir, §44; Abdulla, §45 and [NA1/103-107]
– 47 –
  A/1/51
  
SECTION B: COMMON ISSUES Issue 1: Relational Contract
119.7. The Defendant’s purported imposition of onerous burdens upon Subpostmasters and / or the reservation to itself of a high degree of power, discretion and control over them.140
119.8. The necessary reliance by the Claimants upon the Defendant during the relationship for the provision of training, assistance, support and information.
119.9. TheinadequacyofthetrainingandsupportprovidedbytheDefendantduringthe relationship, which the Claimants reasonably infer generally reflected the Defendant’s practice in this respect – indeed across the six Lead Claimants consistently so.
119.10.The inherent limitations of Horizon and consequential practical limitations on the Claimant’s ability to investigate apparent shortfalls using Horizon.
Subpostmaster contracts and implication of duties
120. It is plain from the foregoing that the relationship between the Defendant and Subpostmasters is underpinned by mutual expectations as to the duties contended for by the Claimants.
121. Both the SPMC and the NTC contracts contain no general obligation of good faith, fair dealing, transparency, cooperation, and trust and confidence, nor any general obligation to provide information necessary for the performance of the contracts. Nor do those contracts contain express obligations that would be at odds with the implied duties contended for.
122. These requirements are entirely necessary to give business efficacy to the contracts, and are so obvious as to go without saying. Reasonable persons in the position of the
  140
Examples of such provisions are provided in the GPOC at §51 (Defendant’s requirement of compliance with extensive and poorly defined list of changeable rules, instructions and guidance), §52 (Defendant’s discretion to unilaterally alter classes of business to be undertaken at the branch), §54 (express terms imposing wide ranging responsibility for losses on the Subpostmaster), §56 (Subpostmaster liability for actions of assistants, but minimal corresponding duty on the Defendant to train Subpostmaster assistants) and §60 to 62 (express terms as to suspension and termination – in particular, the purported discretion to terminate a Subpostmaster’s appointment on three or six months’ notice, with no right to compensation for loss of office) [B3/1/17-21] [B3/1/22-24] [B3/1/25-29] [B3/1/30-34]
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SECTION B: COMMON ISSUES Issue 1: Relational Contract
Defendant and Subpostmasters at the time of contracting would have expected such duties to have been owed in the circumstances set out above and given the norms of commercial behaviour in this context – and indeed expected by the Defendant.
The Defendant’s case
123. Notwithstanding the foregoing, the Defendant denies that the Subpostmaster contracts can be characterised as relational contracts. In this, the Defendant:141
123.1. seeks to rely upon terms permitting termination of the relevant contracts on notice without cause;
123.2. suggests that the implied duties are not so obvious as to go without saying; and
123.3. suggests that the implication of general duties of this nature would contradict (unspecified) express terms of the contracts.
124. The Claimants do not consider any of these points to militate against the findings sought by them in respect of Issue 1: Relational Contract.
125. First, as to the power to terminate without cause:
125.1. that is entirely in conflict with the long-term relationship envisaged by both parties and the long-term commitments made to that end;
125.2. it is clear that neither party anticipated that the power would normally be exercised in the manner in which the Defendant now prays in aid; and
125.3. thetrueconstructionofthatpowerisinissue,inanyevent,includingastothe “true agreement” (Issue 18: True Agreement) and the extent to which that power was subject to implied terms contended for by the Claimants and/or admitted by the Defendant.
126. The unreality of the Defendant’s position is now shown in sharp relief by the fact that it has been a party to a “long-standing” agreement with the National Federation of Subpostmasters that provides for 28 (or 26) months’ income as compensation for
  141
GDef at §103 [B3/2/46-47]
– 49 –
  A/1/53
  
 127.
128.
SECTION B: COMMON ISSUES Issue 1: Relational Contract
outgoing Subpostmasters where their branch is closed.142 The idea that, for example, the Defendant could (or would have been expected to) defeat the application of that agreement by exercising the bare right to terminate on 3 months’ notice is fanciful. It may well be the case (particularly in pure commercial contracts) that the Court will be slower to infer that a contract involved expectations of a long-term relationship and concomitant commitments by the parties where the parties were able to terminate at short notice. However, the Defendant is wrong to submit the obverse, namely that, if a Court were to find the same, the termination provisions are some sort of trump card that defeats the legal consequences that would otherwise follow.
In the circumstances the Defendant cannot rely upon a purportedly unfettered right to terminate Subpostmaster contracts at will as militating against, or defeating, the characterisation of these contracts as giving rise to long-term relationships, which involved significant valuable investment by both parties.
The Defendant’s position, in this respect, is also at odds with:
128.1. its case that its own investments were themselves “long-term and expensive commitments”143, despite the fact that the termination provision could, on its own case, also have been exercised by a Subpostmaster.
128.2. its own witness evidence, by which it seeks to confirm how the contracts with Subpostmasters functioned in practice and, in particular, the need for a longer notice period due to the practicalities of the operation of a sub-Post Office and its capacity to recruit replacement Subpostmasters.144
The Claimants will further say that it is simply lacking in reality to describe the nature of the Claimants’ investments (which included purchases or leases of premises, purchases of goodwill, refurbishment costs, and the general investing of life savings) as anything other than long-term commitments to the relationship.
See Bates/IPOC at §27; and Bates, §94-97 at [AB1/113-165] [C1/1/22] or [E1/34/1-4], [E1/38/1-10], [G/83/1], [G/84/1-8], [G/85/1-30].
GDef at §79(2) [B3/2/38]
See, e.g., Breeden, esp. at §59 to 63 [C2/3/15-16]
129.
142
143 144
 – 50 –
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SECTION B: COMMON ISSUES Issue 1: Relational Contract
130. Second, the Defendant seeks to suggest that such duties do not meet the requirements for implication on the grounds because they are not obvious or necessary. The denial of the need to imply additional terms into the contracts is impossible to reconcile with the Defendant’s own concession in its case that the Subpostmaster contracts failed to legislate for important aspects of the legal relationship and so were subject to broad implied terms importing obligations of cooperation, specifically:
130.1. the Stirling v Maitland Term145 and
130.2. the Necessary Cooperation Term.146
131. The Defendant seeks to rely upon those terms to suggest that the implication of further terms is unnecessary.147 But despite Court making an order (by agreement) pursuant Part 18 CPR requiring the Defendant not only to answer the RFI but to provide the information requested, the Defendant has refused to be drawn as to the incidents of its accepted implied terms and how they differ, in reality, from the matters and terms advanced by the Claimants.
132. The Defendant’s contention that the duties (including those of good faith, transparency and fair dealing) are neither necessary nor obvious is also very difficult to reconcile with its own admissions regarding the parties roles and functions in the relationship, which include the Defendant:148
  145
146
147
148
132.1. requiring Subpostmasters to comply with contractual obligations in relation to the keeping and producing of branch accounts;
132.2. recording transactions effected by Subpostmasters;
132.3. seeking to reconcile transaction data with other data;
Defined by the Defendant as: “Each party would refrain from taking steps that would inhibit or prevent the other party from complying with its obligations under or by virtue of the contract” (GDef at §105(1) [B3/2/47]).
Defined by the Defendant as: “Each party would provide the other with such reasonable cooperation as was necessary to the performance of that other’s obligations under or by virtue of the contract” (GDef at §105(2) [B3/2/47]).
See: (i) the Defendant’s Response to the RFI dated 31 July 2017, at Response 61A [B4/2/24]; and (ii) the Defendant’s Response to the Second RFI [B4/3]
See GDef at §123 [B3/2/53], responding to GPOC at §81 [B3/1/44-45] – 51 –
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SECTION B: COMMON ISSUES Issue 1: Relational Contract
132.4. possessing and/or controlling underlying transaction data in relation to transactions undertaken in branches;
132.5. having the power to seek recovery from Subpostmasters for losses relating to branch accounts; and
132.6. in fact seeking to recover apparent shortfalls from Subpostmasters.
133. The Claimants will say the foregoing are entirely consonant with a relationship in which there must be a high degree of cooperation, co-ordination and predictable performance, such that such duties are to be implied.
134. Third, and finally, the Defendant seeks to characterise the SPMC and NTC as “detailed and professionally drafted written agreement(s)” which “made detailed provision as to the core obligations within that relationship”.149 In circumstances in which no Lead Claimant is confident of the date upon which he or she contracted and the Defendant itself pleads to the same in the alternative, this is quite a bold claim.
135. More particularly, it appears also to be an unjustified claim, given the difficulty which even the Defendant has encountered in identifying the universe of express terms and how they changed over time. This can be illustrated by reference to the following:150
  149 150
135.1. the Defendant’s provision (or non-provision) of various documents of uncertain contractual effect and the issuing of changing rules, instructions, ‘tips’ and guidance over the course of the operation of the contract;
135.2. the Defendant’s inability to explain how its own policies fit together, and which policy or policies applied at which time;
135.3. the unnecessary ambiguity (certainly, on the Defendant’s construction) in the provisions as to the liability of Subpostmasters for alleged shortfalls, which provisions the Defendant invites the Court to regard as of key importance to its business;
See, e.g. Bates/IDef at §51(1)(c) [B5.1/3/28]
See, e.g. Bates/IReply at §52 to 53 [B5.1/4/20-21]
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SECTION B: COMMON ISSUES Issue 1: Relational Contract
135.4. the patchiness and apparent inconsistency of the Defendant’s version control of contractual and policy documents and the use of earlier documents with later Subpostmasters and/or earlier documents with later Subpostmasters;
135.5. the fact there was no single resource where a Subpostmaster could look up the up to date provisions relevant to a particular issue or problem, collected together and presented with clarity in an organised and intelligible way;
135.6. the acceptance by the Defendant of the need to imply essential basic terms, which its professional drafting had failed to address.
136. As to the Defendant’s almost entirely unparticularised case that these duties (and other implied terms) would conflict with some of the express terms, it appears to be without foundation. The contracts are silent on those points – hence the belated concession of an implied term not to alter the contract dishonestly (etc) where the NFSP has not agreed the amendments.
137. The basis upon which the Defendant may say that duties of good faith, fair dealing, transparency, cooperation, and trust and confidence would generally traverse other express terms of the contracts in issue remains entirely elusive and cannot be discerned in advance of the Defendant’s submissions (or perhaps its Written Opening).
Findings on Issue (1): Relational Contract
 138.
139.
140.
The Subpostmaster contracts in issue are paradigm ‘relational contracts’ subject to obligations of good faith, fair dealing, transparency, cooperation and trust and confidence.
The Claimants respectfully invite the Court so to find and to answer Issue (1) in the affirmative.
The content of those duties is sensitive to context, but in the context of this relationship, there is no reason to depart from the natural import of those duties. Terms such as “fair dealing” are readily understandable and applicable.
– 53 –
  A/1/57
  
 141.
142.
SECTION B: COMMON ISSUES Issue 1: Relational Contract
The obligation of good faith imports the objective standard of barring conduct regarded as commercially unacceptable by reasonable and honest people.151 The Defendant ought to have nothing to fear from being held to that standard.
For present purposes, the Claimants invite the Court to find that the content of the implied obligation extends to: 152
142.1. acting honestly and with fidelity to the bargain;
142.2. not acting dishonestly and not acting to undermine the bargain entered or the substance of the contractual benefit bargained for.
These duties of fair dealing, transparency, cooperation and trust and confidence had an obvious bearing upon the Defendant’s dealings with Subpostmasters, with regard to alleged shortfalls.
143.
 151 152
Yam Seng, [145]
Al Nehyan v Kent [2018] EWHC 333 (Comm) (“Al Nehyan”), [175]
– 54 –
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SECTION B: COMMON ISSUES Issues 2 and 3: Implied Terms
Issue 2: Which, if any, of the terms in the paragraphs listed below were implied terms (or incidents of such implied terms) of the contracts between Post Office and Subpostmasters?
Issue 3: If the terms alleged at GPOC, paras 64.16, 64.17, 64.18 and / or 64.19 are to be implied, to what contractual powers, discretions and / or functions in the SPMC and NTC do such terms apply?
 Issues 2 and 3: Implied Terms
     Statements of Case
       Particulars
      Defence
      Reply
   Generic
  64 to 65
 105 to 107
 58
   Bates
      86 to 90
     55 to 68
     46, 48 to 49, 63 to 79
   Stubbs
  89 to 93
 40 to 53
 38, 40 to 42, 55 to 67
   Sabir
      65 to 69
     54 to 67
     43, 45 to 47, 60 to 72
   Abdulla
  63 to 67
 42 to 55
 37, 39 to 41, 53 to 65
   Dar
      78 to 82
     42 to 55
     36, 38 to 40, 53 to 65
   Stockdale
    77 to 81
   37 to 50
   31, 33 to 35, 47 to 59
  Introduction
144. It is the Claimants’ case on Common Issue 2 is that some or all of the terms enumerated at paragraphs 64.1 to 64.19 of the Claimants’ Generic Particulars of Claim are implied terms (or incidents of implied terms) of the SPMC and NTC contracts:
144.1.
144.2. a.
b.
by reason of the contract being a ‘relational contract’ (as to which see Issue 1: Relational Contract, above); and/or
by reason of business necessity and/or obviousness:
as appraised through the prism of commercial and practical coherence
(Type 1: Commercial or practical coherence, on p.60, below); and/or given the class of contractual relationship created by the contracts (Type 2:
Class of relationship created, on p.62, below).
145. The Claimants will respectfully submit that all roads lead to Rome: these approaches are not truly distinct (as is obvious from the orthodox and principled underpinning of the reasoning in Yam Seng) and in the present case, they largely sing with one voice.
– 55 –
  A/1/59
  
 146.
147.
SECTION B: COMMON ISSUES Issues 2 and 3: Implied Terms
The proper starting point is found in the orthodox and now well-established principles expressed by the Supreme Court in Marks and Spencer plc v BNP Paribas Security Services Trust Co [2016] AC 742, [2015] UKSC 72 (‘Marks & Spencer’), briefly addressed from p. 60 below and more fully explored in Annex III: Issues 2 and 3 – Implied Terms.
Marks & Spencer establishes the correct approach with clarity and highlights one matter as to which the Claimants and Defendant may take very different views, namely the meaning of necessity in this context. Lord Neuberger PSC (with whom Lord Sumption and Lord Hodge JJSC agreed) said this, at [21]:
“... necessity for business efficacy involves a value judgment. It is rightly common ground on this appeal that the test is not one of ‘absolute necessity’, not least because the necessity is judged by reference to business efficacy. It may well be that a more helpful way of putting Lord Simon’s second requirement is, as suggested by Lord Sumption JSC in argument, that a term can only be implied if, without the term, the contract would lack commercial or practical coherence.”
If the Defendant seeks to oppose the implication of the terms in issue on the basis that they are not ‘absolutely necessary’ (however that may be presented), such an approach would be wrong in law.
Accordingly, the Claimants approach the test on the correct footing, above.
148.
149.
The terms to be implied
150.
With that brief introduction, the implied terms contended for by the Claimants are set out below (categorised by subject matter and numbered (1) to (19)):
Training and Support
150.1. An implied term that the Defendant was required: 153
(1) to provide adequate training and support (particularly if and when the Defendant imposed new working practices or required the provision of new services)
GPOC at §64.1 [B3/1/35]
 153
– 56 –
  A/1/60
  
154 155
(1A) provide a system that was reasonably fit for purpose, including any adequate error repellency;154
(2) properly and accurately to effect, record, maintain and keep records of all transactions effected using Horizon;
Investigations and shortfalls
150.3. Implied terms requiring the Defendant155
(3) properly and accurately to produce all relevant records and/or explain all relevant transactions and/or any alleged or apparent shortfalls attributed to Claimants;
(4) to co-operate in seeking to identify the possible or likely causes of any apparent or alleged shortfalls and/or whether or not there was indeed any shortfall at all;
(5) to seek to identify such causes itself, in any event;
(6) to disclose possible causes of apparent or alleged shortfalls (and the cause thereof)
to claimants candidly, fully and frankly;
(7) to make reasonable enquiry, undertake reasonable analysis and even-handed investigation, and give fair consideration to the facts and information available as to the possible causes of the appearance of alleged or apparent shortfalls (and the cause thereof);
(8) to communicate, alternatively, not to conceal known problems, bugs or errors in or generated by Horizon that might have financial (and other resulting) implications for Claimants;
(9) to communicate, alternatively, not to conceal the extent to which other Subpostmasters were experiencing relating to Horizon and the generation of discrepancies, or alleged shortfalls;
GPOC at §64.1A [B3/1/35]
GPOC at §64.2 to 64.12 [B3/1/35-37]
Horizon and recording transactions
150.2. Implied terms that the Defendant:
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SECTION B: COMMON ISSUES Issues 2 and 3: Implied Terms
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SECTION B: COMMON ISSUES Issues 2 and 3: Implied Terms
(10) not to conceal from Claimants the Defendant’s ability to alter remotely data or transactions upon which the calculation of the branch accounts (and any discrepancy, or alleged shortfalls) depended;
(11) properly, fully and fairly to investigate any alleged or apparent shortfalls;
(12) not to seek recovery from Claimants unless and until:
(a) the Defendant had complied with its duties above (or some of them)
(b) the Defendant has established that the alleged shortfall represented a
genuine loss to the Defendant; and
(c) the Defendant had carried out a reasonable and fair investigation as to the
cause and reason for the alleged shortfall and which it was properly attributed to the Claimants under the terms of the Subpostmaster contract.
Exercising of powers and discretions
150.4. ImpliedtermslimitingthemannerinwhichtheDefendantmayexerciseitspowers and discretions; specifically, the following implied terms, requiring the Defendant156
(13) not to suspend Claimants:
(a) arbitrarily, irrationally or capriciously;
(b) without reasonable and proper cause; and/or
(c) in circumstances where the Defendant was itself in material breach of duty.
(14) not to terminate the Claimants’ contracts:
(a) arbitrarily, irrationally or capriciously;
(b) without reasonable and proper cause; and/or
(c) in circumstances where the Defendant was itself in material breach of duty.
(15) not to take steps which would undermine the relationship of trust and confidence between the Claimants and the Defendant;
(16) to exercise any contractual, or other power, honestly and in good faith for the purpose for which it was conferred;
  156
GPOC at §64.13 to 64.18 [B3/1/37]
– 58 –
  A/1/62
  
 151.
SECTION B: COMMON ISSUES Issues 2 and 3: Implied Terms
(17) to exercise any such discretion in accordance with the obligations of good faith, fair dealing, transparency, cooperation and trust and confidence.
Reasonable care
150.5. An implied term requiring the Defendant
(18) “to take reasonable care in performing its functions under the contract, particularly when those functions could affect the accounts, business, health and reputation of the Claimants. 157
As to Issue 3, the Claimants’ case is that the terms alleged (a) at GPOC §64.16 to 64.18 (under Exercising of powers and discretions above), and (b) at GPOC §64.19, under Reasonable care above, apply to all contractual and other powers and discretions.158
Relevant principles
152. As set out at the outset of this Written Opening (p.4), sequencing is important: it is only after the process of construing the express provisions of the relevant Subpostmaster contracts that consideration can be given to the implication of the terms pleaded by the Claimants and, indeed, those implied terms admitted by the Defendant.
153. It is necessary to preface consideration of the relevant principles with brief observations as to the approach in different contexts.
Two categories of implied terms
154. Although they are not, on analysis, actually distinct, there are two kinds of implied terms, whose implication is based on obviousness and/or necessity:
 157 158
154.1. those which, on a proper (objective) construction, the parties must have intended in order to give the agreement the necessary commercial or practical coherence (Type 1, p.60 below); and
154.2. thosethatnecessarilyariseoutofaclassofcontractualrelationshipcreatedby the contract (Type 2, p.62 below).
GPOC at §64.19 [B3/1/38] The Claimants contend
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SECTION B: COMMON ISSUES Issues 2 and 3: Implied Terms
155. Unusually, the implied terms in issue in the present case are, at the nexus of those two types of implied terms.
156. These two kinds of categories themselves were recognised in Société Générale, London Branch v Geys [2013] 1 AC 523, [2012] UKSC 63, per Lady Hale (Soc Gen),159 as follows:
“In this connection, it is important to distinguish between two different kinds of implied terms. First, there are those terms which are implied into a particular contract because, on its proper construction, the parties must have intended to include them: see Attorney General of Belize v Belize Telecom Ltd [2009] UKPC 10, [2009] 1 WLR 1988. Such terms are only implied where it is necessary to give business efficacy to the particular contract in question. Second, there are those terms which are implied into a class of contractual relationship, such as that between landlord and tenant or between employer and employee, where the parties may have left a good deal unsaid, but the courts have implied the term as a necessary incident of the relationship concerned, unless the parties have expressly excluded it: see Lister v Romford Ice & Cold Storage Co Ltd [1957] AC 555, Liverpool City Council v Irwin [1977] AC 239.”
157. The Claimants expressly rely upon the fact that “many aspects of the written contractual terms reflect a contract of employment” (GPOC at §45).160 It is clear that the contracts which this Court is asked to consider in this litigation have aspects of both commercial and employment contracts – a material factor informing their construction and the terms to be implied. However, it is helpful to consider the different emphasis in the two kinds of cases to which Lady Hale refers.
Type 1: Commercial or practical coherence
 158.
159.
159
160
For the purposes of first type of implied term referred to by Lady Hale, the approach is clearly established in in Marks & Spencer and the Claimants case is that the implied terms for which they contend satisfy the five requirements in that case, as properly understood.
The implied terms for which the Claimants contend are obviously both reasonable and equitable (although that does not itself justify their implication).
 Lady Hale’s classification having been subsequently adopted, for example, by Jackson LJ Essex Hospital Services NHS Trust v Compass Group [2013] BLR 265 at [80]
See also GPOC at §9
in Mid
– 60 –
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SECTION B: COMMON ISSUES Issues 2 and 3: Implied Terms
160. They are to be implied because they are necessary to give business efficacy to those contracts (as now understood to embrace commercial and practical coherence).
161. This would be so, even if this were to be treated as a “detailed commercial contract” or “a very detailed document, which had been entered into between two substantial and experienced parties, and had been negotiated and drafted by expert solicitors” as was being considered in Marks & Spencer (which these agreements were clearly not, in the sense used in that case).
162. Alternatively, they are so obvious that they go without saying – or at least they would go without saying certainly to notional reasonable person in the position of the parties at the time they entered into those contracts.161
163. The Defendant’s position as to the implication of a duty of good faith (see: Example: the Defendant’s case on good faith, on p.40, above) illustrates this point well. The test is not whether the Defendant would “obviously have rejected” an obligation of good faith,162 but whether a notional person in the position of the Defendant would have done.
164. The terms contended for are capable of clear expression do not contradict any express term of the contract. The Defendant’s contentions to the contrary are strained.
165. The Claimants primary case is that it is clear that without the implied terms, the contract would lack commercial or practical coherence. While the Defendant denies the Claimant’s implied terms, it is significant to recall the Defendant’s admission that it is necessary to imply terms into the agreements of which the Defendant was itself the author – albeit, the Defendant’s own implied terms of wide application, namely implied duties to co-operate and not to prevent performance of the contracts.
166. The Claimants will also rely upon the general proposition that in the absence of very clear language to the contrary, any genuine contractual discretion must be exercised in good faith and not arbitrarily or capriciously, nor contrary to the purpose of the
  161
162
‘As [Lord Neuberger PSC] says (para 21), one is concerned not with “the hypothetical answer of the actual parties”, but with that of “notional reasonable people in the position of the parties at the time at which they were contracting”, or in other words of Lord Hoffmann’s “reasonable addressee”: the Belize case, para 18’ per Lord Carnwath JSC at [72] in Marks & Spencer
GDef at §106(2)
– 61 –
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SECTION B: COMMON ISSUES Issues 2 and 3: Implied Terms
contract, or in a manner that is irrational. The Defendant’s refusal to concede this is telling; its position is unrealistic.
Type 2: Class of relationship created
 167.
In Soc Gen, Lady Hale continued from the passage quoted above, as follows:
“A great deal of the contractual relationship between employer and employee is governed by implied terms of the latter kind. Some are of long-standing, such as the employer's duty to provide a safe system of work. Some are of more recent discovery, such as the mutual obligations of trust and confidence. This was referred to by Dyson LJ in Crossley v Faithful and Gould Holdings Ltd [2004] IRLR 377 as an "evolutionary process". He also described the "necessity" involved in implying such terms as "somewhat protean", pointing out that some well-established terms could scarcely be said to be essential to the functioning of the relationship. At para 36, he said this:
‘It seems to me that, rather than focus upon the elusive concept of necessity, it is better to recognise that, to some extent at least, the existence and scope of standardised implied terms raise questions of reasonableness, fairness and the balancing of competing policy considerations.’
There is much to be said for that approach, given the way in which those terms have developed over the years.”
Dyson LJ’s judgment in Crossley v Faithful and Gould Holdings Ltd [2004] ICR 1615, [2004] EWCA Civ 293 (‘Crossley’) helpfully discusses the meaning of necessity in the context of the employment relationship – probably correctly foreshadowing the more nuanced meaning above, in Marks & Spencer, in the parallel but different context of detailed commercial contracts (see [34] to [40]) – in the course of rejecting an implied duty to give employees financial advice.
One example given by Dyson LJ, as to the concept of necessity, in the context of an employment relationship, is the implied term of trust and confidence (the so-called ‘t&c’ term) that an employer will not engage in conduct which is likely to undermine the trust and confidence required if the employment relationship is to continue in the manner the employment contract implicitly envisages: see per Lord Nicholls in Mahmud v Bank of Credit and Commerce International SA [1997] ICR 606, at 610–611. Parenthetically, it is striking that one of the duties implied in Yam Seng was that of mutual trust and
168.
169.
– 62 –
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SECTION B: COMMON ISSUES Issues 2 and 3: Implied Terms
confidence. Indeed, it is also one of the free-standing implied terms pleaded by the Claimants (see: GPOC at §64.15).
170. In fact, one can see from the principles applied in Braganza v BP Shipping Ltd [2015] UKSC 17 (“Braganza”) that the approach to the implication of terms in the employment context is not an exercise which is, in itself, categorically distinct from that applicable to detailed commercial contracts negotiated and drafted by the parties’ expert solicitors. Rather, there is a continuum on which the court makes the ‘value judgment’ to which Lord Neuberger referred in Marks & Spencer at [21]. The context informs the making of that value judgment.
171. In result, on that approach, these contracts and the nature of the legal relationship which they created both invite and admit the implication of the terms for which the Claimants contend, on the basis of the Claimants’ case.
172. However, for completeness, it is also necessary to consider the aspects of the Claimants’ case which are admitted (fully or in part) by the Defendant – including whether the Defendant effectively agrees that such terms (or other terms with like incidents) are necessary and do not conflict with the express terms of the Subpostmaster contracts.
The Defendant’s case on implied terms
 173.
By its Generic Defence, the Defendant admits and avers that the two broad terms noted above governing the relationship between the parties were implied in Subpostmaster contracts. These implied terms are that:163
173.1. eachpartywouldrefrainfromtakingstepsthatwouldinhibitorpreventtheother party from complying with its obligations under or by virtue of the contract (the “Stirling v Maitland Term”); and
173.2. each party would provide the other with such reasonable cooperation as was necessary to the performance of that other’s obligations under or by virtue of the contract (the “Necessary Cooperation Term”).
 163
GDef at §105 [B3/2/47]
– 63 –
  A/1/67
  
 174.
SECTION B: COMMON ISSUES Issues 2 and 3: Implied Terms
By its Individual Defences in the Lead Claims, the Defendant goes beyond this (as noted above, in relation to good faith). It further accepts the following to be implied terms (the “Dishonesty Terms”):-
174.1. SPMC: Pursuant to Section 1, Clause 18 of the SPMC, the Defendant had: (i) a power to change the contract and its operational instructions with the agreement of the National Federation of Subpostmasters (“NFSP”); and (ii) a power to change the contract and its operational instructions without the agreement of the NFSP. As to these powers:
a. The Defendant admits that with respect to the latter such power, it is an implied term of the SPMC that the Defendant will not to exercise the same “dishonestly or in an arbitrary, capricious or irrational manner”.
b. Somewhat surprisingly, it is not accepted by the Defendant that the implied term would apply with respect to the former such power.164 The basis for the distinction is unclear, and the Individual Replies have put the Defendant to strict proof as to the basis upon which the Defendant is entitled to so act (e.g. dishonestly) when making a change which was agreed by the NFSP.165
174.2. NTC: The Defendant identifies three clauses – Part 2, Clause 20.2; Part 3, Clause 3.1; and Part 5, Clause 1.3 – in respect of which
a. The Defendant admits that there is an implied term requiring the Defendant to not exercise those entitlements dishonestly or in an arbitrary, capricious or irrational manner.166
b. Similarly, the Individual Replies put the Defendant to strict proof on the basis upon which the Defendant contend it is entitled to act dishonestly in relation to any other powers under the contract.167
See, e.g. Bates/IDef at §65(2) [B5.1/3/38]
See, e.g. Bates/IReply at §73.2 [B5.1/4/32]
See, e.g. Dar/IDef at §52(2) to (4) [B5.5/3/26-27]
   164 165 166
– 64 –
  A/1/68
  
 175.
SECTION B: COMMON ISSUES Issues 2 and 3: Implied Terms
Yet save as above, the Defendant’s case is that the relevant Subpostmaster contracts were not subject to any of the implied terms pleaded in GPOC §64 and set out above. In particular, the Defendant’s case is that:-
175.1. The alleged terms are not so obvious as to go without saying and were not necessary for the business efficacy of the contract. The contract is said to have not lacked practical or commercial coherence.168
175.2. The SPMC and NTC are said to be detailed and professionally drafted written agreements designed to be used for a business-to-business relationship.169
175.3. The alleged terms would have prevented the parties from acting commercially, sensibly and flexibly in response to situations arising during the contractual relationship.170
The Defendant also takes issue with the number and detail of the implied terms contended for by the Claimants. Somewhat surprisingly, it is said by the Defendant that this (alone) “demonstrates that none of those terms was a term that the parties would necessarily have agreed had they sought to make express provision for the subject matter”.171 The Defendant claims that only the express terms of the contract, and its admitted implied terms, are what the parties in fact chose to contract upon.
176.
 Uncertainty as to implied terms (or incidents) admitted
177. Although the Defendant admits the Necessary Cooperation Term and the Stirling v Maitland Term, it has proved impossible for the Claimants to discern the true import of these admitted terms, so far as regards the Common Issues and particularly the implied terms alleged by the Claimants which the Defendant contends are already ‘governed’ by the admitted terms (GDef at §106(2)).
 167
168 169 170 171
See, e.g. Dar/IReply at §63.3 [B5.5/4/28] – although the Claimants readily accept that the absence of a term requiring good faith is not necessarily to be equated with permission to a party to act in bad faith, the way in which the Defendant’s case is pleaded in the present case appears to claim, or at least to come very close to claiming, a right to exercise powers dishonestly.
See, e.g. Bates/IDef at §56(1) [B5.1/3/34] See, e.g. Bates/IDef at §56(2) [B5.1/3/34] See, e.g. Bates/IDef at §56(5) [B5.1/3/34-35] See, e.g. Bates/IDef at §56(4) [B5.1/3/34]
– 65 –
  A/1/69
  
SECTION B: COMMON ISSUES Issues 2 and 3: Implied Terms
178. It follows from the Defendant’s admission and averment that of implied terms of the breadth and general application as the Necessary Cooperation Term and the Stirling v Maitland Term that it is uncontroversial that:
178.1. the Subpostmaster contracts did not legislate for the relationship (including e.g. cooperation) required between the parties in order to give effect many of the express terms agreed or to give the contracts the necessary commercial or practical coherence;
178.2. theexpresstermsinquestionincludesdealingwiththesubjectmatteratwhichthe Claimants’ pleaded implied terms are directed;
178.3. it is both necessary to give business efficacy to Subpostmaster contracts and so obvious as to go without saying that terms requiring the parties to co-operate and not to prevent performance are to be implied so as to address that subject matter.
179. Thus it follows from the foregoing that it is also uncontroversial that the Subpostmaster contracts forming the subject of this trial were, despite their apparent complexity, materially incomplete in a great many respects including as to the full spectrum of subject matter at which the Claimants’ implied terms are directed.
180. It is in respect of this chasm that both parties seek to imply duties:
180.1. the Defendant admits and avers wide ill-defined duties of cooperation and prohibition on prevention of performance; whereas
180.2. the Claimants plead formulated, narrower implied terms that are clearly expressed (alternatively, in any event, meet the requirement of being capable of clear expression) that are both obvious and go no further than is necessary to give business efficacy to the terms of the Subpostmaster contracts.
181. The Claimants’ approach accords with, and satisfies the requirements of, the established approach to the implication of such terms insofar as:
181.1. that there is no general requirement in law to imply either such terms; and
 – 66 –
  A/1/70
  
SECTION B: COMMON ISSUES Issues 2 and 3: Implied Terms
181.2. such terms are to be implied out of necessity and in order to give efficacy to the express terms of the contract (see Ukraine v The Law Debenture Trust Corporation Plc [2018] EWCA Civ 2026 and overview of the principles restated and affirmed by the judgment of Gloster LJ in that case in Annex C: Implied Terms, below).
182. Despite every effort made by the Claimants to narrow the extent of disagreement, the Defendant has refused to be drawn on the precise extent to which the Defendant in fact admits the substantive obligations imposed by the implied terms contended for by the Claimants, or admits that those terms are incidents of other implied terms.
183. This remains at large, despite the clear wording of Issue (2):
“Which, if any, of the terms in the paragraphs listed below were implied terms (or incidents of such implied terms) of the contracts between Post Office and Subpostmasters?” [Emphasis added]
184. By its Generic Defence at §106(2), the Defendant pleaded that:
“The numerous additional terms alleged by the Claimants in paragraphs 64.1 to 64.19 are neither necessary to the business efficacy of the Subpostmaster Contracts nor so obvious as to go without saying. Many of them would obviously have been rejected by Post Office had they been proposed and / or are unreasonable and / or make no commercial sense. Further, many of the matters that are already governed by the terms of the said contracts (including the Stirling v Maitland Term and the Necessary Cooperation Term) and / or positively contradict those terms.” [Emphasis added]
185. The Claimants sensibly enquired as to which of its proposed terms are already said to be governed by the Defendant’s admitted implied terms. The first such enquiry was made by a Part 18 CPR Request dated 31 July 2017 (Request 61).172 The Defendant’s response dated 13 September 2017 did not clarify its position:
“61: These are matters for submissions. However:
61A: Post Office's case in this regard is that certain of the implied terms alleged by the Claimants address matters that are already governed by the Stirling v Maitland Term and/or the Necessary Cooperation Term; in other words, Post Office contends that the subject matter of the
        172
[B4/2/23-24]
– 67 –
  A/1/71
  
SECTION B: COMMON ISSUES Issues 2 and 3: Implied Terms
implied terms alleged by the Claimants is addressed sufficiently by the implied terms that Post Office pleads, such that the test of necessity cannot be met in relation to the Claimants' alleged terms. This is not "in substance" the acceptance of the Claimants' alleged terms. On the contrary, it forms part of an argument that those terms are not to be implied. An example of such an alleged term is that pleaded at paragraph 64.1 of the GPoC.
61B: Post Office's case in this regard is that certain of the implied terms alleged by the Claimants would contradict the express terms of the agreements and/or the Stirling v Maitland Term and/or the Necessary Cooperation Term by requiring Post Office to take steps that would not facilitate the discharge of the Subpostmaster's obligations and/or would in some circumstances hinder the discharge of those obligations. An example of such an alleged term is that pleaded at paragraph 64.3 of the GPoC.” [Emphasis added]
186. With justification, the Claimants regard the Defendant’s response as both unclear and evasive. Seeking to narrow the scope of the issues to be determined at this trial, the Claimants requested further information pursuant to Part 18 CPR on 29 December 2017.173 They asked of the Defendant’s Response 61A:
“(a) Save for the example given [which was an implied term to provide adequate training and support], which implied terms alleged by the Claimants are said to be addressed sufficiently by the implied terms that Post Office pleads?
(b) With respect to each such implied term alleged by the Claimants, please state the extent to which it is admitted that those pleaded by Post Office could give rise to the same contractual obligations as those by the Claimants in paragraph 64 of the Amended Generic Particulars of Claim?” [Emphasisadded]
187. The Defendant consented to the inclusion of a direction under Part 18 CPR in the Second CMC Order that it not only respond to the Claimants RFI, but that it also provide the information requested. Despite this, the Defendant’s response was as follows:174
“1. As indicated in Response 61A of the Response to the Claimants' Request for Further Information dated 31 July 2017 ("the July 2017 RFI Response"), this is a matter for submissions. Further, the Claimants seek particulars of Post Office's case on implied terms in circumstances where they admit the implied terms that Post Office asserts. The Claimants do not require the information that they seek now to
[B4/3/2] [B4/3/2]
         173 174
– 68 –
  A/1/72
  
SECTION B: COMMON ISSUES Issues 2 and 3: Implied Terms
understand Post Office's case or to prepare to meet it. The matters set out below are without prejudice to these points.
2. As to Request 67(a) specifically, the request is based on an apparent misunderstanding of Post Office's case and is inappropriate;
a. The request proceeds on the assumption that Post Office contends that the Stirling v Maitland and Necessary Cooperation Terms address the further implied terms alleged by the Claimants in paragraph 64 of the Amended Generic Particulars of Claim ("AGPoC").
b. That is not Post Office's case. Post Office's case is that, if and insofar as it may be necessary for a term to be implied addressing the subject matter of the further implied terms alleged by the Claimants, that subject matter is addressed sufficiently by the Stirling v Maitland and Necessary Cooperation Terms. In other words, if and insofar as it may be necessary for a term to be implied which in any way addresses any of the innumerable circumstances which might be affected by the further terms alleged in relation to a particular subject matter, such necessity is satisfied by the Stirling v Maitland and Necessary Cooperation Terms, terms which are admitted by the Claimants.
c. If and to the extent that the Claimants wish to contend that the Stirling v Maitland and Necessary Cooperation Terms would not be sufficient because of specific facts and matters on which they rely in contending that any specific term should be implied, Post Office will respond to any particularised case to that effect.
d. Post Office cannot identify all the various circumstances that would be addressed by the further implied terms alleged by the Claimants and explain in each case why the Stirling v Maitland and Necessary Cooperation Terms are sufficient to meet any alleged necessity to imply a term. The Claimants' generic pleadings are not sufficiently detailed to allow detailed argument on matters of this sort, including because the Claimants have not separately pleaded specific facts and matters in support of each of their alleged implied terms. It would not be reasonable to require Post Office to speculate as to the Claimants' case on the supposed necessity of each of the further alleged implied terms.
3. Notwithstanding the above, on Post Office's present understanding of the Claimants' case and seeking as best it can to anticipate the Claimant's arguments on implied terms:
a. Post Office contends that the Stirling v Maitland and Necessary Cooperation Terms are sufficient to meet any necessity to imply terms in relation to following general areas: the provision of training (addressed by the implied term alleged at
              – 69 –
  A/1/73
  
