This is the unperfected transcript of first day of the first trial, (known as the "Common Issues" trial) in the Bates and others v Post Office group litigation going through the High Court. The trial was held in Court 26 of the High Court's Rolls Building in London. Presiding: Mr Justice Fraser.
In the morning session the claimants' barrister, Mr Patrick Green QC, gives his gives his opening statement (linked to his written opening submission, which you can find here).
In the afternoon session the defendant's barrister, Mr David Cavender QC, gives his opening statement (linked to his written opening submission, which you can find here).
Fun fact: Mr Justice Fraser, Mr Patrick Green and Mr David Cavender are all former Royal Marines.
For my (significantly shorter) write-up of the day, click here.
For my (significantly shorter) write-up of the day, click here.
Day 1 transcript - Wed 7 November - Opening arguments
Day 2 transcript - Thu 8 November - Claimants: Alan Bates, Pam Stubbs part 1
Day 3 transcript - Mon 12 November - Pam Stubbs part 2, Mohammad Sabir
Day 4 transcript - Tue 13 November - Naushad Abdulla, Liz Stockdale
Day 5 transcript - Wed 14 November - Louise Dar
Day 6 transcript - Thu 15 November - Post Office: Nick Beal, Paul Williams
Day 7 transcript - Mon 19 November - Sarah Rimmer, John Breeden, AvdB part 1
Day 8 transcript - Tue 20 November - AvdB part 2
Day 9 transcript - Wed 21 November - AvdB part 3, Timothy Dance, Helen Dickinson, Michael Shields part 1
Day 10 transcript - Thu 22 November - Michael Shields part 2, Elaine Ridge, David Longbottom, Michael Webb
Day 11 transcript - Mon 26 November - Michael Haworth, Andrew Carpenter, Brian Trotter
Day 12 transcript - Mon 3 December - Claimants' closing argument: Patrick Green QC - part 1
Day 13 transcript - Tue 4 December - Claimants' closing argument: Patrick Green QC - part 2
Day 14 transcript - Wed 5 December - Post Office closing argument: David Cavender QC - part 1
Day 2 transcript - Thu 8 November - Claimants: Alan Bates, Pam Stubbs part 1
Day 3 transcript - Mon 12 November - Pam Stubbs part 2, Mohammad Sabir
Day 4 transcript - Tue 13 November - Naushad Abdulla, Liz Stockdale
Day 5 transcript - Wed 14 November - Louise Dar
Day 6 transcript - Thu 15 November - Post Office: Nick Beal, Paul Williams
Day 7 transcript - Mon 19 November - Sarah Rimmer, John Breeden, AvdB part 1
Day 8 transcript - Tue 20 November - AvdB part 2
Day 9 transcript - Wed 21 November - AvdB part 3, Timothy Dance, Helen Dickinson, Michael Shields part 1
Day 10 transcript - Thu 22 November - Michael Shields part 2, Elaine Ridge, David Longbottom, Michael Webb
Day 11 transcript - Mon 26 November - Michael Haworth, Andrew Carpenter, Brian Trotter
Day 12 transcript - Mon 3 December - Claimants' closing argument: Patrick Green QC - part 1
Day 13 transcript - Tue 4 December - Claimants' closing argument: Patrick Green QC - part 2
Day 14 transcript - Wed 5 December - Post Office closing argument: David Cavender QC - part 1
Day 1 full transcript:
Wednesday, 7 November 2018
(10.30 am)
MR JUSTICE FRASER: Mr Green.
Opening submissions by MR GREEN
MR GREEN: May it please your Lordship, I appear at this
Common Issues trial on behalf of the claimants with
Ms Donnelly, Mr Warwick, Mr Miletic and Ms MacKenzie,
and my learned friend Mr Cavender appears with Mr Draper
and Mr Cohen.
With your Lordship's leave, might one of my juniors
sit in this row?
MR JUSTICE FRASER: There is actually a practice direction
about this. You don't have to sit in the second row
just because you are a junior anymore, so it's
completely up to you --
MR GREEN: We didn't want --
MR JUSTICE FRASER: It is completely up to you where your
juniors sit.
MR GREEN: I am most grateful.
My Lord, your Lordship will have had details,
written openings from both parties.
MR JUSTICE FRASER: Yes.
MR GREEN: In the claimants' written opening I proposed to
take your Lordship to three important aspects of the
relationship against which the Common Issues fall to be
determined and which won't have found expression or
perhaps come to life fully in the written arguments.
MR JUSTICE FRASER: Just before you do that, and may be it
is not necessary to say anything about it, but
I received an application, or what was expressed to be
an application from the Press Association last night.
Do either of you know about that?
MR GREEN: My Lord, no.
MR JUSTICE FRASER: Give me one second then. It was sent
effectively as a matter of courtesy, but just putting me
on notice that today the Press Association was going to
seek to have certain of the documents provided to the
press so that they could report the proceedings
accurately. The reason for mentioning it now is two of
the documents specifically identified were each side's
written openings.
MR GREEN: My Lord --
MR JUSTICE FRASER: Now, I imagine it is not an issue
because there is binding authority on it, but --
MR GREEN: It is not an issue.
MR JUSTICE FRASER: All right. Very well. Good.
MR GREEN: I am most grateful, my Lord.
My Lord, the three facets of the imbalance in
the relationship which I wish to address are, first, the
imbalance in the contracts, second, a mechanical or
practical imbalance which I will explain, and third,
an information imbalance. And I can't pretend those
three categories are hermetically sealed but they are
each important.
In relation to the imbalance in the contracts, it is
common ground that the standard contract terms were not
open to negotiation by subpostmasters. True it is that
matters such as opening hours and what improvements
might be made to the premises were recorded and agreed
individually under what were known as conditions of
appointment, but the standard terms themselves were just
that, standard terms. Those standard terms included
a unilateral right to vary the terms exercisable by
Post Office, such that important aspects of the
relationship could be varied without the agreement of
individual subpostmasters.
There were various aspects to such variations.
There were variations to the general contracts and there
were variations to the individual postmaster's
relationship with Post Office in relation to disputed
shortfalls. And I will show your Lordship that when we
come to the losses and gains policy, but the short point
is that where there was a shortfall which
a subpostmaster was required to make good but could not
do so immediately, they would be given time to pay on
condition that all subsequently occurring discrepancies
or losses said to be due to discrepancies would be paid
without dispute. That practice has obviously got stark
implications for a subpostmaster afflicted by more than
one shortfall that is disputed in a row.
So in addition to the standard contract terms and
the unilateral power to vary, the third aspect of the
contract which contributed to an imbalance was the
defendant's sole control of Horizon, its interface, its
processes and how it had to be used by subpostmasters.
Not only the imposition of Horizon for subpostmasters
such as Mr Bates and Mrs Stubbs who previously started
under the old paper-based system but also the
requirement for all new subpostmasters to use that
system, and the defendant's ability, for example, to
change the periods when balancing took place, which was
initially a week and then moved to a four- or sometimes
five-week balancing period, at the end of which
a trading statement had to be produced and signed off by
the subpostmaster.
And it was a contractual requirement that the
subpostmasters would keep their accounts as required by
Post Office. There is no surprise that there is such
a provision but it is the import of that provision which
I will be directing your Lordship's attention to.
MR JUSTICE FRASER: You mean the effect of that provision,
or the fact that that provision was imported?
MR GREEN: The fact that it was imported and its effect
taken together.
There was also a change in 2005 to the way in which
suspense accounts worked, and from 2005 any sum that was
disputed and put into a suspense account had to be
cleared off in the trading period even if the
subpostmaster did not believe that the sum was correctly
recorded as due and owing, or, in some cases, even if
the subpostmaster did not believe that the gain reported
in their accounts was properly due to them.
A not insignificant point when one comes to consider
the position of a postmaster forced to accept on
an accounting system a claim for money that they do not
believe they are entitled to.
Those were matters over which subpostmasters had no
real or effective practical choice. We would say no
choice at all.
So, my Lord, that is a very brief identification of
the key points on the contractual imbalance side:
standard terms, unilateral variation and Horizon.
Under the mechanical or practical imbalance I am
going to have to take your Lordship to some documents to
make the point good. There were two important aspects
of the practical or mechanical way in which the system
worked, to which I have already adverted obliquely. But
if we look at the trial bundle at {B3/2/18}, which is
the Generic Defence, at paragraph 46(1), your Lordship
will see that the defendant admits there the practical
reality which I am about to identify in real life:
"It is admitted that there is no 'option within
Horizon' to dispute a shortfall, in the sense that the
process of raising and resolving a dispute does not take
place through the Horizon system. The process for
disputing a shortfall requires the dispute to be lodged
by calling the Helpline."
Your Lordship will immediately see, given the
emphasis placed on accounting obligations by
Post Office, the emphasis they place on accounting
obligations, that this is not a standard accounting
situation where one party is entitled to produce the
account that they believe is correct and submit it. It
is a materially distinct system, for the reasons that
I will identify, in relation to transaction corrections
and the balancing at the end of the balance trading
period.
As to transaction corrections, could your Lordship
look kindly at page {F3/68/1}. This is a 2008 document.
And if we could look, please, at page 3 of this
"Transaction Correction/Debt Recovery Process" document
{F3/68/3}, your Lordship will see at the foot of the
page --
MR JUSTICE FRASER: You are now jumping quite quickly. Can
we go back to the page we started at which I think is
page 1 {F3/68/1}. Do you want me to read that?
MR GREEN: Only to note the heading, my Lord, which is
"Transaction Correction/Debt Recovery Process".
MR JUSTICE FRASER: Well, the whole of paragraph 1 explains
the background, doesn't it?
MR GREEN: It does indeed. And in fact one can see in 2008
a new step being introduced at the bottom of that page
under "Transaction Correction Disputes". Three lines
down in that paragraph:
"A further step within the dispute process has been
agreed whereby subpostmasters can further dispute
a debt ..."
An important word we will come to.
"... (branch discrepancy/transaction correction) by
providing a written submission of evidence to the branch
analyst."
So that was new in 2008, that development.
MR JUSTICE FRASER: And by "agreed", that is agreed with the
National Federation?
MR GREEN: It looks as if it was likely to be agreed with
the National Federation.
On page 3 of that document {F3/68/3} there is
a diagram, but for present purposes I simply direct the
court's attention to the foot of the page:
"Please note --"
MR JUSTICE FRASER: Which is the end of it?
MR GREEN: At the bottom.
MR JUSTICE FRASER: So you don't want me to go through
the --
MR GREEN: I am not going to take your Lordship through it
because I have some discrete points on that.
MR JUSTICE FRASER: But that is the flowchart which sets out
what is supposed to happen if there is something
identified at the beginning which falls within the
description of an identified P&BA or branch error.
MR GREEN: Indeed. This is as at 2008.
MR JUSTICE FRASER: Understood.
MR GREEN: At the foot of that is a note saying:
"Please note the acceptance of a TC may still result
in a dispute. Branch trading forces the acceptance of
the TC on the Horizon system to enable the kit to roll
over."
So Post Office's internal document about this
recognised that the transaction correction is -- the
subpostmaster has no choice but to accept a transaction
correction at the end of the branch trading period in
reality.
MR JUSTICE FRASER: In respect of a shortfall or
a discrepancy.
MR GREEN: Discrepancy. It can even be a gain.
MR JUSTICE FRASER: Yes.
MR GREEN: But they think, hold on a second, I'm not owed
£5,000.
MR JUSTICE FRASER: So by "the acceptance of a TC", is that
referring to acceptance by the Post Office or acceptance
by the subpostmaster?
MR GREEN: By the subpostmaster. So the acceptance -- so
what happens is the transaction correction shows up on
their screen, either during the course of the branch
trading period or at the end of it.
MR JUSTICE FRASER: Yes.
MR GREEN: And they can defer -- this is actually the next
point I am going to show your Lordship, but the basic
point is they can either defer dealing with it to try
and give them some time to investigate it, or they can
pay it in cash or cheque, or they can say settle
centrally, which means I agree the debt, subject to me
making any -- raising any dispute on the Helpline.
There is no option to dispute a discrepancy on the
Horizon system as the defendant itself admits in its
Defence.
MR JUSTICE FRASER: The way it works is the dispute aspect
of it is done separately from the Horizon system itself.
MR GREEN: Yes, it is separate, and it is orally to
a Helpline.
MR JUSTICE FRASER: I understand that, but that is
a separate route than using Horizon to do it.
MR GREEN: Yes. So the subpostmaster is thereby required by
Post Office to state an account with which the
subpostmaster may strongly disagree. There is no option
to do anything else.
That is a feature of the way Horizon works, which
I will briefly touch on under information, because that
is an unusual feature, we would respectfully submit, and
no subpostmaster -- no hopeful subpostmaster about to
contract with the Post Office would understand that that
was going to be the system. They would not have notice
of the absence of any control in their hands over
rendering an account of transactions said to be within
their branch.
I have not been able to find, my Lord, an example in
a reported case of a similar system where a disputed sum
becomes a debt subject to later dispute. I looked,
I can't say there aren't any, but I haven't found
a similar accounting relationship of this type.
Could I take your Lordship then, please, to
{F4/73/1}. In fact, I am sorry, it's probably easier to
do it in one go and just go to {F3/87/1}.
MR JUSTICE FRASER: Another policy document.
MR GREEN: This is another policy document in relation to
the creation and management of transaction corrections
in POLFS, which is the Post Office's internal
reconciliation office.
MR JUSTICE FRASER: What is the date of this document?
MR GREEN: This document is 10 February 2010, and it's
a document to be explored more in the course of
evidence.
But can I ask your Lordship to look at {F3/87/8} at
paragraph 2.2.6. In 2010 -- by 2010 a high value
transaction correction authorisation signature
requirement had been introduced, and as that paragraph
explains:
"As part of the transaction correction creation
process a high value authorisation series of signatures
has been introduced. This is a form that goes with the
evidence and is signed by the level of manager dictated
by the value. Between £10,000 and £29.99K team leader's
signature, £30,000 to £49.99K senior manager's
signature, and over £50K requires the head of P&BA to
sign it."
MR JUSTICE FRASER: P&BA is branch accounts office?
MR GREEN: Branch accounts department.
"These forms are then filed with the paperwork. The
reason for creating this extra check step was two fold;
firstly to prevent large credit transaction corrections
being issued, then a long period for the debit to be
issued ..."
So the cashflow point, where they make a mistake in
favour of the subpostmaster, and it takes them a long
time to spot that they have made an enormous mistake in
favour of the subpostmaster.
MR JUSTICE FRASER: Who is "they"?
MR GREEN: Post Office.
MR JUSTICE FRASER: Do you mean Post Office within Horizon
or Post Office ex-Horizon?
MR GREEN: My Lord, the only difficulty I should flag up now
is --
MR JUSTICE FRASER: That is why I am asking.
MR GREEN: Your Lordship is right. In the pleadings we
defined Horizon to include everything, but for the
purposes of the March trial we have a smaller definition
of the Horizon issues, a narrower field of functions.
Your Lordship will remember my learned friend
Mr Cavender saying that he wanted to keep
reconciliation, the manual reconciliation of data
outside of it.
So the way it looks to the subpostmaster, my Lord,
because there are two different perspectives. The way
it looks to the subpostmaster is the subpostmaster
either is sent a transaction correction saying you are
entitled to take so many thousand pounds out of the
till, or you owe so many thousand pounds, whatever it
is. Or at the end of the branch trading period, when
they go to balance, they go to balance and they find
there is an enormous discrepancy not previously
foreshadowed. So those are the two ways.