SECTION B: COMMON ISSUES Issues 2 and 3: Implied Terms
AGPoC, paragraph 64.1), the steps taken in relation to shortfalls disclosed by the accounts (addressed by the implied terms alleged at AGPoC, paragraphs 64.3- 64.12) and dealing with any problems with Horizon (addressed by the implied terms alleged at AGPoC, paragraphs 64.1A, 64.8 and 64.9).
b. Post Office contends that the Stirling v Maitland and Necessary Cooperation Terms are sufficient to meet any necessity to imply terms in relation to the overall contractual relationship between the parties. Accordingly, Post Office will rely on those terms in resisting the implication of the further implied terms that the Claimants allege in relation to that overall contractual relationship: see the implied terms alleged at AGPoC, paragraphs 63, 64.15, 64.18 and 64.19.
4. As to Request 67(b) specifically, the request is based on an apparent misunderstanding of Post Office's case and is inappropriate:
a. The request proceeds on the assumption that the Defendant admits that the Stirling v Maitland and Necessary Cooperation Terms "give rise to the same obligations as [some or all of] the further terms alleged by the Claimants".
b. That is not Post Office's case. Post Office's case is that, if and insofar as it may be necessary for a term to be implied addressing the subject matter of the further implied terms alleged by the Claimants, that subject matter is addressed sufficiently by the Stirling v Maitland and Necessary Cooperation Terms. In other words, if and insofar as it may be necessary for a term to be implied which in any way addresses any of the innumerable circumstances which may be affected by the further terms alleged in relation to a particular subject matter, such necessity is satisfied by the Stirling v Maitland and Necessary Cooperation Terms, terms which are admitted by the Claimants. This is different from an admission that the Stirling v Maitland and Necessary Cooperation Terms include the same contractual obligations as any of the alleged further implied terms, and no such admission is made. The implied terms and obligations are different.
c. For the avoidance of doubt, nor is it Post Office's case that the practical effects of the Stirling v Maitland and Necessary Cooperation Terms are the same as the practical effects that would result from the alleged further implied terms. The extent of overlap in the practical effects would depend on the particular factual circumstances at issue, and the Claimants' generic pleadings are not sufficiently detailed to allow detailed argument on matters of this sort.” [Emphasis added]
188. The Claimants asked a similar question in relation to which of the implied terms in GPOC §64 are said to positively contradict the terms of the contract (both express and
                  – 70 –
  A/1/74
  
SECTION B: COMMON ISSUES Issues 2 and 3: Implied Terms
the implied terms accepted by the Defendant), and received a similarly evasive answer.175 For example, the Defendant states that:
“Whether the further implied terms alleged by the Claimants would hinder the discharge of the obligations under the express and implied terms relied upon by Post Office depends on the alleged practical consequences of the alleged implied terms in particular circumstances. This is a matter for submissions in light of the matters put forward in more detailed pleadings. It would not be reasonable to require Post Office to seek to identify exhaustively the inconsistencies that may arise in all possible circumstances.”176
189. The Defendant has refused therefore to identify which argument applies to which terms, reserving the matter for submissions at trial rather than narrowing this issue. As the two arguments (i.e. “already governed” and “positively contradict”) are polar opposites, the consequences of that ambiguity are stark.
190. By a letter dated 27 June 2018,177 the solicitors for the Defendant, after being further pressed by the Claimants, stated that, in the example of training:
“Post Office was required to provide training and support in accordance with (a) the express terms of the contracts and/or (b) the implied term as to Necessary Cooperation and/or (c) the Stirling v Maitland implied term.” [Emphasis added]
191. The implied term pleaded by the Claimants at GPOC §64.1 is that the Defendant is required to “provide adequate training and support (particularly if and when the Defendant imposed new working practices or systems or required the provision of new services)”. Accordingly, the Claimants’ solicitors sought by letter dated 29 June 2018 to ascertain the extent to which this apparent concession further narrowed the issues for determination at the Common Issues Trial by asking further:
   175 176 177
“If there is no material difference between this and an obligation to provide adequate training and support, then please say so now. If Post Office will in fact contend that there is some material difference, please also say so now and explain what that is. For example, Post Office could deny any requirement that the training and support
See Responses 5 to 6 of the Defendant’s Response to the Claimants’ Second RFI [B4/3/5] ibid at Response 5.
[H/10]
– 71 –
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SECTION B: COMMON ISSUES Issues 2 and 3: Implied Terms
should be adequate. Is that in fact Post Office’s case? If so, please spell it out now, by return.”178
192. No satisfactory answer has been received. The Defendant was finally persuaded to provide further information by means of a table, said to describe “Post Office’s case on the subject matters addressed” by the implied terms contended for by the Claimants and those accepted by the Defendant (the “Implied Terms Table”).179
193. The Court is respectfully requested to read the Implied Terms Table. It is regrettably unclear, but in the circumstances, is informative as an overview of the extent of difference between the parties on Issues 2 and 3.
194. By the Implied Terms Table (which is qualified by a wide ranging disclaimer)180 the Defendant sought to respond to each implied term alleged by the Claimants by conceding whether a breach of the Stirling v Maitland and Necessary Cooperation Terms could amount to a breach of the Claimants’ pleaded implied terms.
195. Despite pleading that the “subject matter of the implied terms alleged by the Claimants is addressed sufficiently by the implied terms that Post Office pleads, such that the test of necessity cannot be met in relation to the Claimants' alleged terms.”181 the Defendant’s case appears to amount to no more than an assertion that failure to comply with the Claimants pleaded implied terms could, circumstances depending, also be capable of constituting a breach of the Stirling v Maitland or Necessary Cooperation Terms.182
[H/11]
[H/19]
Being said, on its first page, to be “...without prejudice to any other argument that Post Office may advance in relation to the implication of the Additional Terms and without prejudice to Post Office’s position (as set out in earlier correspondence) that this document is not required by the Claimants nor are the Claimants are entitled to it.”
Response to the Claimant’s RFI at 61A [B4/2/24]
See, for example, the Defendant’s response in the Implied Terms Table to the Claimants’ pleaded implied term that Post Office provide adequate training: “The subject matter of the term alleged in paragraph 64.1 is training. Post Office accepts that the Common Terms could address that subject matter, in the sense that the provision of training may be capable of constituting a breach of those terms, if it inhibited or prevented the other party from complying with his obligations under or by virtue of the contract, or constituted a failure to provide reasonable training by Post Office (where such was necessary to the performance of the other party’s obligations under or by virtue of the contract). Whether in
  178 179 180
181 182
   – 72 –
  A/1/76
  
 196.
SECTION B: COMMON ISSUES Issues 2 and 3: Implied Terms
Notwithstanding the obvious lack of clarity with which the Defendant has approached this matter, the Court is invited to proceed (from the foregoing) that the Defendant either expressly or impliedly admits:
196.1. the Stirling v Maitland and Necessary Cooperation terms;
196.2. that those terms are necessary to give business efficacy to the contracts;
196.3. that they address the same “subject matter” as the Claimants’ implied terms;
196.4. that Post Office was required to provide training and support in accordance with (a) the express terms of the contracts and/or (b) the implied term as to Necessary Cooperation Term and/or (c) the Stirling v Maitland Term;
196.5. that provision of inadequate training could be a breach of that obligation; and
196.6. that the obligations imposed by the Claimants’ implied terms pleaded at GPOC §64.16 to §64.18, being those numbered (16) and (17) above are either free- standing obligations, contrary to its Generic Defence as pleaded, or incidents of its implied terms.
The case for implication of the Claimants’ proposed terms
197.
198.
In the light of the foregoing, and in support of their case that the terms referred to as (1) to (19) above, and pleaded at GPOC §64.1 to §64.19 are implied terms, the Claimants will rely upon the following.
In general and with respect to all of the implied terms contended for:
198.1. To the extent those terms arise by reason of the contract being a ‘relational contract’, the facts and matters set out in relation to Common Issue (1) above, upon the principles set out in ‘Annex B: Relational Contracts’.
any particular case a failure to provide training, or the nature of the training provided, constitutes such a breach would depend on the circumstances.” [Emphasis added] [H/19/1]
  – 73 –
  A/1/77
  
 199.
200.
SECTION B: COMMON ISSUES Issues 2 and 3: Implied Terms
198.2. TheDefendant’sadmissionsthatitwasnecessaryand/orobviousthattheStirling v Maitland, Necessary Cooperation and Dishonesty Terms should be implied (as admitted both in its Generic and Individual Defences).
198.3. That the implied terms do not contradict the express terms of the contact. This is also apparently common ground insofar as it is the Defendants case that the subject matter of the terms are already dealt with by its own pleaded implied terms. Given this there can be no basis for its wholly unparticularised and contradictory assertion that the Claimants’ pleaded implied terms do so conflict.
198.4. The contract was not a detailed and professionally drafted written agreement. Rather, it was poorly and confusingly drafted. From 2000 onwards, the SPMC became ever more outdated and ineffective in addressing the increasingly digitised and complex Post Office operations. The SPMC quickly became outdated and it wasn’t clear to Subpostmasters what the contract comprised. The contract was sufficiently unclear on its express terms for the Defendant to concede the necessity to imply wide terms requiring cooperation.
Further, with respect to the specific implied terms pleaded by the Claimants, the following further considerations are relevant.
Under Training and Support (implied term (1)) above, the Claimants will rely on:
200.1. The Defendant’s (limited) admission that Post Office was required to provide training and support183 and that provision of inadequate training may be a breach of that requirement, as above. (Indeed, the contracts made provision for the Defendant to provide training to assistants: see, Issues 22 and 23: Assistants, under the sub-heading The express terms purporting to confer a benefit, on p.161 below.)
An opaque concession, extracted from the Defendant – paragraph 190, on p.72 above – 74 –
 183
  A/1/78
  
  184 185
SECTION B: COMMON ISSUES Issues 2 and 3: Implied Terms
200.2. The expectations of the parties, no more clearly evidenced than in the Defendant’s own “Welcome – Subpostmaster’s appointment pack”184 in which Defendant made promises including the following:
“To help you make your new business a success, on-going training and support are available. There is a lot to learn, but there will be plenty of expert support and advice available, often just a phone call away. To support you with running your branch, we offer a training package which is flexible and based upon your individual needs.”
[...]
“On-site training
This takes place at your Post Office ® branch or neighbouring branch. It covers a host of different aspects of your day to day work. The duration of training varies from branch to branch, and is tailored to individual requirements.”
200.3. This was reflected in the Defendant’s own expectations in providing training for Stockdale:185
“As Liz will not have had her training by then it would be up to you Karen to make sure she is adequately trained and Karen you would be responsible for the Post Office cash until Liz has officially taken over.”
200.4. Even on the Defendant’s admitted case, it is necessary (to comply with the admitted requirement of cooperation and in order that such training be effective) that the training be adequate in order that Subpostmasters are able to comply with the contractual requirements upon them inter alia to use Horizon for the handling of branch transactions and prepare and submit branch accounts using Horizon.
200.5. TheDefendantsownevidencethat“[t]heaimoftrainingistoequiptheSubpostmaster with the skills to perform the role that they have been asked to do” and that “effective training... reduces the chance of an accounting or cash / stock handling
[F2/37/18] [E6/45/1]
– 75 –
  A/1/79
  
 201.
SECTION B: COMMON ISSUES Issues 2 and 3: Implied Terms
error in branch, thereby reducing shortfalls.”186 It follows that inadequate training increases shortfalls.
200.6. That a term requiring adequate training be provided by the Defendant would, in the circumstances, be so obvious as to go without saying (particularly given that the Defendant intimated as much in the Welcome pack).
200.7. That such a term is plainly capable of clear expression, as pleaded.
200.8. That such a term does not conflict with express terms of the contract.
Under Horizon and recording transactions (implied terms (1A) and (2)) above, the Claimants will rely on:
201.1. The Defendant’s own pleaded description of Horizon and the functions that it performed, set out in the GDef at §§33, 38, 40 and 53 to 54.
201.2. The Defendant’s admitted role at §123 GDef, by which it largely admits GPOC §81, which pleads that the Defendant:
a. effected, recorded and managed the reconciliation of transactions effected by the Claimants;187
b. possessed and/or controlled the underlying transaction data in relation to such transactions;
c. required Claimants to comply with contractual obligations in relation to the keeping and production of branch accounts;
d. had the power to seek recovery from Claimants for losses relating to branch accounts; and/or
e. in fact sought recovery from the Claimants for apparent shortfalls.
Van Den Bogerd, §99 and 99.1
The GDef pleads at §123(1) [B3/2/53] in respect of this averment that: “Post Office recorded the transaction data entered on Horizon by Claimants and so far as possible sought to reconcile that transaction data with other data is (sic) processed.” Otherwise, the remaining sub-paragraphs of GPOC §81 are admitted.
 186 187
– 76 –
  A/1/80
  
 202.
SECTION B: COMMON ISSUES Issues 2 and 3: Implied Terms
201.3. TheDefendant’sownevidenceisthatitprovidesHorizontoSubpostmastersasa ‘key benefit’ to joining the Post Office network.188 The Defendant’s own evidence is that Horizon removes the burden upon Subpostmasters of preparing, maintaining and submitting accounts by use of Horizon and has clear benefits (as a record keeping system) over what went before.189
201.4. The provision of a system that was not fit for purpose (including by lacking sufficient error repellency) would prevent Subpostmasters from performing services for which they were appointed under their contracts – such that a term requiring fitness for purpose is necessary for the contract to be workable.
201.5. It would be impossible for Subpostmasters (or indeed the Defendant) to perform the contract, once Horizon had been introduced, if the Defendant was not obliged properly and accurately to effect, record, maintain and keep records of all transactions effected using the system.
201.6. In particular, Subpostmasters would be unable to comply with terms of the SPMC and NTC contracts requiring them to (a) use Horizon for branch transactions, (b) prepare and submit branch accounts using Horizon.
201.7. The terms pleaded by the Claimants requiring that it be fit for purpose and that relevant data be recorded and maintained by Defendant on it (as formulated above) are, in the circumstances, so obvious as to go without saying.
201.8. Finally, such terms are capable of clear expression – as pleaded.
Under Investigations and shortfalls (terms (3) to (16)) above, the Claimants will rely on:
202.1. The Defendant’s admitted role at §123 GDef, as above.
202.2. That the contractual requirements upon Subpostmasters to produce and submit branch accounts could not be performed at all, alternatively properly or accurately
performed, in circumstances where Subpostmasters were unable
Van Den Bogerd, §65.5 Van Den Bogerd , §91-98
fully
 188 189
– 77 –
  A/1/81
  
 203.
SECTION B: COMMON ISSUES Issues 2 and 3: Implied Terms
and fairly to investigate the cause of alleged shortfalls either themselves or with the assistance of the Defendant.
202.3. That it was therefore necessary for business efficacy that terms of the nature pleaded by the Claimants be implied enabling the cause of any discrepancies in branch accounts to be ascertained, whether by investigation by the Subpostmaster (for which records in the Defendants possession were needed) or by the Defendant (having access to information to which Subpostmasters do not).
202.4. The overwhelming evidential support for the foregoing by the like experience of each of the Lead Claimants, as summarised in Section A above.
202.5. It was in any event necessary, to give effect to the express terms of the relevant contracts imposing liability upon Subpostmasters for losses, for the cause of any discrepancies to be ascertained and whether it represented a loss to Post Office for such liability to arise – and without which, therefore, the contracts would be unworkable and lack commercial coherence.
202.6. Such terms would be so obvious as to go without saying, accordingly.
202.7. Such terms are each capable of clear expression (being clearly expressed as they are pleaded).
Under Exercising of powers and discretions (implied terms (13) to (17)) above, the Claimants will rely on:
203.1. The absence of ‘very clear language’ (or indeed any language)190 in the relevant contracts purporting to exclude of any implied obligations to exercise contractual discretions in good faith, not arbitrarily or capriciously, and consistently with the purpose of the contract.
203.2. The clear necessity for such implied obligations, in order to constrain exercise of otherwise unfettered contractual discretions, whose effect would otherwise be
On the principles above, amplified in Annex III: Issues 2 and 3 – Implied Terms – 78 –
 190
  A/1/82
  
 204.
SECTION B: COMMON ISSUES Issues 2 and 3: Implied Terms
contrary to the purpose of the contracts and contrary to the norms to be expected both in the commercial context and in a relational contract of this nature.
203.3. The Defendant’s admitted role at §123 GDef, as above.
203.4. That it would be so obvious to notional reasonable persons in the position of the parties as to go without saying that Post Office could not exercise such discretions arbitrarily, capriciously, or inconsistently with the purpose of the contract.
203.5. Again,thatsuchtermsaresoobviousastogowithoutsaying,andcapableofclear expression – as accepted by analogy in the authorities referred to under the heading Implied restriction on contractual discretion.
Under Reasonable care (implied term (19)) above, the Claimants will rely on:
204.1. The necessity, in order to give effect to the relationship created by the relevant contracts, that the Defendant take reasonable care in performing its functions under it: the powers and discretions to which the implied term relates could adversely affect the accounts, business, health and reputation of the Claimant and without such a limitation the bargain of the contract could be subverted.
204.2. That again, in a relational contract of this nature, the exercise of such care would accord with the commercial norms to be expected.
Final matters arising on the Defendant’s case
205.
Finally, it is the Defendant’s case that the following implied terms pleaded by the Claimants “would have been onerous, unreasonable, uncommercial and/or unnecessary”:
205.1. theimpliedtermsallegedinparagraphs§64.4to64.11oftheGPOC(impliedterms (4) to (11) above), being the requirements to investigate, or assist in the investigation of, alleged shortfalls, which are also said to be “open-ended and unlimited obligations”;191 and
See, e.g. Bates/IDef at §60 [B5.1/3/36]
 191
– 79 –
  A/1/83
  
SECTION B: COMMON ISSUES Issues 2 and 3: Implied Terms
205.2. the implied term pleaded at GPOC §64.12 (implied term (12) above), being the requirement not to seek recovery of disputed shortfalls from the Claimants unless and until it can be satisfied that the same represents a genuine (i.e. financial) loss to the Defendant, and the Defendant has carried out a “reasonable” and “fair” investigation).192
206. In all the circumstances, and given the necessity and obviousness of those terms, the Defendant’s case in this respect is lacking in reality – particularly so in circumstances where the Defendant itself contends for wider, less narrowly defined, implied duties to co-operate which it contends obviate the need to imply those terms.
207. The focus of the Defendant’s case in this respect appears to be the assertion made by its primary witness that “[i]f Post Office had to positively prove every shortfall was the fault of a Subpostmaster, the administrative burden would be massive. It would also potentially require a disproportionate amount of effort to be put into proving very small losses in branches, which to a single branch may immaterial, but across 11,000 branches could add up to significant losses.”193
208. The Defendant has set up a straw man: nobody is suggesting a requirement, in practice, for the Defendant to prove every alleged shortfall or a Transaction Correction sent to a Subpostmaster – merely a reasonable system by which Subpostmasters could ascertain the basis of any particular shortfalls and challenge them on an informed basis. If, under such a system, the Defendant could not show that the alleged shortfall was both real and caused by fault on the part of the Subpostmaster, then the Subpostmasters would not be liable for it. What is in issue is the imposition of liability (without proof).
209. The Defendant’s position involves two assumed, if not express, premises:
  192 193
209.1. that deviating from its own practices would be unfairly disruptive to the Defendant and impose impossible or undue administrative burdens; and
209.2. therefore, the Court’s contractual construction must conform to the Defendant’s own internal practices – the very subject of this dispute.
See, e.g. Bates/IDef at §61(5) [B5.1/3/37] Van Den Bogerd, §144 [C2/1/39]
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SECTION B: COMMON ISSUES Issues 2 and 3: Implied Terms
210. The Defendant seeks to rely upon in terrorem predictions of its witnesses as to the burden to be imposed by, for example, checking daily cash declarations, and its alleged reliance upon Subpostmasters as to what occurred in individual branches.194
211. But the terms it is necessary to imply do not impose burdens of the nature described:
211.1. Terms (3) and (4) impose requirements produce relevant records and to cooperate in seeking to identify the causes of apparent losses – these are functions for which Helpline was presumably intended.
211.2. Terms (5) to (7) (and (11)) require only that the Defendant, seek to identify such causes itself, disclose (and not conceal) the same, and give fair and even handed consideration to information available.
211.3. Terms (8) to (10) amount to requirements to disclose and/or not to conceal certain matters including known bugs/errors with Horizon, the experience of other Subpostmasters and its ability to alter relevant data remotely.
211.4. Term (12) requires, fairly and reasonably, that the Defendant not seek to recover from Subpostmasters unless it had complied with the foregoing, established that a shortfall amounted to a genuine loss and conducted a fair investigation.
212. On Issue (3), the Claimants will also rely upon the Defendant’s admission that certain contractual discretions and powers were, in any event, subject to an implied term that they would not be exercised dishonestly, arbitrarily, capriciously or irrationally.
213. The Defendant’s concessions on implied terms are highly selective and the fact that the Defendant refuses to be drawn on the impact of those concessions suggests, at least on one view, that such concessions are tactical rather than realistic.
214. It is noteworthy that the Defendant appears very ready to concede implied obligations when it is to its advantage, as illustrated by the Defendant’s previous concession before the Court of Appeal in Moeze Lalji v Post Office Limited [2003] EWCA Civ 1873, at the
  194
Van Den Bogerd, §126-139 [C2/1/34-38]
– 81 –
  A/1/85
  
SECTION B: COMMON ISSUES Issues 2 and 3: Implied Terms
hearing of a renewed application for permission to appeal. The Defendant conceded that its exercise of rights regarding suspension and termination, (including the power to forfeit remuneration during suspension), was qualified by an implied term that “the power must not be exercised capriciously”.195
215. There is no rational basis upon which such a term should not equally apply to all such powers and discretions, or for confining the term to preclude only caprice rather than (for example) bad faith. It will be for the Defendant to explain why it was contractually entitled to act otherwise in its dealings with the Claimants or other Subpostmasters.
Findings sought by the Claimants on Issues 2 and 3
 216.
In the light of the foregoing, the Claimants will respectfully invite the Court find as follows:
216.1. The context is important to the value judgment which the Court is required to make. (The Claimants will address any particular factual findings to be made in the light of the evidence at trial in closing.)
216.2. OnIssue(2),all(orsubstantiallyall)oftheimpliedtermspleadedbytheClaimants were implied terms (or incidents of implied terms) of the relevant Subpostmaster contracts; and
216.3. On Issue (3), the implied terms referred to at GPOC, paras §§64.16, 64.17, 64.18 and/or 64.19 apply to all of the Defendant’s contractual powers, discretions and/or functions under the terms of the SPMC and NTC contracts.
 195
As recited by Sedley LJ at §27.
– 82 –
  A/1/86
  
SECTION B: COMMON ISSUES Issue 4: Supply of Goods and Services Act 1982
Issue 4: Did Post Office supply Horizon, the Helpline and / or training / materials to Subpostmasters (i) as services under “relevant contracts for the supply of services” and (ii) in the course of its business, such that there was an implied term requiring Post Office to carry out any such services with reasonable care and skill, pursuant to section 13 of the Supply of Goods and Services Act 1982?
 Issue 4: Supply of Goods and Services Act 1982
     Statements of Case
   Particulars
    Defence
     Reply
   Generic
  63A
   104
    57
   Bates
    91 to 92
    69 to 70
      76 to 79
   Stubbs
 94 to 95
 54 to 55
  68 to 71
   Sabir
    70 to 71
    68 to 69
      73 to 76
   Abdulla
   68 to 69
  56 to 57
    66 to 69
   Dar
 83 to 84
 56 to 57
  66 to 69
   Stockdale
   82 to 83
   51 to 52
     60 to 63
217.
218.
Depending on the Court’s decision as to the implied terms (above) this issue may be unnecessary. Indeed, aspects of this issue may be moot because of the Defendant’s own admissions as to its obligations (below).
However, the Claimants’ case is that the Defendant agreed to supply the following services to the Claimants in the course of its business (together the “Services”) pursuant to ‘a relevant contract for the supply of services’ within the meaning in Section 12(1) of the 1982 Act:
218.1. Horizon;
218.2. theHelpline;and
218.3. training and / or materials provided in relation to the foregoing.
As a result, the term requiring exercise of reasonable skill and care is to be implied under Section 13 of the 1982 Act with respect to the provision of those Services.
The following preliminary observations set the stage:-
220.1. The Defendant itself admits that it was contractually bound to provide training
and support; specifically, that “Post Office was required to provide training and – 83 –
219.
220.
  A/1/87
  
SECTION B: COMMON ISSUES Issue 4: Supply of Goods and Services Act 1982
support in accordance with (a) the express terms of the contracts and/or (b) the implied term as to Necessary Cooperation and/or (c) the Stirling v Maitland implied term”.196
220.2. Indeed,theDefendant’spractice(atleastatsomepointandwhenthatpracticewas actually followed) to require some Subpostmasters to agree to avail themselves of training provided by the Defendant, in Appendix 1 to their Appointment Letters. For example, see Appendix 1 in Sabir’s case:197
“I, Mr Mohammad Sabir, fully understand and accept these terms and conditions and agree to avail myself of the pre-appointment introductory training.”
220.3. As noted also below, the Defendant stipulated in the NTC that it:
“provides customer and business services such as helplines to support Subpostmasters / operators”.198
221. There seems no sensible argument that the training which the Defendant admits it was obliged to provide should not embrace the provision of materials for such training.
222. Equally, there seems to be no sensible distinction to be drawn between the provision of Helpline and the support which the Defendant admits that it was obliged to provide.
223. The relevant principles on this issue are set out more fully in Annex IV: Issue 4 – Supply of Goods and Services Act. They are encapsulated in the propositions set out below, by which the Claimant contends that:
  196 197 198 199
223.1. The Services were provided by the Defendant in the course of its business199 – a proposition that is supported by the Defendant’s repeated characterisation of these contracts as ‘business to business’ contracts (on its own case and, in any event, in contradistinction to consumer contracts, which are now dealt with under a totally separate statutory regime).
By letter dated 27 June 2018, [H/10]
[D1.3/1/1]
See, e.g., Stockdale/IPOC at §6.4 and 83.2 [B5.6/2/2] [B5.6/2/18]
“Business” is widely defined in 1982 Act at s.18(1) as: “includes a profession and the activities government department or local or public authority”. This would capture a entity such as the Defendant, wholly owned by the state.
– 84 –
of any
  A/1/88
  
SECTION B: COMMON ISSUES Issue 4: Supply of Goods and Services Act 1982
223.2. The Services were plainly provided to the Claimants as ‘services’ within the meaning of the 1982 Act. Provision of Horizon, the Helpline and training to Subpostmasters was not a right that the Defendant simply elected to exercise in its own interest and for its own protection;200 rather, they formed part of the package of services provided by each party to the other under the terms of the Subpostmaster agreements, and cannot be separated from other services to be provided under those agreements – indeed they were integral to them. The Defendant itself emphasises on the Subpostmaster contracts being contracts for services. This was plainly a two way street.
223.3. TheServiceswereessentialtotheoperationbySubpostmastersoftheirbranchand, therefore, to the operation of the contract as a whole. Without them, Subpostmasters could not possibly accepted the appointment, let alone performed their core obligations under it.
224. Any attempt to parse the provision of Horizon as a service from the provision of the Services as a whole is wholly artificial. These were provided as a central part of the wider bargain struck between the Defendant and Subpostmasters, as explained below.
Horizon
225. Provision by Defendant: First, the position with regard to Horizon is straightforward insofar as the Defendant’s own evidence is that “Post Office provides the equipment, including IT equipment, needed to conduct customer transactions and maintain the branch accounts, including safes, mail scales, Horizon, printers, barcode scanners and chip and pin machines. It also provides the back-end IT infrastructure that connects each branch with Post Office's Clients. I do not believe that a small business owner could put this infrastructure in place on their own.”201
  200
Such as, for example, the right to close out a client Forex position considered in Marex Financial Limited v. Creative Finance Limited & another [2013] EWHC 2155 (Comm), per Field J at §71
Van Den Bogerd, §65.5
201
– 85 –
  A/1/89
  
SECTION B: COMMON ISSUES Issue 4: Supply of Goods and Services Act 1982
226. These services and hardware are said to be provided by the Defendant to Subpostmasters as a ‘key benefit’ in joining the Post Office Network.202
227. The Defendant’s claims that Horizon reduced the burdens of preparing, maintaining and submitting accounts, by generating them ‘automatically’.203
228. Horizon Online was (on the Defendant’s case) provided to facilitate the very business that forms the primary subject-matter of the contract, as described in the Generic Defence at §33:
“... Until 2010, Horizon was a distributed system in which transactions were undertaken within branches, whose terminals transmitted transaction data in branches to a central Post Office data centre. Once Horizon Online was introduced in 2010, transactions were effected through real time exchanges of data from branches to a central Post Office data centre...” [Emphasis added]
229. Focus of training: Second, the necessary training (on the Defendant’s account) related particularly to how to use the Horizon system and the service provided by the Defendant thereby. The Defendant’s evidence is that at all material times initial training was offered to new Subpostmasters by the Defendant,204 said (controversially) to include as “core features”:
229.1. how to conduct basic transactions;
229.2. how to deal with remittances of cash and stock in and out of branch;
229.3. how to submit the required daily, weekly and monthly accounts;
229.4. how to declare, investigate, make good and dispute shortfalls; and
229.5. how to get further advice and support.205
230. Service to Subpostmasters: Third, the Lead Claimants’ evidence entirely supports the characterisation of the provision of Horizon as a service, intended to offer them a
     202 203 204 205
Van Den Bogerd, §65
Van Den Bogerd, §93
See, e.g., Van Den Bogerd §102 [C2/1/30] See Van Den Bogerd §104 [C2/1/31]
– 86 –
  A/1/90
  
SECTION B: COMMON ISSUES Issue 4: Supply of Goods and Services Act 1982
means of performing tasks otherwise performed by them through other systems procured by them personally.206
Helpline
231. In the GPOC, the Claimants pleaded at §29:
“The Defendant operated the Network Business Support Helpline (“the Helpline”) which it provided and recommended to Claimants as a primary source of advice and assistance in relation to Horizon, transactions, errors and issues relating to their trading statements and accounts.” [Emphasis added]
232. GPOC §29 is admitted by the Defendant in the GDef.207 Whether (and if so, how) this falls outside the admitted implied obligation to provide support remains wholly unclear. But on any view, the Helpline was provided under ‘a relevant contract for the supply of services’.
233. It is evident from the Defendant’s admission above that: (i) the Defendant did provide the service of the Helpline (indeed it recommended the same); and (ii) the functions to which it relates go to the primary subject-matter of the Subpostmaster contract – namely: (i) carrying out transactions via Horizon in branch; (ii) keeping accurate accounts; (iii) and submitting trading statements to the Defendant.
234. The NTC contract makes express reference to the Defendant’s provision of the Helpline:-
     206 207 208
234.1. The Defendant provided a ‘restrictions policy’ which expressly stated that the Defendant “provides customer and business services such as helplines to support Subpostmasters / operators”208 (replicated in Part 6, Paragraph 1.4);
234.2. Part2,Paragraph1.6.1oftheNTCstatesthat“PostOfficeLtdshallprovide:ahelpline to enable to Operator to consult with Post Office Ltd about running the branch”.209
Such as, by using the ‘Capture’ IT system used by Bates and Stubbs, or other accounting systems See the GDef at §61 [B3/2/27]
See, e.g. Stockdale /IPOC at §6.4 and 83.2 [B5.6/2/2] [B5.6/2/18]
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SECTION B: COMMON ISSUES Issue 4: Supply of Goods and Services Act 1982
234.3. replicates the ‘restrictions policy’ referenced above.
Training
235. This starts (and arguably finishes) with the Defendant’s admission of an implied obligation to provide training as addressed above. This was plainly a service provided under ‘a relevant contract for the supply of services’.
236. Training and support obviously overlap to some extent, and the Claimants will refer to the Defendant’s own evidence and the reasons why the Defendant provided them.210
237. Not only does the Defendant admit such an obligation, but (without admitting any requirement as to the quality of such training) the Defendant nonetheless admits that that provision of inadequate training could be a breach of that implied obligation.211
238. Thus the Defendant plainly contracted to provide training to Subpostmasters and it is common ground that the Defendant was obliged to provide this service as necessary to give business efficacy to the contracts. Again, this was part of the bargain reached between the Defendant and its Subpostmasters. The provision of training and support – in the form of the Defendant’s Helpline, are properly to be characterised as services.
The Defendant’s case
239. The Defendant contends that in this respect the SPMC and NTC are not ‘relevant contracts for the supply of services’ under 1982 Act.212 Specifically, the Defendant argues that it did not agree to provide Horizon, the Helpline or training as: (i) a service to the Claimant; or (ii) in return for consideration.213
 240. That is obviously wrong, for all the reasons set out above.
 209 210 211
212 213
See, e.g., Stockdale/IPOC at §83.2 [B.6/2/18 Van Den Bogerd, §99
See the Implied Terms Table, Defendant’s response to the Claimant’s pleaded implied adequate training be provided at §64.1 GPOC
See the GDef at §104 [B3/2/47]
See, e.g. Stockdale/IDef at §52 [B5.6/3/26]
term that
– 88 –
  A/1/92
  
SECTION B: COMMON ISSUES Issues 5 and 6: Onerous and Unusual Terms
Issue 5: Were any or all of the express terms in the GPOC paragraphs listed below onerous and unusual, so as to be unenforceable unless Post Office brought them fairly and reasonably to the Subpostmasters’ attention?
para 51.1 and 51.3 (rules, instructions and standards) para 52.1 and 52.3 (classes of business)
para 54.1 and 54.3 (accounts and liability for loss) para 56.1.a and 56.2.a (assistants)
para 60.1 and 60.3 (suspension)
para 61.1 and 61.3 (termination)
para 62.1 and 62.3 (no compensation for loss of office)
Issue 6: If so, what, if any, steps was Post Office required to take to draw such terms to the attention of the Subpostmaster?
 Issues 5 and 6: Onerous and Unusual Terms
     Statements of Case
     Particulars
    Defence
       Reply
    Generic
 66
 108
  52 to 53, 61
   Bates
  93 to 95
  71 to 77
     80 to 86
   Stubbs
    96 to 98
   56 to 62
      72 to 78
    Sabir
   72 to 74
  70 to 76
   77 to 83
    Abdulla
 70 to 72
 58 to 64
  70 to 76
   Dar
    85 to 87
   58 to 64
      70 to 76
    Stockdale
  84 to 86
 53 to 59
  64 to 70
 241. The Claimants rely upon the terms identified in the relevant GPOC paragraphs (and Issue 5) in full and the points made as the unreasonableness of the terms in issue under Issue 7: Unfair Contract Terms, which equally inform the distinct analysis here.
242. GReply at §52214 spells out some important aspects of the construction of the contracts for which the Defendant contends, which is obviously onerous and unusual.
243. In particular, the terms (whether on their face or, a fortiori, as construed by the Defendant) purportedly allow the Defendant the following largely unqualified215 rights:
 214
[B3/3/30]
– 89 –
  A/1/93
  
        215 216 217 218 219 220
SECTION B: COMMON ISSUES Issues 5 and 6: Onerous and Unusual Terms
243.1. Rules, instructions and standards: To impose contractual requirements by notice, including in Counter News. The terms captured by this category require Subpostmasters to comply with an ill-defined corpus of obligations, so extensive that the Defendant is unable and / or unwilling to identify which obligations were in place at which time.216
243.2. Classes of business: To change services and classes of business to be transacted, upon which the Subpostmaster’s business was reliant and / or upon which Subpostmasters had relied in contracting with the Defendant, and without compensation.217
243.3. Accounts, liability and loss: Pursuant to the Defendant’s construction (which is denied), the terms captured by this category allowed the Defendant:218
a. to hold Subpostmasters liable for losses which do not represent any economic detriment to the defendant; and
b. to require Subpostmasters to prove the cause of alleged errors, including where these are due to Horizon errors (which the Defendant contends no Subpostmaster has ever been able to prove to its satisfaction), even where the Defendant was itself well aware of such errors.
243.4. Assistants: to impose liability for losses and / or for the acts and omissions of assistants, regardless of cause or fault.219
243.5. Suspension: to suspend the claimant and withhold or forfeit their remuneration, even if they are reinstated.220
243.6. Termination: to determine the appointment for breach or (unspecified) non- performance or on three months’ notice without cause.221
E.g. not changing contract terms which have not been agreed with the NFSP, dishonestly etc. See, e.g. Bates/IReply at §80.5.f. [B5.1/4/34]
See, e.g. Bates/IReply at §80.5.a. [B5.1/4/34]
See, e.g. Bates/IReply at §80.5.d. to e. [B5.1/4/34]
See, e.g. Bates/IReply at §80.5.c. [B5.1/4/34] See, e.g. Bates/IReply at §80.5.g [B5.1/4/34]
– 90 –
  A/1/94
  
  244.
SECTION B: COMMON ISSUES Issues 5 and 6: Onerous and Unusual Terms
243.7. Compensation for loss of office: to terminate the Subpostmaster’s appointment without compensation.222
The Claimants’ case is that these terms are particularly onerous when viewed in the context of the contract as a whole and the character and position of the parties to it. Specifically:-
244.1. OntheDefendant’sowncase,Subpostmasterscontractedwithitintheexpectation of profiting from the business relationship.223 The Defendant was therefore, at all material times, aware of the basis upon which Subpostmasters were contracting with it – on its own case.
244.2. The Defendant required Subpostmasters to commit to making significant investments in time and cost. This included, for example, in the case of Sabir:224
a. providing lengthy business plans which included financial projections;
b. entering into commitments for the purchase of two branches;
c. entering into long-term loan agreements with Lloyds TSC (for 10 years and eight years respectively);
d. carrying out improvement works required by the Defendant; and
e. carrying out other improvement works to the retail side of his businesses.225
244.3. The Defendant’s purported unfettered right (on its case) to terminate the Subpostmaster’s engagement on notice the day after branch transfer (perhaps when agreed works were still underway or had just been completed) is obviously
See, e.g. Bates/IReply at §80.5.h. [B5.1/4/35] See, e.g. Bates/IReply at §80.5.i. [B5.1/4/35] See, e.g. GDef at §76(2). [B3/2/36]
See Sabir/IPOC at §33 [B5.3/2/9-10]
The Claimants further rely upon the terms of the Discretionary Payments Agreement (the “DPA”) dated 1 April 1989 (and all variations and supplemental agreements thereto) made by the NFSP (on behalf of all Subpostmasters from time to time) and the Defendant, and the implicit (and negotiated) recognition of the investments typically made by Subpostmasters and losses incurred by them on termination of their appointment without the ability to sell on their business: see, e.g. the Sabir/IReply at §82 [B5.3/4/33-34]
 221 222 223 224 225
– 91 –
  A/1/95
  
 245.
SECTION B: COMMON ISSUES Issues 5 and 6: Onerous and Unusual Terms
onerous and unfair in the context of the relationship as understood by the parties when contracting.
244.4. The operation of the challenged terms by the Defendant also had the potential to drastically reduce a Subpostmaster’s remuneration and / or diminish their investment.
244.5. Further, it is relevant when assessing broad considerations of fairness and reasonableness, and the nature and effect of the challenged clauses, to have regard to the apparent general inadequacies of the training, assistance, support and information available to Subpostmasters, including the inherent limitations in Horizon.226
The Claimants’ case is that the relevant terms are not of a kind that notional persons in the position of the parties would have anticipated in such a contractual agreement. In the circumstances, these terms need to be brought fairly and reasonably to the attention of Subpostmasters by the Defendant taking the following steps:-227
245.1. Clearly identifying each of the terms to the Subpostmaster and explaining to the Subpostmaster how the Defendant would operate those terms in practice (including, specifically, in relation to ‘accounts and liability for loss’).
245.2. Clearly explain to the Subpostmaster the potential consequences of the Defendant relying on those terms and / or advising the Subpostmaster to seek independent legal advice as to such consequences.
245.3. As to ‘rules, instructions and standards’, in fact providing copies to the Subpostmaster of all of the rules, instructions and standards,228 explaining to the
An inability properly to investigate the causes of alleged shortfalls is especially relevant to an analysis of the terms under the category of ‘accounts, liability and loss’, but it is also of relevance in the categories of ‘assistants’, ‘suspension’, ‘termination’ and ‘compensation for loss of office’. See, e.g. Bates/IPOC at §94.3.b. [B5.1/2/26]
See, e.g. Sabir/IPOC at §74 [B5.3/2/19]
There was no online resource where all the relevant provisions on a particular topic were to be found together. The presentation of the Modified SPMC (with 48 pages of amendments, attached to the front of an earlier version) is a totemic illustration of the Defendant’s approach to this.
 226
227 228
– 92 –
  A/1/96
  
SECTION B: COMMON ISSUES Issues 5 and 6: Onerous and Unusual Terms
Subpostmaster their intended relationship and contractual effect, and permitting the Subpostmaster time to read and understand them.
The Defendant’s case
246. The Defendant denies that the approach in Interfoto applies here, where some of the contractual documents were signed by some of the Lead Claimants. Putting the rather patchy picture of provision of contractual documents (below, at paragraph 250) to one side, the Defendant’s contention is contrary to the development of the law in this area and contrary to an informed application of the principles to the particular relationship in this case (see: Annex V: Issues 5 and 6 – Onerous and Unusual Terms).
247. In short, the Court is concerned with a principled answer to the following question:
“whether it would in all the circumstances be fair (or reasonable) to hold a party bound by any conditions or by a particular condition of an unusual and stringent nature.”
(per Bingham LJ, in Interfoto Picture Library v Stiletto [1989] 1 QB 433)
248. The Defendant’s case is that the relevant terms are not onerous and unusual. The Defendant goes on to argue that, if the terms are onerous and unusual, sufficient notice was in fact229 provided to the Claimants by virtue of: (i) providing a copy of the contract to the Claimant; (ii) alternatively, even if no contract was provided and the Claimant was not aware of its terms, “on the other facts pleaded above, adequate notice was still provided”; 230 and (iii) further, and in any event, the relevant terms were not so onerous and unusual so as to require any notice beyond a document confirming that the Claimant was bound by the terms of the contract, and the contract being available to the Claimant at the time the acknowledgment of appointment document was signed.
249. The Defendant’s case proceeds on the assumed premise, reflected in its generic evidence, as to its practices and procedures and the extent to which those were uniformly followed with total clarity and rigour.
  229 230
Not, in itself, a question for this Common Issues Trial See, e.g. Sabir/IDef at §76(2) [B5.3/3/36]
– 93 –
  A/1/97
  
SECTION B: COMMON ISSUES Issues 5 and 6: Onerous and Unusual Terms
250. However, the lack of reality in the Defendant’s case can be seen in the circumstances surrounding the provision (or lack thereof) of contractual documents to the Lead Claimants (which the Claimants will invite the Court to find represents the general practice of the Defendant), as set out above.
251. In short, it was fairly chaotic:-
       231 232 233 234
251.1. Bates: Bates did not see a copy of his contract until it was provided to him in August 1999 (over a year after he opened the branch), in response to an enquiry he had made about holiday substitution allowance.231
251.2. Stubbs: Stubbs’ husband was the Subpostmaster at the branch before he sadly passed away. The next day, a representative from the Defendant visited Ms Stubbs and confirmed Ms Stubbs’ appointment to be the new Subpostmaster at the branch. No contract was provided to Ms Stubbs by the Defendant at this time or at all. Indeed, the first time Ms Stubbs had sight of the SPMC was when she obtained a copy of somebody else’s SPMC from the Citizens Advice Bureau after the termination of her appointment. No other relevant contractual documents provided to her have been disclosed by the Defendant in these proceedings.232
251.3. Abdulla: Prior to his appointment, Abdulla was provided with a “brief summary of the conditions of the Subpostmaster Contract for your attention”; although the document stated that it “may not be relied upon, for any purpose, by the Subpostmaster”.233 Abdulla was later required to sign a ‘conditions of appointment’ document which confirmed, inter alia, that he would be “bound by the terms of the Standard Subpostmaster Contract for Services at Modified Payment Offices” –Abdulla denies that he was provided with such a contract at any time, and the same has not been disclosed by the Defendant to date.234 On the date of
branch opening, Abdulla was provided with number of disparate documents containing references to all manner of terms, none of which were explained by
See Bates/IPOC at §23 [B5.1/2/7-8]
See Stubbs/IPOC at §5 to 8 [B5.2/2/2-3] See Abdulla/IPOC at §8 [B5.4/2/3]
See Abdulla/IPOC at §12 to 13 [B5.4/2/4-5]
– 94 –
  A/1/98
  
SECTION B: COMMON ISSUES Issues 5 and 6: Onerous and Unusual Terms
the representative of the Defendant; he was unable to read this documents prior to signing them or otherwise before taking up his appointment.235
252. However, the issue for the purposes of this Common Issues Trial is not whether these particular Lead Claimants were in fact given sufficient notice. Rather it is, as expressed in Issues 5 and 6: whether any or all of the express terms in issue were onerous and unusual; and if so, what, if any, steps were required for the Defendant to draw them to attention of Subpostmasters.
253. The experiences of the individual Lead Claimants is not directed to any finding that insufficient notice was given in their particular cases (whether that is in fact established on the evidence or not). However, their individual experiences allow the Court the opportunity to reach an informed view of the effectiveness of various means of bringing the terms of the contract to the attention of Subpostmasters generally.
  235
See Abdulla/IPOC at §15 to 16 [B5.4/2/5-6]
– 95 –
  A/1/99
  
– 96 –
SECTION B: COMMON ISSUES Issues 5 and 6: Onerous and Unusual Terms
   A/1/100
  
SECTION B: COMMON ISSUES Issue 7: Unfair Contract Terms
Issue 7: Were any or all of the contract terms at [Issue 5] unenforceable pursuant to the Unfair Contract Terms Act 1977?
 Issue 7: Unfair Contract Terms
     Statements of Case
     Particulars
    Defence
       Reply
    Generic
 67 to 68
 109
  52 to 53, 61
   Bates
  96 to 97
  78 to 92
     87 to 93
   Stubbs
  99 to 100
  63 to 77
     79 to 85
   Sabir
  75 to 76
  77 to 91
     84 to 90
   Abdulla
  73 to 74
  65 to 79
     77 to 83
   Dar
    88 to 89
   65 to 78
      77 to 83
    Stockdale
  87 to 88
 60 to 73
  71 to 77
 The Claimants’ case
255. The requirements and effect of Section 3 of the Unfair Contract Terms Act 1977 (“UCTA”)
are set out and considered in detail in Annex VI: Issue 7 – Unfair Contract Terms.
256. Section 3 of UCTA applies “to any contract term“236 in one party’s “written standard terms of business”237 by confining the effect of terms excluding liability for that party’s breach or entitling that party to defeat reasonable expectations as to performance (or no performance) to what is reasonable.
257. The terms in issue fall to be considered in the context of the contract as a whole and with regard to their combined effect and, in particular, whether construed individually or cumulatively, the terms in question purport to entitle the Defendant to render a contractual performance substantially different from that which was reasonably expected of it and/or render no performance at all.238
 236
237 238
Section 3(2); and see, for example as to termination provisions, Timeload Ltd v British Telecommunications Plc [1995] E.M.L.R. 459, at 468 per Sir Thomas Bingham MR: “If a customer reasonably expects a service to continue until BT has substantial reason to terminate it, it seems to me at least arguable that a clause purporting to authorise BT to terminate without reason purports to permit partial or different performance from that which the customer expected.”
Section 3(1)
See, for example Bates/IReply at §87 [B5.1/4/36]
– 97 –
  A/1/101
  
SECTION B: COMMON ISSUES Issue 7: Unfair Contract Terms
258. The terms plainly did one or both of the above. They were unenforceable because they failed to comply with the requirement of reasonableness under Section 3(2) UCTA.
259. For the purposes of Section 3(2)(b), the extent to which the terms purported to permit the Defendant’s performance to fall short of reasonable expectations is identified, for avoidance of repetition, under Reasonableness, on p.104.
The Defendant’s case
260. The Defendant’s case is that Section 3 UCTA does not apply to the SPMC and NTC contracts at issue in these proceedings. This proposition is advanced on two limbs.
260.1. Writtenstandardterms:First,ineachLeadCase,itispleadedthatthecontract was not on the Defendant’s “written standard terms of business” within the meaning of section 3(1) UCTA. As to this, the Defendant’s case rests upon the somewhat ambitious submission that “Post Office’s business was not the appointment of Subpostmasters.”239
260.2. Contractual performance: Second, it is pleaded (both generically and individually) that none of the terms in question would entitle Post Office to render a contractual performance substantially different from that which was reasonably expected of it, or to render no performance.240 This is difficult to reconcile with well-established authority.
261. In the alternative to the above, the Defendant’s contends that the terms (apparently analysed individually) satisfy the statutory requirement of reasonableness,241 on the basis that:242
  239 240 241 242
261.1. the Lead Claimants were aware, or ought to have been aware, of the terms;
261.2. The contract was a business-to-business agreement entered into in the expectation of profit;
See, for example, Bates/IDef at §78(1)
GDef at §109
GDef at §109
See, for example, Bates/IDef at §78(4) and §80 to 92 [B5.1/3/43-51]
– 98 –
  A/1/102
  
SECTION B: COMMON ISSUES Issue 7: Unfair Contract Terms
261.3. In light of the “scale and complexity” of the Defendant’s business, it would not have been reasonable for the Claimants to expect that matters such as which products and services they could offer would remain fixed in time.
261.4. It was commercially necessary and reasonable to determine which products and services were offered, and to be able to change its operational instructions and conditions of service from time to time and to be entitled to terminate both for repudiatory breach of contract and on notice.
261.5. It would be reasonably anticipated that an agent’s appointment would be terminated without compensation for loss of office – the Claimants had no reasonable expectation that their appointment would be any different.
The issues
 262.
Thus, the following fall to be determined at trial:
262.1.
262.2.
262.3.
a.
b.
Written standard terms: Whether the relevant contracts, pursuant to which Subpostmasters were appointed, were the Defendant’s “written standard terms of business” such that Section 3 UCTA applies to those contracts 243 –
Combinedeffect:Whetherthetermsfalltobeconsideredinthecontextofthe contract as a whole and with regard to their combined effect (and not as the Defendant’s case appears to suggest, in isolation);
Contractual performance: Whether the terms identified above purport to entitle the Defendant:
to render contractual performance substantially different from that which was reasonably expected (as above); and/or
render no performance at all with respect of the whole or part of the contract.
 243
Section 3(1), UCTA
– 99 –
  A/1/103
  
SECTION B: COMMON ISSUES Issue 7: Unfair Contract Terms
262.4. Reasonableness: Whether the terms each (or together) fail to satisfy the requirement of reasonableness to which they were subject under Section 3(2) and are unenforceable, accordingly.
263. The relevant principles are amplified in Annex VI: Issue 7 – Unfair Contract Terms. Contractual context and combined effect
 264.
265.
266.
It would be contrary to principle to regard these terms in isolation as opposed to considering them both in context and as to their combined effects. In so far as the Defendant’s case depends upon looking at each term in isolation, it is wrong.
The terms in question purport to confer upon the Defendant largely unfettered rights to vary almost every aspect of the relationship between the parties, including performance by the Defendant. Their effects when viewed individually, are as described below.
But taken in combination and in the context of the terms of the contracts as a whole, their effect is profound. They purport to allow the Defendant to act as follows (as in fact those terms were applied in the case of each of the Lead Claimants):244
244
245
As to the specific and permissible purposes for which the Claimants rely upon evidence of the Lead Claimants, see the final paragraph of this Section.
See, e.g. Bates/IReply at §80.5.c. [B5.1/4/34]
– 100 –
266.1.
266.2.
a.
unilaterally to impose contractual requirements upon Subpostmasters of which they may not be aware, which could (on the Defendant’s construction) later form purported grounds for suspension or termination of the contract and could vary the required performance by the Defendant, or (in the above event) the need for it to perform it at all;
impose purported liability for alleged shortfalls upon Subpostmasters by operation of an undisclosed network-wide internal policy of presumed fault and, in the case of Assistants, purportedly regardless of cause or fault,245 including in circumstances in which:
it had carried out no, or no reasonable or fair, investigation of the cause;
   A/1/104
  
SECTION B: COMMON ISSUES Issue 7: Unfair Contract Terms
b. it was impossible, or unreasonably difficult, for the Subpostmaster to investigate the cause and/or to dispute the same;
266.3. to suspend Subpostmasters on the basis of such presumed liability;
266.4. withhold remuneration during suspension, whether in accordance with an apparently undisclosed internal policy of doing so where a temporary Subpostmaster is appointed,246 or otherwise;
266.5. terminate the appointment, without cause or compensation, on the basis of breach of a unilaterally imposed rule, instruction or other requirement, or on the basis of such presumed liability, and/or, for example:
a. without an investigation of the nature above, or any investigation;
b. arbitrarily, irrationally or capriciously, without reasonable and proper cause and/or where the Defendant was itself in material breach; and
c. in circumstances where the parties entered into the relationship on the premise of their long-term commitments, or at least the making of long- term commitments by the Claimants.247
The Defendant’s written standard terms of business
267. The basis upon which the Defendant joins issue with the Claimants on the straightforward proposition that the terms of the SPMC and NTC were the Defendant’s “written standard terms of business” that “Post Office’s business was not the appointment of Subpostmasters”248 is difficult to understand. Not only is this proposition obviously wrong, but these contracts are paradigm examples of written standard terms of business. To hold otherwise would substantially defeat the purpose of the Act.
  246 247 248
Evidence relating to appointment of temporary Subpostmasters of Mr Shields, [C2/7] See, e.g. Bates/IReply at §87.2 [B5.1/4/37]
See, e.g., Bates/IDef at §78(1) [B5.1/3/43]
– 101 –
  A/1/105
  
 268.
SECTION B: COMMON ISSUES Issue 7: Unfair Contract Terms
268.1. “the Defendant contracts with Subpostmasters on standard form contracts”
268.2. the terms of its contracts are not open to negotiation by individual Claimants
(save for limited purposes, such as opening hours); and
268.3. the Defendant “...incurs expense and time-costs in recruiting (including advertising for applicants and assessing and selecting applicants) and training new Subpostmasters” (Fact 24).
The appointment of Subpostmasters is an integral part of the Defendant’s business, and the statutory monopoly it operates:
269.1. the Defendant’s core services are provided through branches, the majority of which are agency branches operated by Subpostmasters;
269.2. its own evidence is that it also operates through different agency models in order to provide a commercially viable offering to Subpostmasters to serve a range of constituencies.250
Finally, and for the avoidance of any doubt, Subpostmaster contracts are all drawn as a matter of routine in all transactions of this type in question, namely the appointment of Subpostmasters. That is why the Court in construing them at the Common Issues Trial.
269.
270.
Moreover, the Defendant admits that:249
Substantially different performance / no performance at all
271. The Claimants will invite the Court to find that the clauses in question purported to entitle the Defendant to perform significantly differently than what was, in fact, “reasonably expected” of it, or to render no performance at all.
272. This involves a different, subjective, enquiry; it contrasts with the expectations of “notional reasonable people in the position of the parties” which are the touchstones for the
anterior exercise of construing contractual provisions.
  249 250
Joint Matrix of Fact, Facts 9 and 24 [B6/1.1/3-5]; see also Agreed Statement of Facts [B6/2/1] Van Den Bogerd §26-32
– 102 –
  A/1/106
  
SECTION B: COMMON ISSUES Issue 7: Unfair Contract Terms
273. Such reasonable expectations are not limited to what may be expected of by virtue of the express terms of the contract, and in appropriate circumstances may include what was expected by way of pre-contractual representations or promises.251
274. The reasonable expectations as to performance are those that existed as at the time the contract was made. They may include the reasonable expectations that a service provided by one party to another will to continue until the other party had “substantial reason to terminate it”, so as to subject clauses purporting to allow the party to terminate without such reasons to the requirement of reasonableness.252
275. Without limitation, the Claimants draw the Court’s attention to following:-
  251 252 253 254
275.1. Rules, instructions and standards: terms within this category purport to permit the Defendant to vary the contract, including as to its own performance of it as that was expected at the time of contracting, unilaterally.
275.2. Classes of business: terms within this category253 purport to entitle the Defendant to withdraw Services, the provision of which was a key expectation for Subpostmasters (indeed, regarded by the Defendant as a ‘key benefit’); these may have been specifically required to be provided by a Subpostmaster as a term of their appointment, were to be the basis of a Subpostmaster’s estimated remuneration and indeed supported the business case for the appointment itself.254 Such clauses would permit the Defendant to render contractual performance substantially different from what was reasonably expected – or not at all.
275.3. Accounts, liability and loss: terms within this category, including those relating to liability in respect of Assistants, purport to permit the Defendant to perform the contract differently from what was to be expected by imposing liability in the circumstances described above, withthe
See, e.g., AXA Sun Life Services Plc v Campbell Martin Ltd [2011] EWCA Civ 133 at [50] Timeload Ltd v British Telecommunications Plc [1995] E.M.L.R. 459.
GPOC at, §52.1 and 52.3 [B3/1/20-21]
See, e.g. Bates/IReply at §87.3 [B5.1/4/37-38]
– 103 –
  A/1/107
  
SECTION B: COMMON ISSUES Issue 7: Unfair Contract Terms
consequence that the Defendant could (apparently at its own election) withhold remuneration, suspend or terminate the appointment.
275.4. Suspension and Termination: such terms purport to entitle the Defendant to
a. terminate a Subpostmaster’s appointment on three months’ notice without cause, notwithstanding the reasonable expectations of the Subpostmasters to the contrary, long-term commitments undertaken by both parties upon entering into the contract255 and the Defendant’s own expectation as to the compensation to be paid in like circumstances pursuant to long-standing arrangements with the NFSP;256
b. Suspend Subpostmasters without compensation on a like basis;257 and
c. Terminate appointments with cause, but without adequate (or any) investigation or justification, as above.
276. It is also important to note that the Defendant expressly relies upon the provision in its standard written terms of a right to terminate on 3 months’ notice without cause as amounting to a limitation of liability clause, capping any compensation that Subpostmasters might recover. Such a clause falls within Section 1(2)(a) of UCTA, so as to be subject to the requirement of reasonableness.
Reasonableness
277. The Court will be familiar with the guidelines as to reasonableness which are to be read across to section 3(2), more fully set out in Annex VI: Issue 7 – Unfair Contract Terms.
278. By way of preliminary observation, the Defendant’s case on reasonableness is difficult to reconcile with its own claim that Subpostmasters entered into their contracts with the Defendant “in the expectation of profit” or indeed any contract between an individual and a state monopoly engaging the individual to make a significant personal investment, in pursuit of the delivery of a public service, on a commercial basis.
  255 256 257
See, e.g. Bates/IReply at §87.4 [B5.1/4/38]
As to which, see Bates/IPOC at §27 [B5.1/2/9] See, e.g. Bates/IReply at §80.5.g. [B5.1/4/34-35]
– 104 –
  A/1/108
  
SECTION B: COMMON ISSUES Issue 7: Unfair Contract Terms
279. The Court will be invited to have regard, inter alia, to the following factors militating against any finding of reasonableness:258
279.1. Strength of bargaining power: the profound imbalance of bargaining power between the Defendant and individual Claimant Subpostmasters. As to this, the Court is asked to have particular regard to
a. The Defendant’s statutory monopoly;
b. The Defendant’s access to both internal and external legal advice;
c. The Defendant’s knowledge of its own business processes, including (in stark contradistinction to the Lead Claimants) of its own application of those terms and the consequences of the same to Subpostmasters;
d. the absence of any opportunity to enter into a similar contract with anyone other than the Defendant for the products and brand type in question; and
e. the absence of any meaningful opportunity to negotiate the terms.
279.2. WhetherSubpostmasterskneworoughttohaveknownoftheexistenceand extent of the challenged terms: no meaningful attempt was made by the Defendant to draw the Lead Claimants’ attention to the existence of the challenged terms and/or the Defendant’s practices with respect to the same.
279.3. The draconian effect of those terms: when applied as construed by the Defendant and apparently in accordance with its own policies and procedures, as described above – and by the Lead Claimants.
280. The above considerations are further exacerbated by the impediments to transparency and the provision of information to Subpostmasters inherent in Horizon, and the inadequacies in the training and support provided to Subpostmasters.
281. For the avoidance of doubt, the Claimants do not rely upon evidence of the Lead Claimants of events post-dating their entry into a contract of appointment for the
  258
See, e.g. Bates/IReply at §88 to 92 [B5.1/4/39-41]
– 105 –
  A/1/109
  
SECTION B: COMMON ISSUES Issue 7: Unfair Contract Terms
purposes of establishing unreasonableness upon the statutory test in their particular individual cases, as opposed to the Claimants’ case on the generic issues.
282. Rather, such evidence is relied upon to establish relevant factual background (as far as individual Lead Claimants are able to) as what was reasonably to be expected of the Defendant’s performance. This is necessary to the resolution of Issue 7 as a generic issue. As the Court has recognised, it is important for the Court to have before it a realistic and balanced picture (rather than one selectively tailored by one party alone) as to the likely effects of the impugned terms and knowledge of the parties (including that of the Defendant, through its dealings with Subpostmasters generally) as to these matters, at the time of contracting.
Findings
283. The Claimants will respectfully invite the Court to find on the evidence heard at trial: 259 283.1. that the relevant contracts were contracts on the Defendant’s “written standard
 283.2.
a. b.
283.3.
283.4.
terms of business” under Section 3(1);
that the impugned terms (when considered in the context of the contract as a whole and/or individually or cumulatively) purported to entitle the Defendant:
to restrict liability when in breach of contract; and/or
to render a contractual performance substantially different from that which was reasonably expected of it; and/or render no performance at all;
that, in the premises, the terms failed to comply with the requirement of reasonableness under Section 3(2) UCTA; and
the impugned were therefore unenforceable by the Defendant.
 259
See, paragraphs of Claimants’ generic pleadings identified at the outset of this part of and, for example, Bates/IReply at §87 [B5.1/4/36-37]
Section B,
– 106 –
  A/1/110
  
SECTION B: COMMON ISSUES Issues 8 and 9: Liability for Alleged Losses
Issue 8: What is the proper construction of section 12, Clause 12 of the SPMC? Issue 9: What is the proper construction of Part 2, paragraph 4.1 of the NTC?
 Issues 8 and 9: Liability for Alleged Losses
     Statements of Case
      Particulars
     Defence
       Reply
    Generic
 49, 55
 93 to 94
  9 to 13, 52
   Bates
   98 to 99
  93 to 94
     94 to 96
   Stubbs
   101 to 102
  78 to 79
     86 to 88
   Sabir
   77 to 78
  92 to 93
     91 to 93
   Abdulla
   75 to 76
  80 to 81
     84 to 86
   Dar
     90 to 91
    79 to 80
      84 to 85
    Stockdale
  89 to 90
  74 to 75
  78 to 79
 Terms to be construed
284. The relevant terms which the Court is required to construe are as follows:
(1)
(2)
SPMC – Section 12, Clause 12:
"The Subpostmaster is responsible for all losses caused through his own negligence, carelessness or error, and also for losses of all kinds caused by his Assistants. Deficiencies due to such losses must be made good without delay."
NTC – Part 2, paragraph 4.1:
“The Operator shall be fully liable for any loss of or damage to, any Post Office Cash and Stock (however this occurs and whether it occurs as a result of any negligence by the Operator, its Personnel or otherwise, or as a result of any breach of the Agreement by the Operator) except for losses arising from the criminal act of a third party (other than Personnel) which the Operator could not have prevented or mitigated by following [the Defendant’s] security procedures or by taking reasonable care. Any deficiencies in stocks of Products and/or any resulting shortfall in the money payable to [the Defendant] must be made good by the Operator without delay so that, in the case of any shortfall, [the Defendant] is paid the full amount when due in accordance with the Manual”.
– 107 –
  A/1/111
  
SECTION B: COMMON ISSUES Issues 8 and 9: Liability for Alleged Losses
285. The Claimants’ case260 is that, on a proper construction of these terms in their contractual context, the Subpostmasters are not strictly liable for all alleged losses; rather they are only liable for:
 The Claimants’ construction
285.1.
285.2.
285.3. 286. Thus, for
actual losses (Cf. the Defendant’s case that no economic detriment is required for there to be a loss);261
caused by the negligence, carelessness or error, of the Subpostmaster, or their assistant;
260
261
See GPOC at §55 [B3/1/24] NB it should be noted that §55 is pleaded as to “a proper construction of section 12, paragraph 12 of the SPMC (and similar clauses said to impose such liability)” [Emphasis added]. This captures Part 2, clause 4.1 of the NTC, contrary to the position adopted by the Defendant in the Individual Lead Claims (see, e.g., Stockdale/IDef at §74(1) [B5.6/3/37]
The Defendant contends at GDef §94(4) that “in Section 12, Clause 12, the concept of a ‘loss’ is not tied to or dependent upon economic detriment to Post Office.” [B3/2/43]
the contractual burden of proof as to which was on the Defendant. example, on the Claimants’ construction of either of the above
terms,
Subpostmasters would not be liable for an alleged shortfall in branch accounts:
286.1. which did not represent a real loss to the Defendant; or which was not
established by the Defendant, after due enquiry, to be a real loss;
286.2. in circumstances where the loss was caused or contributed to by the Defendant’s own breach of duty;
286.3. where it was not established to be due to the Subpostmaster’s own negligence, carelessness or error, or that of his/her assistants.
287. Prior to the introduction of Horizon, there was a fairly precise functional identity in the role and responsibility of the Subpostmaster: the Subpostmaster kept his (Bates) or her (Stubbs) own accounts and ledgers, often using software that they procured for themselves; they genuinely submitted their accounts to the Defendant in the manner contemplated in a traditional agency relationship. However, as both Bates and Stubbs make clear, that completely changed for them after the introduction of Horizon.
  – 108 –
  A/1/112
  
SECTION B: COMMON ISSUES Issues 8 and 9: Liability for Alleged Losses
288. No longer were Subpostmasters solely in control of the figures shown in the accounts.
289. Indeed, it is clear (both as a matter of common ground262 and on the Claimants’ case263) that the Defendant was now in control of the data and its reconciliation with other data sources,264 as well as the Subpostmasters’ access to the relevant data and the interface through which such access (as was allowed by the Defendant) was made available.
290. Against that background, it is essential to remind oneself that the alleged shortfalls for which the Defendant contends Subpostmasters were liable (unless they could prove otherwise) were, in reality, derived from one of the following: (a) a discrepancy automatically detected between two or more data sources; or (b) such a discrepancy which one of the Defendant’s staff had considered.265
291. The Claimants therefore rely upon the following in support of their construction:
  262
263
264
265
266 267
291.1. Statement of Facts: the agreed facts set out in the Statement of Facts;266
291.2. Factual Matrix: the agreed facts, and those which are not agreed, but upon which the Claimants rely, in the Statement of Factual Matrix document.267
291.3. The facts and matters pleaded in Section B of each Lead Claimants’ IPOCs under the heading Issues 8 and 9: Liability for Alleged Losses on p.107;
291.4. The evidence of the Lead Claimants, for the purposes explained to the Court on the hearing of the Defendant’s application to strike-out their evidence – not least so that the Court can test the implications of the of rival constructions against commercial common sense, on an informed basis.
Paragraph 331.1, on p.122 below, as to the Admitted Functions of the Defendant, in these respects (see also paragraph 367, on p.135, further as to those AdmittedFunctions)
Paragraph 357.2, on p.132 below, as to how the functions (previously in sole control of the Subpostmasters) were in fact distributed and performed following the introduction of Horizon
GDef at §39(1) [B3/2/13] “Post Office checks Horizon transaction data (i.e. data as keyed into branch terminals by branch staff) against data taken from separate sources”
GDef at §39(2) [B3/2/13] as to whether or not “the branch staff have probably made an error that requires correction”
[B6/2/1] [B6/1.1/1]
– 109 –
  A/1/113
  
292. The Defendant’s case268 on construction is:
292.1. SPMC, Section 12, Clause 12: Subpostmasters are responsible for all losses disclosed in their branch accounts, save for losses which were neither caused by any negligence, any carelessness, or any error on their part, nor caused by any act or omission on the part of their assistants. As to this:
a. Subpostmasters who allege that they are not liable for any losses disclosed in their branch accounts bear the burden of proving that such losses were not caused by the matters set out above; and
b. the concept of “loss” is not tied to or dependent on any economic detriment to the Defendant.
292.2. NTC Part 2, paragraph 4.1: Subpostmasters are liable in respect of all losses caused by themselves or their assistants, save for losses that: (i) arise from the criminal act of a third party (other than an assistant); and (ii) could not have been prevented or mitigated by the Subpostmaster following Defendant’s security procedures or by taking reasonable care.269
293. Further, the Defendant’s case as to construction of these contracts and the relevant factual matrix for that purpose, has been canvassed extensively before the Court, particularly on the hearing of the Defendant’s strike-out application. It is only repeated here because the Claimants deal with the points raised in turn below.
294. It is found at §§76, 85 and 93 to 94 of the GDef.270 The Defendant’s case is that:-
 268 269 270
294.1. Generic Defence at §76: “important aspects of the factual matrix against which the various Subpostmaster Contracts relied on by the Claimants should be construed” include the extent to which the Defendant:
a. was able to monitor at first hand the transactions undertaken in branches;
See GDef at §94 [B3/2/43]
See, e.g. Stockdale/IDef at §74(2) [B5.6/3/37] [B3/2/36-37] [B3/2/39-40] [B3/2/42-43]
– 110 –
SECTION B: COMMON ISSUES Issues 8 and 9: Liability for Alleged Losses
 The Defendant’s construction
  A/1/114
  
SECTION B: COMMON ISSUES Issues 8 and 9: Liability for Alleged Losses
b. was unable to monitor at first hand the custody and use of its property (principally, cash and stock) in branches; and
c. relies on the accurate reporting by Subpostmasters of accounts, transactions and the cash and stock held at a branch.
294.2. Generic Defence at §85: emphasises the Defendant’s reliance on the matrix of fact pleaded in §76.
294.3. Generic Defence at §93 to §94: as to the construction of Section 12, Clause 12 SPMC:
a. “it is appropriate to infer and/or presume that the shortfall arose from losses for which [the Subpostmaster] was responsible” because “losses do not arise in the ordinary course of things without fault or error on the part of Subpostmasters or their Assistants”; and
b. Subpostmasters bear the legal burden of proving that a shortfall did not result from losses for which they were responsible, because “(1) the truth of the matter lies peculiarly within the knowledge of Subpostmasters as the persons with responsibility for branch operations and the conduct of transactions in branches, (2) it would be unjust for Post Office to be required to prove allegations relating to matters that fall peculiarly within the knowledge of Subpostmasters...”
294.4. By its IDefs, the Defendant expressly refers back to and relies upon §94 of the GDef (which, in turn, imports §93 above).271
295. The Defendant’s factual case is largely based on what purports to be generic evidence of what ‘would have’ happened, often on the basis that various practices and procedures (not always defined well or at all, either in their content or temporally) were followed.
296. The Defendant also relies upon (a) the agreed facts in the agreed Statement of Facts,272 and (b) agreed facts, or facts which are asserted by the Defendant but not agreed in the Statement of Factual Matrix document.273
     271
See, for example, Bates/IDef at §93(1) [B5.1/3/52] – 111 –
  A/1/115
  
SECTION B: COMMON ISSUES Issues 8 and 9: Liability for Alleged Losses
297. In short, the Claimant commend the following seven principles to the Court:
(1) The Court should look for the meaning of the provisions not just the meaning of the words.
(2) The correct approach is to start (and finish) by looking for and adopting the interpretation that most accords with commercial common sense.274
(3) Interpretation is the ascertainment of the objective meaning in the light of the parties’ background knowledge at the time of the contract.
(4) This iterative process involves checking the rival meanings against other provisions of the document and investigating the commercial consequences.275
(5) It does not matter whether the more detailed analysis commences with the factual background and the implications of rival constructions or a close examination of the relevant language in the contract, so long as the Court balances the indications given by each.276
(6) The Court must have regard to “the quality of drafting of the clause” striking that balance.277
(7) To the extent of any ambiguity in the meaning of the terms, those terms are to be construed contra proferentem:
(a) so as to remove (and therefore not create) doubt or ambiguity, and
(b) as an aid to construction where the matter cannot otherwise be resolved
by the application of prior principles of construction.278
298. Briefly as to contra proferentem, the principle has obvious potential for application where
clauses are “by no means free from obscurity” or are of “remarkably wide scope”.279
[B6/2/1]
[B6/1]
Rainy Sky SA v Kookmin, per Lord Neuberger, at [21] to [30]
Rainy Sky at [28]
Lord Hodge, at [12]
Lord Hodge, at [11]
For the purposes of these opening submissions, the Claimants refer to the helpful summary of the principle of construction contra proferentem in Chitty on Contracts (32nd Ed.) at 13-086.
 Relevant principles
 272 273 274 275 276 277 278
– 112 –
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SECTION B: COMMON ISSUES Issues 8 and 9: Liability for Alleged Losses
299. Further, it is material in the present context that the justification for the principle is that:
“a person who puts forward the wording of a proposed agreement may be assumed to have looked after his own interests so that if the words leave room for doubt about whether he is intended to have a particular benefit there is reason to suppose that he is not.”280
300. There is no separate Annex specific to these Issues. However, should there be any dispute as to the above (which it is hoped are uncontroversial), these propositions have been explored more fully in Annex I: Contractual Construction.
The express terms in context
301. Neither Section 12, Clause 12 SPMC, nor the paragraphs of the NTC contract which deal with such losses (including Part 2, paragraph 4.1 NTC, above; and, for example, paragraph 13.1 under “Reimbursement”) contain any express provision imposing the burden of proof upon Subpostmasters.
302. No such interpretation can be derived from the contractual context in which they appear: while both contracts are prescriptive in their requirements as to how Subpostmasters should deal with cash and stock, the express provision which the Defendant could easily, clearly and prominently have made for this is nowhere found.
303. In this respect, for example, the SPMC requires Subpostmasters to keep accounts in the Defendant’s prescribed form and to “make good any losses.281
304. The NTC elsewhere requires Operators to “account for and remit to [the Defendant] all monies collected from Customers in connection with Transactions, in accordance with the Manual...”, not to apply them for its own private use, to “reimburse [the Defendant] in full on demand for all losses” resulting from negligence or breach282 and, more widely, to “make good any losses”. 283
  279 280
281 282 283
John Lee & Son (Grantham) Ltd v Railway Executive [1949] 2 All E.R. 581, 583.
Tam Wing Chuen v Bank of Credit and Commerce Hong Kong Ltd [1996] 2 B.C.L.C. 69, 77 (Lord
Mustill), applied in Lexi Holdings Plc v Stainforth [2006] EWCA Civ 988. Section 12, Clause 4 [D2.1/1/39]
Part 2, paragraph 13.1 [D1.6/3/23]
Part 2, paragraph 4.3 [D1.6/3/13]
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  A/1/117
  
SECTION B: COMMON ISSUES Issues 8 and 9: Liability for Alleged Losses
305. Neither is in the least consistent with the giving of what amounts to an unqualified indemnity for which the Defendant contends, or the importing of a reverse burden of proof as to reality and/or cause of alleged losses.
306. On the contrary:
306.1. Even the literal words of Section 12, Clause 12 SPMC only impose liability upon a Subpostmaster for “losses caused through his own negligence, carelessness or error, and also for losses of all kinds caused by his Assistants”. The construction contended for by the Defendant cuts directly across its plain and ordinary meaning so as to invent a presumption of negligence, carelessness and error simply not found in the words of the clause – effectively to re-write the clause the other way around.
306.2. ThelanguageusedinNTCPart2,paragraph4.1onlyimposesliabilityfor“loss of or damage to, any Post Office Cash and Stock”. The Court should be slow to import into the words “or otherwise” causes going beyond those that are the fault of the Subpostmaster (such as “carelessness or error” as used in the SPMC, but not replicated in the NTC) not found in its wording and inconsistent with the compensatory and fault based nature of the obligations elsewhere found in that document.
307. The construction contended for by the Defendant is akin, in its effect, to the giving of a contractual indemnity in respect of any losses that appear to be shown on its Horizon system in respect of a branch. The Court should not construe a clause to impose such an indemnity, in the context of this relationship, particularly in the absence of “clear and unambiguous language”. 284 No such wording is found here.
284 See, e.g., Lewison on The Interpretation of Contracts (6th Ed.) at 12.15 (“in order to be effective, particularly in relation to loss caused by the negligence of the party indemnified, clear and unambiguous language must be used”) and the authorities referred to therein. In particular, in the case of Smith v South Wales Switchgear Ltd [1978] 1 WLR 165: (i) “when considering the meaning of such a clause one must, I think, regard it as even more inherently improbable that one party should agree to discharge the liability of the other party for acts for which he is responsible” (per Viscount Dilhorne); and, (in referring to the guidelines laid down in Canada Steamship Lines Ltd v R [1952] AC 192) (ii) “While they apply to the construction both of a clause relied on as exempting from certain liabilities a party who has undertaken to carry out contractual work and of a clause whereby such a party has agreed to
  – 114 –
  A/1/118
  
SECTION B: COMMON ISSUES Issues 8 and 9: Liability for Alleged Losses
308. In any event, there is no foundation in the words used, or in the contractual context, for the suggestion made that the term “loss” should extend to something that is not a loss, namely, beyond any actual loss to include a sum (which the Claimants find hard to describe) which does not amount to an economic detriment to the Defendant. In addition to the obvious points that might be made as to that, it is irreconcilable with the words “make good”.
309. The fact that the Defendant may have adopted a policy or practice to this effect is not determinative of the proper construction of these provisions.
310. Taken in their contractual context, liability for actual shortfalls is essentially compensatory in nature and based upon fault, caused by or attributable to Subpostmasters.
311. No notional reasonable person in the position of the parties at the time of contracting would attribute the consequences contended for by the Defendant to the words used.
312. To the extent that either contract (in particular, the NTC) is ambiguous, those terms should be interpreted contra proferentem – not least since in the latter case, the interpretation contended for by the Defendant would be “remarkably wide in scope” (as above) and could have been clearly provided for by the Defendant.
Relevant commercial context
313. Further and in any event, the likely focus of the dispute between the parties on Issues 8 and 9 is as to the guidance given by the relevant factual matrix, the implications of the rival interpretations and, importantly, commercial common sense.
314. All factors bear heavily in favour of the construction contended for by the Claimants.
315. The origin of Section 12, Clause 12 SPMC – pre-dating the introduction of Horizon – provides essential context to what was intended when the SPMC was first drafted and the Court is respectfully referred to the observations above (at paragraphs 287 to 290, above at p.108) as to the significance of the introduction of Horizon.
indemnify the other party against liabilities which would ordinarily fall on him, they apply a fortiori in the latter case, since it represents a less usual and more extreme situation” (per Lord Keith).
  – 115 –
  A/1/119
  
SECTION B: COMMON ISSUES Issues 8 and 9: Liability for Alleged Losses
316. The Defendant’s attempt to pray in aid its existing practice as to liability for shortfalls (itself in issue, in this litigation), in support of the strained meaning contended for not only assumes what the Defendant seeks to prove (apparently premised on the Defendant’s infallibity) but would have profound implications out of kilter with commercial common sense; so too, would the imposition (as the Defendant effectively seeks with respect to the NTC terms) of an indemnity, by a side-wind.
317. This can simply be tested under either contract, as a matter of commercial common sense, by looking at the Payments Mismatch documents and asking this question:
Were Subpostmasters contractually liable for those shortfalls caused by Horizon (to the clear knowledge of the Defendant)?
318. Further support, if needed, is found in the application of orthodox principles: the meaning given by notional persons in the position of the parties would not import the draconian meaning or effects for which the Defendant contends. As to this, the likely focus of the evidence at trial will include the following:
318.1. contrary to the Defendant’s case, the practical difficulties (in reality, impossibility, on the Lead Claimants’ evidence) faced by Subpostmasters in identifying if, how, when and why a shortfall had occurred;
318.2. whether, contrary to the Defendant’s case, shortfalls did in fact arise in the ordinary course of things without fault or error on the part of Subpostmasters or their Assistants – on the Lead Claimants’ evidence they plainly did, at least sufficiently often to account for the claims in this litigation;
318.3. whether, contrary to the Defendant’s case, the Defendant was in fact able to monitor the transactions undertaken in branches on its behalf, in relation to which it was liable its clients, the custody and use of its property (principally, cash and stock) in branches; and
318.4. whether (and to what extent) the Defendant relies upon the accurate reporting by Subpostmasters of accounts, transactions and the cash and stock at a branch – as opposed to Subpostmasters being reliant upon the Defendant for information bearing upon the likely cause of apparent shortfalls in branch accounts.
 – 116 –
  A/1/120
  