But what they don't see from their -- they see it as
Horizon, a problem on Horizon. What they don't see is
the fact that there are a number of data streams,
Horizon sends data out of the system to third party
clients, they send their data back. Some of that data,
for example, Camelot, can create an auto transaction
correction, and other data more typically, where there
is a discrepancy, gets referred to the reconciliations
team who manually seek to reconcile, make a judgment
about whether it is the subpostmaster's fault, and then
send a transaction correction which will have a limited
amount of information on it, typically. Or sometimes
they will send some evidence in the post to the
subpostmaster about it.
So that is how it seems to the subpostmaster. So
from the subpostmaster's perspective, Horizon is the
system they are obliged to work with, it's the terminal,
and it is through that terminal that they see
everything. But Post Office's perspective is rather
different because they have their people doing
reconciliations, they have people monitoring the
performances of the Horizon system itself. They have
also of course got their own cash centres receiving cash
remittances and sending out stock, and there are
sometimes errors, human errors, on that side. But they
will typically then find expression in the Horizon
system from the perspective of the subpostmaster.
So what this high value transaction correction
authorisation signature requirement was directed at was
two things, and we respectfully say both of them are
important: the first one was where Post Office was
worried that it would wrongly send out a transaction
correction for a credit to a subpostmaster, and then
getting it back -- working out what had gone wrong and
getting it back would take a long time. So
Post Office --
MR JUSTICE FRASER: It wouldn't only take a long time, it
also says here that debit might be disputed and blocked.
MR GREEN: Indeed.
MR JUSTICE FRASER: So there are two parts to it.
MR GREEN: Exactly. There is a time and a dispute --
MR JUSTICE FRASER: And the possibility of a dispute on the
debit.
MR GREEN: Exactly.
The second reason being to ensure that branches are
not hit by a large value transaction correction which is
subsequently found not to be proper to that branch. So
Post Office by 2010 had recognised that it was important
to have a policy by which those high value errors would
be less likely to occur because of the additional
signatures required.
MR JUSTICE FRASER: There is an extra layer of consideration
required in order for a signature to be given.
MR GREEN: Exactly.
MR JUSTICE FRASER: Depending on how much the value is.
MR GREEN: Precisely. So that extra filter was hoped to
reduce the scope for those errors. And that is --
your Lordship will see, or just for your Lordship's note
perhaps, the policy itself is at {F3/79/1}. If we just
look at that for a moment, that is actually the policy
itself. Your Lordship sees that actually is deployed
in June 2009. It says it is revised in May 2009 but it
is also said to be version 0.1. So it looks as if it
came in for the first time on 1 June 2009.
So mechanically, in relation to transaction
corrections, they had to be cleared at the end of the
balance trading period. And then as to balancing
itself, at the end of the period when the subpostmaster
does the balancing exercise they can find that there is
an error which they weren't expecting. And we are not
talking about a book of stamps adrift.
MR JUSTICE FRASER: Do you mean an error or do you mean
a discrepancy?
MR GREEN: A discrepancy in the accounts for which they are
said to be liable.
MR JUSTICE FRASER: That is why I asked about the use of the
word "error".
MR GREEN: I apologise. I shouldn't have conflated the two.
MR JUSTICE FRASER: So at the end of the period they might
find a discrepancy which they were neither expecting nor
aware of.
MR GREEN: Yes. If we look at the witness statement of
Pam Stubbs at {C1/2/21} and we look at paragraph 90,
Mrs Stubbs had taken over this branch the day after the
death of her husband.
MR JUSTICE FRASER: Yes.
MR GREEN: And had been operating the branch for some years
by the time we get to December 2009.
At paragraph 90 she explains:
"During December 2009, I closed the office for three
days before Christmas for my daughter's wedding. We
were closed over Christmas and New Year. Nonetheless,
the trading statement on 5 January showed a shortage of
£9,033.79. This was entirely unexpected as I knew that
there had not been this amount of cash unaccounted for
in the branch during the trading period and the branch
had been closed for a number of days. I immediately
reported it to the Helpline, who gave no assistance
apart from to inform me to double-check my figures which
I had already done. As I mentioned above, the Helpline
marked this as 'low priority'."
MR JUSTICE FRASER: That really goes with the paragraph
before, doesn't it, in terms of the chronological
sequence?
MR GREEN: It does, because there had been a previous
attempt. In one sense, starting with the prior one, the
mere fact that this is actually in a genesis which
actually starts at the top of the page.
MR JUSTICE FRASER: Top paragraph.
MR GREEN: Exactly. And your Lordship will see at 89
obviously she is saying she had no option but to make
the payment to the Post Office by cheque:
"I was not advised that I could dispute the
shortfall. As I mention above, there does not appear to
be a record of my call the following day in
Post Office's disclosed call logs."
In December 2009 she closed for three days which
I have just read out.
End of paragraph 90, it is marked as "low priority".
We only know that because of disclosure in these
proceedings.
She explains at paragraph 91:
"I believed I had accurately accounted for the cash
and stock held at the branch and I was able to confirm
this when I reviewed the records that I had retained
which I refer to below. Helpline advised me that unless
I formally declared that I wished to dispute a shortfall
then this would not be considered disputed. I had not
been informed of this before, either. I naturally
assumed that I had the right to dispute any alleged
losses and that calling Helpline to question an apparent
shortfall would give rise to an investigation. My
understanding was that Post Office would be obliged to
do so as that was necessary in order to get to the
bottom of the problem.
"As I mention below, I understand the extent to
which the cause of shortfalls was a matter within my
knowledge is to be considered at the Common Issues
trial. Given the concerns I had, from 6 January 2010
I obtained as much transaction information as was
available to me on Horizon, specifically, transaction
logs going back 42 days prior to that day, for example,
a transaction log for 5 January ... I sought to retain
this paperwork in an attempt to assist me in finding the
problem."
Could I just ask that we are shown that transaction
log in the margin there {E2/37/1}, just so the court has
sight of -- and that goes on {E2/37/2}. If you scroll
down, your Lordship will see ...
MR JUSTICE FRASER: I'm not sure I will, actually.
MR GREEN: It is not the easiest thing --
MR JUSTICE FRASER: If we can zoom in?
MR GREEN: Yes, can we zoom in a bit. So this is the
information that subpostmaster can print out of the
narrow print roll in their branch in order to try and
trace what has gone wrong at the end of the trading
period. And this roll ran to some length.
MR JUSTICE FRASER: It will be however long the number of
transactions are, won't it?
MR GREEN: Exactly. So during a busy period that could be
quite long.
MR JUSTICE FRASER: Which entry do you want me to look at?
MR GREEN: My Lord, there is no specific entry here. I just
wanted your Lordship to have sight of the type of
document that we were considering.
MR JUSTICE FRASER: I see. But these are the transaction
logs.
MR GREEN: Yes, going back 42 days.
MR JUSTICE FRASER: Yes.
MR GREEN: And then handwritten accounts for herself. If we
look at {E2/35/1}, and go over the page, please
{E2/35/2}. Pam Stubbs maintained all of these.
MR JUSTICE FRASER: What are the headings?
MR GREEN: "Deposits". And I think -- I understood that to
be -- I think it is "Rems out". Remittances out is the
full title.
MR JUSTICE FRASER: Then "Withdrawals".
MR GREEN: "Withdrawals". And "ONCH" is overnight cash
holdings.
So if we can return back to the witness statement at
paragraph 93 {C1/2/22}:
"But despite carefully 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 full information from
Horizon, to which Post Office had access and not me.
"Though I had disputed the apparent shortfall,
I began receiving demand letters from Post Office, which
stated that I was contractually obliged to repay it, and
asked me to settle the sum and threatened to deduct it
from my remuneration if I did not do so within seven
days."
Could you please click on {E2/40/1}.
MR JUSTICE FRASER: At the bottom that says it excludes
items currently in dispute.
MR GREEN: "... or held awaiting transaction correction."
But the point is --
MR JUSTICE FRASER: I have got the point. There are
probably two. This witness's evidence is that she had
done all that was necessary under her instructions to
dispute the item.
MR GREEN: Precisely. And nonetheless -- my Lord, the
problem is that mechanically, and this is why I put it
under the mechanical/practical heading, is what
subpostmasters have to do at the moment they are going
to close out that branch trading period and then roll
over to open the office next day, they have to accept
any transaction corrections that are in dispute.
So at that moment they have to sign an account
saying that they owe the money but make a telephone call
to the Helpline. So the account that they have no
choice but to go along with records it as a debt owing
to them -- owing from them to Post Office even in
circumstances such as this.
And it may be, we think it is likely, that when it
refers to:
"The statement excludes any items currently in
dispute --"
MR JUSTICE FRASER: It must mean for that trading period.
MR GREEN: Yes. What it means is you can't rely on this as
your total liability.
MR JUSTICE FRASER: Whether that is right or not, what you
are saying is that last passage only makes sense if it
is interpreted as meaning items currently in dispute in
the instant accounting period.
MR GREEN: Yes. Not in the accounting period to which that
related because you had to roll over already.
Precisely.
But on any view, firstly you get a letter referring
to a debt.
MR JUSTICE FRASER: Yes.
MR GREEN: And that is the first line of the letter, an
outstanding debt. So by the mechanical device of not
offering, on the menu, any way of disputing this, a debt
is created in the account even if it is one with which
the subpostmaster completely disagrees. It is then
recorded as a debt in the letter. And then the second
paragraph, and we will see the source of this when we
come to information, records:
"Since you are contractually obliged to make good
any losses incurred during your term of office ..."
And your Lordship will know that under the SPMC
that's any losses caused by your own negligence or
error.
MR JUSTICE FRASER: Clause 12 of section 12.
MR GREEN: Indeed. So the contractual recital and I think
the broad pattern, to try and be fair to Post Office,
the broad pattern is that the initial few letters
chasing the debt recite this with no reference to the
necessary condition of fault, and then eventually
a letter tends to come in the series where that then
does appear.
MR JUSTICE FRASER: Understood.
MR GREEN: If we can go back to the witness statement, just
to complete this short piece {C1/2/22}. Can you look
at -- would your Lordship look kindly at paragraph 96 on
that page:
"I continued to contact the Helpline about my
concerns, and each time they said either that they were
unable to assist or that they would look into the matter
and call me back, which they didn't. Eventually
I requested direct access to Fujitsu, who I knew handled
the Horizon system for Post Office, so that I could
discuss the problem but this was refused.
"Instead I was told by the Helpline that Post Office
would contact Fujitsu themselves. Having apparently
spoken to Fujitsu, Post Office said that there was
nothing wrong with Horizon, though they had not asked me
to produce the evidence I had assembled, to which
I refer above, nor attended the branch at this point.
"I am aware from Post Office's call logs that it
appears that in late January 2010, Fujitsu or
Post Office had identified a further large cash
shortfall. I asked the Helpline if Post Office had
accounted for a cash remittance of £26,000 which had
occurred on 5 January 2010. Despite --"
MR JUSTICE FRASER: When it says "which had occurred", that
effectively means which had been paid by this branch,
doesn't it?
MR GREEN: Yes, Pam Stubbs had remitted £26,000.
MR JUSTICE FRASER: Yes. Saying "cash remittance which had
occurred" is slightly neutral language.
MR GREEN: I agree.
MR JUSTICE FRASER: It means she paid --
MR GREEN: She paid £26,000. Exactly:
"Despite Helpline staff saying they would check this
and confirm, they never came back to me. I have since
seen from Post Office's call logs that it had no record
of this cash remittance at the time. I do not
understand how I could ever have been expected to
investigate and conclude either way why there was
an apparent shortfall when Post Office did not have
a record of one straightforward transaction and
a remittance going back to its own cash centre. Out of
concern at the missing cash remittance in early February
2010 I called Post Office's cash centre and was told the
£26,000 cash remittance had in fact been received on
8 January 2010."
My Lord, I'm not obviously going to -- there is
a lot of this sort of evidence, but I thought it might
be helpful for your Lordship to see that one of them and
see what the process was and how that was gone through.
So that is the system on balancing transactions.
The significance of that is that a postmaster is
required to make that account good by cheque or cash.
Because you have to -- there are two layers of
implications. There is the visual and accounting
implication of having to accept and make good on the
screen and say you have put in cash or cheque to make
good a shortfall, and then there is the practical
implication of being there at 6.30/7.00 that evening,
finding this number, and knowing that you are
contractually obliged, because there is no way of
disputing it, to put a cheque for £9,033-odd or cash of
your own to that value into the till then and sign and
say you have done so.
MR JUSTICE FRASER: Aren't they just two different sides of
the same coin?
MR GREEN: Precisely. One imports the obligation. The
obligation to either accept a transaction at the end of
the period which hasn't been -- transaction correction
at the end of the period, or to make good on the balance
at the end of the branch trading period, both present
the subpostmaster with this obligation to put cash or
cheque into ...
And of course if a transaction correction emerges
close to the balance trading period end, or if it is
just a balancing shortfall which you find out about when
you do balancing at the end, you are then presented with
this obligation to put in this case £9,000 of cash into
the till. And if you haven't got that in your wallet or
available to you practically, you have to write
a cheque.
MR JUSTICE FRASER: Mr Green, that is really what the case
is about, isn't it?
MR GREEN: Indeed. That is exactly what the case is about.
MR JUSTICE FRASER: So I think I have grasped that point
some months ago.
MR GREEN: I am grateful.
So, my Lord, we then move to the information
imbalance. So I have dealt with the contracts point,
the mechanical point, the mechanical/practical way
Horizon worked. And the third limb of the imbalance in
the relationship is the information imbalance.
The first point which I have already adverted to is
that incoming subpostmasters, prior to contracting with
Post Office, would have no knowledge of how Horizon
itself worked and in particular the accounting points
that I have just been referring to. It's a very
one-sided mirror in that respect.
The second point is that the manner in which
subpostmasters were informed about any liability for
losses was not consistent and was qualified and wasn't
particularly clear.
To give your Lordship examples, some of the lead
claimants received no notice of the liability clause,
although Pam Stubbs says she thought she would only be
liable if something was her fault. But she was not
provided with a copy of the standard subpostmasters'
contract after her husband died.
Others, such as Mr Sabir and Mr Abdulla, were
provided with documents in advance. And if we can look
at {E3/53/3}, we can see that the brief summary of
certain sections of the subpostmasters' contract
includes there a paragraph at the bottom of the page in
relation to losses:
"The subpostmaster is responsible for all losses
caused through his own negligence, carelessness or
error, and also for all losses caused by his assistants.
Deficiencies due to such losses must be made good
without delay."
At the top of the page it says:
"For use as a guide only; Post Office Limited will
be in no way responsible for any action taken as
a result of this summary."
So it wasn't something that they could rely on.
And if we look at page {E3/53/7}, please.
MR JUSTICE FRASER: But it does refer to the subpostmasters'
contract.
MR GREEN: Absolutely. There is a question as -- it does
indeed, my Lord, yes.
If we go to page 7, there is a note --
MR JUSTICE FRASER: This is page 8. Do you mean 7 of 11?
MR GREEN: 8 of 11. The note says:
"The above paragraphs summarise certain sections
only of the subpostmasters' contract. They are by no
means a comprehensive description of the contract and
should not be used in place of a thorough review of the
contract. A subpostmaster may not rely upon points made
in this summary as they are for reference purposes
only."
Your Lordship should know, at this stage he has not
been sent the contract.
MR JUSTICE FRASER: No.
MR GREEN: It does refer to a contract, absolutely, and it
does refer to a liability for losses.
MR JUSTICE FRASER: And it also refers -- I know the
situation is different for some of the different lead
claimants.
MR GREEN: Indeed. The terms themselves in both the SPMC,
both versions of the SPMC, and the NTC --
MR JUSTICE FRASER: Can we look at those quickly?