SECTION B: COMMON ISSUES Issues 8 and 9: Liability for Alleged Losses
319. It is a central premise of the Defendant’s case, said to justify imposition of a contractual burden of proof as to the cause of shortfalls, that Subpostmasters were able to (or better placed to) identify errors made in branch accounts.
320. First, as to this, the Defendant relies upon the evidence of Ms Van Den Bogerd as to a range of matters, but in particular: 285
320.1. as to a step-by-step process that she herself would use to ascertain the cause of alleged shortfalls; and
320.2. overall that it “would be unlikely that a Subpostmaster, having kept his accounts diligently, still has no idea where a material problem was arising from”.286
321. Though the evidence falls to be tested at trial, what is said by Ms Van Den Bogerd on these matters simply cannot be squared with the actual experiences any of the Lead Claimants (three of whom were selected by the Defendant). On this, theirs is the only direct evidence, as summarised in SECTION A: FACTS, above.
322. To take but one example, Lead Claimant Stubbs gives evidence that she took every step possible287 to ascertain the cause of shortfalls which appeared in her branch accounts in 2009 but, “despite reviewing that information... I was still unable to find out for myself whether the apparent shortfall of £9,033.79 was a real or just an apparent loss and why it had occurred. I was simply unable to do that without having the full information from Horizon, to which Post Office had access and not me.”288
 Comparative knowledge on causes of shortfalls
 285
286
287
Van Den Bogerd, §91 to 98 (as to Horizon and the ability of Subpostmasters to keep accounts and investigate shortfalls); §102 to 103 and §114 to §116 (on training provided (or available) to Subpostmasters and its content); §131 to 137 (and on the ability of a Subpostmaster to identify errors in branch accounts)
See Van Den Bogerd’s witness statement at §131 to 137 [C2/1/36-37]. It is further suggested that “the Subpostmaster is best placed to investigate shortfalls and Post Office generally cannot find the root cause of a shortfall without the Subpostmaster’s cooperation.”
Having sought assistance from the Helpline, obtained and reviewed transaction information including logs encompassing the previous 42 days, reviewed hand-written accounts that she had produced herself in an attempt to keep track of the apparent shortfalls and sought further assistance from the Defendant
See Stubbs, §88 to 93 [C1/2/21-22]
288
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  A/1/121
  
SECTION B: COMMON ISSUES Issues 8 and 9: Liability for Alleged Losses
323. Second, the Defendant’s evidence sidesteps two key aspects of the allocation of functions following the introduction of Horizon:
323.1. first, the fact that data input by Subpostmasters in relation to transactions in the branch was only one of several sources of data289 affecting branch accounts on Horizon (yet was the only such source with which Subpostmasters had any involvement);
323.2. the Defendant then performed its own reconciliation exercise, in accordance with its own processes for reconciling these various sources of data, of which Subpostmasters had scant if any knowledge and into which they had no involvement; and
323.1. the raising of a Transaction Correction is said by the Defendant to involve the making of a value judgment, by the Defendant’s staff, as to whether or not “the branch staff have probably made an error that requires correction” – without any requirement for an informed response from the Subpostmaster (i.e. with the benefit of all relevant information) before the Defendant makes that judgment (see: for example, Stubbs, §81 [C1/2/19]. Indeed, on the Defendant’s case, whether or not and how (if at all) to do any of this was completely ungoverned by any contractual provision whatsoever.
324. As to this (and in order to focus the factual issues at trial), it is important to note that the following appear to be common ground (some even admitted or averred by the Defendant):
  289
324.1. from the introduction of Horizon Online in 2010, transactions were effected through real time exchanges of data from branches to a central Post Office data centre;290
324.2. the Defendant and/or Fujitsu had access to291 the Known Error Log and/or other similar logs or records of system bugs and errors;292
GDef at §39(1) [B3/2/13] “Post Office checks Horizon transaction data (i.e. data as keyed into branch terminals by branch staff) against data taken from separate sources”
GDef at §33 [B3/2/11]
290
– 118 –
  A/1/122
  
  291
292 293 294 295 296 297 298 299
SECTION B: COMMON ISSUES Issues 8 and 9: Liability for Alleged Losses
324.3. all such data and reports which were available to the Claimants on Horizon293 were, in any event, similarly also available to the Defendant;
324.4. the Defendant and/or Fujitsu could investigate apparent shortfalls;294
324.5. “moreextensivetransactiondatawasprovided,andfurtherdatawasprovidedoutside
[the 42 or 60 day] periods, where this was necessary”;295
324.6. “Fujitsu provided a telephone advice service to Post Office in relation to technical
problems with the Horizon system or equipment”;296
324.7. the Defendant had a process for the escalation of disputes including a “team responsible for investigating branch matters’ which ‘undertakes a further investigation into the disputed amount, seeks to identify the reason for it arising and communicates with the Subpostmaster concerned”;297
324.8. ‘for many transaction types’, the Defendant is able to compare its own transaction records against the corresponding record held by its clients;298
324.9. Fujitsu has had the ability to inject transactions into branch accounts since at least the introduction of Horizon Online in 2010 (though initially falsely denied in a public statement, now admitted and described as “Balancing Transactions”);299
Noting that it is the Claimants case, further to this admission, that the Defendant and/or Fujitsu had access to all transaction data, including a detailed stream of transaction data (XML data) and all transactions affecting the accounts of individual branches, including transactions linked to individual users, system generated transactions, and those initiated by the Defendant and/or Fujitsu: GReply at §9.1 [B3/3/4]
GDef at §50(4) [B3/2/22]
As pleaded in the GDef at §38(2) and (3) [B3/2/12-13] GDef at §§46(4) and 54(5) [B3/2/19] [B3/2/22]
GDef at §136(2) [B3/2/56]
GDef at §48(4) [B3/2/20]
GDef at §46(4)(b) [B3/2/19]
GDef at §54(1) [B3/2/23-24]
GDef at §57(3) [B3/2/26]; noting that Claimants do not accept that Fujitsu alone
capability, nor that this capability did not exist before 2010; the extent of the Defendant’s ability to carry out Balancing Transactions, without the consent or even knowledge of the Subpostmaster, falls to be determined as part of the Horizon Issues Trial.
– 119 –
had this
  A/1/123
  
SECTION B: COMMON ISSUES Issues 8 and 9: Liability for Alleged Losses
324.10.the Defendant had access to Helpline records300 (relating to particular individuals, and collectively, identifying common issues/concerns);
324.11.the Defendant had access to historic information both for a particular branch and across multiple or all branches; and
324.12.was able to carry out audits “to check the level of cash and stock in a branch” and enquiries “For a wide variety of purposes ... Post Office can make a wide variety of enquiries into a branch’s operations without undertaking an audit”.301
325. Further, while the precise extent of the same falls to be determined at the Horizon Issues trial, it is common ground that Horizon was in fact susceptible to bugs and errors. The Defendant admits three in its Generic Defence.302 The experts’ first joint statement for the Horizon Issues Trial records the following as agreed: 303
325.1. “Evidence exists that that bugs/errors/defects have caused actual discrepancies or shortfalls relating to Subpostmasters’ branch accounts/transactions.”[Emphasis]
325.2. “Each time any IT system (including Horizon) is changed there is the potential to introduce new bugs/errors/defects.”
325.3. “Once bugs/errors/defects are discovered, they take time to resolve and therefore systems such as Horizon often continue to operate with bugs/errors/defects with or without workarounds in place.”
325.4. “Theoretically, bugs/errors/defects that existed within Horizon have the potential to cause apparent or alleged discrepancies or shortfalls in relating to Subpostmasters’ branch accounts/transactions.”
326. Despite the foregoing, the Defendant contends for an interpretation that would impose a burden of proof upon Subpostmasters to establish the cause of apparent shortfalls in
   300
301 302 303
The Claimants rely on the Defendant’s admission at Responses 19A and 19B to the Claimants’ RFI dated 31 July 2017 [B4/2/9]
GDef at §64(2)(a) to (b) [B3/2/29-30] GDef at §56(1) [B3/2/24-25]
First Joint Statement of the parties IT experts, [G/61]; noting that this agreed to differing views as to the extent to which they caused apparentdiscrepancies
position is subject
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SECTION B: COMMON ISSUES Issues 8 and 9: Liability for Alleged Losses
circumstances where it admits that no Subpostmaster has ever been able to establish, to its satisfaction, that an alleged shortfall was the result of Horizon.304
327. In the Claimants’ respectful submission, any such interpretation would be profoundly at odds with what was feasible.
NTC provisions
328. While the terms differ, the Claimants’ case is broadly the same: for material purposes, Part 2, paragraph 4.1 NTC is not to be construed as imposing an obligation beyond that in the SPMC (i.e. liability where negligence, fault or error – which, where disputed by Subpostmasters, the Defendant was required to prove).
329. In particular, the Defendant’s construction:
329.1. purportstoimposeuponSubpostmastersliabilityforsumswhichdonoteven
represent any real loss (or “economic detriment”);
329.2. in view of the apparently open-ended scope of the provision, both as to the amount and cause of liability, effectively imposing a complete indemnity (save only as for losses caused by certain unpreventable criminal conduct by third parties), inconsistently confines such liability (in its Individual Defences) to cases of loss “caused by the Operator or her assistant(s)”;305
329.3. is apparently aimed at excusing the Defendant’s undisclosed policy (as revealed in disclosure in this litigation to have been documented since at least 1998)306 of effectively imposing strict liability upon Subpostmasters for all losses, subject to a scheme of discretionary reductions; and
329.4. in any event, is at odds with commercial common sense.
330. The Court is respectfully invited to prefer the Claimants’ construction.
   304 305 306
GReply at §52.4 [B3/3/30]
See. e.g. Stockdale/IDef at §74(2) [B5.6/3/37] See Losses & Gains Policy [F3/8]
– 121 –
  A/1/125
  
– 122 –
SECTION B: COMMON ISSUES Issues 8 and 9: Liability for Alleged Losses
   A/1/126
  
SECTION B: COMMON ISSUES Issues 10 and 11: Post Office as Agent
Issue 10: Was Post Office the agent of Subpostmasters for the limited purposes at GPOC paragraphs 82 and 83?
Issue 11: If so, was the Defendant thereby required to comply any or all of the obligations at GPOC paragraph 84?
 Issues 10 and 11: Post Office as Agent
     Statements of Case
      Particulars
     Defence
       Reply
    Generic
 81 to 84
 123 to 126
  59 to 64
   Bates
     100 to 103
    95 to 98
      97 to 98
    Stubbs
 103 to 106
 80 to 83
  89 to 90
   Sabir
   79 to 82
  94 to 97
     94 to 95
   Abdulla
     77 to 80
    82 to 85
      87 to 88
    Dar
 92 to 95
 81 to 84
  86 to 87
   Stockdale
    91 to 94
   76 to 79
     80 to 81
 Common Ground and Position of the Parties Common ground
331. The following aspects of the Claimants’ case are common ground:-307 331.1. The Defendant did the following (the “Admitted Functions”)
a. effected, recorded and managed the reconciliation of transactions effected by the Claimants (save as set out immediately below); and
b. possessed and/or controlled and/or oversaw the underlying transaction data in relation to such transactions;
331.2. Further, the Defendant
a. required Claimants to comply with contractual obligations in relation to the keeping and production of branch accounts;
b. had the power to seek recovery (and in fact sought recovery) from Claimants for apparent shortfalls said to relate to branch accounts.
  307
GPOC at §81 [B3/1/44-45]
– 123 –
  A/1/127
  
SECTION B: COMMON ISSUES Issues 10 and 11: Post Office as Agent
332. The Defendant admits the foregoing, save that in respect of the first Admitted Function, it pleads: “Post Office recorded the transaction data entered on Horizon by Claimants and so far as possible sought to reconcile that transaction data with other data is (sic) possessed.”308 This confinement of the admission does little to undermine the obvious practical realities of the system and its operation.
The Claimants’ case
333. The Claimants’ case is that the Defendant acted as an agent for Subpostmasters:-309
333.1. forthepurposeofrenderingandmakingavailableaccountsand/orwasunder an equitable duty to render accounts.
333.2. further or alternatively, for the specific purpose of effecting, reconciling and recording transactions initiated by the Claimants.
334. Effectively, the Defendant carried these functions on behalf of Subpostmasters.
335. The Claimants contend that the foregoing agency relationship was limited in scope and gave rise to the obligations upon the Defendant described in GPOC, §84, namely:
   308 309 310
335.1. properly and accurately to effect, execute, record, and/or maintain and keep records of all transactions which the Subpostmasters initiated using Horizon or for which the Subpostmasters were potentially responsible;
335.2. to render and make available to Subpostmasters accounts (as above); and
335.3. further or alternatively, where the Defendant alleged shortfalls to be attributed to Subpostmasters, to comply with the implied duties averred in GPOC, §64.3 to 64.11,310 namely to produce and explain relevant records, to carry out fair investigations and to communicate, and not conceal, any material problems (see, for example, the Payments Mismatch documents) or matters which are of relevance to Subpostmasters and their accounts.
GDef at §123(1) [B3/2/53] GPOC at §83 [B3/1/45] [B3/1/36]
– 124 –
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SECTION B: COMMON ISSUES Issues 10 and 11: Post Office as Agent
336. The Defendant denies any such agency. It’s position is that:311
336.1. the SPMC and NTC are clear in that they provide for the Subpostmasters to act as agents of the Defendant not the other way around;
336.2. the Defendant did not agree to act as an agent for any Subpostmaster; and
336.3. the Defendant did not hold or deal with cash or other assets on behalf of Subpostmasters, and did not effect transactions on their behalf or commit them to transactions with third parties;
336.4. rather the Defendant characterises the Admitted Functions as steps taken “in the conduct of its own business and as principal”.312
Relevant principles
337. As Bowstead & Reynolds on Agency (21st Ed.) at 1-001 makes clear, an agency relationship is:
“...the fiduciary relationship which exists between two persons, one of whom expressly or impliedly manifests assent that the other should act on his behalf so as to affect his relations with third parties, and the other of whom similarly manifests assent so to act or so acts pursuant to the manifestation.”
338. That definition is subject to the qualification that “[a] person may have the same fiduciary relationship with a principal where he acts on behalf of that principal but has no authority to affect the principal’s relations with third parties. Because of the fiduciary relationship such a person may also be called an agent.”
339. Authoritative statements in the case law make clear that agency is a relationship which may be implied from the conduct of the parties and in all the circumstances of the relationship: Garnac Grain Company Inc v HMF Faure & Fairclough Ltd and Ors [1968]
 The Defendant’s case
  311 312
GDef at §124 [B3/2/54]
See, e.g. Bates/IDef at §97(2) [B5.1/3/53]
– 125 –
  A/1/129
  
SECTION B: COMMON ISSUES Issues 10 and 11: Post Office as Agent
AC 1130 HL(E) at 1137C per Lord Pearson.313 Subjective assent is not required and, indeed, the parties may create an agency relationship in law even where they both positively disclaim it.
340. The relevant principles are amplified in Annex VII: Issues 10 and 11 – Post Office as Agent.
The issues to be considered at trial
341. Thus, in light of the foregoing and applying those principles, the issues for consideration will largely focus, therefore, on:
341.1. whethertheAdmittedFunctionsareperformedbytheDefendantonbehalfof its Subpostmasters, or exclusively on its own account;
341.2. whether authority is conferred by Subpostmasters upon the Defendant to do so – in particular, whether such conferral is to be implied from conduct from which it is reasonable to infer the necessary assent to such an agency relationship;314
341.3. whether it is relevant that the SPMC and NTC also provided that Subpostmasters act as agent for Post Office for other (wider) purposes;
341.4. whether it is relevant (as suggested by the Defendant) that the Defendant did not hold or deal with cash or other assets on behalf of Subpostmasters, and did not effect transactions on their behalf or commit them to transactions with third parties – and if so, whether that is in fact the case; and
341.5. wheresuchconferralofauthorityistobeimplied,whether(ortowhatextent) the Defendant’s duty to produce documents and information relating to Subpostmasters’ affairs follows, as is contended for at §84 GPOC.
  See also: Branwhite v Worcester Works Finance Ltd [1969] 1 AC 552, per Lord Wilberforce at As to which, the relationship may exist even if the parties have professed to disclaim it.
313
p.587E
314
– 126 –
  A/1/130
  
SECTION B: COMMON ISSUES Issues 10 and 11: Post Office as Agent
342. In order to clarify the issues, the Claimants make the following preliminary observations in opening, in the light of the nature of the dispute between the parties on this issue.
Agency to be implied
343. It is common ground that there was no express written contractual agreement between Subpostmasters and Defendant whereby the latter was stated to be acting as agent for the former. Rather, the agency is to be implied315 from the conduct of the parties, the system as it in fact operated and all the circumstances of the relationship.
344. The fact that the SPMC and NTC may also provide for the agency (of a quite different scope) of Subpostmasters for different purposes, has no bearing on whether the agency in issue, for the limited purposes contended for by the Claimants, is properly to be implied in accordance with accepted principle and authority, on the facts of this case.
345. The Court has already had sight of the written evidence filed and served on behalf of the Lead Claimants from which the Claimants will invite the Court to imply a relationship of agency arose in answer to the question posed by Issue 10, as well as Mr Carpenter’s one line dispute on that issue at §10 of his witness statement.
346. But – as a starting point – it is to be noted that the following is largely uncontroversial:
 Preliminary Observations
315
346.1. as above, the Defendant required Subpostmasters themselves to comply with contractual obligations in relation to the keeping and production of branch accounts, had the power to seek recovery from them for losses relating to branch accounts and/or in fact sought recovery for apparent shortfalls (in the course of a role which the Defendant itself sought to characterise as fiduciary in nature);
346.2. the Defendant also imposed a requirement upon Subpostmasters to use its Horizon system;
Garnac Grain Co Inc v HMF Faure & Fairclough Ltd [1968] AC 1130, per Lord Pearson at p.1137C; Branwhite v Worcester Works Finance Ltd [1969] 1 AC 552, per Lord Wilberforce at p.587E.
 – 127 –
  A/1/131
  
 316
GDef at §12 [B3/2/4]
346.3.
346.4.
346.5.
346.6.
346.7.
SECTION B: COMMON ISSUES Issues 10 and 11: Post Office as Agent
Subpostmasters were unable to comply with their contractual obligations in respect of the keeping and production of branch accounts without Horizon;
As above, in this respect the Defendant performed the Admitted Functions with respect to branch accounts and the Defendant in fact effected branch transactions and recorded and maintained accounts thereof;
Indeed, Subpostmasters were unable to comply with their contractual obligations in respect of branch accounts without the Admitted Functions, set out above, performed by the Defendant;
TheDefendantreliesontherelationshipashavingbeenabusinesstobusiness relationship, whilst at the same time being in sole charge (as between itself and Subpostmasters) of the system by which transactions initiated by Subpostmasters was effected, processed, reconciled and recorded;
Further the Defendant not only did the above, but also reconciled transaction data with its own data and/or data from third party clients (to which Subpostmasters did not have access) – as to which the Defendant admits it "...also undertook its own accounting reconciliations, where possible matching a Subpostmaster's records against other records provided by third parties, and then notifying Subpostmasters of discrepancies found and allowing them to choose whether to accept or dispute those discrepancies".316
These functions included functions in respect of branch accounts in respect of which Subpostmasters were to be legally bound – as to the latter, for example, by ‘accepting’ a Transaction Correction giving effect to the same.
The Defendant undertook these functions on behalf of Subpostmasters.
346.8.
346.9.
347. Thus, the
Defendant performing functions, and taking actions, with respect to Subpostmasters’ own branch accounts.
arrangements between the Defendant and Subpostmasters included the
 – 128 –
  A/1/132
  
SECTION B: COMMON ISSUES Issues 10 and 11: Post Office as Agent
348. It is to be inferred from this and the conduct of the parties more generally that Subpostmasters assented to the conferral of authority on the Defendant to carry out the Admitted Functions which affected the Subpostmasters’ own businesses and branch accounts as set out above.
349. The Defendant seeks to suggest, by its written evidence, that it could not have acted as agent to Subpostmasters as “this was not how the relationship worked”.317 This position is at odds with the admission made that the Defendant performed the Admitted Functions, and with the clear picture of the parties’ conduct that emerges from the Lead Claimants’ evidence and, indeed, in some respects from the evidence of the Defendant.
350. That evidence includes, for example, evidence as to the following:
  317 318 319 320 321
350.1. theissueofTransactionCorrectionsbytheDefendant,theacceptanceofwhich affected branch accounts, based on its own information;318
350.2. reliance upon the Defendant (which was encouraged by the Defendant itself) to resolve accounting issues by issue of such transaction corrections;319
350.3. theeffectingoracceptanceoftransactionsinbranchaccountsbyemployeesof the Defendant, such as auditors, in branch;320
350.4. Subpostmaster’s reliance upon the Defendant for the purposes of investigating apparent shortfalls in branch accounts upon information to which only the Defendant had access;321
350.5. theasymmetryofinformationreferredtoinrelationtoCommonIssues(8)and (9) in the previous section of this Written Opening, above; and
350.6. the control of branch accounts and branch data (in respect of which Subpostmasters were held responsible), apparently exercised by the
See, for example, the witness statement of Carpenter, §10 [C2/10/4]
For example, see Abdulla, §128 [C1/4/25-26]
For example, see Stockdale, §109 [C1/6/23]
Of which there are many instances – see, for example, see Abdulla, at §136 [C1/4/27]
Of which examples in the evidence are legion, see, for example Stubbs, at §133 [C1/2/30]
– 129 –
  A/1/133
  
322 323
For example, see Stubbs, §135 GPOC at §83 [B3/1/45]
SECTION B: COMMON ISSUES Issues 10 and 11: Post Office as Agent
Defendant following suspension or termination at a time when Subpostmasters had no access to the same.322
 Duties
351. It follows from the foregoing, and from the Admitted Functions performed by the Defendant on behalf of Subpostmasters, that the Defendant owed the corresponding duties to Subpostmasters:
351.1. to provide Subpostmasters with records in relation to those transactions; and
351.2. to disclose any information which would be likely to influence Subpostmasters in the context of their relationship and, in particular, to furnish Subpostmasters with information that is directly pertinent to the rendering of accounts and potential causes of apparent shortfalls
Findings
352. The Claimants will therefore invite the Court to find, on the evidence:323
352.1. that it is to be implied from the relevant facts that the Defendant acted as an agent for Subpostmasters:
a. for the purpose of rendering and making available accounts and/or was under an equitable duty to render accounts; and further or alternatively, for the specific purpose of effecting, reconciling and recording transactions initiated by the Claimants;
352.2. that the limited agency contended for gave rise to the specific correlative obligations upon the Defendant, described in GPOC, §84.
 – 130 –
  A/1/134
  
SECTION B: COMMON ISSUES Issues 12 and 13: Subpostmasters as Agents
Issue 12: Was the extent and effect of the agency of Subpostmasters to Post Office such that the principles of agency alleged at Defence 91 and 93(2) and (3) applied as Post Office contends?
Issue 13: Did Subpostmasters bear the burden of proving that any Branch Trading Statement account they signed and / or returned to Post Office was incorrect?
 Issues 12 and 13: Subpostmasters as Agents
     Statements of Case
    Particulars
   Defence
      Reply
   Generic
     34 to 35
    69(3), 90 to 91
      59 to 64
    Bates
 104 to 106
 99 to 101
  99 to 101
   Stubbs
   107 to 109
  84 to 86
     91 to 93
   Sabir
   83 to 85
  98 to 100
     96 to 98
   Abdulla
   81 to 83
  86 to 88
     89 to 91
   Dar
     96 to 98
    85 to 87
      88 to 91
    Stockdale
   95 to 97
   80 to 82
   82 to 84
   The Parties respective positions The Defendant’s Case
353. Issues 12 and 13 arise on the case pleaded by the Defendant in response to the Claimant’s case (at §34 and §35 GPOC), that some Subpostmasters felt they had no effective choice but to proceed either:
354.
353.1. by ‘making good’ apparent or alleged shortfalls in branch accounts; or
353.2. by signing off incorrect Branch Trading Statements.
The Defendant’s case on Issues 12 and 13 can be summarised324 as follows:-
354.1. By virtue of the contractual relationship between the parties, Subpostmasters owed fiduciary obligations to the Defendant, namely: 325
a. a duty to act in the Defendant’s best interests in relation to functions Subpostmasters undertook on the Defendant’s behalf (including holding and
 324
Taken here from the GDef, but also as put, largely without further elucidation, against Claimants - see e.g., the Bates/IDef at §99 to 101 [B5.1/3/54-55]
GDef at §91 [B3/2/41]
the Lead
325
– 131 –
  A/1/135
  
SECTION B: COMMON ISSUES Issues 12 and 13: Subpostmasters as Agents
dealing with the Defendant’s cash and stock, effecting and recording transactions, generating liabilities for the Defendant, and maintaining proper and accurate records and preparing and rendering accounts); and
b. a duty to account;
354.2. As Subpostmasters render accounts to the Defendant, which accounts are subsequently settled, Subpostmasters are bound by those accounts and the Court must make all presumptions of fact against them in respect of these accounts unless they can plead and prove such accounts to be mistaken.326
355. This represents an attempt by the Defendant to use equitable principles of agency to defeat the claims in this litigation (particularly that the Claimants were unable to ascertain the cause of shortfalls) by seeking to hold Claimants to be bound by accounts submitted whilst facing such difficulties, unless the Claimants can now prove the causes of shortfalls which at the time they were unable to ascertain. This device is without merit, for the reasons set out below.
356. It is first necessary to identify the terms of the SPMC and NTC which the Defendant prays in aid:327
356.1. SPMC – Section 1, clause 1: “The contract is a contract for services and consequently the Subpostmaster is an agent and not an employee of [the Defendant].”
356.2. NTC – Part 2, paragraph 1.2: “The Agreement is a contract for services and the Operator is an agent and not an employee of [the Defendant]. The Operator acknowledges that no relationship of employer and employee exists between [the Defendant] and the Operator, or between [the Defendant] and any Assistant.”
The Claimants’ Case
357. The Claimants’ case is that:328
  326 327
GDef at §69(3) [B3/2/33] See GDef at §90 [B3/2/41]
– 132 –
  A/1/136
  
  328 329
SECTION B: COMMON ISSUES Issues 12 and 13: Subpostmasters as Agents
357.1. Subpostmasters were agents of the Defendant for the purposes of effecting transactions on its behalf with third parties, such as members of the public;329
357.2. However, the relationship was distinct from the factual premises upon which the Defendant seeks to apply what it calls “usual agency principles”:
a. Subpostmasters would initiate transactions for the Defendant;
b. transactions would be effected (i.e. executed) by a system imposed, provided, controlled and managed by the Defendant;
c. Subpostmasters had no control over the efficacy and accuracy of the same;
d. as the Defendant admits, it reconciled data with data in its own possession (and, as above, it performed the Admitted Functions);
e. the Defendant did not regard itself as bound to disclose errors affecting the system and/or potentially affecting branch accounts to Subpostmasters, in timely manner or at all (see, for example, the Payments Mismatch documents);
f. the Defendant (and/or its IT suppliers) had remote access to the branch accounts of Subpostmasters and were able to inject transactions into those branch accounts, without the knowledge of Subpostmasters;
g. further and/or alternatively the Defendant presented figures to Subpostmasters through Horizon and made representations to Subpostmasters (see GPOC §108) as to the existence of shortfalls which Subpostmasters were unable to investigate but were required by the Defendant to disprove; and
h. it follows that the factual relationship was strikingly different to that upon which the Defendant appears to rely and the principles upon which the
GReply at §59-§64 [B3/3/33-36] GPOC at §82
– 133 –
  A/1/137
  
SECTION B: COMMON ISSUES Issues 12 and 13: Subpostmasters as Agents
Defendant relies are not apt to bind the Claimants to account to the Defendant in the manner alleged.
Relevant principles
358. The relevant principles to be applied in relation to Issues 12 and 13 are amplified in Annex VIII: Issues 12 and 13 – Subpostmasters as Agents.330
The Issues
359. The following matters fall to be considered at trial in order to determine the questions posed by Issues 12 and 13:
359.1. Functions performed by each party: what functions were each of the Defendant and its Subpostmasters responsible for with respect to branch transaction data, branch accounts and as to Branch Trading Statements?
359.2. Scope of alleged agency: which functions did Subpostmasters perform on behalf of the Defendant act as agent – i.e. what was the scope of the agency?
359.3. Position of the parties, inter se: what was the nature of the relationship between the parties and their relative positions within it?
359.4. Full information: did Subpostmasters submit the accounts in issue with the benefit of full information as to the sums in dispute and, if they did not, did the Defendant (a) have access to any of the missing information and (b) bear any responsibility for providing it to the Claimants?
359.5. Settled accounts: can Subpostmasters therefore be held to the account presented in Branch Trading Statements as a ‘settled account’ on agency principles that would apply in a typical agency situation, where accounts are settled with the benefit of access to the relevant information?
  General principles are also set out in Annex VII (‘Annex VII: Issues 10 and 11 – Post Office as
330
Agent’)
– 134 –
  A/1/138
  
SECTION B: COMMON ISSUES Issues 12 and 13: Subpostmasters as Agents
359.6. Burden of proof: if so, in these particular circumstances, did Subpostmasters bear the burden of proving that any Branch Trading Statement account they signed and/or returned to Post Office was incorrect?
360. On the principal issues, by way of opening, the Claimants submit as follows.
Scope of Subpostmasters’ agency (Issue 12)
Agency relationship and functions performed by each party
361. As noted above and in Annex VII: Issues 10 and 11 – Post Office as Agent, the terms of a contract are far from definitive as to the existence and scope of an agency relationship.
362. But as a starting point, terms relied upon by the Defendant do no more than describe Subpostmasters as agents and not employees. Indeed, this appears to be part and parcel of wording designed to disavow employee status of Subpostmasters.
363. In particular, those terms:
363.1. do not specify the purposes for which Subpostmasters acted as agent; and
363.2. donotexpresslypurporttoimposeanyfiduciaryobligationsoftheeffectnow relied upon by the Defendant.
364. The scope of any fiduciary duties owed by an agent is necessarily context-specific and an agent may owe fiduciary obligations in respect of some of the functions that it carries out for a principal and not in respect of others.331
365. The findings the Claimants will ask the Court to make on the evidence as to the scope of the agency relationship are set out below.
366. In short, however, in this context, the agency can necessarily only be limited to what Subpostmasters were required to perform on behalf of Defendant. Their fiduciary duties must be limited to such of those services in respect of which single minded loyalty was
owed. It would be contrary to principle to impose either in respect of
  331
See Annex VIII below and, by way of example, John Youngs Insurance Services Ltd v Aviva Insurance Service UK Ltd [2011] EWHC 1515 (TCC)
– 135 –
  A/1/139
  
SECTION B: COMMON ISSUES Issues 12 and 13: Subpostmasters as Agents
matters over which Subpostmasters had no (or inadequate) knowledge or could have no (or inadequate) control.
367. As to this, the Court is asked to have regard to the following:
367.1. The functions the Defendant admits it performs, which include:
  332
a. The Admitted Functions (see: Common ground, on p.123) which include effecting, recording and managing the reconciliation of transactions effected by the Claimants 332 and possessing and/or controlling the underlying transaction data in relation to such transactions; and
b. undertaking "...its own accounting reconciliations, where possible matching a Subpostmaster's records against other records provided by third parties, and then notifying Subpostmasters of discrepancies found and allowing them to choose whether to accept or dispute those discrepancies".333
367.2. The Defendant’s agency in respect of Subpostmasters: as a result of the above.
367.3. What was in fact undertaken by Subpostmasters as agent: which included effecting transactions for the Defendant with third parties, such as members of the public, and the initiation of transactions in branch via Horizon. Subpostmasters were contractually obliged to submit or produce accounts – but that obligation can be no greater than what was possible from transaction data managed, controlled, transmitted to clients and reconciled by the Defendant.
367.4. As to this, the Claimants rely upon (i) the Admitted Functions above, and (ii) the evidence of the Lead Claimants – including as to:
Noting that with respect to the latter function, the Defendant admits “Post Office recorded the transaction data entered on Horizon by Claimants and so far as possible sought to reconcile that transaction data with other data is (sic) possessed”: GDef §123(1) [B3/2/53]
GDef at §12 [B3/2/4]
333
– 136 –
  A/1/140
  
SECTION B: COMMON ISSUES Issues 12 and 13: Subpostmasters as Agents
a. The inadequate training and support provided, including Helpline; 334 and
b. the inherent limitations of Horizon, difficulties experienced of investigating the cause of apparent shortfalls and imbalance of knowledge as between The Defendant and Subpostmasters.335
367.5. The obvious distinction to be drawn with a traditional agency/accounting relationship: in light of the foregoing and the actual relationship and its operation.
Settled accounts (Issue 13)
368. The Defendant’s aim on Issues (12) to (13) is to seek to persuade the Court, despite the complexities of the arrangements described above, that Subpostmasters are to be held to Branch Trading Statements that they have signed and/or returned to the Defendant as traditional settled accounts.
369. The Defendant’s argument that Subpostmasters are unable to reopen those accounts without specific proof of error rests upon this ambitious case.
370. This suggestion cannot be sustained in the face of the Defendant’s admissions above, and the only direct evidence, from the Lead Claimants, as to the difficulty (if not near impossibility) of proving the causes of alleged shortfalls without assistance from the Defendant and/or information to which the Defendant had access and as a matter of practice refused Subpostmasters access.
Whether to be bound by accounts
371. The relevant factual context therefore overlaps with that applicable to resolution of Issues (8) and (9) and, again, the Court is respectfully invited to have regard to the facts and matters relied upon by the Claimants for the purposes of those issues.
  334
335
For a summary of the evidence to be heard: see Section A above: under ‘Training Subpostmasters’ and ‘Support and Helpline’
For a summary of the evidence to be heard: see Section A above: under ‘Apparent Shortfalls and Horizon’; as to the imbalance of knowledge see also Section B – Issues
– 137 –
  A/1/141
  
SECTION B: COMMON ISSUES Issues 12 and 13: Subpostmasters as Agents
372. The relevant circumstances, which militate strongly against the application of the principles relied upon by the Defendant, include:336
372.1. the Defendant’s requirement that Claimants sign off on branch accounts in order to be permitted to enter a new trading period, the next day;
372.2. the contractual requirement upon the Claimants to offer the Defendant’s services using the Horizon system, which required them to enter a new trading period on that system;
372.3. that Claimants faced alleged shortfalls which they could not effectively dispute, investigate, or trace the cause of;
372.4. the Defendant’s approach of requiring repayment of alleged debts as a condition of Subpostmasters’ continuing appointment;
372.5. the Lead Claimants’ aspirations that discrepancies may subsequently be resolved, by pending transactions, transaction corrections or otherwise;
372.6. The fact that some of the Lead Claimants could not afford to pay (or keep paying) the Defendant the amounts of the apparent shortfalls; and
372.7. the acute relational imbalance and asymmetry of information between the parties overall.337
373. As to the relevant circumstances, the Claimants further rely upon: 373.1. The following, as pleaded by the Lead Claimants: 338
 a.
GPOC at §35
they “were required to submit accounts to the Defendant in circumstances in which they were unable to ascertain the cause (or reality) of apparent shortfalls”;339
 336 337
338
339
As to which, the Claimants will rely inter alia upon the express terms of the contracts, which were replete with power and discretion in the hands of the Defendant
See, e.g. Bates/IPOC at §105.2 [B5.1/2/30] - again, on the Lead Claimant’s knowledge would be a matter it all but impossible for a Subpostmaster to prove
See, e.g. Bates/IPOC at §105.1 [B5.1/2/29]
– 138 –
evidence, such
  A/1/142
  
SECTION B: COMMON ISSUES Issues 12 and 13: Subpostmasters as Agents
b. “Subpostmasters were sometimes told to sign off accounts which did not reflect their contemporaneous understanding”.
373.2. theDefendant’snarrowadmissionofthelatteravermentthatSubpostmasters should not be bound by in those circumstances, albeit only where the Defendant itself knew the account to be false;340
373.3. the issue of Transaction Corrections by the Defendant, based on its own information, the acceptance of which affected branch accounts;341
373.4. relianceupontheDefendant(whichwasencouragedbytheDefendantitself) to resolve accounting issues by issue of such transaction corrections;342 and
373.5. theeffectingoracceptanceoftransactionsinbranchaccountsbyemployeesof the Defendant, such as auditors, in branch.343
Re-opening accounts
374. The Claimants will further rely, if necessary, upon the circumstances in which it is permissible to re-open a settled account set out in Annex VIII: Issues 12 and 13 – Subpostmasters as Agents. These include where the specific circumstances demonstrate that the party settling the accounts had insufficient information at the time of doing so.
375. As to this, the Claimants rely upon the matters set out above, and:
  340 341 342 343
375.1. the relative situation of the parties is such that the balance of power is clearly in the favour of the Defendant (as above); and
375.2. that Subpostmasters did not have the fullest information available to them when it came to submitting Branch Trading Statements.
See, e.g. Bates/IDef at §100(1) [B5.1/3/54]
For example, see Abdulla, §128 [C1/4/25-26]
For example, see Stockdale, §109 [C1/6/23]
Of which there are many instances – see, for example, see Abdulla, §136 [C1/4/27]
– 139 –
  A/1/143
  
SECTION B: COMMON ISSUES Issues 12 and 13: Subpostmasters as Agents
376. In light of the foregoing, the Claimants will invite the Court to find:-
376.1. Astothefunctionseachpartyperformedwithrespecttobranchaccountsand the data forming the basis of Branch Trading Statements, that:
a. Subpostmasters would initiate transactions for the Defendant;
b. transactions would be effected (i.e. executed), by a system imposed, provided and managed by the Defendant;
c. Subpostmasters had no control over the efficacy and accuracy of the same;
d. as the Defendant admits, it reconciled data with data in its own possession (and, as above, it performed the Admitted Functions);
e. the Defendant presented figures to Subpostmasters through Horizon and made representations to them as to the existence of shortfalls which they were unable to investigate but required by the Defendant to disprove.
376.2. As to the agency relationship, that Subpostmaster was agent only for the purposes of effecting transactions on its behalf with third parties, such as members of the public, and initiating those transactions on Horizon.
376.3. Applicationofagencyprinciples:Subpostmastersmaybeheldtotheaccount presented in Branch Trading Statements only to the limited extent they initiated the aforesaid transactions;
376.4. Settled accounts: in the particular circumstances of this relationship, Subpostmasters did not bear the burden of proving that any Branch Trading Statement account they signed and/or returned to Post Office was incorrect.
377. On the basis of the foregoing, and the evidence to be heard at trial on these matters, the Claimants invite the court to answer both Issues 12 and 13 in the negative.
 Findings
– 140 –
  A/1/144
  
344 345 346 347
Issues (14) to (16) Issues (17) to (18) Issues (19) to (20) Issue (21)
SECTION B: COMMON ISSUES Issues14to21: Suspension,Termination,etc
Issues (14) to (21) concern related topics, namely issues arising relating to the parties’ relationship as regards suspension and termination of a Subpostmaster’s engagement with the Defendant and certain consequential matters.
It is subdivided into four sections:-
379.1. Issues14to16:theproperconstructionoftheSPMCandNTC’stermsrelating to suspension and termination rights (the “Suspension and Termination” issues).344
379.2. Issues17and18:whethertheexpresstermsoftheSPMCandNTCrepresent the ‘true agreement’ between the parties as to termination (the “True Agreement” issues).345
379.3. Issues 19 and 20: the circumstances, if any, in which Subpostmasters are entitled to compensation for loss of office (the “Compensation for loss of office” issues).346
379.4. Issue 21: what restrictions, if any, there were on the Defendant’s discretion as to whether or not to appoint as a Subpostmaster the prospective purchaser of an incumbent Subpostmaster’s business (the “Subsequent Appointments” issue).347
 Issues 14 to 21: Suspension, Termination, etc
 378.
379.
 – 141 –
  A/1/145
  
SECTION B: COMMON ISSUES Issues14to21: Suspension,Termination,etc
Issue 14: On a proper construction of the SPMC and NTC, in what circumstances and / or on what basis was Post Office entitled to suspend pursuant to SPMC Section 19, clause 4 and Part 2, paragraph 15.1 NTC?
Issue 15: On a proper construction of the SPMC and NTC, in what circumstances and / or on what basis was Post Office entitled summarily to terminate?
Issue 16: On a proper construction of the SPMC and NTC, in what circumstances and / or on what basis was Post Office entitled to terminate on notice, without cause?
 SUSPENSION AND TERMINATION
      Statements of Case
     Particulars
    Defence
      Reply
    Generic
32 to 33, 49, 60 to 61, 64, 99
 66 to 72, 99 to 100, 104 to 106, 142
  75 to 80
     Bates
    107 to 111
   102 to 106
     102 to 105
    Stubbs
110 to 114
 87 to 91
  94 to 97
     Sabir
    86 to 90
   101 to 105
     99 to 102
    Abdulla
84 to 88
 89 to 93
  92 to 95
     Dar
 99 to 103
  88 to 92
    91 to 94
     Stockdale
  98 to 102
   83 to 87
    85 to 88
380. As these Common Issues call for construction of express terms, the Claimants’ rely upon the principles of construction set out in Annex I: Contractual Construction.
Relevant terms
381. The terms forming the subject matter of Issues 14 to 16 are as follows:- 381.1. Suspension:
a. SPMC – Section 19, Clause 4:
"A Subpostmaster may be suspended from office at any time if that course is considered desirable in the interests of [the Defendant] in consequence of his: (a) being arrested, (b) having civil or criminal proceedings brought against him, (c) where irregularities or misconduct at the office(s) where he holds appointment(s) have been established to the satisfaction of [the Defendant], or are admitted, or are suspected and are being investigated."
– 142 –
  A/1/146
  
SECTION B: COMMON ISSUES Issues14to21: Suspension,Termination,etc
“[The Defendant] may suspend the Operator from operating the Branch (and/or, acting reasonably, require the Operator to suspend all or any of its Assistants engaged in the Branch from working in the Branch), where [the Defendant] considers this to be necessary in the interests of [the Defendant] as a result of: (15.1.1) the Operator and/or any Assistant being arrested, charged or investigated by the police or [the Defendant] in connection with any offence or alleged offence; (15.1.2) civil proceedings being brought against the Operator and/or any Assistant; or (15.1.3) there being grounds to suspect that the Operator is insolvent, to suspect that the Operator has committed any material or persistent breach of the Agreement, or to suspect any irregularities or misconduct in the operation of the Branch, the Basic Business or any Post Office® branches with which the Operator and/or any Assistant is connected (including any financial irregularities or misconduct).”
381.2. Summarytermination:
a. SPMC – Section 1, clause 10:
“... The Agreement may be determined by [the Defendant] at any time in case of Breach of Condition by [the Subpostmaster], or non-performance of his obligation or non-provision of Post Office Services, but otherwise may be determined by [the Defendant] on not less than three months’ notice.”
b. NTC – Part 2, paragraph 16.2:
“In addition to any other rights of termination contained in other Parts, [the Defendant] may terminate the Agreement immediately on giving written notice to the Operator if the Operator:
16.2.1 commits any material breach of the provisions of the Agreement or any other contract or arrangement between the Parties and fails to remedy the breach (if capable of remedy) within 14 days of a written notice from [the Defendant] specifying the breach and requiring the same to be remedied. Any references in these Standard Conditions to a breach of a particular obligation by the Operator being deemed to be material and/or irremediable are not intended to be exhaustive and shall not prevent [the Defendant] from exercising its rights under this clause in respect of any other breach of the Agreement which is material and/or irremediable;
 b. NTC – Part 2, paragraph 15.1:
– 143 –
  A/1/147
  
Suspension
The Claimants’ case
SECTION B: COMMON ISSUES Issues14to21: Suspension,Termination,etc
16.2.2 fails to provide the Products or Services to the standards required by [the Defendant] as set out in the Manual and fails to remedy the failure (if capable of remedy) within 14 days of a written notice from [the Defendant] specifying the failure and requiring the same to be remedied; ...
16.2.16 fails to pay any sum due to [the Defendant] under the Agreement by the due date”.
381.3. Terminationonnotice:
a. SPMC – Section 1, clause 10 (as above).
b. NTC – Part 2, paragraph 16.1:
 “Following the Commencement Date the Agreement will continue until: (16.1.1) either Party gives to the other not less than 6 months’ written notice (unless otherwise agreed between the Parties in writing), which cannot be given so as to expire before the first anniversary of the Start Date; or (16.1.2) it is terminated at any time in accordance with its terms.”
382. The Claimants’ case is that construed in accordance with commercial common sense, so as to give expression to the common expectations of the parties when the contract was made (by reference to the relevant factual matrix) and contra proferentem: the terms on suspension should therefore be construed so as to render the implied terms at GPOC §64.13348 unnecessary (which the Claimants contend ought to be uncontroversial), and/or:
 348
382.1. such that the phrases “considered desirable”, “established to the satisfaction of the Defendant” and “suspected” (under the SPMC), and “considers this to be necessary”, “suspect” and “irregularities” (under the NTC) would import the effect of the said implied term; and
i.e. not to suspend Claimants: (i) arbitrarily, irrationally or capriciously; (ii) without reasonable and proper cause; and / or; (iii) in circumstances where the Defendant was itself in material breach of duty.
– 144 –
  A/1/148
  
SECTION B: COMMON ISSUES Issues14to21: Suspension,Termination,etc
382.2. so as to require the Defendant to give fair consideration to all the relevant circumstances and as to whether or not to suspend the Subpostmaster even if the threshold for doing so was established.349
383. The Claimants contend this is the proper construction of the terms, so as to obviate not only the implication of the terms governing their exercise (Issues 2 and 3), but to mitigate the extent to which they were onerous and unusual (Issues 5 and 6) and/or unreasonable so as to be unenforceable under UCTA (Issue 7).
384. The Claimants would draw particular attention to the submissions in Annex III: Issues 2 and 3 – Implied Terms, under Implied restriction on contractual discretion and Implied terms in relation to powers of suspension.
385. The relevant factual matrix includes the long-term commitments and expectations of the parties set out, in particular, above in: (i) Section A, under the heading Commitment to and Investment in the Relationship (p.27); and (ii) Section B under Issue 1: Relational Contract (p.39).
386. Furthermore, these provisions fall to be construed in their contractual context, including the contractual consequences in relation to remuneration during (and after) a period of suspension.
The Defendant’s case
387. The Defendant accepts that the contractual right to suspend a Subpostmaster is not an “unfettered” right.350 It confines its right to suspend Subpostmasters by reference to:
  349 350 351
387.1. the existence of the factual grounds expressly set out in the relevant contractual provision on termination;
387.2. where the Defendant “genuinely believed suspension to be in its interests”;351 and 387.3. wheretheDefendant’s“beliefthatsuspensionwasinitsinterestswasgenuinelyin
consequence of the factual grounds that were present”.352
See, e.g. Bates/IPOC at §109 [B5.1/2/30] See, e.g. Bates/IDef at §102 [B5.1/3/55]
See, e.g. Bates/IDef at §102(1)(b) [B5.1/3/55]
– 145 –
  A/1/149
  
SECTION B: COMMON ISSUES Issues14to21: Suspension,Termination,etc
388.1. the Defendant’s admission that its rights were not unfettered, as above;
388.2. thelackofclarityinthewordingoftheterms(contrarytowhattheDefendant suggests)353 by reason of the words and phrases identified above (“desirable”, “established to the satisfaction...” etc.) which are ambiguous; and
388.3. the Defendant’s additional gloss, not found in the express words, that its beliefs in exercise of the terms must be ‘genuine’354 – which appears to be an attempt by the Defendant to confess and avoid by making such a fine and tailored concession (see Lalji, at paragraph 214, on p.81, above).
Termination
The Claimants’ case
389. As with the contractual terms on suspension the Claimants’ case is that, by reference to commercial common sense, the relevant factual matrix, and the principle of contra proferentem, the contractual terms on suspension should be construed as per GPOC §64.14355, so as to prohibit ‘knee jerk’ termination, and or:
 388. The Claimants will rely upon:
 352
353 354 355
389.1. such that the phrase “may be determined” (under the SPMC) and “may terminate” (under the NTC) imported the foregoing, so as to require the Defendant conscientiously to consider whether or not to do so; and
See, e.g. Bates/IDef at §102(1)(c) [B5.1/3/55] NB – the wording of other Individual Defences differs, but not apparently to any material effect: see, for example, the Stockdale/IDef (an NTC Lead Claimant) at §83(1)(b) (which requires the Defendant to have “genuinely believed suspension to be necessary in its interests”) and §83(1)(c) (which states that the Defendant’s “belief was genuinely as a result of the factual grounds that were present”) [B5.6/3/40]
See, e.g. Bates/IDef at §103(1) [B5.1/3/56]
See, e.g. Bates/IDef at §102(1)(b) and (c) [B5.1/3/55]
i.e. not to terminate Claimants: (i) arbitrarily, irrationally or capriciously; (ii)
and proper cause; and / or; (iii) in circumstances where the Defendant was itself in material breach of duty.
– 146 –
without reasonable
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SECTION B: COMMON ISSUES Issues14to21: Suspension,Termination,etc
389.2. the phrase “not less than three months’ notice” (under the SPMC) and “not less than 6 months’ notice” (under the NTC) required to the Defendant conscientiously to consider what period of notice to give.356
The Defendant’s case
390. The Defendant’s case as to termination can be set out simply in the following terms:-
390.1. Summarytermination:TheDefendanthadarighttoterminatewithoutnotice when it had cause to do so under the terms of the SPMC (said to be limited to repudiatory breach)357 and NTC (if one of more of the factual grounds under Part 2, paragraph 16.2 was established).358
390.2. Terminationonnotice:TheDefendanthadarighttoterminateforanyreason whatsoever on either three months’ notice (per the SPMC)359 or six months’ notice (per the NTC).360
391. The Claimants will rely upon the same matters in support of its construction as set out above, in relation to suspension, and will invite the Court to prefer the Claimants’ construction.
  356 357 358 359 360
See, e.g. Bates/IPOC at §110 to 111 [B5.1/2/30-31] See, e.g. Bates/IDef at §102(2) [B5.1/3/55]
See, e.g. Stockdale/IDef at §83(2) [B5.6/3/40]
See, e.g. Bates/IDef at §102(3) [B5.1/3/55]
See, e.g. Stockdale/IDef at §83(3) [B5.6/3/40]
– 147 –
  A/1/151
  
SECTION B: COMMON ISSUES Issues14to21: Suspension,Termination,etc
Issue 17: Do the express written terms of the SPMC and NTC between Post Office and Subpostmasters represent the true agreement between the parties, as to termination (in this regard, the Claimants rely on Autoclenz v Belcher [2011] UKSC 41?
Issue 18: If not, was the “true agreement” between the parties as alleged at GPOC, para 71?
 TRUE AGREEMENT
    Statements of Case
    Particulars
   Defence
      Reply
   Generic
   55, 69 to 71
  86, 110 to 112
     N/A
   Bates
     112 to 113
    107
      106 to 108
    Stubbs
 115 to 116
 92
  98 to 100
   Sabir
     91 to 92
    106
      103 to 105
    Abdulla
   89 to 90
   94
   96 to 98
    Dar
 104 to 105
 93
  95 to 97
   Stockdale
    103 to 104
   88
     89 to 91
 Position of the Parties
The Claimants’ case
392. On analysis, in accordance with the principles in Autoclenz v Belcher [2011] UKSC 41 (“Autoclenz”), the written agreement as to termination did not reflect the true agreement between the parties.
393. The Claimant advances this case further or alternatively to the Claimants’ case on Issues 15 to 16.361
394. Neither party intended that the Claimants’ contracts were terminable on 3 months’ (per the SPMC) or 6 months’ (per the NTC) notice such as to forfeit the Claimants’ substantial long-term investments:
 361
394.1. without substantial cause or reason, established after a fair investigation and consideration;
394.2. if the Defendant was itself in material breach of contract;
That, on a proper construction of the SPMC and NTC terms, the Defendant did not have an unfettered right to terminate on will or on the short notice periods provided for in those contracts
– 148 –
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SECTION B: COMMON ISSUES Issues14to21: Suspension,Termination,etc
394.3. vindictively, capriciously or arbitrarily; or
394.4. inresponsetoreasonablecorrespondenceabout(i)anyapparentbreachbythe Defendant, or (ii) alleged shortfalls and the difficulties faced by Subpostmasters in investigating alleged shortfalls.362
Illustration
395. The written agreement regarding termination can be tested by asking:
Was the true agreement between the parties that the Defendant could terminate the Subpostmaster’s engagement on notice expiring 3 months and one day after branch transfer, in the context of the commitments being made by the parties?
The Defendant’s case
396. The Defendant:
396.1. denies the application of Autoclenz principles on the grounds these are not employment contracts (nor are they said to be)363 – and cannot be used to circumvent normal principles of construction;
396.2. denies that the terms in question were inserted for reasons of form;
396.3. denies that long-term investments would be forfeited; and
396.4. relies on the absence of a pleaded true agreement that Subpostmasters may terminate on 12 months’ notice.
Relevant principles
 397.
362 363
The principle that the Court should always seek to find the “true agreement” between the parties is uncontroversial. The manner in which that principle found expression in the employment context in Autoclenz is addressed in Annex IX: Issues 17 to 18 – True Agreement. The Claimants also address the application of those principles in this case.
See Bates/IPOC at §§62, 67, 69 and 72 [B5.1/2/17] [B5.1/2/18] [B5.1/2/ 19]
The Court should be aware that there is presently a group Employment Tribunal claim, on behalf
of 123 Subpostmasters, seeking to establish worker status, pending before London Central ET – 149 –
   A/1/153
  
SECTION B: COMMON ISSUES Issues14to21: Suspension,Termination,etc
398. The inconsistency between the contractual terms as to termination and the true agreement are to be gleaned from all the circumstances, of which the written agreement was only one part (see commentary on Autoclenz set out in Annex IX: Issues 17 to 18 – True Agreement).
399. These circumstances will form the subject of evidence to be heard at trial. However, in opening the Claimants make the following observations.
400. As to whether Autoclenz may be applied:
 Did the terms represent the ‘true agreement’?
 364
365 366
400.1. Autoclenz addressed the anterior question of whether terms in a contract purporting to provide for self-employment were not reflected by the true agreement consistent with employment.
400.2. The distinction between contracts of employment (or those potentially construed as such) and commercial contracts was based upon the relative bargaining positions of the parties364 – it is far from the bright line distinction that the Defendant seeks to rely upon in this case. The application of Autoclenz principles depends on a considered analysis of the overall character of the relationship, not upon whether it is, or is not, an employment contract. If that were not so, cases such as Autoclenz would be impossible to decide.
400.3. Further and in any event:
a. while not expressed to be contracts of employment, the SPMC and NTC have many of the indicia of such contracts365 (see Annex IX) including detailed personnel provisions and reserving to the Defendant a high degree of discretion and control;366 and
b. the dicta of Lord Clarks JSC in Autoclenz are to be applied accordingly.
Specifically, “...the relative bargaining power of the parties must be taken into account in deciding
whether the terms of any written agreement in truth represent what was agreed”
GPOC at §9, §45, §50 and §69 [B3/1/2] [B3/1/15] [B3/1/17] [B3/1/39] GPOC at §45 [B3/1/15-16]
– 150 –
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SECTION B: COMMON ISSUES Issues14to21: Suspension,Termination,etc
401. As to the relevant circumstances from which the true agreement is to be gleaned, the Claimants will rely upon:
401.1. the evidence of the Lead Claimants to be heard at trial as to their long-term investments and commitments to the relationship and the high degree of discretion and control exercised by the Defendant;
401.2. the express terms of The Discretionary Payments Agreement (the “DPA”) dated 1 April 1989367 made by the NFSP (on behalf of all Subpostmasters) and the Defendant, being a long-standing agreement on the compensation to be paid to Subpostmasters upon the termination in certain circumstances, which applies a multiplier of 28 (or 26) months of the gross remuneration as of their last day of appointment368 - upon which the Claimants will rely as to the mutual expectations of the parties of the value of the Subpostmasters’ goodwill and period over which that should be amortised; and
401.3. aspects of the Defendant’s own evidence from senior management, in particular to the effect that: 369
a. the contractual notice period was extended from three months under the SPMC as this was not a realistic timeframe for replacing a Subpostmaster – even for the Defendant;
b. 12 months “would be necessary” in the case of a ‘Mains Contract’ and “[i]n short, longer notice periods for both parties seemed to make more sense in light of the timescales involved in replacing a Subpostmaster.” [Emphasis added]
What was the ‘true agreement’? (Issue 18)
402. In all the circumstances, the Claimants will invite the Court to find on the evidence to be heard at trial, that the ‘true agreement’ as to termination was, as pleaded, namely that:
     367 368
369
[G/84/1]; and all variations and supplemental agreements thereto
such as in the case of Bates and his letters dated 19 December 2000, 18 July 2001, 7
and 13 February 2002 [E1/23/1], [E1/50/62] , [E1/30/1] and [E1/32/1] Breeden, §62 [C2/3/16]
January 2002,
– 151 –
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SECTION B: COMMON ISSUES Issues14to21: Suspension,Termination,etc
402.1. Subpostmasters’ contracts would not be terminated in the manner contended for by the Defendant;
402.2. the Defendant would not terminate such contracts without giving such notice as the court may hold to be reasonable; and
402.3. such notice was, on any view (and as consistent with the Defendant’s evidence – as above), never to be less than 12 months.370
  370
GPOC at §71 [B3/1/40]
– 152 –
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SECTION B: COMMON ISSUES Issues14to21: Suspension,Termination,etc
Issue 19: On a proper construction of the SPMC and NTC, where Post Office lawfully and validly terminated a Subpostmaster’s engagement, on notice or without notice for cause, was the Subpostmaster entitled to any compensation for loss of office or wrongful termination?
Issue 20: On a proper construction of the SPMC and NTC, in what, if any, circumstances are Subpostmaster’s breach of contract claims for loss business, loss of profit and consequential losses (including reduced profit from linked retail premises) limited to such losses as would not have been suffered in Post Office had given the notice of termination provided for in those contracts?
 COMPENSATION FOR LOSS OF OFFICE
    Statements of Case
      Particulars
     Defence
       Reply
    Generic
 62, 131
 101, 171
  81 to 82
   Bates
     114
    108
      109
    Stubbs
 117
 93
  101
   Sabir
     93
    107
      106
    Abdulla
 91
 95
  99
   Dar
     106
    94
      98
    Stockdale
  105
  89
  92
 403. The Claimant’s case on these provisions is confined to their enforceability as Onerous and Unusual Terms and/or under UCTA.
404. The principles relevant to these Issues are set out in Annex V: Issues 5 and 6 – Onerous and Unusual Terms and Annex VI: Issue 7 – Unfair Contract Terms.
The relevant terms
405. The written terms of the Defendant’s contracts with Claimants purported (on the Defendant’s construction) to provide that Subpostmasters had no right to any compensation for loss of office, irrespective of whether loss of office and damage suffered thereby was due to breach or other unlawful act by the Defendant, as follows:
405.1. SPMC – Section 1, clause 8: “The terms of the appointment of Subpostmaster do not entitle the holder to be paid ... compensation for loss of office."
– 153 –
  A/1/157
  
 406.
SECTION B: COMMON ISSUES Issues14to21: Suspension,Termination,etc
405.2. NTC – Part 2, paragraph 17.11: “The Operator acknowledges that he shall not be entitled to receive any compensation or other sums in the event of the termination or suspension of the Agreement.”
These terms, in their contractual context, are very one-sided in making acutely asymmetric provision for the parties’ respective liabilities: the Defendant reserves to itself the right to pursue Subpostmasters for unlimited sums in relation to alleged losses in their branches, after termination of their appointment, but excludes its own liability to pay any “compensation for loss of office” (SPMC) or, strikingly, “any compensation or other sums in the event of termination or suspension” (NTC – emphasis added).
The Claimants’ case on the above terms is therefore that:
407.1. the terms are onerous and unusual, such that they are not enforceable unless the Defendant has provided sufficient notice of them to Subpostmasters; alternatively
407.2. the terms were unenforceable as failing to comply with the requirement of reasonableness under Section 3(2) UCTA.371
Thus, the issues to be determined with respect to these terms, and the case relied upon by the Claimants (and points made in opening with respect to the same) are as set out above under Issues (5) to (7).
 407.
408.
 371
See, e.g. Bates/IPOC at §114 [B5.1/2/31]
– 154 –
  A/1/158
  
SECTION B: COMMON ISSUES Issues14to21: Suspension,Termination,etc
Issue 21: On a proper construction of the SPMC and NTC, what if any restrictions were there on Post Office’s discretion as to whether or not to appoint as a Subpostmaster the prospective purchaser of a Subpostmasters’ business?
 SUBSEQUENT APPOINTMENTS
    Statements of Case
    Particulars
   Defence
      Reply
   Generic
   62
  102
     N/A
   Bates
   115 to 116
  109
     110 to 113
   Stubbs
   118 to 119
  94
     102 to 104
   Sabir
   94 to 95
  108
     107 to 109
   Abdulla
     92 to 93
    96
      100 to 102
    Dar
 107 to 108
 95
  99 to 101
   Stockdale
     106 to 107
    90
      93 to 95
   The relevant terms
409. The relevant terms are the following:
409.1. SPMC – Section 1, Clause 9: “If on resignation of his appointment the Subpostmaster disposes of his private business and/or premises in which the sub- office is situated, the person acquiring the private business and/or the premises or exchanging contracts in connection with the purchase of the private business and/or premises will not be entitled to preferential consideration for appointment as Subpostmaster.”
409.2. NTC–Part2,paragraph19:“...OnterminationoftheAgreement,theappointment of any New Operator shall be entirely at the discretion of [the Defendant]. [The Defendant] may, but shall not be obliged to, consider any application for the operation of a Post Office branch at the Branch Premises made by a genuine prospective purchaser of the Basic Business and the property interest at the Branch Premises, but any such prospective purchaser shall not be given preferential treatment in the application or appointment process.”
– 155 –
  A/1/159
  
SECTION B: COMMON ISSUES Issues14to21: Suspension,Termination,etc
410. The Claimants’ case on the above terms is straightforward:372
410.1. The terms, properly construed, afforded the Defendant a ‘discretion’ as to subsequent appointments, as opposed to simply a right of ‘veto’ (i.e. unfettered commercial freedom to do as they pleased). The Defendant’s decision involved a value judgment.
410.2. The exercise of a discretion of this nature is subject to the implied duties in Yam Seng and/or the terms set out in GPOC §64.15 to 64.19 (in essence, an obligation not to exercise such discretion arbitrarily, capriciously or unreasonably, but rather in accordance with the obligations of good faith, fair dealing, transparency, cooperation, and trust and confidence).
411. Whether the Defendant had a discretion or a veto (paragraph 410.1, above) is essential to resolution of this Issue, i.e. Issue 21 (and, generally, see: principles of contractual construction set out in Annex I: Contractual Construction).
412. As to the exercise of the discretion (paragraph 410.2), the Claimants’ case for the implication of terms is set out under Issue 1 and under Issues 2 and 3, above.
413. The Defendant, conversely, argues that nothing in the Subpostmaster Contracts creates any such discretion, and it had “complete commercial freedom”.373 The Defendant then repeats its case in relation to implied terms, asserting that the discretion contended for would be “onerous, unreasonable and uncommercial”, as the same would qualify the Defendant’s commercial freedom to operate its business in its own interests after termination of the contract.374
414. The Claimants further rely upon the case of Watson v Watchfinder.co.uk Ltd [2017] EWHC 1275 (Comm) (“Watchfinder”). That case concerned a share option agreement which was said to be subject to the consent of a majority of the board of directors. The term under construction was clause 3.1, which provided: “The Option may only be
 Discretion or a veto
 372 373 374
See. e.g. Bates/IPOC at §115 to 116 [B5.1/2/31] and the Bates/IReply at §110 [B5.1/4/48] See, e.g. Bates/IDef at §109(3) [B5.1/3/60]
See, e.g. Bates/IDef at §109(4) [B5.1/3/60]
– 156 –
  A/1/160
  
SECTION B: COMMON ISSUES Issues14to21: Suspension,Termination,etc
exercised with the consent of a majority of the board of directors of the Company.” Clause 3.2 then provides: “If the consent specified in clause 3.1 has not been obtained by the Investors before the Options Expiry Date the Option shall lapse and neither party to this agreement shall have any claim against the other under this agreement except in relation to any breach occurring before that date.”
415. Waksman J found that this clause did not provide the company with an unconditional right of veto. Rather, it conferred a discretion. After setting out relevant principles of construction derived from Arnold v Britton [2015] AC 1619,375 the Judge held:
          375
“Does Watchfinder have an unconditional right of veto?
98. This cannot be the correct construction of clause 3.1. If it was, then the option is meaningless because the grant of shares is entirely within the gift of Watchfinder. But in that event the position would be no different from when any person sought to buy shares in Watchfinder. Ms Hitchens for Watchfinder sought to maintain this construction, however, by saying that in truth and despite its appearance and the clear and numerous references to an “option” within it, the Option Agreement was nothing of the kind. The court should therefore not be troubled if clause 3.1 undermined the purpose of the option-because there was no option to speak of in the first place. I regard that as a “bootstraps” argument which cannot be correct. It defies common sense and the detailed provisions of the Option Agreement as well as its title and terms and indeed the references to it as such by the parties (albeit subjectively). Moreover, the Option Agreement was always intended to be, and became, part of an overall contractual package for Adoreum and the claimants in relation to their relationship with Watchfinder. That is why they required both agreements to be signed before proceeding with the initial meeting with Richemont. In that context, it is a commercial absurdity to conclude that objectively, one part of that package was in fact worthless. Moreover, it is not as if the option was contained in a mass of other contractual terms where it might have been easier to downplay its importance or read it down. It was a separate agreement whose only purpose was the option albeit part of a package with the Services Agreement. This is not one of those cases where (as noted by Lord Neuberger PSC) the importance of commercial common sense is being overstated or over-used
Distilled at [96] as: (1) commercial common sense should not be invoked to undervalue the importance of the language used; (2) the less clear the centrally relevant words are, the more readily the court can properly depart from their meaning; (3) commercial common sense should not be invoked retrospectively. The mere fact that a contractual arrangement has worked out badly, or even disastrously for one of the parties is not a reason to depart from the natural language; (4) a court should be slow to reject the natural meaning as correct simply because it appears be have been very imprudent for one party to have agreed it; (5) facts known only to one of the parties cannot be taken into account; (6) if an event occurs which had plainly not been intended by the parties, the court will give effect to what the parties would have intended if clear
– 157 –
  A/1/161
  
SECTION B: COMMON ISSUES Issues14to21: Suspension,Termination,etc
99. Accordingly, I reject this construction of clause 3.1.”
416. The two clauses under consideration in the present case go no further than stating that a prospective purchaser of a Subpostmaster’s branch will not be given preferential treatment, but this does not indicate an unfettered veto. Indeed, the relevant provision in the NTC refers to the “discretion” of the Defendant in the appointment of a subsequent Subpostmaster: that description is plainly correct. A discretion is plainly conferred under both agreements.
417. The Claimants’ construction does not seek to deny the Defendant commercial freedom to appoint a replacement Subpostmaster, merely to exercise that commercial freedom in accordance with well-established principles by which other commercial freedoms are regularly governed. That is the consequence of the Defendant having a discretion rather than a veto.
418. The Claimant’s construction is to be preferred, in any event, and particularly in light of the following:-
418.1. It recognises the long-term commitment and financial investment made by Subpostmasters upon entering into the relationship, by affording them a prospect of the protection of that investment in the goodwill of the business.
418.2. An unfettered discretion (effectively amounting to a veto) would allow the Defendant in practice to defeat the expectations as to the value of the business inherent in the bargain between the parties and the very premise upon which the above investments were to be made.
418.3. A (high) degree of reciprocity and cooperation must always have been intended to be part of the overall package in the relationship agreed between Subpostmasters and the Defendant.
418.4. The characterisation of these terms as conferring a ‘discretion’ as opposed to unfettered veto does not deprive the Defendant of its “commercial freedom”.
 – 158 –
  A/1/162
  
SECTION B: COMMON ISSUES Issues14to21: Suspension,Termination,etc
418.5. In the circumstances, it accords with commercial common sense. It would otherwise be a commercial absurdity as it renders these specific terms regarding subsequent appointments meaningless.
419. The extent to which that discretion is framed by any implied terms is a separate issue, although, for present purposes, it is sufficient to question how the Defendant could object to an implied term that the discretion is not exercised arbitrarily, capriciously or unreasonably – if there are genuine commercial considerations which warrant a rejection of a prospective Subpostmaster (whether those considerations are specific to that individual or to the branch in question), then such exercise of the discretion would unlikely be characterised as arbitrary, capricious or unreasonable.
420. The Claimants invite the Court to find that the Defendant had a discretion, not a veto, in relation to the appointment of replacement Subpostmasters, which was therefore subject to the limitations above, and the duties in Braganza.
 – 159 –
  A/1/163
  
– 160 –
SECTION B: COMMON ISSUES Issues14to21: Suspension,Termination,etc
   A/1/164
  
SECTION B: COMMON ISSUES Issues 22 and 23: Assistants
Issue 22: Did SPMC Section 15, clause 7.1; NTC, Part 2, clauses 2.3 and 2.5 and / or any of the implied terms contended for by the parties and found by the Court purport to confer a benefit on Assistants for the purposes of section 1 of the Contracts (Rights of Third Parties) Act, and if so which of these terms did so?
Issue 23: What was the responsibility of Subpostmasters under the SPMC and the NTC for the training of their Assistants?
 Issues 22 and 23: Assistants
     Statements of Case
      Particulars
     Defence
       Reply
    Generic
 56, 74
 95(4), 116
  92
   Bates
     117 to 119
    110 to 112
      114 to 116
    Stubbs
 120 to 122
 95 to 97
  105 to 107
   Sabir
     96 to 98
    109 to 111
      110 to 112
    Abdulla
 94 to 96
 97 to 99
  103 to 105
   Dar
     109 to 111
    96 to 98
      102 to 104
    Stockdale
   108 to 110
   91 to 93
   96 to 98
   Rights of Third Parties
The express terms purporting to confer a benefit
421. The relevant terms are the following:- 421.1. SPMC – Section 15, clause 7.1:
“[The Defendant] will: (7.1.1) 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 ® Products and Services; and (7.1.3) where appropriate
... update the training materials (or processes) or 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 materials and processed provided by [the Defendant] and to ensure that his Assistants receive all the training which is necessary in order to be able to properly provide the Post Office
– 161 –
  A/1/165
  
SECTION B: COMMON ISSUES Issues 22 and 23: Assistants
® Products and Services and to perform any other tasks required in connection with the operation of the Post Office ® branch.”
421.2. NTC – Part 2, paragraphs 2.3: “Where [the Defendant] considers it necessary, it shall initially train the first Manager and such number of Assistants as [the Defendant] shall determine, in the operation of the System at the Branch.”
421.3. NTC – Part 2, paragraphs 2.5: “[the Defendant] may require the Manager and/or the Assistants to undertake further training at any reasonable location and time during the Term if [the Defendant] (2.5.1) reasonably considers such training to be essential; or (2.5.2) wishes to train them in new and improved techniques which have been devised and which the Operator will be required to use in operating the System.”
The Claimants’ case
422. The Claimants’ case is that Assistants employed by a Subpostmaster to work in a branch are conferred benefits pursuant to those terms for the purposes of section 1(1)(b) 1999 Act, such that they may in their own right enforce them.
The Defendant’s case
423. The Defendant denies that the terms purported to confer a benefit upon Assistants.
The issues
424. On the issues, the Claimants submit in opening
 424.1. a.
The terms purports to confer a benefit on Assistants (s.1(1)(b)):
The SPMC term requires training materials and processes to be provided to Subpostmasters in order to train assistants and the NTC addresses initial and further training which the Defendant would provide to Assistants.
– 162 –
  A/1/166
  
SECTION B: COMMON ISSUES Issues 22 and 23: Assistants
b. These benefits are not received collaterally or incidentally;376 rather, the very purpose of those terms is to ensure Assistants have the training needed to do their job. Without such a term, an Assistant could not.377
424.2. Burdenofproof(section1(2)):itisfortheDefendanttorebutthepresumption that it was intended that this term would be enforceable by Assistants.378 It cannot do so on the ground that it (alone) did not intend this.
424.3. Assistants sufficiently described in the terms (section 1(3)): it does not appear to be suggested that the requirements of section 1(3) have not been made out. These are clearly satisfied: the terms refer to ‘Assistants’, a term defined by reference to a class of persons in both the SPMC379 and NTC.380
425. The relevant implied term, on this Issue, is confined to the implied obligation that training (above) provided to Assistants would be adequate (to which other implied terms, in context, would add nothing).
Responsibility of SPMs to train Assistants
The Claimants’ case
426. The Claimants’ case is that any obligation upon Subpostmasters to train their Assistants cannot be construed so to require Subpostmasters to have been better able to train Assistants than the training provided by the Defendant would allow or enable.
427. Any other interpretation would defy both logic and commercial common sense and could not possibly have been the intention of the parties. The practical (if not
  376
377
378 379
380
And the conferral of a benefit need not be a predominant purpose or intent: see Annex X: Issues 22 and 23 – Assistants
Prudential Assurance Co Ltd v Ayres [2007] EWHC 775 (Ch), [2007] 3 All E.R. 946 at [28], reversed ([2008] EWCA Civ 52, [2008] 1 All E.R. 1266) on the different ground that the contract, on its true construction, purported, not to benefit the third party, but to restrict the third party’s rights
See, e.g., The Laemthong Glory [2005] EWCA Civ 519
“A Subpostmaster must provide, at his own expense, any assistance which he may need to carry out the
work in his sub-office” and “Assistants are employees of the Subpostmaster” (Section 15, clauses 1,2) “apersonemployedbytheOperatorwhoisapprovedbyPostOfficeLtdinaccordancewiththe Manualto
work in the Branch” (Part 1, paragraph 1.1)
– 163 –
  A/1/167
  
SECTION B: COMMON ISSUES Issues 22 and 23: Assistants
insuperable) difficulties of a Subpostmaster providing training in matters upon which he has not himself received any or any adequate training speak for themselves.
428. The SPMC specifically requires (under Section 15, clause 7.1) that materials be provided by the Defendant for the purposes of training Assistants and that Subpostmasters are required “to ensure the proper deployment within his Post Office ® branch of any materials and processes provided by [the Defendant] and to ensure that his Assistants receive all the training which is necessary...”
429. The Claimants’ further rely upon the implied terms that it alleges and/or the Defendant’s own admitted implied terms as further qualifying the responsibility of Subpostmasters to train Assistants. Indeed, the Defendant admits that the implied terms which it pleads in the GDef at §105 “may, in appropriate circumstances, have required Post Office to cooperate with Subpostmasters in relation to training assistants.”381
  381
See, e.g. Bates/IDef at §111(1) [B5.1/3/61-62]
– 164 –
  A/1/168
  
SECTION C: CONCLUSION Issues 22 and 23: Assistants
430. The purpose of the Common Issues Trial is to determine important aspects of the legal relationship between Post Office and Subpostmasters. There are two very different constructions advanced by the parties as to their legal relationships, which give rise to interesting legal questions, some of them in developing areas of the law.
431. The Claimants have made clear that the real target of their case on these Common Issues is the extreme construction advanced by the Defendant in almost every aspect of the relationship with Subpostmasters.
432. The Defendant seeks to support its case by reference to its generic evidence, largely as to what would have happened, both in asserting its positive case and in answer to the direct evidence of the Lead Claimants. Much of that evidence purports to inform the interpretation of the contract. As will be explored at trial, much of it is controversial.
433. Subpostmasters sought and accepted appointments on the basis of positive expectations of the relationship, promoted or encouraged by the Defendant as a “trusted and high quality brand” and entirely consonant with the public understanding of the role of a Subpostmaster.
434. Subpostmasters invested and made long-term commitments on the strength of those shared expectations.
435. The Defendant was solely responsible for drafting its written standard terms of business, although the communication of contractual obligations to Subpostmasters was unsatisfactory and it remains difficult to identify the universe of express obligations to which, under those contracts, Subpostmasters were subject.
436. The experience of the Lead Claimants (including the three Lead Claimants chosen by the Defendant) fell very far short of their pre-contract expectations. However, on the construction of the relationship for which the Defendant contends, none of its actions can be impugned. At least on one view, the Defendant appears to advance a construction based on its conduct, rather than on a proper interpretation of the contracts in issue. How the Defendant conducted itself is not the lodestar for construing its duties.
 SECTION C: CONCLUSION
– 165 –
  A/1/169
  
SECTION C: CONCLUSION Issues 22 and 23: Assistants
437. The Defendant seeks to resist the implication of duties of good faith, fair dealing, transparency, cooperation and/or trust and confidence (and the specific implied terms contended for) by the device of admitting other implied terms but refusing to explain what they mean. That approach is apt to put the clarification of the legal relationship (and its incidents) in this case beyond the reach of this Court – so as to undermine the utility of this Common Issues Trial.
438. As to accounts and shortfalls, the Defendant’s admitted role and responsibilities after the introduction of the Horizon are impossible to reconcile with its case on liability for shortfalls or as to agency and Subpostmasters’ sole responsibility for accounts (which are no longer within their control) – whether as a matter of commercial common sense or at all.
439. By contrast, the Claimants contend for a legal relationship which conforms entirely with commercial common sense and, even if not what the Defendant subjectively had in mind, with the reasonable expectations of notional reasonable persons in the positions of the parties.
440. The Claimants submit that all roads lead to Rome – in the sense that such a legal relationship may be identified through a number of different combinations on the Common Issues.
 26 October 2018
Henderson Chambers 2 Harcourt Buildings Temple
London EC4Y 9DB
– 166 –
PATRICK GREEN QC KATHLEEN DONNELLY HENRY WARWICK OGNJEN MILETIC REANNE MACKENZIE
  A/1/170
  