MR GREEN: Certainly. I have a discrete piece on those.
Can I --
MR JUSTICE FRASER: Alright. Are we going to look at them
when we get to --
MR GREEN: We are, yes, exactly. The terms themselves were
in quite a large volume of documents.
MR JUSTICE FRASER: I understand that. In fact part of the
reason I asked is I actually found some difficulty
finding it originally, because one of them at least has
the appendices inserted within the document itself.
MR GREEN: The 2006 contracts, both the standard and the
modified, have between 40 and I think 48-ish individual
prior sheets of variations or qualifications or
additions before you get to the actual document.
MR JUSTICE FRASER: I understand that. But even when you
get to the actual document, in one of versions some of
the appendices are then inserted within the document.
MR GREEN: Indeed.
MR JUSTICE FRASER: I don't know if that has been done for
the purposes of the trial or whether it was given to the
individuals like that.
MR GREEN: That is how we understand the individuals got it.
MR JUSTICE FRASER: But part of the reason for asking to go
to it is it is relatively difficult to track through it
to the parts that you want to see.
MR GREEN: Indeed. So the clauses were there.
MR JUSTICE FRASER: Yes.
MR GREEN: In relation to the meaning of the clause at
12(12), obviously that is one of the Common Issues, and
it is notable that the defendant's construction for
which it contends in the Generic Defence at
paragraph 94.1 on page {B3/2/43} -- your Lordship will
have seen in my learned friend's written opening the
suggestion that the claimants are trying to rewrite the
contract. And we know what section 12, clause 12 said.
And the defendant's version at 94(2) is:
"On the true construction of section 12, clause 12,
subpostmasters are responsible for all losses(as defined
in paragraph 41 above) disclosed in their branch
accounts save for loss which is 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."
So the irony of the defendant's position in relation
to the clarity of that clause is that in order to get
the construction for which they contend, they have not
metaphorically rewritten the clause, they have actually
rewritten the clause as they now contend they would like
it to be. So at the very lowest, the clause was lacking
in clarity if the defendant had intended to achieve by
its drafting a result which essentially inverts the
words they actually chose to use at the time and
reverses that qualification putting all the burden on
the subpostmasters.
My Lord, just to compare -- I know your Lordship has
it -- but if we just quickly go to {D2.1/3/53}. This is
clause 12(12) in the 1994 standard SPMC contract. So as
your Lordship knows, there was a standard SPMC contract,
and then there was a modified one which was for former
Crown Offices. They were largely but not completely the
same. But for these purposes, for this purpose, the
clause 12 in section 12 was the same.
So a very ready comparison between what the
defendant chose to draft where it had unilateral power
to impose anything it liked, and what it has identified
as what it wants the contract to mean in 94(2), shows
the difference up quite starkly.
MR JUSTICE FRASER: Can we go to the page before this,
please {D2.1/3/52}.
MR GREEN: Indeed. There is also, my Lord, I should
probably mention, I think if we go two pages on
{D2.1/3/54}, your Lordship will see "Relief":
"Counter losses. A subpostmaster may exceptionally
not be required to make good the full amount of certain
losses at his office. If he feels entitled to relief in
making a good a loss he should apply to the retail
network manager."
And then there is theft or burglary and fraud dealt
with separately. But that is under relief. I just
mention that because that becomes relevant when we look
in a minute at the policies that Post Office operated in
relation to the application of section 12(12).
MR JUSTICE FRASER: So the one that you have just taken me
to, which is at {D2.1/3/53}. The one at {D2.1/1/39} and
{D2.1/1/40}, that is the earlier version, the 1991
version?
MR GREEN: That is the 1991 version.
MR JUSTICE FRASER: But the wording is exactly the same.
MR GREEN: The wording is exactly the same. Your Lordship
has slightly led me to the point I was about to make,
which is essentially they the kept the contractual terms
in this respect identical but Horizon came in which
completely changed the way everyone was working. But
the contractual provisions in that respect did not
change at all.
MR JUSTICE FRASER: And in a way that is why there is
notionally a potential watershed between -- some of the
claimants already had existing contractual relations
when Horizon was brought in, and the bulk of them it
appears didn't and Horizon was already in existence --
MR GREEN: Exactly. So basically the split is 2/4, it's
Mr Bates and Mrs Stubbs, who are pre-Horizon, and the
other lead claimants post.
I think just to foreshadow at least our broad
submission on that, we respectfully say that because of
the particular way that Horizon operated on this point,
we would say in fact there ends up being no difference.
MR JUSTICE FRASER: I --
MR GREEN: You anticipate that submission.
MR JUSTICE FRASER: I am aware of that. That is a point
down the line.
MR GREEN: Yes. I am most grateful.
MR JUSTICE FRASER: But the terms stay the same.
MR GREEN: The terms stay the same. There is then
a question of what they mean in this context.
So under this third limb of imbalance, which is the
information imbalance, the first point is that those
contracting didn't understand the operation of Horizon
in the way that I have described, either because when
they came in, Mr Bates and Mrs Stubbs, it didn't exist,
or because of the very particular way in which these
debts were created, and other matters, were not likely
to be in their minds prior to contracting.
The second point is the information in the contracts
relating to losses which I have dealt with by reference
to those examples.
The final example was just Mr Bates only got the
Serv 135 document, which makes reference to losses, on
his transfer day. So he never had the SPMC. He got the
SPMC when he queried an issue relating to holiday pay.
My Lord, could I just take your Lordship to
{D1.1/2/1}.
MR JUSTICE FRASER: This is the certificate of appointment.
MR GREEN: This is the certificate of appointment. It says:
"I ... agree to be bound by the terms of my
contract, the personal declaration signed by me, and by
the rules contained in the Book of Rules and the
instructions contained in those postal instructions
issued to me."
Your Lordship will know from our written opening
that the Book of Rules, so-called, doesn't seem to have
existed at this time, and no document by that title has
been disclosed or claimed to exist by Post Office.
So one of the features of this case, just to give
your Lordship a feel for how well acquainted people were
likely to be with what they were agreeing to, is on the
very face of the certificate of appointment it refers to
a document by a title, capitalised, which as far as we
are aware does not exist by that title. It may have
done in the 1980s, but we are not aware of that document
existing anywhere and it hasn't been disclosed. No
document by that title has been disclosed at all.
If we can just look quickly at {D1.3/4/1}. It is
the rules contained in the book of rules, small B, small
R. And your Lordship will be shown the profusion of
manuals and documents which there are.
MR JUSTICE FRASER: This is Mr Sabir.
MR GREEN: This is Mr Sabir. And then if we look at
{D1.5/3/1}, this is Louise Dar's, Mrs Dar's one. And
that is an NTC contract, my learned friend Ms Donnelly
helpfully reminds me.
Your Lordship will be aware from the hearing of the
application on 10 October that there is some uncertainty
as to exactly on which date the obligations with which
the court is concerned are entered into. Is it when the
first document is signed? It varies between claimants,
we will explore this. Or is it on the moment of branch
transfer where they sign their acknowledgment of
appointment? And is that a novation or is that taking
on a wider group of obligations than was there before?
But it is, shall we say, reasonably neutrally, for
an organisation such as Post Office it would have been
possible, throughout the period with which the court is
dealing, to have made the contractual position clearer
to individual subpostmasters.
So, my Lord, that is -- so still under
the information pillar. The three pillars, contracts,
mechanical and practical and information. Still under
the information pillar, there is Horizon, and obviously
then what the contractual documents said. And I will
supplement this a little when I show your Lordship some
aspects of the contractual documents in a moment.
The first one is what the contractual documents
said. The second one is order of magnitude of losses.
And a subset of that is order of magnitude of losses of
this sort. And the short point is the extent to which
a notional reasonable party in the position of
a subpostmaster going into this relationship, provided
with such information as they were provided by
Post Office, would have appreciated that they were
taking a commercial risk of this magnitude in relation
to sums which they would wish to dispute, such that
those substantial sums, very large sums, would
automatically become debts owed by them, save insofar,
from Post Office's perspective, as they could find
an explanation for what had gone wrong.
So that is the third point, the order of magnitude
point and the extent to which, for example, in
interviews some of Post Office's witnesses say yes,
I mentioned it could be hundreds of pounds. That is
a factual issue between the parties.
So the extent of that sort of awareness of those
losses, and losses on that magnitude and of that type.
MR JUSTICE FRASER: The subjective awareness cannot affect
the process of construing the terms.
MR GREEN: My Lord, no. The only point is that
your Lordship needs to reach an informed view of what
a notional reasonable party would be likely to have
known, and you can only do that from a real appraisal of
some lead cases and their facts. The particular
eccentricities of one lead claimant or another are
neither here nor there.
MR JUSTICE FRASER: Nor their subjective awareness.
MR GREEN: Precisely.
Then the fourth point under this heading is the
other thing that subpostmasters weren't aware of was how
in practice, as a matter of process, Post Office dealt
with these losses. Could I ask, please, for the court
to be shown the Losses and Gains Policy at {F3/8/1}.
My Lord, this is an internal Post Office policy about
how internally Post Office deals with subpostmasters.
If we go over the page {F3/8/2}.
MR JUSTICE FRASER: POCL is Post Office Counters Limited.
MR GREEN: Which at that time was the relevant party.
Version 1, 20 November 1998. So it pretty
conveniently gets the sweep, before the sweep of events
with which the court is concerned.
If we go to the next page, please {F3/8/3}, we have
index and we can see section 3 deals with accounting
losses. Section 5 authority levels, write off authority
levels. Appendix B deals with financial hardship. D,
losses and gains at agency outlets. G, transaction
errors. And another write off related one at appendix L
which is the write off process. So that is
the structure of the document.
Then if we can just go over to page {F3/8/4}. The
policy, it says:
"... has been developed under the auspices of
Counters Risk Management Committee in order to provide
clear and consistent guidelines about financial losses
within the agency network."
The overall purposes are:
"To ensure probity, objectivity and conformity
across the network.
"To protect business finances and minimise
outstanding losses.
"To clarify roles and responsibilities.
"To ensure equality and fairness of treatment of
subpostmasters and other agents."
It replaces a previous document from 1988 which
I don't think we need to deal with because this
pre-dates the introduction of Horizon. And it replaces
all preceding instructions on the treatment of agency
losses. So it is helpful because a lot of Post Office
documents interrelate with others but this document at
least gives us a clear navigation point to start from.
Your Lordship has probably seen already the key
paragraph immediately follows:
"From a purely contractual perspective ..."
And we respectfully say that that is the perspective
with which this court is concerned on this issue:
"... a subpostmaster or other agent is responsible
for all losses caused through his own negligence,
carelessness or error. He is also responsible for all
kinds of losses caused by the actions of any assistants,
managers or relief subpostmaster employed by him.
However, this stance may be varied in appropriate
circumstances. These guidelines, which are consistent
with the contractual relationships we have with our
subpostmasters and other agents, seek to clarify those
circumstances where some mitigation might be admissible
and provide a clear framework for line managers to
approach the issues of financial losses within outlets."
Then it explains:
"The general principles ... are, of necessity,
mandatory upon regions."
And then:
"... the detailed processes by which these
principles are deployed are for regions to determine in
the light of their particular circumstances ..."
There is some variation there.
Then the final paragraph on the next page {F3/8/5}:
"These guidelines are structured by initially
looking at the preventative measures that are available
to minimise the occurrence of losses in the first place,
followed by consideration of the approaches to be taken
when there is crime committed against the Post Office
which leads to financial loss. They also cover
accounting losses at outlets which are not due to crime
but may be due to careless and poor accounting practice.
Finally they deal with appropriate levels of authority
that should be deployed for write offs."
When we go, please --
MR JUSTICE FRASER: I am just going to get you to pause
there for this reason: because we have an electronic
trial bundle the transcript will be hyperlinked. So if
you say "the next page" or "over the page" --
MR GREEN: I apologise.
MR JUSTICE FRASER: You don't need to apologise, it is the
first time it has happened. It is less helpful than
saying the reference, because that will go in the
transcript, and then when you read it this evening you
will just be able to click on it.
MR GREEN: I am most grateful, my Lord.
If we look at {F3/8/6} -- my Lord, would noon be
a convenient moment for the break?
MR JUSTICE FRASER: Yes, any time between about 10 to 12 and
12 o'clock.
MR GREEN: I am grateful.
If we look at "Preventative Measures", the layout is
that item 1 is preventative measure by outlets. And
then item 2 on {F3/8/7} is preventative measures by
POCL. And the regional network manager loss control
process makes them:
"... accountable for all [underlined] losses at
their outlets and therefore the need to practice
preventative measures in this area cannot be
over-emphasised. This is particularly true in misuse of
funds cases, which are breaches of contract and must not
be treated leniently since this encourages low standards
of financial propriety."
Authority to hold losses in unclaimed payments is
then dealt with:
"The subpostmasters' contract requires that losses
are made good without delay. Immediate settlement is
therefore the contractual norm. RNMs, however, can
authorise losses to be held in unclaimed payments for
a period up to 8 weeks."
So this is before the 2005 change in suspense
accounts as we understand it.
"This arrangement should not be seen as a rubber
stamping exercise and agents should have to justify
their reasons for not making losses good immediately
(eg known error made and error notice to be issued;
misbalance is against current balancing record).
"Immediately following the 8 week period, it is the
RNM's responsibility to pursue such cases. Where error
notices have not been issued to clear the original loss
then arrangements should be made without further delay
to make the loss good."
We have some letters which your Lordship will see in
the course of evidence where that was used and the eight
weeks come to an end without resolution.
If I could now look, please, at {F3/8/14}.
At 3.1:
"The subpostmaster is required to make good all
losses however they occur."
So there is an immediate difference noticeable
between the recital of the purely contractual
perspective at the beginning of the document at {F3/8/4}
and the actual policy as in fact it worked in practice.
And what in fact happens --
MR JUSTICE FRASER: Did you mean to go back to ...
MR GREEN: ... at {F3/8/14}, if I may go back to that, is
after reciting the bare position that we see -- for
example, we have seen in the position of Pam Stubbs, in
her case of £9,033 and so forth, make good all losses,
without qualification.
MR JUSTICE FRASER: And then gives a reference to the clause
that is in fact the correct clause.
MR GREEN: Indeed.
It says:
"However, there may occasionally be exceptional
circumstances that allow for relief. The table below
details types of losses and the scope that may be
considered for relief. Error notices issued should be
brought it account in the next available/possible cash
account."
Then there are different sorts of relief available
there which are for new agents --
MR JUSTICE FRASER: Is a new agent a type of loss?
MR GREEN: No, it is -- I think what is intended to be there
is losses occurring under a new subpostmaster.
MR JUSTICE FRASER: What does C/A mean?
MR GREEN: Cash account, I'm told helpfully. The first six
cash account weeks. Because at that time the balancing
was done weekly.
MR JUSTICE FRASER: Understood.
MR GREEN: So the short point is that there is relief being
considered here, and what appears to be happening is
that Post Office are conflating the provision that
I showed your Lordship in the 1994 SPMC standard
contract for relief with the entire universe of events
when a subpostmaster will not be liable.
The reason that I make that submission is
twofold: one is that postmasters would not have -- a
notional reasonable subpostmaster taking up
an appointment would not have expected this approach
from the contractual term, which says something
different in words. And the second point is that my
learned friend's written opening makes very clear that
the court is almost being warned against adopting
a construction of the legal relationship which differs
from Post Office's present practice.
So at paragraph 3 of the defendant's skeleton, which
is at {A/2/3}.
MR JUSTICE FRASER: The "existential threat".
MR GREEN: The "existential threat" paragraph. It just
requires a tiny bit of unpicking.
Paragraph 3:
"In broad summary, the claimants mount a two-pronged
attack on (1) the responsibility of SPMs to Post Office
for what goes on in their branches (with money and
stock) and to duly account to Post Office in respect
thereof, and (2) the ability of Post Office to terminate
the agency contract on notice (or otherwise) when things
go wrong. If claimants were right in the broad thrust
of their case, this would represent an existential
threat to Post Office's ability to continue to carry on
its business throughout the UK in the way it presently
does."
My Lord, we foreshadow, we anticipated this argument
at paragraph 209 of our skeleton which is internal
page 80 {A/1/84}.
MR JUSTICE FRASER: Which paragraph?
MR GREEN: 209:
"The defendant's position involves two assumed, if
not express, premises:
"That deviating from its own practices would be
unfairly disruptive to the defendant and impose
impossible or undue administrative burdens; and
"Therefore, the court's contractual construction
must conform to the defendant's own internal practices -
the very subject of this dispute."
My Lord, where a party before the court makes
a submission to that effect, the extent to which their
own practices align or do not align with the words they
have chosen to put in the contractual documents
themselves requires some proper scrutiny. So it's
against that background, if I could just go back, if
I may, to --
MR JUSTICE FRASER: If you are going to another document
I think we will have a break.
MR GREEN: I am grateful.
MR JUSTICE FRASER: I am only going to say this once and it
is just because it is the first day of the trial and the
court is quite full. We have a break part-way through
the morning and part-way through the afternoon for the
two ladies here who are doing the simultaneous
transcription which is a quite a burdensome exercise.
It's usually about ten minutes. The break is actually
for them, it's not for all of you, and it is quite
difficult for the Associate to make sure everyone gets
back into court in time.
Please feel free to leave court, but please make
sure you are back so that the ten minutes doesn't become
15, and the 15 doesn't become 18. We will resume, using
that clock, at 12.05 pm.
(11.55 am)
(A short break)
(12.05 pm)
MR GREEN: Just to pick up where I was returning to,
{F3/8/14}. In this accounting losses section there is
the approach to granting relief and your Lordship has
already seen the way in which the subpostmaster's
liability was recited at 3.1. Just for your Lordship --
MR JUSTICE FRASER: Yes. We have seen that at the
beginning, the text.
MR GREEN: Yes.
MR JUSTICE FRASER: Now we are looking at the box, I think.
MR GREEN: Indeed.
MR JUSTICE FRASER: Is that where we are going to now?
MR GREEN: Can I just make good one point on the 3.1 text
before I then deal with the box.
If your Lordship looks over the page at {F3/8/16}
your Lordship will see at 4.1, this is in relation to
recovery of deficiencies following termination. The
reminder is in the same terms as the practical line that
is being taken at 3.1 during the period. So all losses
incurred during the period of office. So that is
a consistent theme throughout.
Going back to {F3/8/14}, there are the new agents
who get relief -- up to full relief, that is at
the discretion of the CNM, the contract network manager.
"Unidentified cash account loss" is:
"No relief unless financial hardship caused."
And that of course may conceal the necessary prior
question of whether something that is shown on the
system as a cash loss actually is one.
MR JUSTICE FRASER: Understood.
Error notice?
MR GREEN: "Error notice with no compensating misbalance."
So that is:
"Errors should be brought to account in the next
cash account - special checks of vouchers can be
arranged. Amount may be held in unclaimed payments for
a period of up to 8 weeks pending result of checks. If
checks reveal nothing no relief unless financial
hardship caused."
So that's the suspense account maximum period of
eight weeks when they had that system. So you could
have an error which you are trying to dispute and get to
the bottom of, but if you, as a subpostmaster, haven't
managed to get to the bottom of it within the eight
weeks you have to pay it.
MR JUSTICE FRASER: So those are checks by the
subpostmaster.
MR GREEN: Yes, and they can ask for checks to be made by
Post Office. To what extent Post Office has to
co-operate is one of the aspects that is in issue in
this trial.
MR JUSTICE FRASER: Understood.
MR GREEN: Then:
"Transaction errors including irregular payments and
RD cheques."
I think those are -- I will come back to what RD
cheques are, I think they're returned but ...
The precise meaning of the RD cheque doesn't
actually matter. The point being made is that in
relation to transaction errors:
"No relief if evidence is conclusive. If evidence
is not conclusive, up to 100 per cent relief."
Then "Disputed remittance error":
"No relief providing distribution centre can supply
evidence unless financial hardship would be caused. If
no evidence available, up to 100 per cent relief."
My Lord, then you have "Loss by relief
subpostmaster":
"No relief unless financial hardship ..."
Then "Loss incurred during sudden illness of agent":
"Up to full relief for one cash account week."
And it could be extended in exceptional
circumstances.
When we go back to the SPMC at {D2.1/3/54} ...
MR JUSTICE FRASER: Which is the 1994 -- the one we were
looking at.
MR GREEN: The 1994 standard SPMC which we looked at. We
would respectfully submit that these matters properly
fall under clause 17.
MR JUSTICE FRASER: Not 12?
MR GREEN: Not 12.
MR JUSTICE FRASER: Understood. But on the basis that is an
internal policy document anyway, I know that affects the
factual experiences of the individual claimants. But so
far as the points of construction are concerned ...
MR GREEN: That is the point I am coming to, my Lord. That
the consequence of this information asymmetry is that
this document wasn't given to subpostmasters. So we
would respectfully say nor would they expect the clause
to be applied in the way that we can see it was.
MR JUSTICE FRASER: But how it is applied and what it means
in law are two different things.
MR GREEN: Completely. What I mean, my Lord, is this.
Your Lordship's point, the first one, is that this is
an internal policy, it doesn't affect construction of
the clause, subject to my learned friend's in terrorem
point if not the existential threat point. But as
a matter of law, we say it cannot possibly alter the
contractual construction of the clause, the true
contractual construction which is actually recited in
the policy in any event at the beginning.
But what it does show or what is striking is that
the subpostmasters, the lead claimants, were not aware
of any criteria by which financial hardship -- any
availability, any criteria by which any hardship relief
would be granted at any stage.
MR JUSTICE FRASER: But the financial hardship aspect of it
is a subsequent one to whether there is a liability.
MR GREEN: Indeed, completely subsequent. Really the
contractual point of construction I was seeking to make
is that there is an anterior condition in clause 12(12)
as to when there is liability at all, and that is
necessarily a prior exercise to considering any relief
under clause 17 from the liability imposed by clause
12(12).
MR JUSTICE FRASER: Understood.
MR GREEN: 17 is not a substitute for the exercise for which
clause 12(12) provides.
Could I now ask my Lord to look at {F3/8/15}, it's
back in the Losses and Gains Policy document.
Clause 3.2 details the RNM's role in deciding the
amount --
MR JUSTICE FRASER: RNM standing for ...
MR GREEN: Retail network manager.
MR JUSTICE FRASER: Yes.
MR GREEN: And informs the subpostmaster of the decision and
his rights of appeal:
"The RNM should in this correspondence ask how the
agent intends to pay the decided level of contribution.
If the agent claims they are not in a position to repay
the sum immediately, the RNM can give consideration to
the repayment being spread over instalments. This is
a discretionary action that must conform to the
following commitments:
"Losses are made good by deduction from
remuneration.
"The repayment period is up to a maximum of 12
months.
"During the repayment period, further losses must be
made good immediately.
"Any credit error notice relating to the same cash
account week must be used to reduce the outstanding
balance.
"The amount will become payable in full should the
agent's contract with POCL come to an end.
"The standard vouchers ... must be used.
"No more than two repayment cases for the same agent
have previously been allowed in the past two years."
Then 3.3 and 3.4 deal with the right of appeal.
And at this stage, in 1998, your Lordship will see
from 3.4:
"The appeal can be conducted in writing or in person
... The head of retail network will take a view on the
case put to him about whether the contribution requested
is appropriate and whether the repayment terms are
consistent with the financial position of the agent."
When that has been done, your Lordship will see from
3.3 that in the appeal the agent has the right to be
represented by a recognised trade union and/or friend.
MR JUSTICE FRASER: As long as they --
MR GREEN: As long as they work for them, exactly.
So that basically mirrors the provisions that the
Labour Government introduced in relation to employees'
rights in the late 1990s.
My Lord, just pausing there, one last point to make
on this policy. This is basically a pre-introduction of
Horizon policy. It is in the run-up to the introduction
of Horizon. And it may be, and certainly the evidence
of Mr Bates and Mrs Stubbs would suggest, that the scope
for any errors or shortfalls that they couldn't explain
was of a quite different order of magnitude if not close
to vanishing point. Certainly close to vanishing point
for sums of the sizes that we are considering here,
hundreds, sometimes thousands of pounds.
So it may be that practically Post Office thought
that that was a reasonable way to approach it before
Horizon came in. I am afraid I can't speculate --
MR JUSTICE FRASER: It doesn't matter.
MR GREEN: It ultimately doesn't matter. So that is the
application.
Then as to the causes of errors and the information
available to the respective parties using the Horizon
system, can we look, please, at page {E2/10/2}.
My Lord, this relates to, by way of context, this
relates to shortfall and Horizon system crashes, about
which --
MR JUSTICE FRASER: And the electricity supplier.
MR GREEN: Exactly, Pam Stubbs was concerned back in 2000.
If we look at the top hole-punch, there is a message
from Frank Manning to Sue Lock. The subject line is
"Horizon matters - Barkham SPSO":
"We talked about this case when I was in St Albans
last month and it is still ongoing. I visited there
today and was too scared to accept a cup of tea in case
the Horizon system crashed cos the electricity supply is
still a live (excuse the pun) issue.
"The balances are a mess (in pre-Horizon times the
postmistress virtually achieved a clean balance every
week) and I have got the RNM going in there next
Wednesday to see what actually happens on the ground but
[in bold] I worry that something like 25 reboots in one
day is having an effect overall.
"Need your best offices to get this case to a proper
solution - she keeps getting promises of attention - but
nothing is actually being done now to clear up the
problem."
Then in bold:
"It is Horizon related - the problems have only
arisen since install and the postmistress is now barking
and rightly so in my view."
That is referred to by Pam Stubbs at paragraph 78 of
her witness statement. The two points on information
asymmetry here are, one, that she was not herself able
to demonstrate and prove that the problem was Horizon
related, and we know that the defendant has expressly
pleaded in its Generic Defence that no subpostmaster has
ever been able to prove that the problem, a shortfall,
is caused by Horizon error. Ever. And she is one of
them.
So there is that dimension, the difference in
information available to the subpostmaster about what
the true cause was. And the second point is that she
has only found out about that view from disclosure in
these proceedings.
MR JUSTICE FRASER: Both of those are, however, jury points.
MR GREEN: My Lord, we respectfully say that if there was
in fact no way in the Horizon --
MR JUSTICE FRASER: I know that that is your case, and I'm
not saying that it is a good or bad case at the moment.
But what I am saying is that the two points about this
particular event are effectively jury points, really,
because the whole basis of the claimants' case, as
I understand it, is they simply were unable to and did
not have the tools to demonstrate that it was Horizon.
MR GREEN: Precisely.
MR JUSTICE FRASER: Vis-a-vis the argument between the two
parties about who has the burden of showing what was
causing the losses.
MR GREEN: Precisely. All I was trying to do was just to
show examples, and I accept the jury point to some
extent, but just to show examples of the types,
categories of information which in a generic sense, not
a prisoner to the particular facts of a particular
person, but in a generic sense the defendant, Post
Office, had access to the sort of information that could
allow it to reach a view of that sort.
MR JUSTICE FRASER: Understood.
MR GREEN: And that was not something that a notional
reasonable subpostmaster would ordinarily have.
MR JUSTICE FRASER: Understood. And in terms of issues in,
for example, Mrs Stubbs' case, moving on through the
different sequences of trials, the fact that she could
not demonstrate it was a Horizon issue, and there was no
notification to her that Post Office employees
considered it was, is probably a point very strongly in
her favour. However, for the Common Issues it is a jury
point.
MR GREEN: I am grateful, my Lord.
MR JUSTICE FRASER: That is not to disparage what happened
to Mrs Stubbs.
MR GREEN: My Lord, I am sure that is understood by
Mrs Stubbs.
On that basis, your Lordship has seen in
an interlocutory hearing, following my learned friend's
skeleton argument where there was a statement that
errors in Horizon do not cause errors in branch
accounts, in response your Lordship will remember we
provided to the court copies of the payments mismatch
error documentation demonstrating that that was
factually incorrect as a basic premise. The degree and
so forth are matters for another trial, but the
impossibility of that happening has already been
canvassed before the court in the payments mismatch
documents. And I had been minded --
MR JUSTICE FRASER: That is a Horizon issue, really, isn't
it?
MR GREEN: All I would say is this: on the premise that it
is possible for it to happen, the degree of that is
a Horizon issue.
MR JUSTICE FRASER: Yes.
MR GREEN: And I think that is agreed. So, my Lord,
your Lordship will remember the payments mismatch
document was the document in which there were identified
errors affecting a number of branches, about which it
was recorded the subpostmasters were not aware, and they
had made those good under the system which I described
in the mechanical/practical section of --
mechanical/practical pillar, these three pillars of
relational imbalance.
And the payments mismatch document is an opposed
document I think. I don't know whether any -- it was
originally opposed, that was before 10 October, so
I don't know whether that is a point to be taken. But
it is at {G/8/2} in the bundle.
MR JUSTICE FRASER: It says here "opposed by D" at the top
of ...
MR GREEN: My Lord, that is correct. So that was recording
that prior to 10 October that was an opposed document
for inclusion in the bundle. We are not sure why,
because it is the defendant's case that knowledge of
these things lay peculiarly within our knowledge, and
I'm not absolutely sure whether my learned friend is
actually going to object to me showing your Lordship the
document now.
MR JUSTICE FRASER: Mr Cavender, are you objecting to me
looking at this document?
MR CAVENDER: My Lord, we have made our position clear about
the risks in this trial. I don't want to be silly. If
you want to read it, you can read it. But I do repeat
my points about Horizon and issues of that kind being
separate.
MR GREEN: My Lord, I only want to focus on the information
imbalance between parties at this stage. So the
receipt/payments mismatch issues note refers to a
discrepancy between the Post Office office system and
the Horizon system.
The second line at the top records:
"So the branch will then believe they have
balanced."
Then it says:
"If at the next screen the rollover is completely
cancelled, then no harm is done. However, if the
rollover is re-attempted at this point, the rollover
will continue without any discrepancy meaning Horizon
doesn't match POLSAP or Credence."
Which are the two Post Office internal systems.
"This has the following consequences: there will be
a receipts and payments mismatch corresponding to the
value of discrepancies that were 'lost'.
"Note the branch will not get a prompt from the
system to say there is a receipts and payments mismatch,
therefore the branch will believe they have balanced
correctly. When the branch begins the new branch
trading period, the discrepancies will show at zero.
However, the receipts and payments mismatch will carry
over into the next period."
So this is unlike -- this is just a slightly
different problem in terms of the mechanical system,
just so your Lordship has it in mind. This is one where
instead of appearing at the end of the branch trading
period, it actually --
MR JUSTICE FRASER: Rolls over.
MR GREEN: -- goes into a different period.
MR JUSTICE FRASER: Actually I won't use the word "rollover"
because that is used in the document. I understand. It
carries over into the next period.
MR GREEN: Indeed.
And then impact is considered at the bottom:
"The branch has appeared to have balanced, whereas
in fact they could have a loss or a gain.
"Our accounting systems will be out of sync with
what is recorded at the branch.
"If widely known could cause a loss of confidence in
the Horizon system by branches.
"Potential impact upon ongoing legal cases where
branches are disputing the integrity of Horizon data.