Annex I: Contractual Construction
1. The general principles of construction are well established and uncontroversial. However, their application to this case is important. Put shortly:-
AnnexI: ContractualConstruction
 382 383
(1) The Court should look for the meaning of the provisions not just the meaning of the words.
In Investors Compensation Scheme Ltd v West Bromwich Building Society (“ICS”),382 Lord Hoffmann made clear that the process of contractual interpretation is such that the meaning of a phrase, clause or provision may not be the same thing as the meaning of its words. The Court should therefore be open to the possibility that the drafted words may not reflect the objectively ascertained intention of the parties and that the parties (or in the present case, the Defendant) may therefore have used the wrong words or syntax. The Court should be alive to the fact that parties do not normally make linguistic mistakes, particularly in formal documents such as a contract, but that it is nevertheless possible for something to have gone wrong with the language. At the same time, the Court should not attribute to the parties intentions that they plainly did not have.
(2) The correct approach is to start (and finish) by looking for and adopting the interpretation that most accords with commercial common sense.
That said, circumstances may arise where a particular term is credibly open to more than one interpretation. The Supreme Court confirmed in Rainy Sky SA v Kookmin,383 at [21] to [30] that the correct approach is to start (and finish) by looking for and adopting the interpretation that most accords with commercial common sense. The exercise of identifying the parties' commercial intention should be carried out from the outset, and is not simply a tool to be deployed once it has first been concluded that the natural
[1998] 1 W.L.R. 896, 912
[2011] 1 W.L.R. 2900, following a review of the relevant case law and noting Lord Mance’s
summary of the position in In re Golden Key Ltd [2009] EWCA Civ 636 (at [12]) – A1 –
  A/1/171
  
meaning of the words produces a result that appears to have been unintended (see [20]). The Court must therefore conclude what interpretation accords with 'business common sense'.
(3) Interpretation is the ascertainment of the objective meaning in the light of the parties’ background knowledge at the time of the contract.
The task of construing a written agreement has been said to be that of ascertaining the “common intention of the parties” to the agreement.384 But this may be misleading since it is clear that the agreement must be interpreted objectively:385 the question is not what one or other of the parties meant or understood by the words used rather what a reasonable person in the position of the parties would have understood the words to mean. In ICS, Lord Hoffmann stated:
“Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.”
2. So, in the light of the above, whilst the words of the agreement must be construed as they stand,386 that is not to say that the meaning of the words in a written document must be ascertained by reference to the words of the document alone – far from it. The Courts will look at all the circumstances surrounding the making of the contract and factual background reasonably available to the parties (usually referred to as the ‘factual matrix’ or ‘available background’) which would assist in determining how the bargain made by the parties and the language used to express it would have been understood by a reasonable person in their position.
3. The range of materials on which the modern Courts now draw is considerably wider as the ambit of the ‘factual matrix’ has increased, permitting the Court to draw upon a
– A2 –
AnnexI: ContractualConstruction
 384 385
e.g. Marquis of Cholmondeley v Clinton (1820) 2 Jac. & W.I. 91
Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] A.C. 749, 767, 775, 782; Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 W.L.R. 896, 912– 913
IRC v Raphael [1935] A.C. 96, 142; British Movietonews v London and District Cinemas [1952]
386
A.C. 166
  A/1/172
  
greater range of materials when seeking to put the words of the contract in their context and interpret them accordingly. In ICS, Lord Hoffmann, referring to the matrix of fact, stated:
“Subject to the requirement that it should have been reasonably available to the parties ... it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man”.387
4. Further, it has long been accepted that the Courts will not approach the task of construction with too much concentration upon individual words to the neglect of the contract as a whole:
“The common and universal principle ought to be applied: namely, that [an agreement] ought to receive that construction which its language will admit, and which will best effectuate the intention of the parties, to be collected from the whole of the agreement, and that greater regard is to be had to the clear intention of the parties than to any particular words which they may have used in the expression of their intent.”388
5. As noted by Lord Clarke in Rainy Sky, this process is sometimes referred to as an “iterative process, involving checking each of the rival meanings against other provisions of the document and investigating its commercial consequences”. It was in Rainy Sky that Lord Clarke held at §21:
    387 388
“The language used by the parties will often have more than one potential meaning. I would accept the submission made on behalf of the appellants that the exercise of construction is essentially one unitary exercise in which the court must consider the language used and ascertain what a reasonable person, that is a person who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract, would have understood the parties to have meant. In doing so, the court must have regard to all the relevant surrounding circumstances. If there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other.” [Emphasis added]
[1988] 1 W.L.R. 896, 912–913
Ford v Beech (1848) 11 Q.B. 852, 866
– A3 –
AnnexI: ContractualConstruction
  A/1/173
  
6. This point was underscored by the Supreme Court again in Wood v Capita Insurance Services Ltd,389 in which Lord Hodge declined “to reformulate the guidance given in the Rainy Sky and Arnold cases”:390
AnnexI: ContractualConstruction
            389 390
“10. The court's task is to ascertain the objective meaning of the language which the parties have chosen to express their agreement. It has long been accepted that this is not a literalist exercise focused solely on a parsing of the wording of the particular clause but that the court must consider the contract as a whole and, depending on the nature, formality and quality of drafting of the contract, give more or less weight to elements of the wider context in reaching its view as to that objective meaning. In Prenn v Simmonds [1971] 1 WLR 1381 , 1383H–1385D and in Reardon Smith Line Ltd v Yngvar Hansen-Tangen (trading as HE Hansen-Tangen) [1976] 1 WLR 989 , 997, Lord Wilberforce affirmed the potential relevance to the task of interpreting the parties' contract of the factual background known to the parties at or before the date of the contract, excluding evidence of the prior negotiations. When in his celebrated judgment in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, 912–913 Lord Hoffmann reformulated the principles of contractual interpretation, some saw his second principle, which allowed consideration of the whole relevant factual background available to the parties at the time of the contract, as signalling a break with the past. But Lord Bingham of Cornhill in an extrajudicial writing, “A New Thing Under the Sun? The Interpretation of Contracts and the ICS decision” (2008) 12 Edin LR 374, persuasively demonstrated that the idea of the court putting itself in the shoes of the contracting parties had a long pedigree.”
11. Lord Clarke of Stone-cum-Ebony JSC elegantly summarised the approach to construction in the Rainy Sky case [2011] 1 WLR 2900, para 21f. In the Arnold case [2015] AC 1619 all of the judgments confirmed the approach in the Rainy Sky case: Lord Neuberger of Abbotsbury PSC, paras 13–14; Lord Hodge JSC, para 76 and Lord Carnwath JSC, para 108. Interpretation is, as Lord Clarke JSC stated in the Rainy Sky case (para 21), a unitary exercise; where there are rival meanings, the court can give weight to the implications of rival constructions by reaching a view as to which construction is more consistent with business common sense. But, in striking a balance between the indications given by the language and the implications of the competing constructions the court must consider the quality of drafting of the clause (the Rainy Sky case, para 26, citing Mance LJ in Gan Insurance Co Ltd v Tai Ping Insurance Co Ltd (No 2) [2001] 2 All ER (Comm) 299, paras 13, 16); and it must also be alive to the possibility that one side may have agreed to something which with hindsight did not serve his interest: the Arnold case, paras 20, 77. Similarly, the court must not lose sight of the possibility that a provision may be a negotiated compromise or that the negotiators were not able to agree more precise terms.
[2017] UKSC 24 §8
– A4 –
  A/1/174
  
12. This unitary exercise involves an iterative process by which each suggested interpretation is checked against the provisions of the contract and its commercial consequences are investigated: the Arnold case, para 77 citing In re Sigma Finance Corpn [2010] 1 All ER 571 , para 12, per Lord Mance JSC. To my mind once one has read the language in dispute and the relevant parts of the contract that provide its context, it does not matter whether the more detailed analysis commences with the factual background and the implications of rival constructions or a close examination of the relevant language in the contract, so long as the court balances the indications given by each.
13. Textualismandcontextualismarenotconflictingparadigmsinabattleforexclusive occupation of the field of contractual interpretation. Rather, the lawyer and the judge, when interpreting any contract, can use them as tools to ascertain the objective meaning of the language which the parties have chosen to express their agreement. The extent to which each tool will assist the court in its task will vary according to the circumstances of the particular agreement or agreements. Some agreements may be successfully interpreted principally by textual analysis, for example because of their sophistication and complexity and because they have been negotiated and prepared with the assistance of skilled professionals. The correct interpretation of other contracts may be achieved by a greater emphasis on the factual matrix, for example because of their informality, brevity or the absence of skilled professional assistance. But negotiators of complex formal contracts may often not achieve a logical and coherent text because of, for example, the conflicting aims of the parties, failures of communication, differing drafting practices, or deadlines which require the parties to compromise in order to reach agreement. There may often therefore be provisions in a detailed professionally drawn contract which lack clarity and the lawyer or judge in interpreting such provisions may be particularly helped by considering the factual matrix and the purpose of similar provisions in contracts of the same type. The iterative process, of which Lord Mance JSC spoke in Sigma Finance Corpn [2010] 1 All ER 571 , para 12, assists the lawyer or judge to ascertain the objective meaning of disputed provisions.
14 On the approach to contractual interpretation, the Rainy Sky and Arnold cases were saying the same thing.” [Emphasis added]
7. It followed that, when it came time to construe the relevant clause in Wood, Lord Hodge held (at §26) that “it is necessary to place the clause in the context of the contract as a whole, to examine the clause in more detail and to consider whether the wider relevant factual matrix gives guidance as to its meaning in order to consider the implications of the rival interpretations” – effectively endorsing the iterative process of discerning commercial common sense, above.
AnnexI: ContractualConstruction
      – A5 –
  A/1/175
  
– A6 –
AnnexI: ContractualConstruction
  A/1/176
  
Introduction
Annex II: Issue 1 – Relational Contract
Annex II: Issue 1 – Relational Contract
 1. The concept of relational contracts and the duties that may be implied into such contracts are developing areas of the law. Those duties include the duty of good faith, to which English law has been said to be opposed; but that is not so. English law has only been opposed to the imposition of a general duty of good faith. Implied duties of good faith are well-established, as is the common law’s tradition of its own development.
Traditional view of implied term of good faith
2. The traditional view of the concept of a duty of good faith between contracting parties was summarised by Bingham LJ (as he then was) in Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1988] 1 All E.R. 348 at 352:
“In many civil law systems, and perhaps in most legal systems outside of the common law world, the law of obligations recognises and enforces an overriding principle that in making and carrying out contracts parties should act in good faith. This does not simply mean that they should not deceive each other, a principle which any legal system must recognise; its effect is perhaps most aptly conveyed by such metaphorical colloquialisms as ‘playing fair’, ‘coming clean’ or ‘putting one’s cards face down on the table’. It is in essence a principle of fair and open dealing... English law has, characteristically, committed itself to no such overriding principle but has developed piecemeal solutions in response to demonstrated problems of unfairness.”
Yam Seng
3. In the case of Yam Seng Pte v International Trade Corp [2013] EWHC 111 (QB); [2013] 1 CLC 662 (“Yam Seng”), Leggatt J (as he then was) held that there was a category of contract which was long-term in nature, pursuant to which the parties made a substantial commitment, and the operation of which required a high degree of communication, cooperation and predictable performance. Such contracts were ‘relational’ contracts, and they tended to give rise to an implied duty of good faith.
  – A7 –
  A/1/177
  
4. Yam Seng itself was a case involving an exclusive distribution agreement between two entities for the marketing of Manchester United branded products in duty free outlets overseas. The relationship was unsuccessful. The defendant was alleged to have misled the claimant about the relevant legal, commercial and logistical position, and to have repeatedly missed deadlines for supplying products to the claimant.
5. The claimant’s pleaded case was that it was an implied term of the agreement that the parties would deal with each other in good faith. It was argued that English law could and should recognise such an implied duty in commercial contracts, and the content of that duty was dependent on context.
6. On the implication of a term of “good faith” in commercial contracts, Leggatt J commented:
“131. Under English law a duty of good faith is implied by law as an incident of certain categories of contract, for example contracts of employment and contracts between partners or others whose relationship is characterised as a fiduciary one. I doubt that English law has reached the stage, however, where it is ready to recognise a requirement of good faith as a duty implied by law, even as a default rule, into all commercial contracts. Nevertheless, there seems to me to be no difficulty, following the established methodology of English law for the implication of terms in fact, in implying such a duty in any ordinary commercial contract based on the presumed intention of the parties.” [Emphasis added]
7. Leggatt J agreed with the claimant’s argument that what good faith requires “is sensitive to context”.391 Against this backdrop, Leggatt J held:
Annex II: Issue 1 – Relational Contract
             391
“143. In some contractual contexts the relevant background expectations may extend further to an expectation that the parties will share information relevant to the performance of the contract such that a deliberate omission to disclose such information may amount to bad faith. English law has traditionally drawn a sharp distinction between certain relationships – such as partnership, trusteeship and other fiduciary relationships – on the one hand, in which the parties owe onerous obligations of disclosure to each other, and other contractual relationships in which no duty of disclosure is supposed to operate. Arguably at least, that dichotomy is too simplistic. While it seems unlikely that any duty to disclose information in performance of the contract would be implied where the contract involves a simple exchange, many contracts do not fit this model and involve a longer term relationship
Yam Seng, §142
– A8 –
  A/1/178
  
between the parties which they make a substantial commitment. Such ‘relational’ contracts, as they are sometimes called, may require a high degree of communication, cooperation and predictable performance based on mutual trust and confidence and involve expectations of loyalty which are not legislated for in the express terms of the contract but are implicit in the parties' understanding and necessary to give business efficacy to the arrangements. Examples of such relational contracts might include some joint venture agreements, franchise agreements and long-term distributorship agreements.
[...]
145. Although its requirements are sensitive to context, the test of good faith is objective in the sense that it depends not on either party's perception of whether particular conduct is improper but on whether in the particular context the conduct would be regarded as commercially unacceptable by reasonable and honest people. The standard is thus similar to that described by Lord Nicholls in a different context in his seminal speech in Royal Brunei Airlines v Tan [1995] 2 AC 378 at pp. 389–390. This follows from the fact that the content of the duty of good faith is established by a process of construction which in English law is based on an objective principle. The court is concerned not with the subjective intentions of the parties but with their presumed intention, which is ascertained by attributing to them the purposes and values which reasonable people in their situation would have had.
146. Understood in the way I have described, there is in my view nothing novel or foreign to English law in recognising an implied duty of good faith in the performance of contracts. It is consonant with the theme identified by Lord Steyn as running through our law of contract that reasonable expectations must be protected: see First Energy (UK) Ltd v Hungarian International Bank Ltd [1993] 2 Ll Rep 194, 196; and (1997) 113 LQR 433. Moreover such a concept is, I believe, already reflected in several lines of authority that are well established. One example is the body of cases already mentioned in which duties of cooperation in the performance of the contract have been implied...” [Emphasis added]
8. Leggatt J found the contract in Yam Seng to be a relational contract – it was a distributorship agreement “which required the parties to communicate effectively and cooperate with each other in its performance”392 and satisfied the requirements outline in the above paragraphs. Accordingly, the agreement contained an enforceable implied obligation on the parties to act in good faith and concluded that the defendant’s breach
Annex II: Issue 1 – Relational Contract
                392
Yam Seng, §144 – such terms will normally govern the performance, rather than termination of the contract, esp. in commercial contracts (although this will depend upon the ambit and scope of the terms implied in the context of the bargain as a whole): Ilkerler Otomotiv Sanayai VE v Perkins Engines Company Ltd [2017] EWCA Civ 183; [2017] 4 WLR 144
– A9 –
  A/1/179
  
of that term was of a repudiatory nature which justified termination and gave rise to an entitlement to damages.
Subsequent cases
9. The topic of relational contracts still represents fairly untilled ground, but it has been the subject of discussion in a handful of cases following Yam Seng.
10. One such case is Bristol Groundschool Ltd v Intelligent Data Capture Ltd [2014] EWHC 2145 (Ch) (“Bristol Groundschool”). In Bristol Groundschool, the parties agreed to collaborate to produce training materials for pilots. The claimant provided the content for the manuals and the defendant converted the content into an electronic application, which the parties jointly published and marketed.
11. The parties fell out. Anticipating the end of the joint venture, the claimant secretly accessed the defendant’s database and downloaded material. After the contract was terminated, the claimant used the downloaded material to continue selling the electronic training manuals.
12. One of the issues before Mr Richard Spearman QC (sitting as a Deputy Judge of the Chancery Division) was whether the secret download was a breach of contract, despite there being no express term of the contract which prohibited this conduct. The Judge held that the contract did constitute a ‘relational’ contract of the kind referred to by Leggatt J in Yam Seng and that it contained an implied duty of good faith. He further held that good faith extends beyond, but at the very least includes, the requirement of honesty, and that the relevant test for breach is that of conduct that would be regarded as “commercially unacceptable” by reasonable and honest people in the particular context involved.393
13. In Carewatch Care Services Ltd v Focus Caring Services Ltd [2014] EWHC 2313 (Ch) (“Carewatch”), it was held that the contract in question, a franchise agreement for the
– A10 –
Annex II: Issue 1 – Relational Contract
  393
Bristol Groundschool, §196
  A/1/180
  
provision of care services, was not a relational contract. In particular, Henderson J found that the contract:
“contains very detailed express terms, dealing with all aspects of the franchised business from its inception to its termination. The agreement is for a commercial relationship, from which both parties hoped to profit, and where both sides had interests of their own to protect. I can find no “clear lacuna” in the detailed provisions of the agreement which has to be filled if the agreement is to work commercially, let alone by terms framed in such wide and imprecise language as those which are pleaded.”394
14. It was also of importance to Henderson J’s analysis that many of the proposed implied terms would be inconsistent with the express provisions of the agreement.395
15. In D&G Cars Ltd v Essex Police Authority [2015] EWHC 226 (QB) (“D&G Cars”), a private contractor had agreed to dispose of cars for a police authority. The police authority gave instructions for one particular vehicle to be completely crushed. It was later discovered that, contrary to those instructions, the contractor had re-built the car, transferred the number plates from a different vehicle, and used it in the contractor’s own fleet.
16. The parties in that case had accepted an implied term to act with honesty and integrity. Dove J, however, deemed it appropriate to nevertheless set out for the avoidance of doubt the legal basis for the implication of such a term into the contract. After referring to Leggatt J’s Judgment in Yam Seng, Dove J held at §175:
Annex II: Issue 1 – Relational Contract
 394 395
“It will be clear from what has been set out above that both the existence and the content of an implied condition in relation to honesty and integrity is highly sensitive to the context of the contract itself. By the use of the term ‘integrity’, rather as Leggatt J uses the term ‘good faith’, the intention is to capture the requirements of fair dealing and transparency which are no doubt required (and would, to the parties, go without saying) in a contract which creates a long-standing relationship between the parties lasting some years and which has the qualities and features to which I shall turn shortly...”
Carewatch, §109 Carewatch, §110
– A11 –
  A/1/181
  
17. In analysing the contract in D&G Cars, Dove J went on to find:
“176. As noted above, there are particular features of this contract which warrant the inclusion of this implied term. Firstly, as already noted, the contract created a relatively lengthy period of contractual relationship between the parties, during which there were going to be a very large number of individual transactions undertaken under the auspices of the contract. It was, in my view, a ‘relational’ contract par excellence...”
18. Having found that the contract was a relational contract, the Judge held that it was an implied term that the contractor would perform the contract in good faith.396 Dove J further found that, even if the contractor had not been deliberately fraudulent, there had been a breach of the implied term which amounted to a repudiatory breach of the contract.
19. In Globe Motors v TRW Lucas Varity Electric Steering [2016] EWCA Civ 393 (“Globe Motors”), the Beatson LJ addressed relational contracts at §67:
Annex II: Issue 1 – Relational Contract
 396
“... in certain categories of long-term contract, the court may be more willing to imply a duty to co-operate or, in the language used by Leggatt J in Yam Seng PTE v International Trade Corp Ltd [2013] EWHC 111 (QB); [2013] 1 CLC 662 at [131], [142] and [145], a duty of good faith. Leggatt J had in mind contracts between those whose relationship is characterised as a fiduciary one and those involving a longer- term relationship between parties who make a substantial commitment. The contracts in question involved a high degree of communication, cooperation and predictable performance based on mutual trust and confidence and expectations of loyalty ‘which are not legislated for in the express terms of the contract but are implicit in the parties’ understanding and necessary to give business efficacy to the arrangements'. He gave as examples franchise agreements and long-term distribution agreements. Even in the case of such agreements, however, the position will depend on the terms of the particular contract. Two examples of long-term contracts which did not qualify are the long-term franchising contracts considered by Henderson J in Carewatch Care Services Ltd v Focus Caring Services Ltd [2014] EWHC 2313 (Ch) and the agreement between distributors of financial products and independent financial advisers considered by Elisabeth Laing J in Acer Investment Management Ltd v Mansion Group Ltd [2014] EWHC 3011 (QB) at [109].”
Or, as it had been described in the proceedings in D&G, a duty of “honesty and integrity”: see, e.g. D&G at §171.
– A12 –
  A/1/182
  
20. Although it was “not the occasion to consider the potential for implied duties of good faith in English law because the question in this case is one of interpretation or construction, not of implication”, Beatson LJ did make two observations at §68:
“The first is to reiterate Lord Neuberger's statement in Marks and Spencer plc v BNP Paribas Security Services Trust Co (Jersey) Ltd... that, whatever the broad similarities between them, the two are ‘different processes governed by different rules'. This is, see the statement of Lord Bingham in Philips Electronique Grand Public SA v British Sky Broadcasting Ltd [1995] EMLR 472 at 481 cited by Lord Neuberger, because ‘the implication of contract terms involves a different and altogether more ambitious undertaking: the interpolation of terms to deal with matters for which, ex hypothesi, the parties themselves have made no provision’. The second is that, as seen from the Carewatch Care Services case, an implication of a duty of good faith will only be possible where the language of the contract, viewed against its context, permits it. It is thus not a reflection of a special rule of interpretation for this category of contract.”
21. Most recently, relational contracts were considered again by Leggatt LJ in Al Nehyan v Kent [2018] EWHC 333 (Comm) (“Al Nehyan”). In Al Nehyan, the parties entered into a joint venture in 2008, pursuant to which the claimant agreed to invest in the defendant’s hotel business. The venture was later expanded in 2010 to include an online travel business. Over the next few years, the businesses experienced significant financial difficulties and the claimant contributed further financial support in the form of loans and share capital.
22. In 2012, the claimant decided to separate his interest from that of the defendant, and a scheme was devised to restructure the travel businesses and return part of the claimant’s capital contribution. Following a series of meetings, the parties entered into two agreements to implement this scheme: a promissory note, which dealt with the repayment of the capital contribution, and a framework agreement dealing with the demerger of the businesses. The claimant issued proceedings for breach of contract, as the defendant had allegedly failed to make the requisite payments under those agreements. However, in the same proceedings, the defendant advanced various counterclaims, including that he and the claimant owed each other fiduciary duties, including a duty to act in good faith, which the claimant is said to have breached.
– A13 –
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  A/1/183
  
23. Leggatt LJ reviewed the relevant case law at §167 to 176, starting with his own decision in Yam Seng. Leggatt LJ reiterated that there was a category of contract in which:
“the parties are committed to collaborating with each other, typically on a long-term basis, in ways which respect the spirit and objectives of their venture but which they have not tried to specify, and which it may be impossible to specify, exhaustively in a written contract. Such 'relational' contracts involve trust and confidence but of a different kind from that involved in fiduciary relationships. The trust is not in the loyal subordination by one party of its own interests to those of another. It is trust that the other party will act with integrity and in a spirit of cooperation. The legitimate expectations which the law should protect in relationships of this kind are embodied in the normative standard of good faith.”397
24. He noted the divergent reactions prompted by his Judgment in Yam Seng, but remarked that “there appears to be growing recognition that such a duty may readily be implied in a relational contract”.398 With regards the specific joint venture before him, Leggatt J found:
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           397
39 8
“173. I have held that Sheikh Tahnoon did not agree to provide funding on an open- ended basis and did not owe any fiduciary duties to Mr Kent. But I think it clear that the nature of their relationship was one in which they naturally and legitimately expected of each other greater candour and cooperation and greater regard for each other's interests than ordinary commercial parties dealing with each other at arm's length. When Sheikh Tahnoon agreed to become an equal owner of the Aquis business with Mr Kent, the two men entered into a joint venture agreement which was intended to be a long-term collaboration, in which their interests were inter-linked and which they saw, commercially albeit not in law, as a partnership. Their collaboration was formed and conducted on the basis of a personal friendship and involved much greater mutual trust than is inherent in an ordinary contractual bargain between shareholders in a company. Although day to day management of the businesses was left to Mr Kent, strategic decisions which would involve further capital investment, such as whether to purchase a hotel or the decision to acquire the majority stake in YouTravel, were (of necessity) taken jointly and could only be reached by consensus between them. The pursuit of the venture therefore required a high degree of cooperation between the two participants. They did not attempt to formalise the basis of their cooperation in
Al Nehyan, §167 Al Nehyan, §168
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any written contract but were content to deal with each other entirely informally on the basis of their mutual trust and confidence that they would each pursue their common project in good faith.
174. In the circumstances the contract made between these parties seems to me to be a classic instance of a relational contract. In my view, the implication of a duty of good faith in the contract is essential to give effect to the parties' reasonable expectations and satisfies the business necessity test which Lord Neuberger in Marks & Spencer Plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2016] AC 742, [2015] UKSC 72 at paras 16 to 31 reiterated as the relevant standard for the implication of a term into a contract. I would also reach the same conclusion by applying the test adumbrated by Lord Wilberforce in Liverpool City Council v Irwin [1976] AC 239 at 254 for the implication of a term in law, on the basis that the nature of the contract as a relational contract implicitly requires (in the absence of a contrary indication) treating it as involving an obligation of good faith.” [Emphasis added]
25. As to what such an obligation involves, Leggatt J held that it was “unnecessary and perhaps impossible to attempt to spell out an exhaustive description”.399 He noted, however, an Australian case in which Allsop CJ:400
“summarised the usual content of the obligation of good faith as an obligation to act honestly and with fidelity to the bargain; an obligation not to act dishonestly and not to act to undermine the bargain entered or the substance of the contractual benefit bargained for; and an obligation to act reasonably and with fair dealing having regard to the interests of the parties (which will, inevitably, at times conflict) and to the provisions, aims and purposes of the contract, objectively ascertained. In my view, this summary is also consistent with the English case law as it has so far developed, with the caveat that the obligation of fair dealing is not a demanding one and does no more than require a party to refrain from conduct which in the relevant context would be regarded as commercially unacceptable by reasonable and honest people...” [Emphasis added]
26. Allsop CJ’s summary drew on a number of Australian authorities which consider good faith and its place in contractual relationships. These are discussed below.
Implied term of good faith in other jurisdictions
Annex II: Issue 1 – Relational Contract
               399
40 0
Al Nehyan, §175 Al Nehyan, §175
– A15 –
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27. In order to provide this court with a broader picture of the concept of contractual good faith and further commentary, certain illustrative examples of the position in commonwealth, civil law and American jurisdictions follow. The latter examples are illustrative of the practical way in which the duty of good faith has been implied into contracts in various jurisdictions.
28. Leggatt J provided critical extra-judicial commentary on the subject in a lecture401 which considered the point from a broad and cross-jurisdictional perspective. His speech was given after the decision in Yam Seng, but before his later judgment in Al Nehyan. It was also, notably, given after the Canadian Supreme Court’s decision in Bhasin v Hrynew [2014] 3 SCR 495 (“Bhasin”) referred to below.
29. Taking as an example the French Civil Code, at Article 1104 (as amended and in force as at 1 October 2016), which provides “Les contrats doivent être negociés, formés et exécutés de bonne foi. Cette disposition est d’order public” Leggatt J noted three points about the law in civilian jurisdictions:-402
29.1. The French doctrine of good faith applies to the negotiation, formation and performance of contracts. The freedom of the parties to contract is therefore limited.
29.2. This limitation is imposed for reasons of public policy.
29.3. Public policy is the overriding policy out of which the parties cannot contract.
30. Leggatt J went on to draw a contrast with the position in the United States.403 Restatements of American law, published by the American Law Institute, aim to give clear formulations of common law, and its statutory elements or variations, as it presently stands.404 The most recent contractual restatement is the US Restatement
Annex II: Issue 1 – Relational Contract
 401
402 403 404
“Contractual duties of good faith” Mr Justice Leggatt, Lecture to the Commercial Bar Association on 18 October 2016
Ibid at §7 Ibid at §8
As the Court may be aware, their primary audience is the bench and they act as an aid to navigation of the common law in the United States jurisdictions
– A16 –
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(Second) of Contracts which was updated with an appendix in 2013, which provides at §205: “Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.” This is said to reflect the position in the Uniform Commercial Code which states at §1-304: “Every contract...imposes an obligation of good faith in its performance or enforcement” and which defines good faith as “honest in fact and reasonable commercial standards of fair dealing”.405
31. As Leggatt J observed extra-judicially, parties contracting under American law are therefore said to be afforded greater freedom than those contracting under French law, since good faith is not a matter of public policy and it is the contract that imposes the duty of good faith, leaving its negotiation and formation outside the scope of that duty. Indeed, this American understanding of the meaning of good faith is said to have had some indirect influence on English law insofar as a judgment given in Berkeley Community Villages Ltd v Pullen [2007] EWHC 1330 (Ch) (per Morgan J) construed a good faith clause in a contract as “imposing on the defendants a contractual obligation to observe reasonable commercial standards of fail dealing”.406 Morgan J cited an Australian case in which the court had itself been referred to the American position.407
32. The above cited Australian case in which Allsop CJ summarised the usual content of the duty of good faith was that of Paciocco v Australia and New Zealand Banking Group Limited [2015] FCAFC 50. In arriving at his helpful summary, Allsop CJ referred to a number of Australian cases including Renard Constructions (ME) Pty v Minister for Public Works (1992) 33 Con LR 72. A body of cases is now said to follow from this New South Wales Court of Appeal decision which found that “anything less” than good faith was “contrary to prevailing community expectations.”408
33. The Canadian Supreme Court has gone further. The case of Bhasin marked a turning point in implication of good faith in Canadian contracts. The judgment was unanimous and involved a comprehensive review of earlier Canadian cases and broader common
Annex II: Issue 1 – Relational Contract
 405 406 407 408
At §1-201(20) and §2-103(1)(b)
At §97
“Contractual duties of good faith” Mr Justice Leggatt (supra) at §19 and §20. At §113
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law literature. Per Cromwell J, the court held that the duty of honest performance was a “general doctrine of contract law” rather than as an implied term, thereby operating “irrespective of the intentions of the parties” at § 74.
34. The editors of Chitty on Contracts (32nd Ed.) comment that the duty is therefore “mandatory and... not affected by an express entire agreement clause in the contract, though there may be circumstances in which it could be influenced by the agreement of the contracting parties”.409 That said, Cromwell J suggested that contracting parties may through clear language “relax the requirements of the doctrine so long as they respect its minimum core.”410
35. By contrast, there is no established doctrine of contractual good faith in New Zealand, but the theory has proponents. Thomas J, dissenting in the Court of Appeal in Bobux Marketing Ltd v Raynor Marketing Ltd [2002] NZLR 506 at §48, referred to the “void in the law owing to the absence of a developed doctrine of good faith” and commented that “commerce would undoubtedly be better served by a law which recognised the underlying imperative arising from the mutual trust and confidence which the parties repose in one another in a relational or long-term contract.”
36. The position in other jurisdictions can do no more than provide useful comparison for the now developing position in English Law. In his extra-judicial speech, Leggatt J identified the “suspicion which some English commercial lawyers continue to feel towards the concept of good faith”. He went on to suggest that this “may derive from thinking of good faith in civil law terms, as a doctrine capable of overriding the parties’ bargain. I have sought...to describe a different conception of good faith, which is a development of the common law, and to explain how it is rooted in the parties’ agreement and seeks to uphold the justified expectations arising from that agreement.”
37. That concept would be recognisable to English lawyers in the American restatement, which does not venerate good faith to the exclusion of contractual freedom unlike the position which exists and/or is developing in French and Australian law.
Annex II: Issue 1 – Relational Contract
 409
410
Chapter 1 ‘Introductory’ Section 3 ‘Fundamental Principles of Contract Law’ reviewing §75-78 of Bhasin
At §77
footnote 321
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Summary of relevant principles
38. This is clearly a developing area of the law, in which the present case falls squarely within the established case law and the principles established thereby.
39. Those principles can be distilled from the case law in this jurisdiction which it is respectfully submitted, this Court should follow.
Overall approach
40. As set out under Issue 1: Relational Contract, in ascertaining whether Subpostmaster contracts are ‘relational contracts’ subject to implied duties of good faith and fair dealing,411 the Court should follow the established methodology of English law for the implication of terms in fact, based on the presumed intention of the parties.412
41. The relevant background to be taken into consideration includes not only matters of fact known to the parties, but also the norms of behaviour specific to the particular commercial activity in question and arising from the features of the contract.413
42. A ‘relational contract’ in which such a duty may be implied is a longer term relationship involving substantial commitment, in which:414
Annex II: Issue 1 – Relational Contract
   411
412 413 414 415
42.1. there is a high degree of commitment, cooperation and predictable performance;
42.2. based upon mutual trust and confidence and expectations of loyalty;
42.3. which are not legislated for in the contract; 415
42.4. but are implicit in the parties’ understanding and necessary to give business efficacy to the arrangements.416
Being duties of good faith, fair dealing, transparency, cooperation, and trust and confidence, extending to a requirement to share information relevant to performance of the contract: Yam Seng Pte v International Trade Corp [2013] EWHC 111
Yam Seng, §131
Yam Seng at §134
Yam Seng at §142
See also Carewatch, §109 – in which there was no ‘clear lacuna’
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Relevant considerations
43.
The following factors are relevant in determining whether a contract is a for these purposes a ‘relational contract’:-
43.1. Whether the contracts involve a longer-term relationship.417
43.2. Whether the parties make a substantial commitment to the relationship.418
43.3. Whether the relationship involves a very large number of individual transactions being undertaken under the auspices of the contract.419
43.4. Whether the operation of the contract requires a high degree of communication, cooperation and predictable performance (based on mutual trust and confidence, as above).420
43.5. Whether it is clear from the nature of the relationship that the parties naturally and legitimately expected of each other greater candour and cooperation and greater regard for each other's interests than ordinary commercial parties dealing at arm's length.421
43.6. Whether the intention for the relationship is to be collaborative, in which the parties’ interests are interlinked and which they saw commercially, albeit not in law, as a partnership.422
The duties arising
Annex II: Issue 1 – Relational Contract
  44.
416 417 418 419 420 421 422
The requirements of any such implied obligation of good faith are sensitive to context. But the test is an objective one: whether in the particular context the conduct would be regarded as commercially unacceptable by reasonable and honest people.423
It may arguably also satisfy the test to be implied in law, as well as in fact.
Yam Seng, §143
Yam Seng, §143
D&G at §176, in which such a contract was viewed as a relational contract “par excellence” Yam Seng, §143
Al Nehyan, §173 Al Nehyan, §173
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45. The usual content of the obligation is: 424
45.1. to act honestly and with fidelity to the bargain;
45.2. not to act dishonestly and not to act to undermine the bargain entered or the substance of the contractual benefit bargained for; and
45.3. to act reasonably and with fair dealing, having regard to the interests of the parties (which will, inevitably, at times conflict) and to the provisions, aims and purposes of the contract, objectively ascertained.
46. The natural import of the requirements of fair dealing, transparency, cooperation and trust and confidence is clear and there is no reason in the present case to stretch or confine them otherwise.
47. Those requirements have a vital bearing upon the central issue as to the Defendant’s dealings with Subpostmasters in relation to alleged shortfalls and may well, in themselves, overlap with or address the issues to which many of the distinct implied terms are directed.
48. In short, a finding that duties of good faith, fair dealing, transparency, cooperation and trust and confidence were implied may well resolve much of what in issue at this trial.
– A21 –
Annex II: Issue 1 – Relational Contract
 423 424
Yam Seng, §145 Al Nehyan, §175
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Overview
3.
425
Annex III: Issues 2 and 3 – Implied Terms
Annex III: Issues 2 and 3 – Implied Terms
 1. The issue of implied terms is one of central importance in the Common Issues Trial and, accordingly, the relevant legal principles have already been set out above in the Written Opening, in Section B under the heading Relevant principles (p.59). Of course, the Court will be very familiar with these principles, however, as considerations of commercial or practical coherence are of particular importance in the present context, this Annex addresses briefly:
1.1. the decision of the Supreme Court in Marks & Spencer Plc v BNP Paribas Securities Services [2016] A.C. 742 (“Marks & Spencer”), (the importance of which has been dealt with in the Written Opening);
1.2. subsequent consideration of Marks & Spencer at appellate level, in the recent decision of the Court of Appeal in Ukraine v The Law Debenture Trust Corporation Plc [2018] EWCA Civ 2026 (“LDTC”); and
1.3. implied restrictions on the exercise of contractual discretion (including as to powers of suspension).
Marks & Spencer v BNP Paribas
 2.
Overall approach: In Att-Gen of Belize v Belize Telecom Ltd [2009] 1 WLR 1988, a broader approach to the implication of terms was adopted by the Privy Council. Lord Hoffmann held that:
“... in every case in which it is said that some provision ought to be implied in an instrument, the question for the court is whether such provision would spell out in express words what the instrument read against the relevant background, would reasonably be understood to mean”.425
With reference to the approach taken in prior cases, Lord Hoffmann observed that this:
“... is best regarded not as a series of independent tests which must each be surmounted, but rather as a collection of different ways in which judges have tried to express the central idea
Att-Gen of Belize v Belize Telecom Ltd [2009] 1 WLR 1988, at §21. – A23 –
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that the proposed implied term must spell out what the contract actually meant, or in which they have explained why they did not think that it did so.” 426
4. No dilution of previous requirements: By its judgment in Marks & Spencer, quoted above in the Written Opening, the Supreme Court clarified that Lord Hoffmann’s judgment in Att-Gen of Belize should not be taken to have diluted the requirements to be satisfied before a term will be implied into a contract.427
5. Relevant starting point: In Marks & Spencer the Supreme Court:428
5.1. clarified that as a starting point “it is only after the process of construing the express
words is complete that the issue of an implied term falls to be considered”;
5.2. observed that although there may be cases in which it could be appropriate to reconsider the interpretation of the express terms of a contract once it has decided whether to imply a term, this would not alter the fact that the express terms of a contract must be interpreted before one can consider any question of implication; and
5.3. reaffirmed that the interpolation of terms which the parties ex hypothesi have made no provision themselves is an extraordinary power upon which the law places some strict constraints. 429
6. Conditions to be satisfied for implication: As noted above, the Supreme Court accepted that for a term to be implied, the following relevant conditions (which may overlap, and in the case of (2) and (3) are alternatives):
Annex III: Issues 2 and 3 – Implied Terms
 426 427 428 429
(1) it must be reasonable and equitable (though as further clarified by the Supreme Court, this rarely, if ever, adds anything over and above the other requirements);
Supra, at §28
Marks & Spencer, cited above, §24, §66 and §77
§28, per Lord Neuberger
Citing with approval Phillips Electronique Grand Public SA v British Sky Broadcasting Ltd [1995] EMLR 472, per Bingham MR at 481
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(2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it (though, as again clarified by the Supreme Court, this requirement need not be satisfied in addition to obviousness (3));
(3) it must be so obvious that it goes without saying (see (2) above); (4) it must be capable of clear expression; and
(5) it must not contradict any express term of the contract.
7. ‘Necessity’ involves a value judgment on commercial and practical coherence: The foregoing approach was subject to the six observations made by Lord Neuberger in the Judgment, at §21, as set out in the Written Opening. Of particular importance is Lord Neuberger’s formulation of the business efficacy test:
“Sixthly, necessity for business efficacy involves a value judgment. It is rightly common ground on this appeal that the test is not one of absolute necessity, not least because the necessity is judged by reference to business efficacy. It may well be that a more helpful way of putting Lord Simon's second requirement is, as suggested by Lord Sumption JSC in argument, that a term can only be implied if, without the term, the contract would lack commercial or practicalcoherence." [Emphasisadded]
8. The Supreme Court accepted that support for the general principle that a term will only be implied if it satisfies the test of business necessity is found in a number of observations made in judgments of the House of Lords.430
Subsequent consideration at appellate level
9. The approach taken by the Supreme Court in Marks & Spencer, was recently considered and applied by Gloster LJ in LDTC. LDTC is of particular relevance in light of the findings made by the Court of Appeal with respect to the implication of general terms requiring cooperation and prohibiting a party preventing performance by another (i.e. the substance of the implied terms averred by the Defendant: the ‘Necessary Cooperation’ and ‘Stirling v Maitland’ terms).
Annex III: Issues 2 and 3 – Implied Terms
         430
Marks & Spencer, §17
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10. Implied terms of cooperation or prevention from performance depend on context of contract and necessity: In the judgment of Gloster LJ, the Court of Appeal has accepted that although in various different contexts courts are willing to imply into a contract a term prohibiting one party from preventing the performance of another, there is in fact no general rule that either such a term will be implied. Rather:431
Annex III: Issues 2 and 3 – Implied Terms
 431
432
433
10.1. the implication of such a term, and, perhaps more importantly, its scope, will depend on the contract under consideration, and in particular its express terms;
10.2. where there is some agreed precondition for performance that a party to a contract needs the other party's assistance to satisfy, an implied duty not to prevent performance of the condition by failing to provide assistance might follow; and432
10.3. any implied term of cooperation or prevention from performance can only be given shape in the light of the express terms which set out the obligations of the parties and only has content by virtue of the express terms – specifically the court cannot, by implication of such a duty, exact a higher degree of cooperation than could be defined by reference to the necessities of the contract, so “...the duty of cooperation or prevention/inhibition of performance is required to be determined, not by what might appear reasonable, but by the obligations imposed upon each party by the agreement itself”.433
LDTC, per Gloster LJ at §207, applying CEL Group Ltd v Nedloyd Lines UK Ltd [2003] EWCA Civ 1716; [2004] 1 Lloyds Rep 381, per Hale LJ at §15 and per Waller LJ at §28
Citing, by way of example, Swallowfalls Ltd v Monaco Yachting and Technologies SAM [2014] EWCA Civ 186; [2014] 2 Lloyd's Rep 50, per Longmore LJ at §30 - §35
Citing with approval the judgment of Cook J in James E McCabe Ltd v Scottish Courage Ltd [2006] EWHC 538 (Comm), at §18 which went on to make clear “...the law can only enforce a duty of cooperation to the extent that it is necessary to make the contract workable. The court cannot, by implication of such a duty, exact a higher degree of cooperation than that which could be defined by reference to the necessities of the contract. The duty of cooperation or prevention/inhibition of performance is required to be determined, not by what might appear reasonable, but by the obligations imposed upon each party by the agreement itself”
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Implied restriction on contractual discretion
Annex III: Issues 2 and 3 – Implied Terms
 11. The general approach: As it relates to discretions conferred by contract, by its judgment in British Telecommunications Plc v Telefonica O2 UK Ltd [2014] UKSC 42 the Supreme Court has recently reaffirmed that:
“...the scope of a contractual discretion will depend on the nature of the discretion and the construction of the language conferring it. But it is well established that in the absence of very clear language to the contrary, a contractual discretion must be exercised in good faith and not arbitrarily or capriciously: Abu Dhabi National Tanker Co v Product Star Shipping Ltd (No 2) [1993] 1 Lloyd's Rep 397, 404, per Leggatt LJ; Gan Insurance Co Ltd v Tai Ping Insurance Co Ltd (No 2) [2001] 2 All ER (Comm) 299, para 67, per Mance LJ and Paragon Finance plc v Nash [2002] 1 WLR 685 , paras 39–41, per Dyson LJ. This will normally mean that it must be exercised consistently with its contractual purpose: Ludgate Insurance Co Ltd v Citibank NA [1998] Lloyd's Rep IR 221 , para 35, per Brooke LJ and Equitable Life Assurance Society v Hyman [2002] 1 AC 408 , 459, per Lord Steyn, and p 461, per Lord Cooke of Thorndon.”434 [Emphasisadded]
12. The cases in which a term of this nature has been implied commonly concern contractual discretions on the part of one party to make an assessment or choose from a range of options, taking into account the interests of both parties.435
13. In Socimer International Bank Ltd v Standard Bank London Ltd [2008] EWCA Civ 116, the Court of Appeal (per Rix LJ, at §66) on a review of the relevant authorities, held:
          434 435
“It is plain from these authorities that a decision-maker's discretion will be limited, as a matter of necessary implication, by concepts of honesty, good faith, and genuineness, and the need for the absence of arbitrariness, capriciousness, perversity and irrationality. The concern is that the discretion should not be abused. Reasonableness and unreasonableness are also concepts deployed in this context, but only in a sense analogous to Wednesbury unreasonableness, not in the sense in which that expression is used when speaking of the duty to take reasonable care, or when otherwise deploying entirely objective criteria: as for instance when there might be an
§37, per Lord Sumption
See, e.g., Mid Essex Hospital Services NHS Trust v Compass Group UK and Ireland Ltd [2013] EWCA Civ 200, at §83. The Claimants will rely upon a recent example of the implication of a term, upheld by the court of Appeal, in Paragon Finance Plc v Nash [2001] EWCA Civ 1466, in which an implied term was pleaded to the effect that a mortgagee was bound to exercise discretion under a variable interest clause so as to varying interest rates fairly, honestly, in good faith, and not arbitrarily, capriciously or unreasonably, having regard to all relevant matters and ignoring the irrelevant. See, in particular, the Judgment of Dyson LJ at §§31 to 32, and 41 to 42
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implication of a term requiring the fixing of a reasonable price, or a reasonable time. In the latter class of case, the concept of reasonableness is intended to be entirely mutual and thus guided by objective criteria. Gloster J was therefore, in my judgment, right to put to Mr Millett in the passage cited at para 57 above the question whether a distinction should be made between the duty to take reasonable care and the duty not to be unreasonable in a Wednesbury sense; and Mr Millett was in my judgment wrong to submit that it made no difference which test was deployed. Laws LJ in the course of argument put the matter accurately, if I may respectfully agree, when he said that pursuant to the Wednesbury rationality test, the decision remains that of the decision- maker, whereas on entirely objective criteria of reasonableness the decision- maker becomes the court itself. A similar distinction was highlighted by Potter LJ in Horkulak [2005] ICR 402, para 51. For the sake of convenience and clarity I will therefore use the expression “rationality” instead of Wednesbury-type reasonableness, and confine “reasonableness” to the situation where the arbiter on entirely objective criteria is the court itself.” [Emphasis added]
14. The ‘Braganza duty’: The foregoing authorities were considered in Braganza v BP Shipping Ltd [2015] UKSC 17 (“Braganza”). The facts of this case, which are instructive, are as follows:
14.1. Mr Braganza, a Chief Engineer on one of BP’s oil tankers, then in the mid- North Atlantic, disappeared. It is unclear what happened to him, but his employer formed the view that the most likely explanation was that he had committed suicide by throwing himself overboard.
14.2. Under his contract of employment, a finding of suicide would mean that his widow was not entitled to certain death benefits. The relevant clause in issue stated:
“For the avoidance of doubt compensation for death, accidental injury or illness shall not be payable if, in the opinion of the Company or its insurers, the death, accidental injury or illness resulted from amongst other things, the Officer’s wilful act, default or misconduct whether at sea or ashore ...” [Emphasis added]
14.3. Mr Braganza’s widow brought a claim against BP, inter alia, for death benefits amounting to over US $230,000.
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15. The Court, therefore, had to decide whether BP was entitled to form the opinion that it had. The general issue was what it meant to say that the decision of a contractual fact- finder had to be a reasonable one. By a majority of 3 to 2 in the Supreme Court, it was determined that BP should have sought more cogent evidence of suicide before making such a finding.
16. Lady Hale held at §18:
“Contractual terms in which one party to the contract is given the power to exercise a discretion, or to form an opinion as to relevant facts, are extremely common. It is not for the courts to rewrite the parties' bargain for them, still less to substitute themselves for the contractually agreed decision-maker. Nevertheless, the party who is charged with making decisions which affect the rights of both parties to the contract has a clear conflict of interest. That conflict is heightened where there is a significant imbalance of power between the contracting parties as there often will be in an employment contract. The courts have therefore sought to ensure that such contractual powers are not abused. They have done so by implying a term as to the manner in which such powers may be exercised, a term which may vary according to the terms of the contract and the context in which the decision-making power is given.” [Emphasis added]
17. Lady Hale referred to the test applied to the review of a decision of an administrative body in Associated Provincial Pictures Houses Ltd v Wednesbury Corp [1948] 1 K.B. 223 (“Wednesbury”)436, which she pointed out at §24 had two limbs:
“The first limb focusses on the decision-making process—whether the right matters have been taken into account in reaching the decision. The second focusses upon its outcome—whether even though the right things have been taken into account, the result is so outrageous that no reasonable decision-maker could have reached it.”
18. The danger of only referencing ‘irrationality’ is that it focuses only on the second limb, whereas Lady Hale’s view (with which she understood Lord Neuberger – dissenting – to agree) was that both limbs should apply in relation to the term to be implied into the
Annex III: Issues 2 and 3 – Implied Terms
        436
i.e.: “The court is entitled to investigate the action of the local authority with a view to seeing whether they have taken into account matters which they ought not to take into account, or conversely, have refused to take into account or neglected to take into account matters which they ought to take into account. Once that question is answered in favour of the local authority, it may still be possible to say that, although the local authority have kept within the four corners of the matters which they ought to consider, they have nevertheless come to a conclusion so unreasonable that no reasonable authority could ever have come to it.”
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contract.437 It follows that in assessing whether a discretion has been exercised rationally, in some cases an assessment will involve reviewing the decision-making process itself – i.e. did the decision maker properly take into account relevant factors and exclude irrelevant factors.
19. The precise term to be implied will depend on the terms and context of the particular contract involved.438 Due to the particular context of an employment contract,439 and the “inherent probability” of suicide, it was held that cogent evidence was required in order to satisfy the requirements of the contractual term.440 Lady Hale held that it followed that, while no one would suggest that the decision reached by BP was “arbitrary, capricious or perverse”, it was unreasonable in the Wednesbury sense, having been formed without taking relevant matters into account.441
20. Whether or not a ‘Braganza duty’ arises in contexts other than employment remains an open issue. 442
Implied terms in relation to powers of suspension
21. In the context of employment relationships, there is a significant body of case law establishing the following propositions in relation to an employer’s right to suspend their employee:-
– A30 –
Annex III: Issues 2 and 3 – Implied Terms
  437 438 439
440 441 442
21.1. An employer’s right to suspend an employee must not be exercised on unreasonable grounds – McClory v Post Office [1993] 1 All ER 457 (per
Braganza, §30 Braganza, §31
Braganza, §32 – with Lady Hale noting that such contracts include an implied obligation of trust and confidence
Braganza, §35 Braganza, §42
See, e.g. Lehman Brothers International (Europe) (in administration) v
Services BV [2016] EWHC 2699, in which Blair J held that the ‘Braganza duty’ did not apply in the context of a case in which commercial parties had contracted with each other on the wholesale financial markets and one party had a contractual discretion involving the valuation of securities in case of default. However, a ‘Braganza duty’ was held to be applicable in a commercial context in two recent decisions of Waksman J: Watson v Watchfinder.co.uk Ltd [2017] EWHC 1275 (Comm) (see §102) and BHL v Leumi ABL Limited [2017] EWHC 1871 (QB) (§§34 to 36 and 89)
Exxonmobil Financial
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David Neuberger QC, as he then was) and Watson v Durham University [2008] EWHC Civ 1266 (per Lawrence Collins LJ).
21.2. Suspension without reasonable grounds may amount either to a breach of contract – Watson v Durham University443 – or a breach of an implied term of trust and confidence – Gogay v Hertfordshire County Council [2000] IRLR 703 (“Gogay”).444
22. Suspension not a ‘neutral act’: Gogay has been endorsed in several subsequent cases, including the recent decision of Agoreyo v Lambeth LBC [2017] EWHC 2019 (QB), in which Foskett J held that the view of the Courts is that suspension is not a “neutral act”.445 Further, he held:
22.1. “It is well-established that suspension is not be considered a routine response to the need for an investigation”;446 and
22.2. “the need to avoid a "knee jerk" reaction, with suspension as the default position without consideration of the alternatives, was emphasised” in Gogay.447
23. Each case requires consideration of the particular relationship, context and contractual terms.
Annex III: Issues 2 and 3 – Implied Terms
 443 444 445 446 447
Watson v Durham University, §21
See also Watson v Durham University at §22. Agoreyo, §24
Agoreyo, §27
Agoreyo, §29
– A31 –
  A/1/201
  