"It could provide branches ammunition to blame
Horizon for future discrepancies."
Then there is consideration on how to deal with this
over the page at {G/8/3}. The proposals there in the
middle of the page are three possible solutions to the
impacted branches.
So pausing there. My Lord, this had been going on
I think for a few months and a number of branches had
been affected but at this stage were completely unaware
that they were affected branches.
MR JUSTICE FRASER: Just give me the date of this document.
MR GREEN: So the document is dated ... sorry, can I give
your Lordship the date in a second?
MR JUSTICE FRASER: Don't worry, I will be able to find it.
17 October 2012.
MR GREEN: 17 October.
MR JUSTICE FRASER: Yes.
MR GREEN: So the difficulties for Post Office in terms of
how they dealt with that were addressed by the group who
met, we can see on the first page, which is
representatives of Post Office and Fujitsu. Their
recommendation is that solution two should be progressed
but they give three possible solutions for
consideration.
"Solution one":
"Alter the Horizon branch figure at the counter to
show the discrepancy. Fujitsu would have to manually
write an entry value to the local branch account."
So that means Fujitsu writing in an entry value in
the local branch's account.
"Impact":
"When the branch comes to complete next trading
period they would have a discrepancy which they would
have to bring to account."
"Risk":
"This has significant data integrity concerns and
can lead to questions of tampering with the branch
system and could generate questions around how the
discrepancy was caused. This solution could have moral
implications of Post Office changing branch data without
informing the branch."
"Solution two":
"Branch will journal values from the discrepancy
account into the customer account and recover/refund via
normal processes."
I think the overall -- there was a net loss,
I think -- we will come to that in a moment.
"This will need to be supported by an approved POL
communication. Unlike the branch POLSAP remains in
balance albeit with an account (discrepancies) that
should be cleared."
"Impact":
"Post Office will be required to explain the reason
for a debt recovery/refund even though there is no
discrepancy at the branch."
"Risk":
"Could potentially highlight to branches that
Horizon can lose data."
Then "Solution three":
"It is decided not to correct the data in
the branches (ie Post Office would prefer to write off
the 'lost'."
"Impact":
"Post Office must absorb circa 20K loss."
My Lord, I think the figures we see elsewhere show
that while some branches had a gain, others had a loss,
but the net figure would effectively represent 20,000
loss to the Post Office.
"Risk":
"Huge moral implications to the integrity of the
business as there are agents that were potentially due
a cash gain on their system."
So that -- what that means is it is all very well
for Post Office to write off the net loss but that would
mean some would suffer and others ...
MR JUSTICE FRASER: Understood.
MR GREEN: And the document that goes with that document, if
your Lordship wants to look at it, is {G/9/1} and gives
further detail.
But what is clear is that there obviously is the
ability to write an entry value in a local branch
account, because it is recited there as a possible way
of doing it, and it sharply shows the degree of control
that Post Office and Fujitsu have over not only the
Horizon system itself but also how errors that arise,
system-related errors that arise, are dealt with.
And all the way down to the individual branch
accounts, at least potentially. So that the control and
the imbalance in the relationship is not only because
Post Office is a huge organisation and individual
subpostmasters are mostly self-employed agents of
theirs, but also for these reasons, the contracts,
mechanical and practical side, and then the information
side, coming all way down to this.
Finally, my Lord, in relation to information, there
are two further points. One is Post Office's
understanding of what information should be made
available to postmasters even when they have been
suspended.
The document there is {G/28/32} which is
Post Office's response to the Second Sight report. That
was formerly an opposed document as well. I only want
to look at three paragraphs relating to data that is not
available after suspension and what Post Office said
about that. I don't know if that is ...
MR CAVENDER: My response is the same, my Lord.
MR JUSTICE FRASER: Same approach. Understood.
MR GREEN: 10.13, this is responding to concerns expressed
by Second Sight in the mediation scheme which your
Lordship will remember was set up at the invitation of
the Select Committee to try and address the difficulties
subpostmasters had encountered.
The Post Office response at 10.13 says:
"Paragraph 10.10 of the report highlights that some
applicants were refused access to data following their
suspension and access to their own records that may have
been seized upon audit. As a result they say they were
unable to defend themselves from any claim made by
Post Office for the recovery of monies."
10.14:
"Whilst Post Office are aware some applicants have
raised the issue that their own records were removed and
not returned to them, there is no evidence produced or
referenced by the report to support the position that
data being withheld has prejudiced an applicant in any
way."
10.15:
"As to other branch records, these are the property
of Post Office. In the event of a subpostmaster being
suspended, Post Office may take away some branch records
for investigation."
So, my Lord, that is a reference to both the
information and control aspects which were inherent in
the contractual -- in the express terms of the contract
and the fact that Post Office owns the branch records.
That may speak, we would respectfully submit --
obviously we are going to pull these strands together in
closing, but that may speak to the need for any implied
term to give commercial and practical coherence to
a situation that otherwise results in quite a stark
picture.
MR JUSTICE FRASER: Yes.
MR GREEN: My Lord, those are the -- that was the last two
points.
A final one is at {E2/99/4}. This refers to the
raising of an ARQ, a questionnaire from Fujitsu in the
case of Mrs Stubbs in 2010:
"Nigel. No probs with requesting data from Fujitsu
but it will take around three weeks. Has Jason agreed
to take this case on, because we don't hand over Horizon
logs to an SPMR. It needs an expert to understand what
it says and usually this requires one of the
investigators.
"I will give Jason a call in the morning then I will
raise an ARQ from Fujitsu.
"Is this for our benefit, as there is a cost
attached to ARQ requests, we do get a supply free of
charge as part of the contract but we usually don't have
enough, therefore we usually charge the defence
lawyers."
We have got elsewhere in the bundle, the sum charged
I think was between about £400 and £500 per request.
So we respectfully submit that the basis upon which
Post Office chose to procure the Horizon system and its
maintenance is not relevant and cannot be relied upon in
opposition to any terms that would require Post Office
to provide relevant information to subpostmasters.
MR JUSTICE FRASER: Understood. In other words, the terms
of their contract with Fujitsu are not relevant to
construing the contract between them and the
subpostmasters.
MR GREEN: That is our submission.
MR JUSTICE FRASER: I understand.
MR GREEN: I am most grateful.
MR JUSTICE FRASER: And by "defence lawyers", one assumes
that is referring to other subpostmasters who have found
themselves being prosecuted.
MR GREEN: Or sued.
MR JUSTICE FRASER: Or sued civilly for recovery.
MR GREEN: Yes. Prosecution allows -- if there was a guilty
plea that would allow POCA to be used and get a recovery
order that way, so it had some advantages.
MR JUSTICE FRASER: Yes.
MR GREEN: But there were both.
My Lord, those are the three pillars which I wished
to address in relation to the imbalance between
subpostmasters and Post Office: contracts, mechanical
and practical and then the information one.
I did say I would take your Lordship to the
contracts themselves.
MR JUSTICE FRASER: You did.
MR GREEN: Can I -- I showed your Lordship already the SPMC,
the standard SPMC provisions at section 12(12) and
section 12(17).
MR JUSTICE FRASER: Yes, relief.
MR GREEN: Can I take your Lordship in a little bit more
detail to the pack that Mrs Dar was sent, who is an NTC
claimant. So your Lordship effectively has an SPMC at
the beginning and an NTC at the end, if that is
a convenient way of doing it.
So could we look first, please, at {E5/148/1}.
Your Lordship will immediately see that this is headed
"Preface". Sorry, it's easier if we go, please, to
{E5/137/3}. That is a better way through it.
So this is the actual pack as sent. I was taking
your Lordship to the one she signed and returned. This
is the pack as sent. Your Lordship will see at the top
this is the NTC agreement for Mrs Dar. At the top
your Lordship will see the word "Preface" and then
"Part A", and then:
"All capitalised terms not defined in this preface
have the meanings given to them in the standard
conditions for the operation of a local Post Office
branch (off site, Post Office Limited cash) (the
standard conditions).
"This preface is part of an agreement between
Post Office Limited and the operator for the operation
of a local Post Office branch (as defined in the
standard conditions) at the branch premises ...
"The agreement consists of the following documents:
this preface and the following appendices to it ...
"Appendix 1 - works at the branch premises and plan.
"Appendix 2 - equipment.
"Appendix 3 - conditions of appointment."
I can just show your Lordship very quickly those,
where they are found. Appendix 1 is at {E5/137/10}. So
that is planning for what works will be done. We
needn't tarry too long with that. Then equipment is at
{E5/137/22}. Identifying equipment. Then appendix 3
conditions of appointment, {E5/137/24}.
Those conditions of appointment, if we just scroll
down a page, please, to {E5/137/25}. Then that is
tabulated accessibility conditions of appointment, and
then that document runs on to {E5/137/27}, please. And
ends there.
Then begin the standard conditions {E5/137/28}. Can
we go back to {E5/137/3}, please. I am taking
your Lordship back to the first page, the preface page.
So we have looked at --
MR JUSTICE FRASER: We have seen the three appendices.
MR GREEN: Next is standard conditions, after that is manual
and then the fees booklet.
MR JUSTICE FRASER: Are we going to standard conditions?
MR GREEN: We are going to standard conditions now, and
standard conditions are at {E5/137/28}. So these are
the standard conditions themselves. Your Lordship will
see an agreement under clause 1.1:
"The local Post Office agreement between Post Office
Limited and the operator relating to the branch and
consisting of the documents listed in the preface as
each of them may be amended by Post Office from time to
time in accordance with these standard conditions."
MR JUSTICE FRASER: Yes.
MR GREEN: My Lord, just to let your Lordship know, the
difference in that respect was there was three months'
notice in the NTC contracts and there wasn't in
the SPMC. So that is the only difference in relation to
the unilateral power to vary which I mentioned earlier.
Then moving forward --
MR JUSTICE FRASER: Fees booklet is defined on {E5/137/29}.
MR GREEN: Exactly, and then the manual is referred to, if
we look {E5/137/30}.
MR JUSTICE FRASER: Yes, I have seen that.
MR GREEN: Your Lordship has seen that. Then if we go to
{E5/137/63}, we get the manual for a local branch at the
bottom of that page. If we go over the page
{E5/137/64}, the manual is listed to include the
documents your Lordship then sees in turn included. So
these are the grandchildren, if you like.
MR JUSTICE FRASER: Yes.
MR GREEN: And that is a list. Your Lordship can see it
there. I don't need to read it out. The only one
I direct your Lordship's attention to is the last one
which says that the manual, the definition of manual
includes:
"... any other instructions to operators or updates
to such instructions issued by Post Office Limited from
time to time."
MR JUSTICE FRASER: There is also the on-line help and the
user guide for Horizon as well.
MR GREEN: Indeed, and the Horizon system user guide is
550 pages I think. So within that document, which
I won't spend much more time on given the time it is
now, if we look at {E5/137/39}, this is where one finds
the liability provision for Post Office cash and stock,
at clause 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 Post Office Limited's security procedures or
by taking reasonable care. Any deficiencies in stocks
of products and/or any resulting shortfall in the money
payable to Post Office Limited must be made good by the
operator without delay, so that in the case of any
shortfall Post Office Limited is paid the full amount
when due in accordance with the manual."
So your Lordship I think made the point to me
in fact that the manual includes the Horizon operating
manual. That obviously imports all the processes that
I identified for -- except settled centrally and so
forth on the Horizon system.
There is one significant feature of this clause,
just in passing, my Lord -- your Lordship has our
submissions in writing, but it is interesting how it is
worded. The first line is:
"The operator shall be fully liable for any loss of,
or damage to, any Post Office cash and stock ..."
So those are things that are in the branch.
MR JUSTICE FRASER: Then you are going to say it goes on
"however, to include any shortfall ..."
MR GREEN: It is quite interesting how they have done it.
Can I just pause there, breaking it down finally.
Your Lordship will remember paragraph 3 of my learned
friend's skeleton argument, the one about the
existential threat, which is {A/2/1} --
MR JUSTICE FRASER: There is no need to turn it up. I have
it here.
MR GREEN: I am grateful:
"In broad summary Cs mount a two-pronged attack on
(1) responsibility of SPMs to Post Office for what goes
on in their branches."
Well, no, they don't. That is no part of the
claimants' case. Responsibility for what goes on in
your branch is defined under clause 12(12) very clearly
and these claimants were not saying: this happened in my
branch but I am denying responsibility for it. They
were saying: this doesn't seem to be anything to do with
my branch.
MR JUSTICE FRASER: The cash and stock in the earlier
versions, not of the NTC but of the --
MR GREEN: SPMC.
MR JUSTICE FRASER: -- SPMC has the phrase I think it is
"strictly responsible", and it is a clause about five or
six clauses earlier than clause 12.
MR GREEN: Exactly.
MR JUSTICE FRASER: Is it all rolled up together in this or
are you going to take me to another clause dealing with
the parallel of clause 12 in this document?
MR GREEN: I think this clause I think deals with -- is it.
MR JUSTICE FRASER: So rather than them being dealt with
separately, they have been rolled up together.
MR GREEN: It looks that way. What is interesting is it
says:
"... fully liable for any loss or damage to any
Post Office cash or stock ..."
Then lists how -- except where it is criminal,
a break-in they couldn't have prevented with reasonable
care, a robbery. So one understands that. But what is
interesting is that it then says:
"Any deficiencies in stocks of products and/or any
resulting shortfall in the money payable to Post Office
must be made good by the operator without delay."
So in the case of any shortfall, Post Office is paid
the full amount when due in accordance with the manual.
Your Lordship will have seen in our written opening
the emphasis in the cases on the different approaches
which may apply to construing contracts which have been
the subject of detailed negotiation between firms of
commercial solicitors on the one hand, and there is
a different end of the spectrum. We would respectfully
say that neither 12(12) nor this is a model of clarity.
My Lord, given the time, I was only proposing to
deal now with two very short final points.
Your Lordship has seen in our written opening the
observations we have made about the utility of this
trial and the approach to identifying the reality of any
implied terms which fall under the umbrella of the terms
for which the defendant contends, and we have set that
out reasonably extensively and I don't want to make any
submissions about that matter which might seem
ungracious but I do want to clarify three points, if
I may.
The claimants make no complaint that the defendant
does not agree with the claimants about the terms to be
implied. That is their right. That is what this court
is for; to determine the difference between us. The
only complaint is that the defendant has not been
prepared to clarify in a way which will actually
contribute to the successful resolution of this group
litigation what the incidence of its implied terms mean
insofar as they overlap with or indeed conflict with the
implied terms or express terms; either the implied terms
for which we contend or the express terms which are --
MR JUSTICE FRASER: Do you mean incidence or do you mean
effect? Because they concede two implied terms,
I think.
MR GREEN: Indeed.
MR JUSTICE FRASER: And I think your criticism is they
haven't said what effect that concession has. Is that
what it comes down to?
MR GREEN: Precisely. The way we worded it in the actual
Common Issue itself, by agreement and as ordered by the
court, if we look at the consolidated Common Issues
{B1/2/1}, "Implied Terms":
"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."
That is by agreement, and that was obviously because
if, in reality, they accept that the breadth of a term
that they admit includes an obligation to provide
adequate training, it is pointless us arguing about it.
MR JUSTICE FRASER: Understood.
MR GREEN: Your Lordship has seen that we have taken quite
a lot of trouble and indeed obtained an order to try
and clarify that. And, to be fair, Post Office has done
what it said in the sense that they refused to provide
details on the pleadings on the basis that that was
a matter for submissions. And they have made some
submissions about it, but our concern is that the
submissions are unhelpful for two reasons: the first is
that they don't actually condescend to the particulars
necessary for the court to determine what is actually in
issue in real life. I don't mean on the particular
facts of a particular subpostmaster's case.
Could we look at {E6/128.1/1}.
MR JUSTICE FRASER: No, I don't think that is the right
reference. Where do you want to go?
MR GREEN: Sorry, {E1/42.2/2}. Can we just go up a page
{E1/42.2/1}.
MR JUSTICE FRASER: It is a termination letter, is that
right?
MR GREEN: It is a letter actually about allowing access at
the time of termination.
MR JUSTICE FRASER: Yes.
MR GREEN: Your Lordship will see that in the fourth
paragraph Post Office writes to Mr Bates:
"I agree that this situation is not expressly
covered in the standard subpostmasters' contract but
I am sure you will appreciate that Post Office needs to
inspect the area to see if there will be any
problems ..."
If we go over the page to {E1/42.2/2}:
"Although not a specific term of the contract,
I have been advised that it would be an implied term of
the contract to allow Post Office Limited's business to
function properly that access should be granted to
an authorised Post Office employee who properly
identifies himself."
So Post Office themselves, when they need to, have
no problem whatsoever in defining a perfectly workable
specific term which may differ in application in
different situations on the ground but is at a lower
level of abstraction and generality than the two
overarching terms which Post Office has admitted but
refused to clarify against the terms which the claimants
contend for.
MR JUSTICE FRASER: I understand.
MR GREEN: My Lord, that is our concern. In a case listed
to take five weeks, there is obviously more that could
be said, but I hope that has been helpful.
MR JUSTICE FRASER: I have your extensive written
submissions as well. Thank you very much.
MR GREEN: I am most grateful.
MR JUSTICE FRASER: So we are going to have the short
adjournment now until 2 o'clock. Mr Cavender, you have
the afternoon. Thank you all very much.
(1.00 pm)
(The short adjournment)
(2.00 pm)
Opening submissions by MR CAVENDER
MR CAVENDER: Good afternoon, my Lord. Can I hand up
an index to a bundle, index to bundle I. (Handed)
This is a new bundle that was put on the system at
my instigation having found it difficult to navigate
around the existing ones. What it is -- it is
electronic, you can have a hard copy if you like -- is
by each lead claimant is essentially the core documents,
so the various contractual, or we say contractual, there
is some debate, sometimes they are contractual, but the
main documents.
MR JUSTICE FRASER: The main documents that go with each of
the lead claimants.
MR CAVENDER: In terms of the things leading up to their
contract, the things they were shown or signed, the
actual contract or reference to it, and the main manual
that applies to them.
So you hopefully have in what is two lever-arch
files the main documents in the case. There are other,
in F bundles, various manuals and other things that we
will go and see, but they are the pain documents.
I found it helpful to have them in one place and you may
as well.
MR JUSTICE FRASER: And that has gone on the Opus?
MR CAVENDER: It has, as bundle I, my Lord. Last night
I believe. You couldn't see it previously but then we
agreed you could.
MR JUSTICE FRASER: Yes. It's called something slightly
different.
MR CAVENDER: Custom bundle, my Lord, yes. If you want
a hard copy, we have a hard copy here for you.
MR JUSTICE FRASER: Yes, please. Thank you. (Handed)
You have pre-empted one of my miscellaneous points.
MR CAVENDER: My Lord, you have the benefit obviously of
very lengthy written submissions for which I apologise.
MR JUSTICE FRASER: You don't have to apologise.
MR CAVENDER: For the length, I mean, rather than the
content. The submissions I am going to make really are
under probably six heads. Firstly, an introduction.
Secondly, to look at the liability provisions,
clause 12(12) and 4.1. Then to look at the agreed
implied terms. Then to touch on the relational contract
aspect. Termination. And then look, if we have time at
the end, at the evidence and explain the approach we are
going to take to it.
Firstly, introduction. You will have seen in our
written opening what we say is about the essential
nature of the Post Office business. A few points that
bear emphasis.
Of course, Post Office is required by Government to
maintain a broad network of branches across the country,
even in locations where that would not normally be
commercially viable. It has to do that so important
Governmental and other services are available to almost
everyone.
I think we said, to give you some size of scale,
there are approximately 47 million transactions
undertaken in Post Office branches every week. At any
given time, some £643 million in cash is held within
that 11,000-odd branches. It means an average branch
roughly holds about £50-60,000 in cash. There are more
Post Offices, vastly more branches than there are Tescos
or branches of any other supermarket.
So it is an enormous outfit, it has very wide reach,
and of course that is relevant to the background of
this -- my learned friend -- it's obviously a standard
form contract. It needs to control the network.
In order to do that, to operate that network, it has
to rely upon and trust its agents to look after its cash
and stock and to account to it properly in relation to
it. It is, of course, Post Office's cash and stock, not
the cash and stock of the postmaster.
In terms of the relationship created by postmasters,
it's the Post Office that contracts with the providers
of the goods, so the clients as Post Office calls it.
That contract is with Post Office, not the postmaster
himself. Post Office has obligations to those clients
as to how those goods and services are sold and
sometimes in how many branches.
It is Post Office that contracts with the customer
that buys those goods in the branch, not the postmaster.
The postmaster is not a party to that sale. He
contracts as agent and binds the postmaster through that
relationship.
MR JUSTICE FRASER: Binds Post Office.
MR CAVENDER: My Lord, yes.
MR JUSTICE FRASER: You said postmaster.
MR CAVENDER: I apologise. So binds Post Office obviously.
The net effect is of course that all the
transactions that take place in agency branches are the
Post Office's transactions.
If a customer in a branch withdraws money from
a bank account, taking cash from the branch, if the bank
fails to make payment to Post Office in relation to that
withdrawal it is the Post Office that loses out, not the
postmaster.
If a customer has complained about a good or
service, that complaint comes to Post Office, not the
subpostmaster.
If a customer brings a claim in relation to
something purchased in an agency branch, Post Office
defends the claim, not the subpostmaster.
So that is quite important to understand the nature
of that relationship. It is Post Office that has the
contractual relationship both with the client and with
the customer, and it is the subpostmaster as agent that
contracts with the customer in the branch.
More on that, if one wanted it, at paragraphs 77 to
80 of Angela van den Bogerd's witness statement
{C2/1/23}.
So the net effect of that is under that agency
business model the subpostmaster is protected from much
of the ordinary commercial risk of running
a cash-intensive business. He also has very modest
set-up costs compared to a stand-alone business. He
does not need to find vast numbers of clients because
they come to the Post Office brand. He doesn't need to
find large amounts of working capital. He does not need
to enter contracts with all the third party clients. He
doesn't need to worry about regulations, things of that
kind. All that is dealt with. What he does, he enters
into a contract for a prepacked business. That is
really what he does. The quid pro quo of all this is
the Post Office must have a measure of control in
return.
Subpostmasters have very large amounts of cash and
stock that belong to Post Office. If they or their
assistants are careless or incompetent or dishonest, the
Post Office stands to lose large sums of money. What
the contract does, what the contract of agency does, is
provide essential controls and protections. The fact
that it does so does not turn this business contract
into a contract of employment or anything like it. My
learned friend concedes the first, but contests the
second. This is, at the end of the day, a business
agreement.
It is common ground that the subpostmasters were
agents for the Post Office. It's also common ground
that that is an express term of both the subpostmasters'
contract and the NTC. So it's an express term of the
contract that the parties have agreed that the
relationship of agency will govern their relationship.
What the claimants try and do in this case is to
water down almost to vanishing point the effect of that
agency-principal relationship and say somehow it is
marginal. The simple point is a matter of law, because
where parties agree as an express term, or at least in
the case of an express term and otherwise, the agreement
of agent and principal brings with it a whole lot of
common law by definition, just by saying you are
an agent.
This is a reference to Chitty, paragraph 31-006.
Perhaps we can flick that up {A1.3/2/24}.
We can see there the basic position:
"On the orthodox and accepted common law analysis,
the full paradigm relationship of principal and agent
arises where one party, the principal, consents that
another party, the agent, shall act on his behalf, and
the agent so consents to act."
So that is basic and is basic to this case.
We are all familiar with those principles, that
Post Office is entitled to their single-minded loyalty,
they're required to account to Post Office honestly, and
of course by definition not to render false accounts.
That all goes just from the nature of the relationship.
Of course the parties can modify the application of
those common law principles by the words of the
contract. But what you don't do is what these claimants
do, which is ask the court really to enter de novo, as
if there is a blank piece of paper, and then filling it
with what are the obligations they say should arise.
What they need to do is say the express terms of the
contract disapply certain of these agency principles and
therefore you should construe the arrangement in
a certain way. That is what they should do but that is
not what they do do.
Every time they want to say the ordinary agency law
principles are somehow not part of this contractual
relationship they have to point to where in these
contracts, as a matter of construction, those principles
are excluded, because if they don't then they are
included. And they have to do that as a matter of
contractual construction, not as a matter of value
judgment or discretion, this is how they would prefer it
to be, which is how they present their case.
So the starting point is these parties have chosen
a specific type of legal relationship called agency
known to the law. They have then expressed how that is
to operate by the express terms of a contract. They
must be construed against the backdrop that this is
an agency contract. And of course there is a lot of
granular detail to how that relationship is to operate
in the various manuals that you see.
So we say the express and implied terms of the
subpostmasters' contract, the NTC, have to be looked at
through the prism of that expressly created
relationship. The express terms sit atop the body of
law of the agency regulating that relationship.
Despite the control, the degree of control that
Post Office has, and influence, it remains the case the
Post Office branches are in important respects their own
business. They invariably run alongside completely
free-standing commercial business offerings. The lead
claimants all had such businesses. Indeed the key
attraction, very often, of people becoming
subpostmasters is that freedom and the availability of
Post Office products and services to drive footfall and
increase the turnover of that separate business. That
is the attraction.
So they have their free-standing business they want
to run, and they want another business in that space,
and the Post Office provides that further business
relationship. It's a business-to-business relationship.
On both sides it is driven by commercial objectives,
both sides profiting from the operation of that branch
in a commercial way. The subpostmasters produce
business plans and they ask to discuss those plans.
A significant number of the postmasters are limited
companies, partnerships, or those that run multiple
branches. So out of the 557 in this group litigation,
I am instructed there are 26-odd of claimants who are
companies or partnerships, 30 who are contracted through
limited companies and some 84 who are multiples, that is
they run one or more branch.
But of course we are not just dealing with the
claimant group here when we are looking at this
contract, we are looking at the 11,000-odd, and there
are within that, I don't know the precise figures,
significant numbers of corporate entities that you are
contracting with. So Mrs Stubbs is used as an example
by my learned friend quite a lot today and she of course
is one end of the spectrum, but there are other people
at the other end as well, and this contract applies to
them all. One of the challenges to the court might be
how it approaches that situation where its sympathies on
one side might be in a certain subpostmaster group in
one direction and with a more commercial group another.
I just point that out.
MR JUSTICE FRASER: There is no personal sympathy involved
in any of the decision-making, just to put everybody's
mind at rest.
MR CAVENDER: My Lord, no. But it is a matter of
background. My learned friend made a number of jury
points today, I am just conscious to try and move things
back to a case involving a contract and construction.
But we say at all events this is a million miles
away from a consumer relationship or the type of
relationship where policy considerations were at the
height. For instance, in the Autoclenz case, the car
wash case, which I think my learned friend was
personally involved in as junior counsel in that case,
we are millions of miles from that position.
These are business people and they have chosen to
engage in running a business. They decide how much work
to carry out themselves, they decide whether to carry
out any work at all in the branch, whether to delegate
the whole of it to assistants.
And as regards assistants and looking at the
construction of the clause, as we will in due course,
the normal position is if you are appointed as
a subpostmaster or anything and you wish to employ other
people to perform that role, then you are normally
responsible for them and what they do. We say the
construction of the clause merely reflects that. The
dichotomy we have seen about the postmaster being
responsible for all acts of assistants is not
a surprise, it's merely a reflection of what you would
expect in a situation where they choose, but don't have
to, to employ assistants.
Similarly, as befits any business-to-business
relationship, the subpostmasters could if they wanted
have taken legal advice on any of the contractual terms
on offer. A business can decide to do that or not, it
is really up to them. They have the opportunity to do
so, and if they didn't do so then they can't blame, in
my submission, the Post Office.
My learned friend will try and persuade you the
court must intervene to undo this commercial bargain
and strike a different one that would better suit the
claimants in the events that have occurred or they say
have occurred. But he misses the point that the
existing commercial bargain is an entirely
comprehensible one. It has benefited many thousands of
subpostmasters over the years and it works perfectly
well and has worked perfectly well.
So the idea of tearing it all up and saying, well,
in business common sense in terms of interpretation or,
we'll see, implication of terms this must happen is, in
my submission, an unattractive one against that
background.
That takes me to the nature and extent of the
attacks on the contracts. In these proceedings the
claimants seek to try to rewrite the agency contracts by
what they call construction and by the implication of
some 21 implied terms, and rejecting the agreement on
termination with what they call the true agreement under
Autoclenz. The goal of all this seems to replace what
is a principal to agent business-to-business
relationship with some kind of quasi-employment
relationship.
There are two introductory points on this. First,
it is common ground the subpostmasters were not employed
by Post Office. On the contrary, the agreements
expressly appoint them as agents. And as I have said
a moment ago, some of those were companies or
partnerships or multiples. It's very hard to see how
you could say it's quasi-employment on some spectrum.
It's a million miles from that.
Second, C's case would be extreme and wrong even if
it were an employment relationship. We referred in
opening to a case called Geys v Societe Generale in
the Supreme Court in which I acted for Mr Geys. He was
a senior banker for Societe Generale. He reputedly,
according to The Times, earned more money than the
chairman of SocGen, and he was given three months'
notice. He was basically too successful to keep on. He
had built up this team. The reason they dismissed him,
rather cynically, was to prevent him getting his
year-end bonus. They dismissed him on three months'
notice. They mucked up, as it turned out, the machinery
of that.
But the important point is although it was cynical,
although it was unfair, it was lawful. They gave him
three months' notice, that is what happens. So even in
employment relationship you are entitled to have notice
provisions and you are entitled to exercise them.
Whether the Employment Rights Act 1996 has something to
say about that unfair dismissal, of course it does. But
what my learned friend is trying to do here is trying to
bring in by the common law really some doctrine of
unfair termination of commercial agreements, that is
what he is doing, and in my submission it is completely
impermissible.
In terms of the implied terms, they need to be
implied on the orthodoxy in accordance with the very
clear guidance in Marks & Spencer: it must be necessary.
None of the implied terms which are put forward by my
learned friend are necessary and begin to meet that
test.
So a potted summary of the issues on this trial,
although there is lots of paper and lots of noise, are
really on two elements. One is the clause 12(12)/4.1
point, and one is the termination provisions, three
months under the SPMC and six months under the NTC.
But essentially it is that (inaudible). The
responsibility of the subpostmasters to Post Office and
what goes on in their branch with money and stock and to
duly account. That is dispute one. Dispute two is the
ability of Post Office to terminate the agency contract
on notice or otherwise when things go wrong. They are
really the two debates. So the contractual terms
governing liability for losses and termination are the
two main targets. And my learned friend today, in
showing the contracts, only showed you really the
section 12(12) point and 4.1, he didn't show you the
termination provisions, they're not very exciting. But
that is really what this case is all about.
MR JUSTICE FRASER: By "this case", do you mean the Common
Issues or do you mean the litigation as a whole?
MR CAVENDER: No, the Common Issues, my Lord. I am limiting
myself obviously to this trial.
MR JUSTICE FRASER: Because in a way, the way you framed the
first issue, which is the responsibility of the
subpostmasters to the Post Office and what goes on in
their branch with the money. By "what goes on in their
branch with the money", that is open to different
interpretation so far as Horizon is concerned, isn't it?