– A32 –
Annex III: Issues 2 and 3 – Implied Terms
  A/1/202
  
Annex IV: Issue 4 – Supply of Goods and Services Act Statutory implication of a term
1. As the Court will be aware, Section 13 of the Supply of Goods and Services Act 1982 (the “1982 Act”) provides as follows:
“In a relevant contract for the supply of a service where the supplier is acting in the course of a business, there is an implied term that the supplier will carry out the service with reasonable care and skill.”
2. Thus, the first requirement for statutory implication of the term referred to in Section 13 is that the contract is a ‘relevant contract for the supply of a service’. Such contracts are defined in Section 12(1) of the 1982 Act in the following terms:
“In this Act a “relevant contract for the supply of a service” means, subject to subsection (2) below, a contract under which a person (“the supplier”) agrees to carry out a service, other than a contract to which Chapter 4 of Part 1 of the Consumer Rights Act 2015 applies.” [Emphasis added]
3. Section 12(2) of the 1982 Act provides that contracts of service or apprenticeship are not contracts within the definition and the excepted contracts to which Chapter 4 of Part 1 of the Consumer Rights Act 2015 applies are contracts for a trader to provide services to a consumer.448
4. These exceptions do not apply with respect to the relevant Subpostmaster contracts. No further clarification is expressly provided in the 1982 Act as to what is meant by a ‘contract for the supply of a service’ and for the reasons given below, the Subpostmaster contracts forming the subject of this trial are contracts to which Sections 12(1) and 13 of the 1982 Act apply.
5. The second requirement for statutory implication of the term in Section 13 of the 1982 Act is that “the supplier is acting in the course of its business”. For these purposes, ‘business’ is defined in Section 18(1) of the 1982 Act as including “a profession and the activities of any government department or local or public authority”. It is common ground and entirely
448
Sections 1(1) and 1(3)(c), Consumer Rights Act 2015 – A33 –
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     A/1/203
  
uncontroversial that for all purposes in this litigation the Defendant acts in the course of its business.
6. It is clear that the Courts are not prepared to interpret the scope of Section 12(1) to include a wider category of rights and obligations arising under a contract for the provision of a service. Mrs Justice Gloster (as she then was), for example, considered the meaning of Section 12(1) of the 1982 Act in Euroption Strategic Fund Ltd v Skandinaviska Enskilda Banken AB [2012] EWHC 584 Comm (“Euroption”) and concluded (with respect to what were said to be services provided by a bank, SEB, relating to the liquidation of a portfolio of assets) at §111 of her judgment:
“In my judgment, SEB's rights under the Mandate to impose limits on Euroption's activities under clause 6, to close out Euroption's positions under clause 11, or to refuse instructions under clause 12 (c) cannot be characterised as “services” within the definition contained in section 12 (1) of the Act (meaning the Supply of Goods and Services Act 1982). The definition in section 12(1) of “contract for the supply of a service” is (subject to exclusions) “a contract under which a person (‘the supplier’) agrees to carry out a service”. Thus the “implied term about care and skill” imposed by section 13 of the Act only applies to services agreed to be provided under a contract for services and not to all rights and obligations under such a contract.” [Emphasis added]
7. The meaning of that section accepted by Gloster J was further applied in Marex Financial v Creative Finance [2013] EWHC 2155 (Comm) (“Marex”) (with respect to a claim between a foreign exchange broker and a client concerning the close out of cross- currency positions, said to have been undertaken in an irrational or negligent manner and whether a term was implied under Section 13 1982 Act fell to be considered),449 in which Field J distinguished, at §69 to §71, between the provision of a service to which Section 13 of the 1982 Act applies and exercise of a right by one party to a contract to act in its own interests.
449
On the facts, the claim followed the steep drop in the US Dollar and Japanese Yen exchange rate after the Japanese earthquake in March 2011, when accumulated cross-currency positions were closed, obliging the client to buy NZD 450 million and EUR 360 million in exchange for Japanese Yen. This was achieved by new back-to-back trades at the best price available. One of the issues was whether, pursuant to the contract between them, the exchange broker owed a duty of care beyond the duty to act rationally, inter alia by way of an implied term under section 13 of the 1982 Act
– A34 –
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8. Further, in Finch v Lloyds TSB Bank [2016] EWHC 1236 (QB), the Court accepted (in a claim against for inter alia breach of contract by reason of a bank’s alleged failure to advise a company as to the effect of a potentially onerous term), Section 13 did not apply in respect of an alleged failure to advise (as opposed to where the advice was said to be wrong) on the grounds that “If reliance is to be placed on s.13 in the context of this case, it follows that it is necessary for the claimants to plead and prove a contract under which the Defendant has agreed to provide a service that included the provision of advice” but the Claimants had not done so.
9. It follows from the above that the Courts have explored the limits of what can properly be characterised as a relevant contract for services under Section 12(1) 1982 Act and accepted that:
9.1. The implied term as to reasonable care and skill imposed by Section 13 of the 1982 Act only applies to services agreed to be provided under a contract, and not to all rights and obligations under such a contract.
9.2. A term as to reasonable skill and care is not implied under Section 13 in respect of the simple election by one party to exercise a right under the contract in its own interests and for its own protection.
9.3. The service must have been supplied by one party in the course of its business.
10. Nevertheless, the contract may properly be characterised as a relevant contract for the supply of services, such that the term in Section 13 is to be implied in respect of the provision of those services, where: -
10.1. The services in question are not in fact the primary subject matter of the contract – provided the contract is one pursuant to which a supplier agrees to carry out a service: Section 12(1) 1982 Act. Indeed, any contrary interpretation would cut across the scheme of the 1982 Act, which applies to contracts for the supply of services (a) whether or not they are also for the transfer, bailment or bailment for hire of goods (i.e. they have other subject
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  A/1/205
  
matter, which may be the primary subject matter), and (b) whatever the nature of the consideration for which the service is to be carried out: Section 12(3) 1982 Act.
10.2. There is no statutory requirement that the service is to be provided pursuant to an express, as opposed to an implied, term of the contract in question. Indeed, in the latter case, a term requiring provision of a service may only be implied in the event it is found to be necessary to give business efficacy to the contract and/or is so obvious as to go without saying.450
11. For the reasons set out in Section B, under ‘Issue 4: Supply of Goods and Services Act’, the Subpostmaster contracts forming the subject of this trial were relevant contracts for the supply of services within the meaning in Section 12(1) of the 1982 Act, such that the term in Section 13 is to be implied in respect of the provision of those services by the Defendant. Submissions as to the services provided and to which the statutory implied term applies are set out in Section B.
Annex IV: Issue 4 – Supply of Goods and Services Act
 450
As to which, see Annex III: Implied Terms
– A36 –
  A/1/206
  
Annex V: Issues 5 and 6 – Onerous and Unusual Terms Onerous and unusual
1. Although the party receiving a contractual document knows it contains conditions, if the particular condition relied on is one which is regarded as sufficiently onerous or unusual, or is one which involves the abrogation of a right given by statute, the party tendering the document must show that it has been brought fairly and reasonably to the other party’s attention. As famously stated by Denning LJ (as he then was) in J Spurling v Bradshaw [1956] 1 WLR 461:
“Some clauses which I have seen would need to be printed in red ink on the face of the document with a red hand pointing to it before the notice could be held to be sufficient.”451
2. J Spurling v Bradshaw concerned an exemption clause in a warehousing contract. This was followed by Thornton v Shoe Lane Parking [1971] 2 QB 163, a case in which a customer received from an automatic machine a ticket which stated that it was issued subject to conditions. Both Lord Denning MR and Megaw LJ held as one of the grounds of their decision in that case that where a condition is particularly onerous or unusual the party seeking to enforce it must show that that condition, or an unusual condition of that particular nature, was fairly brought to the notice of the other party. Lord Denning MR re-stated and applied what he had said earlier in J Spurling v Bradshaw, and held that the Court should not hold any man bound by such a condition unless it was drawn to his attention in the most explicit way.452 Megaw LJ deals with the point at p.172, where he said:
Annex V: Issues 5 and 6 – Onerous and Unusual Terms
     451 452
“I agree with Lord Denning M.R. that the question here is of the particular condition on which the defendants seek to rely, and not of the conditions in general. When the conditions sought to be attached all constitute, in Lord Dunedin's words [in Hood v. Anchor Line (Henderson Brothers) Ltd.] [1918] A.C. 846, 847, 'the sort of restriction ... that is usual,' it may not be necessary for a defendant to prove more than that the intention to attach some conditions has been fairly brought to the notice of the other party. But at least where the particular condition relied on involves a sort of restriction that is not shown to be usual in that class of contract, a defendant must show that his intention to attach an unusual condition of that particular nature
At p.466
See p.169H to 170D
– A37 –
  A/1/207
  
was fairly brought to the notice of the other party. How much is required as being, in the words of Mellish L.J. [in Parker v. South Eastern Railway Co.], 2 C.P.D. 416 , 424, 'reasonably sufficient to give the plaintiff notice of the condition,' depends upon the nature of the restrictive condition.” [Emphasisadded]
Interfoto
3. Interfoto Picture Library v Stiletto [1989] 1 QB 433 (“Interfoto”) is a decision of a two-
man Court of Appeal, which consisted of Dillon LJ and Bingham LJ (as he then was).
4. In Interfoto, the claimants ran a photographic transparency lending library. Following a telephone inquiry by the defendants, the claimants delivered to them 47 transparencies together with a delivery note containing nine printed conditions. Condition 2 stipulated that all the transparencies had to be returned within 14 days of delivery, otherwise a holding fee of £5 per day plus VAT would be charged for each transparency retained thereafter. The defendants, who had not used the claimants’ services before, did not read the conditions and returned the transparencies four weeks later, whereupon the claimants invoiced the defendants for £3,783.50. The defendants refused to pay and the claimants brought an action to recover that sum.
5. The claimants succeeded at first instance, but the Court of Appeal allowed the appeal and held that condition 2 was particularly onerous and usual, with the corollary effect that the claimants was required to have brought it fairly and reasonably to the attention of the defendants. It was held that they had taken no steps to draw the defendants’ attention to the condition and, accordingly, the claimants could not claim pursuant to that condition. Dillon LJ and Bingham LJ gave different reasons, however, for reaching the same conclusion.
6. As for Dillon LJ:
6.1. He held that the question is whether condition 2 was sufficiently brought to the defendants’ attention to make it a term of the contract. This was in circumstances when the contract was only concluded after the defendants
Annex V: Issues 5 and 6 – Onerous and Unusual Terms
      – A38 –
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had received, and must have known that they received, the transparencies and the delivery note.453
6.2. Dillon LJ referenced the cases of J Spurling v Bradshaw and Thornton v Shoe Lane Parking. He noted the claimants’ argument that Thornton was a case of an exemption clause, and should be read as limited to exception clauses.454 This argument was rejected, with Dillon LJ stating:
“... what their Lordships said was said by way of interpretation and application of the general statement of the law by Mellish LJ in Parker v South Eastern Railway Co... and the logic of it is applicable to any particularly onerous clause in a printed set of conditions of the one contracting party which would not be generally known to the other party...
It is, in my judgment, a logical development of the common law into modern conditions that it should be held, as it was in Thornton v Shoe Lane Parking... that, if one condition in a set of printed conditions is particularly onerous or unusual, the party seeking to enforce it must show that that particular condition was fairly brought to the attention of the other party.”455
7. Bingham LJ took a slightly different approach:
7.1. He framed case law on notice in the following terms:
“The well known cases on sufficiency of notice are in my view properly to be read in this context. At one level they are concerned with a question of pure contractual analysis, whether one party has done enough to give the other notice of the incorporation of a term in the contract. At another level they are concerned with a somewhat different question, whether it would in all the circumstances be fair (or reasonable) to hold a party bound by any conditions or by a particular condition of an unusual and stringent nature.” [Emphasis added]
p.436G
And, in particular, exemption clauses which would deprive the party on whom they are imposed of statutory rights: see p.438D
pp.438D to 439B
453 454
455
– A39 –
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7.2. Bingham LJ carried out an analysis of the relevant cases and found several references to the concept of fair dealing which had very little to do with a conventional analysis of offer and acceptance.456 His conclusion was that:
“The tendency of the English authorities has, I think, been to look at the nature of the transaction in question and the character of the parties to it; to consider what notice the party alleged to be bound was given of the particular condition said to bind him; and to resolve whether in all the circumstances it is fair to hold him bound by the condition in question. This may yield a result not very different from the civil law principle of good faith, at any rate so far as the formation of the contract is concerned.”457
Subsequent cases
8. Interfoto, therefore, contains important observations to the effect that unusual or onerous terms must be brought to the attention of the other party in order to be relied upon. It was not, however, a case involving a signed contractual document.
9. The general rule as to signed contractual documents derives from L’Estrange v F Graucob Ltd [1934] 2 KB (“L’Estrange”), where Scrutton LJ held:
“When a document containing contractual terms is signed, then, in the absence of fraud, or, I will add, misrepresentation, the party signing it is bound, and it is wholly immaterial whether he has read the document or not.”458
10. The question then becomes whether the principle derived from Interfoto acts as an exception to the rule in L’Estrange. To date, it remains an undecided question whether the Interfoto principle can apply to a signed contract. It has, however, been the subject of discussion in several cases:-
– A40 –
Annex V: Issues 5 and 6 – Onerous and Unusual Terms
  456 457 458
10.1. In Ocean Chemical Transport v Exnor Crags Ltd [2000] 1 Lloyd's Rep. 446, Evans LJ, with whom Henry and Waller LLJ agreed, held at §48 that he would be prepared to apply the Interfoto principle in the appropriate circumstances:
See, e.g. p.443G p.445B
p.403
  A/1/210
  
“Mr Charkham submits that the Interfoto test, as he called it, has to be applied, even in a case where the other party has signed an acknowledgement of the terms and conditions and their incorporation. It seems to me that Mr Charkham could be right in what might be regarded as an extreme case, where a signature was obtained under pressure of time or other circumstances, and where it was possible to satisfy the Interfoto test; that is to say, that the clause was one which was particularly onerous or unusual for incorporation in the contract in question. I would prefer to put the matter more broadly and to say that the question is whether the defendants have discharged the duty which lies upon them of bringing the existence of the clause upon which they rely (and, if Mr Charkham is right, of the effect of that particular clause) to the notice of the other party in the circumstances of the particular case.”
10.2. In HIH v New Hampshire [2001] 2 Lloyd's Rep. 161, Rix LJ doubted obiter whether the principle was properly applicable outside the context of incorporation by notice.459
10.3. In Amiri Flight Authority v BAE Systems Plc [2004] 1 All ER 385, Mance LJ, with whom Rix and Potter LLJ agreed, noted the doubts of Rix LJ in HIH v New Hampshire and stated that it was unnecessary to decide whether the principle could apply to signed contracts. By reference to Bingham LJ’s Judgement in Interfoto, Mance LJ did, however, envisage that the Interfoto principle might apply in such a case:
“15. As I read both the judgments in Interfoto the decision there was that the ‘holding fee’ clause was not incorporated. The formal reason was that no sufficient notice had been given of so stringent a clause. But Bingham LJ, in deciding accordingly, stressed that whether or not sufficient notice had been given was a question which also involved broad considerations of fairness and reasonableness, having regard to the nature and effect of the clause and the circumstances relied upon as constituting notice that the contract was to contain a clause of such a nature and effect. It is unnecessary in this case to consider whether there may be contracts in writing to which such reasoning would also apply: cf Rix LJ's doubt in HIH Casualty and General Insurance Ltd v New Hampshire Insurance Co [2001] CLC 1480. One could take the case of a car-owner entering a car-park and being asked to sign a ticket handed to him by a car-parking attendant, or that of the holiday-maker required to sign a long small-print document in order to hire a family car at an airport, if, in either case, the relevant document proved on close reading to contain a provision of an extraneous or wholly unusual nature. It is
Annex V: Issues 5 and 6 – Onerous and Unusual Terms
         459
§209
– A41 –
  A/1/211
  
460
§92
10.4.
possible that other arguments could then also exist, e.g. that the nature or effect of the document had been impliedly misrepresented.”
In Do-Buy 925 Ltd v National Westminster [2010] EWHC 2862, Andrew Popplewell QC (as he then was), after setting out the above case law, decided not to depart from the general rule set down in L’Estrange as his was “not an extreme case, nor one in which there is any reason to depart from the principle that a party should be bound by a contract he has signed”. This was not, however, because he decided that the Interfoto principle could not apply in relation to signed contracts; it was a fact-specific finding on the facts of the case:
“The signature on the Application Form was immediately below an acknowledgement that the signatory had read the General Terms and Conditions which came at the end of a section headed “Important-you should read this carefully”. Ms Searle accepted that she was provided with the General Terms and Conditions and had had an opportunity to read them; and that the Bank were entitled to assume that she had done so. I see no room for the application of the Interfoto principle in this case, even were it capable of applying to some signed contracts.”460
In One World (GB) Limited v Elite Mobile Limited, [2012] EWHC 3706 (QB), His Honour Judge Behrens, after setting out the relevant case law, held at §58:
“In the light of the authorities I am content to assume (without deciding) that there is a possible exception to the rule in L'Estrange v F Graucob Ltd in relation to provisions that are onerous or unusual. However I agree with Mr Stacey that on the facts of this case the requirement of a 40% threshold before a connection bonus is paid is neither unusual nor onerous. To my mind the reasons given by Mr Stacey are compelling. Mr Jory is correct that there is no detailed evidence as to how common such clauses are. However the matters referred to by Mr Stacey together with paragraph 29 of Mr Mughal's witness statement satisfy me that the clause is not sufficiently unusual so as to enable Mr Mughal to avoid the rule. Equally this is a case where Mr Mughal was fully aware of the need for a high connection rate. He had himself spoken of the 80% he had achieved for Vodafone. In those circumstances I do not regard the clause as onerous even if, as Mr Jory pointed out, it applied to networks other than Vodafone.” [Emphasis added]
10.5.
– A42 –
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10.6. Kaye v Nu Skin Ltd [2012] CTLC 69 applied the Interfoto principle to a signed contract. This case involved an agreement between English parties, one of which was part of an enterprise based in Utah, which contained an arbitration clause. After setting out Bingham LJ’s Judgment in Interfoto (including, specifically, the passages cited above at §7), he held at §42:
“In my view, following both the Parker case and what Bingham LJ said, the arbitration clause in this case was clearly incorporated into the agreement and therefore the only question is whether, in the words of Bingham LJ, it is such an unreasonable clause as to require very specifically being brought to the attention of the claimant.”461
11. It follows from the above cases that:-
Annex V: Issues 5 and 6 – Onerous and Unusual Terms
 461
11.1. While there is no authority conclusively establishing that the Interfoto principle does apply to signed contracts (such that it displaces the general rule in L’Estrange), the trend in the case law is to accept that such application may be possible.
11.2. Interfoto was itself, per Dillon LJ, regarded as a logical development of the common law in that it rejected an argument that would confine the ratio of Thornton v Shoe Lane Parking to the type of clause under review (i.e. exemption clauses).
11.3. The Court is required to: (i) look at the nature of the transaction in question and the character of the parties to it; (ii) consider what notice the party alleged to be bound was given of the particular condition said to bind him; and (iii) resolve whether in all the circumstances it is fair to hold him bound by the condition in question. While it may arguably be more difficult to rely upon Interfoto when there is a signed contract, there is no principled reason why such contracts should be ruled out of this analysis by type.
The Judge’s conclusion was that it was difficult to characterise an arbitration clause as unreasonable and / or extortionate – it is an extremely common clause in many commercial contracts and the evidence before the Judge exalted the benefits of such a clause to the parties: see, e.g. §43 to 52.
– A43 –
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12. Further, as to reasonable sufficiency of notice, the editors of Chitty on Contracts (32nd Ed.) state at 13-014:
“... The question whether the party tendering the document has done all that was reasonably sufficient to give the other notice of the conditions is a question of fact in each case, in answering which the tribunal must look at all the circumstances and the situation of the parties. But it is for the court, as a matter of law, to decide whether there is evidence for holding that the notice is reasonably sufficient. Cases in which the notice has been held to be insufficient have been those where the conditions were printed on the back of the document, without any reference, or any adequate reference, on its face, such as, “[f]or conditions, see back”, where, on documents sent by fax, reference was made to conditions stated on the back, but those conditions were not in fact stated on the back or otherwise communicated, or where the conditions were obliterated by a printed stamp. In many situations, however, the tender of printed conditions will in itself be sufficient. It is not necessary that the conditions themselves should be set out in the document tendered: they may be incorporated by reference, provided that reasonable notice of them has been given. Reference to standard terms to be found on a website may be sufficient to incorporate the terms on the website into the contract.” [Emphasis added]
– A44 –
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UCTA, section 3
Annex VI: Issue 7 – Unfair Contract Terms
Annex VI: Issue 7 – Unfair Contract Terms
 1. Section 3 UCTA provides as follows:
(1) This section applies as between contracting parties where one of them deals . . . on the other's written standard terms of business.
(2) As against that party, the other cannot by reference to any contract term—
(a) when himself in breach of contract, exclude or restrict any liability of his in respect of the breach; or
(b) claim to be entitled—
(i) to render a contractual performance substantially different from that which was reasonably expected of him, or
(ii) in respect of the whole or any part of his contractual obligation, to render no performance at all,
except in so far as (in any of the cases mentioned above in this subsection) the contract term satisfies the requirement of reasonableness.
Written standard terms of business
2. As foreshadowed above, the Defendant denies that the parties entered into the SPMC and NTC contracts upon the Defendant’s written standard terms of business on the basis “Post Office’s business was not the appointment of Subpostmasters.”462
3. UCTA contains no definition or further elucidation as to the meaning of the words “the other’s written standard terms of business”.
4. However, what are to be regarded as standard form contracts was considered by the Law Commission and Scottish Law Commission in their reports that ultimately gave rise to its enactment.
5. The Law Commission’s identified at §152 of its report, as follows:463
  462 463
“Broadly speaking, standard form contracts are of two different types. One type is exemplified by forms which may be adopted in commercial transactions of a
See, e.g. Bates/IDef at §78(1) [B5.1/3/43] Law Com. No. 69; Scot. Law Com. No. 39.
– A45 –
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particular type or for dealings in a particular commodity such as the different forms of sale contracts used by the Grain and Feed Trade Association or the forms for building and engineering contracts sponsored by the Royal Institute of British Architects, the Institution of Civil Engineers and the Federation of Associations of Specialists and Sub-contractors. Such forms may be drawn up by representative bodies with the intention of taking into account the conflicting interests of the different parties and producing a document acceptable to all. The other type is the form produced by, or on behalf of, one of the parties to an intended transaction for incorporation into a number of contracts of that type without negotiation. Examples include a multitude of printed documents setting out conditions of various kinds, terms found in catalogues and price lists, and terms set out or referred to in quotations, notices and tickets. Although it is the second type of standard form contract that has attracted most criticism, both types have in common the fact that they were not drafted with any particular transaction between particular parties in mind and are often entered into without much, if any, thought being given to the wisdom of the standard terms in the individual circumstances.” [Emphasisadded]
6. The Law Commission had difficulty formulating a precise definition and discounted lack of negotiation alone as the defining characteristic of written standard terms;464 it recommended that the matter be left to the Courts, as follows:465
Annex VI: Issue 7 – Unfair Contract Terms
      464
“We think that the courts are well able to recognise standard terms used by persons in the course of their business, and that any attempt to lay down a precise definition of ‘standard form contract’ would leave open the possibility that terms that were clearly contained in a standard form might fall outside the definition. In our view this would be unfortunate. We have not, therefore, attempted to formulate a statutory description of a standard form contract.”
Law Com. No. 69, at §156, in which it was observed that “[t[he essential element that has led usto the decision that there must be some measure of control over terms in standard form contracts between persons in business is the lack of negotiation that exists in most situations where they are used. Nevertheless it does not seem to us that the lack of negotiation, or of any opportunity for negotiation, can itself be regarded as the distinguishing feature of standard form contracts. In many contracts there may be negotiation as to some terms, such as the quantity or price, with no opportunity to negotiate the exempting terms with which we are concerned. Moreover, an expressed willingness to discuss terms may not in practice mean that the terms are any the less proffered on a ‘take it or leave it’ basis. Accordingly, our conclusion is that the lack of opportunity to vary or negotiate terms should not be made a feature of a statutory description of standard terms.”
Law Com. No. 69, §157
465
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7. Further, the meaning and application of Section 3(1) has been variously considered and applied and the following authorities and/or sources are instructive as to its application to the SPMC and NTC contracts.
8. In British Fermentation Products Ltd v Compair Reavell Ltd [1999] 2 All E.R. (Comm) 389 (“British Fermentation”) at issue was whether the Institution of Mechanical Engineers Model Form of General Conditions of Contract were the defendants’ standard terms and conditions so as to be terms to which section 3(1) applied.
9. The Court had regard to the Law Commission and Scottish Law Commission reports cited above, and to the following observations made by Lord Dunpark in the Scottish case McCrone v Boots Farm Sales Limited [1981] SLT 103:
“The Act does not define ‘standard form contract’, but its meaning is not difficult to comprehend. In some cases there may be difficulty deciding whether the phrase properly applies to particular contract. I have no difficulty deciding that, upon the assumption that the defenders prove that their general conditions of sale were set out in all their invoices and they were incorporated by implication in their contract with the pursuer, the contract was a standard form contract within the meaning of the said section 17.
Since Parliament saw fit to leave the phrase to speak for itself, far be it from me to attempt to formulate a comprehensive definition of it. However, the terms of section 17 in the context of this Act make it plain to me that the section is designed to prevent one party to a contract from having his contractual rights, against a party who is in breach of contract, excluded or restricted by a term or condition, which is one of a number of fixed terms or conditions invariably incorporated in contracts of the kind in question by the party in breach, and which have been incorporated in the particular contract in circumstances in which it would be unfair and unreasonable for the other party to have his rights so excluded or restricted. If the section is to achieve its purpose, the phrase ‘standard form contract’ cannot be confined to written contracts in which both parties use standard forms. It is, in my opinion, wide enough to include any contract, whether wholly written or partly oral, which includes a set of fixed terms or conditions which the proponer applies, without material variation, to contracts of the kind in question.” [Emphasis added]
10. In British Fermentation, the Court further observed that section 12(3) UCTA imposed a burden upon those claiming that a party does not deal as a consumer to show that it
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does not, and held that the burden of proof must be upon the party alleging that UCTA applies to demonstrate its application.466
11. In Hadley Design Associates Ltd v Westminster City Council [2004] TCLR 1 – it was found as to the meaning of written standard terms as follows:467
“The concept underlying the provisions of Unfair Contract Terms Act 1977 section 3, in my judgment, is that there should exist a stock of written, no doubt usually, at any rate, printed, contract conditions which was simply drawn from as a matter of routine and intended to be adopted or imposed without consideration or negotiation specific to the individual case in which they were to be used. That seems to me to be the force of the words ‘written’ and ‘standard’ in the expression ‘written standard terms of business’. In other words, it is not enough to bring a case within Unfair Contract Terms Act 1977, section 3, that a party has established terms of business which it prefers to adopt, as, for example, a form of draft contract maintained on a computer, or established requirements as to what contracts into which it entered should contain, as, for example, provision for arbitration in the event of disputes. Something more is needed, and on principle that something more, in my judgment, is that the relevant terms should exist in written form prior to the possibility of the making of the relevant agreement arising, thus being ‘written’, and they should be intended to be adopted more or less automatically in all transactions of a particular type without any significant opportunity for negotiation, thus being ‘standard’.” [Emphasis added]
12. In Yuanda (UK) Co Ltd v WW Gear Construction Ltd [2011] Bus LR 360 – Edwards- Stuart J adopted the same approach, at §21:
“The conditions have to be standard in that they are terms which the company in question uses for all, or nearly all, of its contracts of a particular type without alteration (apart from blanks which have to be completed showing the price, name of the other contracting party and so on). One encounters such terms on a regular basis- whether when buying goods over the internet or by mail order or when buying a ticket for travel by air or rail.” [Emphasis added]
13. In African Export-Import Bank v Shebah Exploration and Production Co Ltd [2017] EWCA Civ 845: The Court of Appeal considered and approved the foregoing first instance decisions, and held at §25 (Longmore LJ) as follows:
Annex VI: Issue 7 – Unfair Contract Terms
               466 467
British Fermentation Products Ltd v Compair Reavell Ltd, §49 Judge Seymour QC, at §78
– A48 –
  A/1/218
  