MR CAVENDER: Obviously that includes their operation of
Horizon in the branch.
MR JUSTICE FRASER: Their operation of Horizon.
MR CAVENDER: That is correct.
MR JUSTICE FRASER: Well, that is the whole point, isn't it,
in a way?
MR CAVENDER: It is. But what it doesn't do, and I'll come
to this in a moment, if Horizon, as my learned friend
alleges in the Horizon trial, introduces bugs and other
things, that is not their responsibility.
MR JUSTICE FRASER: Well, on the way he seeks to have the
contract construed.
MR CAVENDER: Yes.
MR JUSTICE FRASER: That is what he says.
MR CAVENDER: But I agree.
MR JUSTICE FRASER: You agree it is not their
responsibility?
MR CAVENDER: Yes. We will come to this, and this is
perhaps not made clear but it is in our written
submissions in some detail. If there are, and we
actually define in our pleading, Horizon-generated
losses, if there is such a beast, then that is not
something that is either caused by an assistant, in the
word of clause 12, nor caused by the negligence or error
of the postmaster.
It doesn't fit within clause 12, it doesn't even get
into the gateway. This is what we have been saying all
along. I will come to this but I am pleased
your Lordship asked that because it does kind of help
that argument, help bring it out.
We say if they were right about those two attacks,
that they weren't fully responsible for what goes on in
branch, didn't have to account to us in the way a normal
agent would, and we couldn't terminate them, then that
would be a real threat to the way the Post Office does
business at the moment. Because it needs those two
controls to maintain these 11,000 branches throughout
the UK with all this money and all these transactions.
They are the two pivotal point in the relationship.
So it isn't some veiled threat, as my learned friend
said, at all. What it is, it's indicating the scale of
the rewriting, I think, that my learned friend engages
in to completely nullify, really, the existing
relationship, as the parties have agreed in this
contract, and replacing it with something very
fundamentally different.
So to give a specific example: if in relation to
liability it were right that Post Office had to prove
how specific losses of cash and stock had occurred in
a branch in order to recover them, that would have
a very serious impact. Post Office is not in
the branch, it does not know and cannot know whether the
missing cash has been mistakenly provided to a customer,
lost in the associated retail business, put in the wrong
till or something of that kind, or simply shovelled into
someone's pocket or handbag or rubbish bin.
To give a specific example on termination: if
Post Office is not able to bring contracts to an end on
three or six months' notice when problems have emerged,
Post Office would be required to keep in place
subpostmasters who, for whatever reason, were failing to
meet the standards set by Post Office and they could
no longer be trusted.
It would be a relationship where neither party could
extricate themselves. It would be utterly exceptional
that where the subpostmasters are our agents, they can't
be terminated on notice in accordance with the terms of
the contract, putting the assets of the Post Office at
risk for still longer period.
It cuts the other way, of course. These terms my
learned friend is implying I am assuming must be mutual
on termination. So if you are going to have, say,
a year's notice, which I think is his favourite number,
that would be reciprocal. So the postmaster would, on
this score, have to be kept in post for a year even
though he didn't want to.
It's very odd. It's almost akin to those cases on
slavery and things and contracts and not wanting to
perform a service but being made contractually to do so.
It is completely uncommercial to have a term of that
type, of that length, to keep an agent in position when
he wants to go.
Those are just two examples. There is a myriad of
other bizarre uncommercial consequences that flow from a
free rein to rewrite these contracts.
Further, your Lordship will have seen the claimants
advance an entirely unparticularised case on
incorporation and the validity of terms using the
Interfoto and UCTA principles. They also invoke the
exceptional principle of Autoclenz to say that the
express terms in the termination don't reflect the true
agreement. We say there are short answers to many of
these radical arguments that Cs advance.
The only sensible inference I can draw by them
seeking to essentially ask for the world, that if you
ask for so much you may not get that but you might get
some little bit at the end.
MR JUSTICE FRASER: This is your half a loaf point.
MR CAVENDER: Yes, my Lord. But of course that is not how
the law works, it's not how contractual construction
works.
Moving now to the second head which is the lead
claims and their role in this. Your Lordship is faced
with a large number of claims, 557 currently. The lead
claims are little more than 1 per cent of the body of
claims. And of course you will bear in mind that 557
claimants are, in turn, an only very small minority of
the 35,000-odd subpostmasters who we anticipate have
operated Post Office branches over the last twenty
years, so about 1 per cent. Because what my learned
friend is doing is attacking the whole of the edifice of
this relationship over -- since 2000.
Your Lordship is only inevitably going to see those
cases where something is alleged to have gone wrong.
The 99 per cent who are perfectly happy and who work
perfectly well are not here. What you are seeing is the
most exceptional of exceptional cases chosen as leads.
Now, the purpose of this Common Issues trial is to
advance the resolution of the group litigation by
construing the key provisions in the contract. My
learned friend I think put at the first CMC:
"The relevance of the evidence here is to give
the court the context in which to construe and determine
the contractual questions and to provide evidence the
court is not doing the exercise in a vacuum."
But the six cases before this court are lead cases,
not test cases technically. They have not been chosen
and couldn't be chosen to represent the large proportion
of claims in this group or beyond.
MR JUSTICE FRASER: You have each chosen three, I think,
haven't you?
MR CAVENDER: We have, simply because -- by no criteria
other than to cover the SPMC and the NTC. But there is
no attempt that they are representative of anything,
they are just vehicles to bring before the court the
contractual documents that they were shown in that
experience.
But they are only exemplar, really, of that. So you
don't do it in a vacuum. You could have not had them at
all and had -- you could have agreed ten notional people
with certain characteristics. They saw the Serv 135,
they didn't sign the ARS110, or something, and see
whether that altered the background.
But we have them, of course they are very welcome,
and we will test the evidence. But one needs to be
careful about what regard you have and the relevance you
give to their experience as being representative of
others because they are not. The only representation is
they cover the broad periods and have two of the main
contract types.
Of course the Post Office acknowledges that many of
the claimants feel aggrieved and wish to put forward
their stories, and they have done so. And that is
of course an important part of the process of the group
litigation as a whole. But it is very much less a part
of this trial which is interpreting the agreements.
Each of the six leads have put in evidence of what looks
to be their whole story, and at the recent strike-out
application the court was not persuaded to shut that out
on the basis -- paraphrasing obviously -- that it may
turn out to have some relevance. My learned friend
urged the court really to wait and see.
For our part we have waited but not seen. We have
seen 244 pages of written opening, and nowhere there
will you see any reference to this evidence and its
supposed relevance to this trial.
MR JUSTICE FRASER: It's a mischaracterisation of my written
ruling on the strike-out to say that I left the evidence
in on a wait and see basis.
MR CAVENDER: I didn't ... it was more my learned friend's
submission I think that I was trying to paraphrase.
What your Lordship did was to say we didn't reach the
threshold to make it clear it was clearly relevant. It
may be relevant to some issues.
But on that, and based on the submissions you heard,
on one view you may have been sold a false prospectus
because there is no pleading or even argument in the
244 pages that, for instance, Mr Bates' experience was
relevant to the interpretation to Mr Abdulla or Mr Sabir
or somebody else's contract. You just don't see that.
It has never been pleaded. But there is no argument
either in that opening that gives you any sense of the
relevance of it and on one view that is quite
surprising. Because if the argument was, and I think
this is how my learned friend was putting it, that
somehow Post Office had guilty knowledge in some way
about the defects in Horizon at a subsequent time from
Mr Bates' experience, they need to plead that. There is
no pleading to that effect. There is no argument to
that effect in the 244 pages.
So I won't say any more about it, but that is the
position that we are in.
Moving on to the liability provisions, section 12,
clause 12, and if we can take up the SPMC which is the
best place to find that, which is in bundle --
MR JUSTICE FRASER: Which version?
MR CAVENDER: The SPMC, the one that we are using is
attached to the pleading. It's the 1994 version I
think.
MR JUSTICE FRASER: Is that the one at --
MR CAVENDER: {D2.1/3/53}. We looked at this before and
your Lordship is obviously very familiar with it:
"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."
We deal with this in paragraph 84 and following of
our opening. That is at {A/2/25}.
The first point I want to make is a point I touched
on a moment ago. The claimants seem to want to think
that somehow we are fixing them with liability for
apparent shortfalls. That is things shown as shortfalls
that do not reflect the true position because of some
error or bug in Horizon's system.
Let me say very clearly: that is not and has never
been our case. The first point of why it can't be our
case, if you look at the words at clause 12. Imagine
an apparent shortfall, a Horizon-generated shortfall, as
we plead in the Defence. It is not a loss caused by the
negligence, carelessness or error of a subpostmaster.
It is not a loss caused by his assistant. So it's not
within clause 12.
MR JUSTICE FRASER: So on the analysis you have just given
me you accept that in those circumstances, if there was
a shortfall thrown up by the Horizon system, that would
be a loss -- or that would not be something which the
Post Office would try to pass on to the subpostmaster?
MR CAVENDER: It would not be -- yes, because if it is
a Horizon-generated loss it is not a loss for the
purposes of clause 12(12).
MR JUSTICE FRASER: Okay.
MR CAVENDER: We explain this at paragraphs 94 to 96 of our
written opening. If you want to go back and re-read
that with that knowledge then it might make more sense.
{A/2/28}
Coming then to the burden of proof which is really
what the real debate has been about this clause. It is
not really -- my learned friend tries to insert the word
"such" into this clause. We might as well deal with
that now.
He says that --
MR JUSTICE FRASER: Am I looking in yours or his?
MR CAVENDER: Of what, my Lord?
MR JUSTICE FRASER: Sorry, I thought you said go to 94 of
your written opening.
MR CAVENDER: No, it's at paragraphs 84 and following, my
Lord {A/2/25}. I don't want to read through that now
because it's a long section.
MR JUSTICE FRASER: I have read it already. I was just --
I misunderstood what you asked me to do, I'm sorry.
I interrupted you.
MR CAVENDER: My Lord, so sticking with the clause then and,
while we are looking at it, reminding you of the
construction that my learned friend urges upon you,
looking at clause 12(12) he wants you to insert the word
"such". So it says:
"... and also for such losses of all kinds."
Does my Lord see that?
MR JUSTICE FRASER: Yes, although based on what you have
just said about the way the word "caused" should be
considered vis-a-vis Horizon, whether "such" is in there
or not wouldn't necessarily make any difference to the
meaning at all.
MR CAVENDER: But it would to -- this argument, my Lord,
goes to the liability for assistants being absolute.
That is why -- it's on that argument.
MR JUSTICE FRASER: But "caused" can't mean a different
thing in line one than line two, surely.
MR CAVENDER: No, no. The point I made, the big point
applies obviously to both.
MR JUSTICE FRASER: Yes. That is where I understood the
"such" was aimed at but I might have misunderstood.
MR CAVENDER: I think you misunderstood, my Lord. I think
what "such" was trying to do was to bring in a carve-out
for assistants that mirrors the subpostmasters'
carve-out, which is only caused through his negligence
or error.
MR JUSTICE FRASER: I understand. Now I understand what you
mean.
MR CAVENDER: So what he says, "also for such losses". The
trouble with that of course is it is followed by the
word "of all kinds".
MR JUSTICE FRASER: But the example given in his written
opening, which may or may not be a valid example but it
is the one he gave, was imagine Mr Bates is at the
terminal and something happened, or his assistant is at
the terminal and something happened. And by
"something", I mean something Horizon related.
But on your analysis of the "caused", neither of
those scenarios would lead to a loss being sought to be
recovered from the subpostmaster.
MR CAVENDER: Correct. Absolutely.
So coming to burden of proof, because apart from
that "such" point most of the debate on this clause is
about burden of proof, and you can be very careful when
you are talking about this whether you are talking about
as a matter of construction does it allocate the burden
either expressly or implicitly, or whether you are
talking about what Phipson calls the persuasive burden,
that is the burden in terms of pleading and proof at the
trial. He who asserts must prove those kinds of
principles. Because the two are very easy to merge at
any given time as to what people are saying and the
basis on which they are saying it.
So the first point is that clause 12(12) doesn't
expressly, in my submission, allocate the burden of
proof at all, save in one respect, and I will come back
to that as it relates to assistants. But as you will
have seen from our submissions, Post Office accepts that
we have the persuasive burden of showing there is a loss
arising obviously from a shortfall or deficiency. In
the ordinary way, if you allege there is a loss you need
it show it. He who asserts must prove. But it is not
a matter of construction of the clause.
The Post Office will seek to discharge that
persuasive burden by relying on signed accounts or
evidence derived from audit or Horizon. But Horizon is
just evidence here. It will either be good enough or
not to prove a shortfall generally or in an individual
case. However, once a shortfall or loss has been shown
by Post Office, ie it is taken out on the balance of
probabilities, this being a Horizon-generated event, in
that world --
MR JUSTICE FRASER: What do you mean, it's taken out?
MR CAVENDER: In order to show loss we will need to show
that this is a loss which is not a Horizon-generated
loss.
MR JUSTICE FRASER: As a first step.
MR CAVENDER: Yes, as a persuasive burden we would have to
show that.
MR JUSTICE FRASER: Let's just put the word "burden" off to
one side and do a real world worked example so that
I can understand what your submissions are as to
Post Office's case on how this clause should be
construed. And in order not to personalise it, let's
just say Mrs X.
Mrs X is a subpostmaster or postmistress and she is
notified that Horizon is showing there is a shortfall at
her branch of £2,000. Do you say that notification
follows or precedes what you have just explained which
is that Post Office need to show that it is not
a Horizon-generated loss, or does that notification just
come at the same time as Post Office considers whether
it is or not?
MR CAVENDER: It is not really a timing thing. In these
cases what happens is generally the postmaster's in
charge of the branch, he does a trading statement, there
is a rollover, and he says there is a certain amount
of cash in the branch, et cetera. There is an audit and
the audit shows there is £2,000 missing and the
Post Office says, well, it looks like you owe me £2,000.
MR JUSTICE FRASER: Mr Cavender, you are astute enough to
know that you have moved on to dealing with an audit
I am dealing with a worked example of
a Horizon-generated -- sorry, of a shortfall which has
come to Post Office's notice as a result of what Horizon
is showing. Because that is what this case is about, it
is not about losses that are shown on audits.
MR CAVENDER: On your example, my Lord, how do Post Office
know this?
MR JUSTICE FRASER: Well, as I understand it, and this will
come through the evidence, the subpostmaster has notice
or is notified of a shortfall on the terminal, but it
may not be on the terminal, it may be in some other way.
That is not --
MR CAVENDER: It's normally when they balance, my Lord, that
is when it happens. They come to the end of a period
and they balance. That is when the shortfall, if you
like, of the event is crystallised.
MR JUSTICE FRASER: That is a good way of putting it.
Let me just ask Shams one question, he is the EPE
officer. (Pause)
Sorry, Mr Cavender.
MR CAVENDER: Not at all. The answer to your question might
be more readily found in our written opening at
paragraph 122, {A/2/36}.
MR JUSTICE FRASER: I'm not sure that ... I'm not sure it
does.
MR CAVENDER: It's 122(b), my Lord:
"Where the deficiency is not apparent from accounts
that have been signed off, any dispute as to the
accuracy of the figures on which Post Office relies to
show a deficiency is at large. Post Office may rely on
an inference from the general reliability of Horizon
..."
Saying that Horizon is generally reliable --
MR JUSTICE FRASER: Just pause there. Let me just find the
part I was asking you about. It's {Day1/107:23}, when
you said:
"... once a shortfall or loss has been shown by
Post Office, ie it is taken out on the balance of
probabilities, this being a Horizon-generated event ..."