“I would also approve these first instance decisions and hold that it is relevant to inquire whether there have been more than insubstantial variations to the terms which may otherwise have been habitually used by the other party to the transaction. If there have been substantial variations, it is unlikely to be the case that the party relying on the Act will have discharged the burden on him to show that the contract has been made “on the other's written standard terms of business”.”
14. It follows from the foregoing, that the following factors are relevant to the question whether a contract represents a party’s “written standard terms of business”, as to which, the burden of proof is upon those contending that section 3(1) UCTA applies:
14.1. whether the contract is simply drawn as a matter of routine in all transactions of a particular type;
14.2. whether there is any significant opportunity for negotiation; and
14.3. whether there were any substantial alterations to the individual contract compared to the ordinary ‘standard form’.
Contractual performance substantially different / no performance at all
15. As a starting point, it has been observed that section 3(1)(b) of UCTA applies where there is no breach of contract at all, but where the obligation as to performance has been limited or qualified.468 As the editors of Chitty on Contracts (32nd Ed.) observe:
“... it is submitted that a sensible meaning can in most cases only be given to paragraph (b) if one assumes that the contractual performance and contractual obligation referred to is the performance required and the obligation imposed by the contract apart from the contract term relied on. For this purpose, the contractual performance reasonably expected of a party may, in appropriate cases be determined by the content of representations made by that party in precontract negotiations. On the other hand, where on its true construction a contract term provides for performance to a certain level by the proferens, the other party cannot claim that that very term entitles the proferens to render a contractual performance substantially different from that which he reasonably expected.”469
16. It is important to consider the term that is said to be subject to the requirements of Section 3 UCTA not in isolation, but in combination and in the context of the contract as
468 Chitty on Contracts (32nd Ed.) at 15-085
469 Chitty on Contracts (32nd Ed.) at 15-085
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  – A49 –
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a whole. The relevant questions are (a) what is the performance required by the contracts and (b) are the challenged terms such that they allow the proferens to render a substantially different performance?
17. The foregoing observations of the editors of Chitty were cited by the Court of Appeal in AXA Sun Life Services Plc v Campbell Martin Ltd [2011] EWCA Civ 133. Stanley Burnton LJ held that section 3(2)(a) of UCTA did not apply to an entire agreement clause, which purported to prevent reliance upon any collateral contract or warranty, as there was no collateral contract of which the claimant company could be in breach.470 He went on, to observe, at §50, that:
“However, different considerations apply to section 3(2)(b)(i). Quite how that “paragraph” should operate is not entirely clear, as is demonstrated by the somewhat tentative discussion in Chitty on Contracts , 30th ed (2008), vol 1, para 14–073. I have no doubt that it is principally aimed at the small print that entitles a party to a contract to provide something other than that defined by the principal terms of the contract, as where a holiday company reserves the right to substitute a hotel or resort for that specified in the main part of the contract. In most cases, as Chitty suggests, the performance reasonably expected of a party is that which is defined by the written contract between the parties. But this “paragraph” of section 3 refers not to the performance specified in the contract but to the performance “which was reasonably expected” of that party. It seems to me that in appropriate circumstances a pre- contractual representation or promise may affect the performance that is reasonably expected of a party... It follows that clause 24 may be subject to the reasonableness test in UCTA in relation to both collateral warranties and representations. However, section 3(2)(b)(i) will only come into play in the present cases if it is possible to identify both the performance by AXA that was reasonably expected and that defined by the contract. The effect of clause 24, if any, on a representation such as “We are the largest insurance company in England” will not be within the scope of section 3(2)(b)(i).” [Emphasis added]
18. The reasonable expectations as to performance are those that existed as at the time the contract was made.471
Annex VI: Issue 7 – Unfair Contract Terms
        470 471
AXA Sun Life Services Plc v Campbell Martin Ltd, §49
Shearson Lehman Hutton Inc v Maclaine Watson & Co [1989] 2 Lloyd’s Rep. 570,
Ltd v British Telecommunications Plc [1995] E.M.L.R. 459 – A50 –
612; Timeload
  A/1/220
  
19. Further, section 3 UCTA may also apply to a term permitting termination of a contract without cause.
20. In Timeload Ltd v British Telecommunications Plc [1995] E.M.L.R. 459, the claimant applied for an injunction restraining BT from terminating a contract. The facts are instructive: the claimant ran a free telephone inquiry service and obtained a number that was said by BT to have been allocated either by mistake or due to a breach of duty by a BT employee; the claimant had begun to market its services when BT gave it one month’s notice of termination of the contract, relying on a termination clause in their standard terms. The Court found that the term was subject to the requirement of reasonableness in section 3(2) of UCTA, as BT was attempting to deliver a performance which was different from that reasonably expected.
21. The injunction was granted, and upheld on appeal; with regard to section 3(2) of UCTA, Sir Thomas Bingham MR (as he then was) held at p.468:
“The argument accordingly turns on section 3(2)(b) and that I find more difficult. Mr Hobbs submits that the subsection cannot apply where, as here, the clause under consideration defines the service to be provided and does not purport to permit substandard or partial performance. He says that the customer cannot reasonably expect that which the contract does not purport to offer, namely enjoyment of telephone service under a given number for an indefinite period. That may indeed be so, but I find the construction and ambit of this subsection by no means clear. If a customer reasonably expects a service to continue until BT has substantial reason to terminate it, it seems to me at least arguable that a clause purporting to authorise BT to terminate without reason purports to permit partial or different performance from that which the customerexpected.” [Emphasisadded]
Reasonableness
22. A requirement of reasonableness is imposed upon all terms to which Section 3(2) applies. The Schedule 2 greylist guidelines of considerations relevant to the test of reasonableness under Section 11(2) UCTA (applicable for the purposes of terms referred to in sections 6 and 7) are regarded as being of general application.472
Annex VI: Issue 7 – Unfair Contract Terms
       472
See, e.g. Stewart Gill Ltd v Horatio Myer & Co Ltd [1992] Q.B. 600, 608. See also Singer Co (UK) Ltd v Tees and Hartlepool Port Authority [1988] 2 Lloyd’s Rep. 164, 169
– A51 –
  A/1/221
  
23. The guidelines are:
23.1. the strength of the bargaining positions of the parties relative to each other, taking account (among other things) alternative means by which the customer’s requirements could have been met;
23.2. whether the customer received an inducement to agree to the term, or in accepting it had an opportunity of entering into a similar contract with other persons, but without having to accept a similar term;
23.3. whether the customer knew or ought reasonably to have known of the existence and extent of the term (having regard, among other things, to any custom of the trade and any course of dealing between the parties);
23.4. where the term excludes or restricts any relevant liability if some condition is not complied with, whether it was reasonable at the time of the contract to expect that compliance with that condition would be practicable;
23.5. whether the goods were manufactured, processed or adapted to the special order of the customer.
24. The Schedule 2 guidelines are not, however, exhaustive. The following further factors were identified in Overseas Medical Supplies Ltd v Orient Transport Services Ltd [1999] 2 Lloyd’s Rep 273:473
– A52 –
Annex VI: Issue 7 – Unfair Contract Terms
 473
24.1. the way in which the relevant conditions came into being and are used generally;
24.2. in relation to the question of equality of bargaining position, the court will have regard not only to the question of whether the customer was obliged to use the services of the supplier but also to the question of how far it would have been practicable and convenient to go elsewhere;
24.3. the question of reasonableness must be assessed having regard to the relevant clause viewed as a whole: it is not right to take any particular part of
Per Potter LJ at §10
  A/1/222
  
the clause in isolation, although it must also be viewed against a breach of contract;
24.4. the reality of the consent of the customer to the supplier's clause; and
24.5. the availability of insurance.
25. It is clear that the list of relevant factors is not a closed one.
26. As the Court is aware, there is a large body of reported cases illustrating in general terms the way in which the Courts apply the statutory requirement of reasonableness. However, many are of limited authoritative value since the position of the parties, relevant circumstances of the transaction, and the precise wording of the clause in question necessarily differ in each particular situation.474
27. However, the following cases illustrate the importance of equality of bargaining power in assessing reasonableness:
27.1. A number of the authorities have upheld terms as reasonable where they have been freely agreed by parties of broadly equal size and status.475
27.2. In Granville Oil & Chemicals Limited v Davis Turner & Co Limited [2003] 2 Lloyd's Rep 356 at 362, Tuckey LJ commented:
“The 1977 Act obviously plays a very important role in protecting vulnerable consumers from the effects of draconian contract terms. But I am less enthusiastic about its intrusion into contracts between commercial parties of equal bargaining strength, who should generally be considered capable of being able to make contracts of their choosing and expect to be bound by their terms." [Emphasis added]
27.3. In Watford Electronics Limited v Sanderson CFL Limited [2001] EWCA Civ 317 (“Watford Electronics”), Chadwick LJ observed at §55:
“Where experienced businessmen representing substantial companies of equal bargaining power negotiate an agreement, they may be taken to have had regard to the matters known to them. They should, in my view be taken to be the best judge of the commercial fairness of the agreement which they have
474 An observations made by the editors of Chitty on Contracts (32nd Ed.) at 15-101
475
As to which, see observations of Lord Diplock in Photo Production Limited Transport Limited [1980] AC 827 at p.848F to G, a decision that pre-datedUCTA
v Securicor
– A53 –
Annex VI: Issue 7 – Unfair Contract Terms
       A/1/223
  
made; including the fairness of each of the terms in that agreement. They should be taken to be the best judge on the question whether the terms of the agreement are reasonable. The court should not assume that either is likely to commit his company to an agreement which he thinks is unfair, or which he thinks includes unreasonable terms. Unless satisfied that one party has, in effect, taken unfair advantage of the other – or that a term is so unreasonable that it cannot properly have been understood or considered - the court should not interfere." [Emphasis added]
27.4. In Allen Fabrications Ltd v ASD Ltd [2012] EWHC 2213 (TCC), His Honour Judge Waksman QC (as he then was) assessed the parties’ respective positions at 73:
“Allen has a turnover of around £4-5m each year. ASD is very much larger being part of the Klockner international group of companies and the largest independent metal stockholder in the UK. But this is not simply a “numbers” game. The fact is that both parties were and are substantial commercial entities.” [Emphasisadded]
27.5. The availability of insurance, being a further consideration regarded as particularly important, is of primary concern to the application of the requirement of reasonableness imposed with respect to certain exclusion and limitation of liability clauses which are not in issue here.
Annex VI: Issue 7 – Unfair Contract Terms
      – A54 –
  A/1/224
  
Annex VII: Issues 10 and 11 – Post Office as Agent Creation of Agency
1. On the Claimants’ case, the Defendant was required as their agent to comply with a series of obligations which included, for example, to effect, execute, record and/or maintain and keep records of all transactions that they initiated on Horizon or for which they were potentially responsible.
2. Thus addressing the questions posed by Issues 10 and 11 requires the application of principles of agency to the facts as they are before the Court. Admitted facts are set out in Section B (under ‘Issues 10 and 11 - Post Office as Agent’) above.
General Definition
3. For the purposes of these Issues (and Issues 12 and 13), the Claimants commend the following general description of that relationship as: 476
“...the fiduciary relationship which exists between two persons, one of whom expressly or impliedly manifests assent that the other should act on his behalf so as to affect his relations with third parties, and the other of whom similarly manifests assent so to act or so acts pursuant to the manifestation.”
but where “[a] person may have the same fiduciary relationship with a principal where he acts on behalf of that principal but has no authority to affect the principal’s relations with third parties. Because of the fiduciary relationship such a person may also be called an agent.”
Assent to be implied from conduct
4. The Claimants rely upon the following principles as to the basis upon which the agency is to be inferred.
5. Assent implied by conduct: in the absence of contractual agreement to an agency, as here, agreement between principal and agent for the conferral of authority may be
476 Bowstead & Reynolds on Agency (21st Ed.) at 1-001 – as to which, the Court is invited to have regard to all limbs of the definition given therein and the limits to that definition, at 1-003
Annex VII: Issues 10 and 11 – Post Office as Agent
  – A55 –
  A/1/225
  
implied on the basis one party (the Defendant) has conducted itself towards another (Subpostmasters) in such a way that it is reasonable for that other to infer from that conduct assent to an agency relationship.477
6. Implication from words, conduct or a course of dealing: assent to a relationship of agency may be implied from the parties words and conduct, or from evidence of a course of dealing:
6.1. As established by the House of Lords in Garnac Grain Co Inc v HMF Faure & Fairclough Ltd [1968] AC 1130:
“The relationship of principal and agent can only be established by the consent of the principal and the agent. They will be held to have consented if they have agreed to what amounts in law to such a relationship, even if they do not recognise it themselves and even if they have professed to disclaim it, as in Ex parte Delhasse. But the consent must have been given by each of them, either expressly or by implication from their words and conduct. Primarily one looks to what they said and did at the time of the alleged creation of the agency. Earlier words and conduct may afford evidence of a course of dealing in existence at that time and may be taken into account more generally as historical background. Later words and conduct may have some bearing, though likely to be less important. As to the content of the relationship, the question to be asked is: "What is it that the supposed agent is alleged to have done on behalf of the supposed principal?"478 [Emphasis added]
6.2. As clarified by the House of Lords by its judgment in Branwhite v Worcester Works Finance Ltd [1969] 1 AC 552, with Lord Wilberforce stating at p.587E – citing the foregoing passage with approval:
“The significant words, for the present purpose, are "if they have agreed to what amounts in law to such a relationship." These I understand as pointing to the fact that, while agency must ultimately derive from consent, the consent need not
477 Bowstead & Reynolds on Agency (21st Ed.), Article 8
Annex VII: Issues 10 and 11 – Post Office as Agent
        478
At 1137C, per Lord Pearson
– A56 –
  A/1/226
  
necessarily be to the relationship of principal and agent itself (indeed the existence of it may be denied) but may be to a state of fact upon which the law imposes the consequences which result from agency. It is con-sensual, not contractual.”
7. Voluntary conferral of authority and manifestation of assent: the law recognises that the agent has power to affect the principal’s legal position by voluntary conferral of authority which may be by the manifestation of such willingness by the principal. As the editors ofBowstead&ReynoldsonAgency(21st Ed.)observe:
7.1. as to such request or authorisation “[t]he basic notion behind the common law of agency can be explained along the following lines. The mature law recognises that a person need not always do things that change his legal relations himself: he may utilise the services of another to change them, or to do something during the course of which they may be changed. Thus, where one person, the principal, requests or authorises another, the agent, to act on his behalf, and the other agrees or does so, the law recognises that the agent has power to affect the principal’s legal position by acts which, though performed by the agent, are to be treated in certain respects as if they were acts of the principal. The conferral of authority is voluntary”;479 and
7.2. as to manifestation of willingness “[t]he basic justification for the agent’s power as so far explained seems to be the idea of a unilateral manifestation by the principal of willingness to have his legal position changed by the agent. To this any contract between principal and agent is secondary, though there will usually be one, which often provides the reason for the conferral and indeed may contain it. The phrase “consensual agency” used in the previous paragraph and below, and “agency by agreement” used later in this book, are to be understood in this sense and not as relating to any supporting contract. There is certainly no conceptual reason which requires a contract between principal and agent to achieve this creation of power, and it is indeed clear that no contract is necessary, for a person without juristic capacity may be an agent. Nor need the agent undertake to act as such. It is sufficient if the principal manifests to the agent that he is willing for the agent to act,
At 1-005
Annex VII: Issues 10 and 11 – Post Office as Agent
              479
– A57 –
  A/1/227
  
and the agent does so in circumstances indicating that his acts arise from the principal’s manifestation. This is not dissimilar from the formation of a contract, but is notionally separate, as the example of a power of attorney shows. In common with other situations where in the civil law it is important to derive a party’s intention, the principal’s manifestation of will is generally determined on an objective basis, whether or not the conferral of power meets the requirements of the law of contract.” [Emphasis added]”480
8. Relevant conduct, in this respect: as to the conduct the Court is to look for where there is a pre-existing contractual relationship, such implied authority may to be inferred from the surrounding circumstances but need not be “necessarily incidental to the commercial venture”, the correct test being whether one party had conducted itself towards another in such a way that it was reasonable for that other to infer from that conduct assent to the agency relationship (as clarified by Court of Appeal authoritatively stated in Marine Blast Ltd v Targe Towing Ltd & Anor [2004] EWCA Civ 346.481
Duties with respect to transaction records and information
9. As to an agency for the purposes contended for by the Claimants, the following principles apply and are instructive to the approach to be taken in addressing the question posed by Issue 12 in particular.
10. Duty to provide records: where an agent is entrusted to make transactions that are binding on his principal, there is a corresponding duty on the agent to provide records in relation to those transactions. In particular:
Annex VII: Issues 10 and 11 – Post Office as Agent
        480
481
Bowstead & Reynolds on Agency (21st Ed.) at 1-006. See also 1-007 which notes:
“The phrase “manifestation of assent” is selected by Restatement, Third instead of “manifestation of consent” in Restatement, Second, seemingly to stress the objective nature of the inquiry.”
The Restatement, Third, explains at § 1.031 (Comment b.):
“A manifestation is conduct by a person, observable by others, that expresses meaning. It is a broader concept than communication. The relevant state of mind is that of the person who observes or otherwise learns of the manifestation.”
Marine Blast Ltd v Targe Towing Ltd & Anor [2004] EWCA Civ 346, §§14, 19, 21 to 22, citing with approval, for example, Article 8 Bowstead & Reynolds on Agency
– A58 –
  A/1/228
  
10.1. A duty to produce records is a legal incident of the relationship of agency: as authoritatively staged by Mummery LJ as a “general rule” in Fairstar Heavy Transport v Adkins [2013] 2 CLC 272, at §53 thus: “It is a legal incident of that relationship [between principal and agent] that a principal is entitled to require production by the agent of documents relating to the affairs of the principal”
10.2. The duty arises in a gratuitous agency: as to which the judgment in Yasuda Fire & Marine Insurance Co of Europe Ltd v Orion Marine Insurance Underwriting Agency Ltd [1995] QB 174 (“Yasuda”) is instructive in that, on an application for declaratory relief and orders requiring access to documentary and computer records, Colman J held at p.185 that:
“...it can in logic make no difference to whether such a duty exists that the agency is or is not founded on contract. Indeed, so far as my researches have gone, there is no suggestion in any authority - decided case or textbook - that, if there is merely a gratuitous agency, there is no duty to provide records or accounts.”
“...in the absence of express agreement to the contrary, the agent's duty to provide to his principal the records of transactions effected pursuant to the agency must subsist notwithstanding termination of the agent's authority. That, as I have held, is
a duty that is imposed by law in consequence of the existence of the agency relationship and is not founded on the existence of a contract of agency.” [Emphasis added]
11. Duty to provide information: An agent is, in general, under a duty to keep his principal informed about matters which are of his concern. As to the precise content of that duty, as follows from the foregoing, cases vary on their facts depending upon the authority that is given. Nevertheless:
11.1. An agent is under a duty to deliver up, upon request, all documents and electronic records and correspondence (together “records”) concerning the
– A59 –
Annex VII: Issues 10 and 11 – Post Office as Agent
     A/1/229
  
affairs of the principal which have been prepared by the agent in the course of the agency.482
11.2. The information to be provided depends on the nature of the agent’s mandate. The basis of the entitlement derives from the fact that such records have been created for preserving information as to the very transactions which the agent was authorised by him to enter into.483
11.3. It matters not if the agent keeps those records in such a manner that are inextricable from records relating to other principals – it is for the agent to provide find some means of extracting what is relevant from the mass of their material; if such means cannot be devised with sufficient expedition, the principal will have to see the irrelevant material in so far as it is inseparable from the relevant.484
11.4. As noted in the Canadian case of Ocean City Realty Ltd v A & M Holdings Ltd (1987) 36 D.L.R. (4th) 94) (cited with approval by the editors of Bowstead):485
a. The duty extends to everything known to an agent respecting the subject- matter of the contract which would be likely to influence the conduct of his principal would be likely to operate upon the principal’s judgment.
b. The test is an objective one to be determined by what reasonable persons in the position of the agent would consider, in the circumstances, would be likely to influence the conduct of the principal.
12. Conflict of interest: finally, an agent in a position of conflict of interest cannot normally use the conflict as an excuse for not passing on information relevant to a principal.486
– A60 –
Annex VII: Issues 10 and 11 – Post Office as Agent
 482 483
484
Fairstar Heavy Transport NV v Adkins [2013] EWCA Civ 886
Yasuda Ltd v Orion Underwriting Ltd [1995] QB 174, at 185C to E per Colman J; Equitas Ltd v
Horace Holman & Co Ltd [2007] EWHC 903 (Comm)
Yasuda Ltd v Orion Underwriting Ltd [1995] QB 174, at 191F per Colman J; Equitas Ltd v Horace
Holman & Co Ltd [2007] EWHC 903 (Comm)
485 See Bowstead & Reynolds on Agency (21st Ed.) at6-021
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Summary of relevant principles
13. It follows from the above that:-
– A61 –
Annex VII: Issues 10 and 11 – Post Office as Agent
  486
13.1. Conferral of authority may be implied where one party has conducted itself towards another in such a way that it is reasonable for that other to infer from that conduct assent to an agency relationship.
13.2. That relationship may arise where an agent acts on behalf of that principal but has no authority to affect the principal’s relations with third parties.
13.3. The relationship may exist even if the parties have professed to disclaim it.
13.4. It is sufficient that the principal manifests to the agent that he is willing for the agent to act, and the agent does so in circumstances indicating that his acts arise from the principal’s manifestation.
13.5. In the context of an existing contractual relationship, the surrounding circumstances from which agency is to be inferred need not be necessarily incidental to the commercial venture.
13.6. It is a legal incident of that relationship between principal and agent that a principal is entitled to require production by the agent of documents relating to the affairs of the principal. The duty thus arises in a gratuitous agency.
13.7. The duty extends to everything known to an agent respecting the subject- matter of the contract which would be likely to influence the conduct of his principal would be likely to operate upon the principal’s judgment. The test is an objective one.
See Hilton v Barker Booth & Eastwood [2005] UKHL 8; [2005] 1 W.L.R. 567 (in the context of a solicitor / client relationship)
  A/1/231
  
– A62 –
Annex VII: Issues 10 and 11 – Post Office as Agent
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Annex VIII: Issues 12 and 13 – Subpostmasters as Agents Fiduciary duties of an agent
1. General principles as to the establishment of a relationship of agency are set out in Annex VII (‘Annex VII - Issue 10 and 11: Post Office as Agent’) above.
2. Set out here, are principles that fall to be applied when addressing the questions posed by Issues 12 and 13. Most are uncontroversial, established principles, which are set out here for completeness and as a reference for the approach to be taken.
Scope of duty
3. The Defendant’s case is pleaded with no more specificity that a general assertion that Subpostmasters owed fiduciary duties to the Defendant, including a duty to act in the Defendant’s interests in relation to functions undertaken on the Defendant’s behalf.487
4. As to the nature and scope of fiduciary duties that may be owed by an agent, the Claimants will rely upon the following.
5. Nature of fiduciary obligations: as a matter of general principle:488
5.1. a fiduciary “...is someone who has undertaken to act for or on behalf of another in a particular matter or circumstances which give rise to a relationship of trust and confidence.”; and
5.2. “[t]he distinguishing obligation... is the obligation of loyalty. The principal is entitled to the single-minded loyalty of his fiduciary. This core liability has several facets. A fiduciary must act in good faith; he must not make a profit out of his trust; he may not act for his own benefit or the benefit of a third person without the informed consent of his principal”.
6. The scope of any such duty is context specific: an agent may owe fiduciary obligations in some respect of some services that it provides, but not others. The touchstone is
– A63 –
Annex VIII: Issues 12 and 13 – Subpostmasters as Agents
   487 488
GDef at §91(1) [B3/2/41]
Bristol and West Building Society v Mothew [1998] Ch. 1, per Millett LJ at p.18
  A/1/233
  
whether, in the commercial circumstances, single minded loyalty was owed in respect of those services. As to this:
6.1. Nature of the relationship: the agreement of the parties or background of the case may establish either that the relationship is not one of agency or that the fiduciary duties have been modified from the normal standards.489
6.2. By way of illustration, a construction company providing claims-handling and building-repair services to an insurer, may be found to owe to fiduciary duties in respect of the latter, which are services provided to the policy holder in respect of which no single minded loyalty is owed to the insurer nor was the company precluded from making a profit (John Youngs Insurance Services Ltd v Aviva Insurance Service UK Ltd [2011] EWHC 1515 (TCC), per Ramsey, at §97 to 98).
6.3. In this case:
a. it is clear that this is far from a traditional accounting relationship in which
Subpostmasters, as agents, were to keep and render accounts.
b. Rather, the relationship involved a complex division of roles with respect to branch accounts and significant input from the Defendant – in respect of which the Claimants’ case is that the Defendant acted as agent (see Section B – Issues 10 and 11: Post Office as Agent).
c. It is common ground that Subpostmasters initiate transactions on the Defendant’s (as opposed to their own system), perform cash and stock declarations and submit Branch Trading Statements, but the Defendant performs (at least) the Admitted Functions and undertakes admitted reconciliation processes to compare data with data that it itself holds or receives from third parties. Transaction Corrections are issued when those data did not reconcile. Subpostmasters do not perform, not do they have any capacity to perform, those functions.
489 As to which, see in summary, Bowstead & Reynolds (21st Ed) at6-035 – A64 –
Annex VIII: Issues 12 and 13 – Subpostmasters as Agents
   A/1/234
  
Settled accounts
7. Likewise, with respect to settled accounts, the Claimants will rely upon thefollowing.
8. As a general rule: an agent is under an obligation to keep an accurate account of all transactions entered into on his principal’s behalf and where it contains a statement money was received for the principal, the agent will be held to be bound by it, unless he can show that the statement was made unintentionally or by mistake.490
9. Settled accounts: Traditionally, an account is ‘settled’ between the parties when the principal approves the accounts, or enters them in its books or approves them in some other way; once settled, they cannot be re-opened unless there is “a direct, distinct and specific averment of errors to entitle the party to open the account”.491
10. It should be noted from the outset that the Claimants deny that that there is any proper basis to hold Subpostmasters to Branch Trading Statement as ‘settled accounts’ on the basis of traditional accounting principles for the reasons given in Section B – Issues 12 and 13: Subpostmasters as Agent, above.
11. Settled accounts may be re-opened: in certain circumstances settled accounts may in any event be re-opened, such that the agent is not held to them as settled. These include
(a) where the accounts have been settled under undue influence, in which case, they may be reopened from the commencement of the agency; or more generally, (b) where the specific circumstances demonstrate that the party settling the accounts had insufficient information at the time of doing so.492 Relevant considerations include:
491
492 Bowstead & Reynolds on Agency (21st Ed.) at 6-098
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Annex VIII: Issues 12 and 13 – Subpostmasters as Agents
  490
As stated established by Shaw v Picton (1825) 4 B.&C. 715, in which Bayley J held at 729 “It is quite clear, that if an agent (employed to receive money, and bound by his duty to his principal from time to time to communicate to him whether the money is received or not,) renders an account from time to time which contains a statement that the money is received, he is bound by that account unless he can shew that that statement was made unintentionally and by mistake. If he cannot shew that, he is not at liberty afterwards to say that the money had not been received, and never will be received, and to claim reimbursement in respect of those sums for which he had previously givencredit.”
Parkinson v Hanbury (1867) L.R. 2 H.L.
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11.1. The relative situation of the parties, and whether the balance is in favour of one party under the peculiar circumstances affecting the case.493
11.2. The manner in which settlement took place, and if those circumstances gave one party a commanding power or influence over the other.494
11.3. Whether the party settling the accounts had the fullest information available to it, taking into account all of the circumstances.495
12. Approach of the Courts: it has long been established that accounts may be re-opened at a very considerable distance in time after such settlement.496
13. As to whether, in this case, a right to reopen any account in the form of a Branch Trading Statement is exercisable by the Defendant or Subpostmasters, the Claimants will refer to and rely upon the complexities of the accounting process using Horizon (including the Defendant’s admitted roles in this respect) and division of functional responsibility as between the Defendant and Subpostmasters described above.
Annex VIII: Issues 12 and 13 – Subpostmasters as Agents
 493 494 495 496
Lewes v Morgan (1817) 5 Price 42
Coleman v Mellersh (1850) 2 Mac. & G. 309
Watson v Rodwell (1879) 11 Ch.D. 150
Lewes v Morgan (1817) 5 Price 42 - case involving more complex agencyarrangements
– A66 –
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Annex IX: Issues 17 to 18 – True Agreement ‘True Agreement’ – general principles
1. The Claimants rely upon the principles established in Autoclenz v Belcher [2011] UKSC 41 (“Autoclenz”) as to the requirement for the Court to find the “true agreement”.
2. Autoclenz principles apply with respect to the terms of the SPMC and NTC, on the grounds that “the written terms do not accurately reflect the true agreement of the parties”497 and not on the historically established basis of mistake as justifying rectification where there was an outwardly manifested continuing common intention to agree another term
– a distinct principle upon which Autoclenz did not intrude.498
3. The question to be addressed: in cases of contracts concerning work or services, where it is alleged that the written contract terms do not accurately reflect the true agreement of the parties, there may be various reasons why, but the question to be addressed is: what contractual terms did the parties actually agree?499
4. Evidence relevant: Both in Autoclenz itself and in subsequent cases, the Court has had regard to events subsequent to the date when the contract was made, in determining the trueagreement.TheEAT(LangstaffJ)tookthisapproachinDynasystemsforTrade and General Consulting Ltd & Ors v Moseley [2018] UKEAT 0091/17/2501 (25 January 2018). At [36] he held as follows:
– A67 –
Annex IX: Issues 17 to 18 – True Agreement
  497 498 499
“The reality is that it must always be the case that actions after an agreement has been made may help as evidence, not as being conclusive but as evidence, of the nature of that agreement. After all, if the parties to an agreement have indeed agreed X but they behave as if they have agreed Y, that would be surprising. If, however, they have agreed Y it is entirely to be expected. To behave as if they have agreed Y is therefore some evidence that they have indeed done so. It is not conclusive, and of course in many cases there may be contractual terms which are simply never acted upon because the occasion for doing so never arises. In such cases it would be futile, as many authorities show, to suggest that they are not still terms of the contract
Aikens LJ [2010] IRLR 70, as approved by Lord Clarke in Autoclenz at §20
Chartbrook Ltd v Persimmon Homes Ltd [2009] AC 1101, per Lord Hoffman at §48–66
Autoclenz, per Lord Clarke, at §21, citing with approval the judgment of Aikens LJ in the Court of Appeal below, at §88-89
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merely because they have not been put into operation. However, though the weight of it must be examined with care, it can be evidence as to what was in fact agreed to look to see if the parties had behaved as if that were the case, particularly immediately after the date of initial agreement, but following on from that as well, and equally so where there is an unbroken series of events telling overall the same tale.”
5. Approach: for the purposes of determining the true agreement, Lord Clarke JSC (with whom Lord Hope, Lord Walker, Lord Wilson and Lord Collins JJSC agreed) held at §35 that the Court is to have regard to the relationship in question, particularly:
5.1. Relative bargaining power: the relative bargaining power of the parties must be taken into account;
5.2. True agreement to be gleaned the circumstances: “[w]hether the written terms of any written agreement in truth represent what was agreed and the true agreement will often have to be gleaned from all the circumstances of the case, of which the written agreement is only a part”;
5.3. Purposive approach: this was described as a purposive approach.
6. Relevant considerations: the Supreme Court in Autoclenz relied upon findings made in the Courts below in support of its conclusion that the claimants were employees rather than sub-contractors.500 These are instructive as to the relevant considerations: 501
– A68 –
Annex IX: Issues 17 to 18 – True Agreement
  500
501
6.1. the presence of “elaborate protestations” in the contractual documents that the claimants were self-employed, found to be unusual in themselves and, when examined, bore no practical relation to the reality of the relationship;
6.2. that (in contradistinction) the contracts began by spelling out that each worker was required to ‘perform the services which he agrees to carry out...
On the facts, the Claimants were 20 individuals who had been engaged by Autoclenz as car valeters, but alleged worker status under the National Minimum Wage Regulations 1999 reg.2(1) and the Working Time Regulations 1998 reg.2(1); the terms of their contracts, however, described them as sub-contractors responsible for paying their own tax and NI, entitled them to provide a substitute to carry out work, and stated they were not obliged to work and that Autoclenz did not undertake to provide work
Autoclenz, §36 to §37
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within a reasonable time and in a good and workmanlike manner’, an obligation found to be entirely consistent with employment;
6.3. the claimants had no control over the way in which they worked: “[t]hey have no real control over the hours that they work, save and except that they can leave when their share of the work on site has been completed. They do not have any real economic interest in the way in which the work is organised, other than the fact that the more work they do the more they earn. They cannot source materials for themselves” and were subject to Autoclenz’s direction and control;
6.4. the claimants had no say in the terms upon which they perform work, the contracts which are placed before them are devised entirely by Autoclenz and the services they provided were subject to a detailed specification; and
6.5. the claimants were required to provide personal service under their agreements, notwithstanding substitution clause later introduced.
The employment relationship
7. In Autoclenz, the question for determination was the anterior question of whether the contracts gave rise to self-employment, as the terms purported to suggest, or the true agreement was something else (in that case an agreement consistent with employment).
8. In the present case, the Claimants rely upon the relational imbalance between the parties, which loomed large in the decision in Autoclenz. Indeed, the relationships in issue are similar in a number of respects:
Annex IX: Issues 17 to 18 – True Agreement
 502
8.1. while, like the contracts in Autoclenz, the SPMC and NTC expressly disclaimed an employment relationship, they nonetheless reflected similar relational imbalances, and similarly high degrees of discretion and control;502
GPOC at §9, §45, §50 and §69 [B3/1/2] [B3/1/15-16] [B3/1/17] [B3/1/39]
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8.2. in practice, Subpostmasters were generally required to agree how many hours of personal service they would provide; and the Defendant required, for example, notification in relation to the provision of any substitute, evidence of incapacity for work;
8.3. provision was made in the SPMC for holiday substitution allowance;
8.4. the contractual provisions and the nature of the legal relationship substantially reflected many of the features of an employment relationship.503
9. In all the circumstances, the principles set out by Lord Clarks JSC in Autoclenz are general principles of particular application to relationships with these indicia. The plainly allow this Court to ask and answer the question: what was the true agreement as to termination?
10. The Claimants submit that the true agreement was as set out above.
Annex IX: Issues 17 to 18 – True Agreement
 503
GPOC at §45
– A70 –
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Annex X: Issues 22 and 23 – Assistants
Rights of Third Parties Act
Section 1
1. Section 1 of the Contracts (Rights of Third Parties) Act 1999 (the “1999 Act”) provides: 1. Right of third party to enforce contractual term
(1) Subject to the provisions of this Act, a person who is not a party to a contract (a “third party”) may in his own right enforce a term of the contract if—
(a) the contract expressly provides that he may, or
(b) subject to subsection (2), the term purports to confer a benefit on him.
(2) Subsection (1)(b) does not apply if on a proper construction of the contract it appears that the parties did not intend the term to be enforceable by the third party.
(3) The third party must be expressly identified in the contract by name, as a member of a class or as answering a particular description but need not be in existence when the contract is entered into.
(4) This section does not confer a right on a third party to enforce a term of a contract otherwise than subject to and in accordance with any other relevant terms of the contract.
(5) For the purpose of exercising his right to enforce a term of the contract, there shall be available to the third party any remedy that would have been available to him in an action for breach of contract if he had been a party to the contract (and the rules relating to damages, injunctions, specific performance and other relief shall apply accordingly).
(6) Where a term of a contract excludes or limits liability in relation to any matter references in this Act to the third party enforcing the term shall be construed as references to his availing himself of the exclusion or limitation.
(7) ...
2. The following principles and observations pertain to its application to Issues 22 and 23 and may be of assistance to the Court.
Term purporting to confer a benefit
3. Section 1(1)(b) allows a third party to enforce a term of the contract: 3.1. if “the term purports to confer a benefit on him”, but
Annex X: Issues 22 and 23 – Assistants
 – A71 –
  A/1/241
  
3.2. his right to do so in such a case is subject to section 1(2): he has no such right “if on a proper construction of the contract it appears that [the contracting parties] did not intend the term to be enforceable by” the third party.
4. Meaning of benefit: it is generally accepted that “benefit” can include any performance due under the contract; thus it can include a payment of money, a transfer of property, or the rendering of a service.504
5. Purport to confer: the requirement that the term must “purport” to confer a benefit “...is satisfied if on a true construction of the term in question its sense has the effect of conferring a benefit on the third party in question. There is within s.1(1)(b) no requirement that the benefit on the third party shall be the predominant purpose or intent behind the term”.505
6. Purpose of the term: there is no requirement for the benefit to be a predominant purpose or intent behind the term, but it must be a purpose, i.e. it is not enough simply to show that a third party would happen to benefit from it or their position improved by its performance.506
Burden of proof as to parties’ intention
7. Question of construction: if a term purports to confer such a benefit, it is then necessary to construe the contract as a whole to determine the nature and extent of the third party’s right to enforce the term. This follows from section 1(4). The question of whether the parties intended to confer a benefit is one of construction.507
504 Chitty on Contracts (32nd Ed) point out at 18-093
Annex X: Issues 22 and 23 – Assistants
 505
506
507
Prudential Assurance Co Ltd v Ayres [2007] EWHC 775 (Ch), [2007] 3 All E.R. 946 at §28, reversed ([2008] EWCA Civ 52, [2008] 1 All E.R. 1266) on the different ground that the contract, on its true construction, purported, not to benefit the third party, but to restrict the third party’s rights
Dolphin Maritime and Aviation Services Ltd v Sveriges Angfartygs Forening [2009] EWHC 716 (Comm) at §74: “[a] contract does not purport to confer a benefit on a third party simply because the position of the third party will be improved if the contract is performed”
Nisshin Shipping Co Ltd v Cleaves & Co Ltd [2003] EWHC 2602
– A72 –
  A/1/242
  
8. What has to be shown is that “the parties” did not intend the term to be enforceable by the third party, so it is insufficient for one party to show he did not intend that.508
9. Burden on contracting party: the burden of proof (under s.1(2)) is on the contracting party, not the third party: if the third party can demonstrate that a term did purport to confer a benefit on him under section 1(1)(b), then there is a rebuttable presumption that the term was intended by the contracting parties to be enforceable by the third party.509
Identified by name, as a member of a class or as answering to a particular description
10. Section 1(4) of the 1999 Act further requires that the third party be “expressly identified in the contract by name, as a member of a class or as answering a particular description but need not be in existence when the contract is entered into”.
11. In this, by use of the word “express”, the 1999 Act does not allow a process of construction or implication to identify a party not referred to at all (Avraamides v Colwill [2006] EWCA Civ 1533, Waller LJ).510 However, the Assistants are repeatedly referred to and defined in the relevant agreements.
Annex X: Issues 22 and 23 – Assistants
 508 As observed by the editors of Chitty on Contracts (32nd Ed) at 18-094
509 510
See, e.g., The Laemthong Glory [2005] EWCA Civ 519
Avraamides v Colwill, §19. The difficulty in that case was that the relevant term did not identify
any third party or class of third parties
– A73 –
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THE POST OFFICE GROUP LITIGATION
Claim No. HQ16X01238, HQ17X02637 & HQ17X04248
 IN THE HIGH COURT OF JUSTICE QUEEN’S BENCH DIVISION
Before The Hon. Mr Justice Fraser B E T W E E N:-
ALAN BATES & OTHERS – and –
POST OFFICE LIMITED
CLAIMANTS’ OPENING SUBMISSIONS FOR THE TRIAL OF THE COMMON ISSUES
PATRICK GREEN QC KATHLEEN DONNELLY HENRY WARWICK OGNJEN MILETIC REANNE MACKENZIE
Henderson Chambers 2 Harcourt Buildings Temple
London EC4Y 9DB
Freeths LLP
Floor 3, 100 Wellington Street Leeds LS1 4LT
DX: 310016, Leeds Park Square
Telephone: 0845 077 9570 Solicitors for the Claimants
Claimants
Defendant
         A/1/244
  

Common Issues Trial: Claimants' Written Opening by Nick Wallis on Scribd

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