I said:
"What do you mean, it is taken out?"
And you said:
"In order to show loss we will need to show it's
a loss which is not a general Horizon-generated loss."
And it was that point that I was exploring with you.
Am I therefore to equate that with the
antepenultimate line on page 36, or the third line of
122(b) {A/2/36}, which is Post Office relying on
an inference from the general reliability of Horizon.
Is that just a different way of saying the same thing?
MR CAVENDER: It is, yes.
MR JUSTICE FRASER: Right, thank you. Because actually
an inference is rather different to the way you were
explaining it to me at page 120, isn't it?
MR CAVENDER: I don't believe so, my Lord, and if it was --
MR JUSTICE FRASER: Okay. That is fine, I understand it
now.
MR CAVENDER: But what I am trying to do is to try and
address the case that somehow we are trying to fix
postmasters for all Horizon-generated losses. That is
the target of my -- we are not saying that. And 122 of
our opening makes that clear. 122(a) deals with the
inferences where they have signed off relevant accounts
et cetera, and 122(b) addresses the situation where they
haven't, which is more of your Lordship's example.
{A/2/36}
The point I was going on to make is once -- and this
is where your Lordship picked it up -- once a shortfall
or loss has been shown by Post Office, it is then for
the postmaster to show he doesn't have to pay it. And
that is when you get into the clause proper. That is
when we say it is for the postmaster to say you have
a loss at this stage and you are persuaded it is not
a Horizon-generated loss --
MR JUSTICE FRASER: Well, there you are making an inference,
aren't you?
MR CAVENDER: Of course, but --
MR JUSTICE FRASER: Mr Cavender, you must realise there is
a crucial difference between them. One is the default
position as I had understood it to be, on everything
I have been involved with on this case over 12 months,
is the way in which these incidents were approached
which, as I understand it from the written opening, it's
effectively an acceptance ab initio or an understanding
by Post Office that if Horizon says X, X being
a shortfall, then it is a shortfall. Whereas the way
I understood what you are saying orally is it's almost
as if there was a preliminary filter --
MR CAVENDER: My Lord, no, no. If you thought that then
I was --
MR JUSTICE FRASER: Because Post Office's approach is, as
I understood it, or was, and may still be, that Horizon
is reliable.
MR CAVENDER: Indeed.
MR JUSTICE FRASER: Ergo, a shortfall by definition is
something for the subpostmaster to demonstrate falls
within the caveat or the proviso in clause 12.
MR CAVENDER: No, but that is where there is the difference,
that there is a prior stage before you get into the
caveat, almost like a gateway point, that it's a loss,
and it's at that point the inferences of 122 come in.
Because of course we say at the early stage that
Horizon is reliable, and if it says there's a shortfall,
there's a shortfall. But the postmaster can say, well,
no, it's not, in the Horizon trial, and say no, no, that
isn't the case, not necessarily the case, or Horizon was
totally terrible.
MR JUSTICE FRASER: That of course is correct in terms of
specific issues, as in the way they have been split
between Common Issues and Horizon, save for this: so far
as the parties are arguing about who has the burden of
demonstrating what a discrepancy in fact should be
characterised as, whether it is a loss that falls within
12(12) or not, that is, as I understood it, something
that is being resolved at this trial.
MR CAVENDER: My Lord, I'm not quite sure that -- insofar as
it is construction of the clause, that is so. Insofar
as it is a persuasive burden, which I think in reality
it probably is, then strictly it is not a common issue.
But we have outlined our case on it, we are not being
funny about that, but you can see how the two -- it is
important to know whether you are talking about as
a matter of construction of the clause or are you
talking about the persuasive burden generally? But you
have my submission on what the persuasive burden is in
that eventuality.
The points I have made can be made either as
persuasive burden or, at a stretch, and I think it is
a bit of a stretch, an implicit allocation under the
clause. Because it really is -- it comes in advance of
construction of the clause.
My Lord, if in light of that hopefully highlighting
the subtly of this point you go back and read our
written submissions --
MR JUSTICE FRASER: I will do that many times. I am sure it
will come up in closing as well.
But when you describe it as the subtly of the point
or ... it isn't a subtle point at all, is it? It is
what a large part of this whole case is about.
MR CAVENDER: Quite.
MR JUSTICE FRASER: Yes.
MR CAVENDER: What it comes down to is we say Horizon is
reliable and when Horizon says there is a shortfall,
there is a shortfall.
MR JUSTICE FRASER: And it falls within clause 12(12).
MR CAVENDER: Not automatically, because the postmaster is
saying no, no, it doesn't. That is the
Horizon-generated shortfall. So it doesn't come through
the gateway and then into clause 12(12). That is
the argument, that is the conceptual difference.
MR JUSTICE FRASER: But the -- well, I suppose it depends at
what point one comes to apply what you describe as
a persuasive burden. But if you then take your analysis
to the next step, where the postmaster says no, it
isn't, it is a Horizon-generated shortfall, your
interpretation of the clause or the construction for
which you contend is that it is the postmaster
thereafter who has to demonstrate that it is in fact
a Horizon-generated shortfall.
MR CAVENDER: No, because you would have determined that
before you get through the gateway.
MR JUSTICE FRASER: But Mr Cavender, this is the point I am
struggling to follow. Because as I understand your
written submissions, the gateway is the inference that
everything Horizon tells you is reliable.
MR CAVENDER: My Lord, that is evidence really. It is
not --
MR JUSTICE FRASER: That really is not an answer. That is
not evidence. We are talking about the way in which the
clause works for a Horizon-generated shortfall. Okay?
And I am having difficulty in understanding why where
the gateway is, which is your word, could be a matter of
evidence.
MR CAVENDER: No, you misunderstand. Horizon is evidence at
that point. The results of Horizon are evidence. We
say Horizon evidences a shortfall that is real.
MR JUSTICE FRASER: Hence it is through your gateway.
MR CAVENDER: If the court accepts that, then it gets
through the gateway, yes.
MR JUSTICE FRASER: At the moment I just want to know where
your gateway is. Your gateway is a step that is reached
after applying your inference that Horizon is reliable.
MR CAVENDER: Correct.
MR JUSTICE FRASER: So if that is right ...
MR CAVENDER: You then get into the clause.
MR JUSTICE FRASER: That gets you into clause 12.
MR CAVENDER: Correct.
MR JUSTICE FRASER: Clause 12 says what it says. And the
postmaster says "This is not a loss that falls within
the clause because it hasn't been caused by my
negligence, carelessness or error". So in other words,
seeks to rely on the proviso.
And as I understand the burden point, Post Office's
case is that in each instance of this its reaction is
that is all very well and good, but you have the burden
of proving that, is that right?
MR CAVENDER: Correct.
MR JUSTICE FRASER: Therefore, based on your inference, what
role does the gateway play at all? Because if there is
such an inference, all the shortfalls which are
demonstrated on the Horizon system will automatically
all go through the gateway, won't they?
MR CAVENDER: My Lord, no.
MR JUSTICE FRASER: You explain the situation to me, please,
whereby something doesn't reach the gateway stage.
MR CAVENDER: Well, it doesn't go through the gateway
because in an individual case we say at the gateway
stage, "Look, there is a loss of £2,000 and we say
Horizon is fine. Based on a Horizon trial it is
reliable. Therefore the inference is there is
a shortfall". The postmaster says, "No, that is not
true, we don't accept that", for whatever reason in this
case. "I have my own expert evidence about this
particular loss and how it happened and there was
for instance a bug on that day or month affecting me.
Furthermore, I have CCTV, I have all these accounts
here, we only had ten transactions. There is no way we
could possibly have had that loss".
In that world the court may well say that on the
balance of probabilities on this occasion I don't accept
that Horizon was reliable, and so we have
a Horizon-generated shortfall.
MR JUSTICE FRASER: But to get to that point, as
I understand it, you are saying it doesn't in any way
affect the construction of this clause. This clause --
all Horizon losses will reach this clause because you
have just given me an explanation of something that got
through the gateway.
MR CAVENDER: My Lord, it wouldn't get through the gateway.
It would stop at the gateway. At the gateway stage that
wouldn't get through because it was a Horizon-generated
loss by definition.
MR JUSTICE FRASER: No, it isn't a Horizon-generated loss at
that stage because you say the court has to go through
the evidence and decide was, in fact, it something which
was caused by a bug?
MR CAVENDER: My Lord, yes. But the premise of my example
was the court would find in that example I gave that
Horizon was not reliable and therefore it was
a Horizon-generated loss. That was the example I gave
you.
So in the world in which there is, on the balance of
probabilities, a Horizon-generated loss at the gateway
stage it doesn't get through the gateway. It doesn't
get to clause 12 at all.
MR JUSTICE FRASER: Alright. Final question and then I am
going to-- I am going to expressly, though, invite you
to re-read the last eight pages of the transcript
because at the moment it is relatively unclear. But if
what you have explained is correct, are you saying that
in order to decide if something goes through the gateway
stage the burden is on Post Office, or the burden is on
the subpostmaster?
MR CAVENDER: That is the persuasive burden, and the
persuasive burden is normally on the person that is
asserting it.
MR JUSTICE FRASER: So in this case it is ...
MR CAVENDER: It would be Post Office would have the
persuasive burden.
MR JUSTICE FRASER: What, demonstrating that something
should go through gateway?
MR CAVENDER: Yes. It's a loss and a shortfall, yes, that
is right. And I think that is, if you read our opening,
that is what we say over a number of pages.
MR JUSTICE FRASER: Can you stop using the conditional.
I have read your opening, I have actually read it twice,
and I will read it again.
MR CAVENDER: My Lord, yes. But sometimes when things are
discussed orally, and you say, oh right, and then you go
back and read it, it can sometimes have a slightly
different complexion.
My Lord, moving on then from the general point of
postmasters to the liability for assistants point.
I touched on this a moment ago with the "such", this is
the "such" point, and your Lordship quite rightly put to
me that this is, if you like, of a lower order than the
point we have just been discussing.
This point is whether the caveats that applied to
the subpostmaster in clause 12(12) apply to assistants.
We say those caveats do not apply. The liability for
assistants is strict under this clause. My learned
friend says no, you have to rewrite the clause and put
the word "such" in. You have my submissions on that.
But putting "such" before the words "losses of all
kinds" creates a complete nonsense of it. It is clearly
not what was intended. It is not reflected by the other
clauses in the contract where the postmaster is liable,
unsurprisingly, for his employees, and I do not think
I need to say much more about it.
Coming now to clause 4.1 of the NTC. Again you were
shown that briefly. The relevant page is {D1.6/3/13}.
My learned friend's submission on this really is that it
is to be read as if it is clause 12(12). Not a very
promising start in a way because of course it is
a different clause and different words.
What is clear here is that there is no real
distinction between postmasters or their assistants. He
is:
"... fully liable for any loss of or damage to any
Post Office cash and stock (however this occurs ...)"
And "however this occurs" is of course an important
contractual indicator of including losses of all kinds.
And the last line:
"Any deficiencies in stocks of products and/or any
resulting shortfall in the money payable to Post Office
Limited must be made good ... without delay ..."
Et cetera.
So the points I have made, and your Lordship -- we
had a debate about, apply equally to this clause. It is
not as clear but the same point arises, that
Horizon-generated shortfalls, assuming there is such
a beast, if there were shown to be such a beast it would
not come within the wording of -- or come within the
structure of 4.1.
MR JUSTICE FRASER: Where would it come within 4.1 anyway?
Is it just -- is it the sentence that deals with
shortfalls?
MR CAVENDER: Yes, because it is not --
MR JUSTICE FRASER: "... and/or any resulting shortfall ..."
MR CAVENDER: Yes, it doesn't deal with apparent shortfall
because an apparent shortfall is not a real shortfall.
It is nothing. It is an error in Horizon. And what
clause 4.1 is doing is not dealing with things that
aren't real and so they don't get to 4.1.
MR JUSTICE FRASER: But if they do, they are not cash and
stock, it is the words "and/or any resulting shortfall
in the money".
MR CAVENDER: Indeed.
MR JUSTICE FRASER: Yes. Right. Because this contract,
unlike the earlier -- unlike the ...
MR CAVENDER: SPMC.
MR JUSTICE FRASER: SPMC, I'm getting my initials mixed up,
seems to roll together clause 5 and 12 of the SPMC into
clause 4.1.
MR CAVENDER: My Lord, you are right about that. Exactly
so.
Now I was going to have a passage on the law on
construction but I see the time. We have spent some
time on clause 12(12), and obviously so because it is
important. We produced a bundle of authorities.
MR JUSTICE FRASER: I was very grateful for that. It would
be useful to go to some law but I'm in your hands.
MR CAVENDER: We set out detailed submissions obviously
about the law on construction firstly. Paragraphs 32 to
43 of our written opening at {A/2/11}. I won't go to it
now. But we say most of the principles can be accessed
through two recent decisions of the Supreme Court,
Arnold v Britton and Wood v Capita. The reason we are
going to these is because the main thrust of my learned
friend's case on construction appears to be commercial
common sense that the contract can't mean that for
reasons of commercial common sense.
What you learn from Arnold v Britton which is in
tab 4 of the authorities bundle at {A1.1/58/1} --
I don't know if you have had a chance to read Arnold v
Britton or are otherwise familiar with it?
MR JUSTICE FRASER: I have and I am.
MR CAVENDER: You will see on one view the result, namely,
to impose on these -- pick a group of lessees. There is
quite, on one view, a draconian obligation, on one view,
to lack of commercial common sense. But nonetheless
that is what the words required and therefore that is
what the Supreme Court upheld.
Effectively, you remember, there was payment of
a yearly sum and that was fixed at £90 in that case.
And this idea of proportionate and all the rest of it
didn't work and there was a ratchet of 10 per cent
per annum which over a long period of time produced
a very large number, which the complainants there said
could not have been possibly anticipated. But the
majority dismissed the lessee's argument and said the
clause meant what it said.
We have elements of that in this case too, in my
submission. The main meat of the judgment is
Lord Neuberger, paragraph 17. {A1.1/58/10}
MR JUSTICE FRASER: Yes, 17 through to about 23. Although
23 is just dealing with service charge contracts
specifically.
MR CAVENDER: Indeed.
If you go over the page {A1.1/58/11}, you obviously
read those, there is no point in referring to those.
The point at the top of page 1631, internal numbering
{A1.1/58/13}, one thing Lord Neuberger did say is the
court shouldn't invent a lack of clarity in the clause
as an excuse for departing from its natural meaning in
the light of subsequent developments."
That is a point I think I need to pray in aid here.
MR JUSTICE FRASER: Yes. As I understand it, your position
is there is no lack of clarity and you don't need to go
further than just construing the natural words.
MR CAVENDER: Indeed, that is precisely so.
What I think you get from it is there is a very
strict view of this idea of business common sense that
some people sometimes lay more stall by, and you get
that both from Arnold v Britton and indeed from Wood v
Capita, the FSA case involving an indemnity. I won't
take you to it but the same points can be made, the
leading judgment there of Lord Hodge.
I will leave that there because I don't have much
time.
The next point is a pretty crucial point in
the structure of the argument in this case and that is
the agreed implied terms point. They are agreed implied
terms, I call them that, because they are agreed that
they are things that we asserted I think in pre-action
correspondence, they are things we plead in our defence,
and they are things that these claimants accept. So
they are agreed. They're no longer ours, we don't own
them. They are now part of the contract.
That is important because in terms of sequencing,
I think my learned friend has a passage on it in his
written opening. Before you consider contested implied
terms you have to look at the express terms and see what
they mean, and you also have to incorporate within that
in this case the agreed implied terms. They are as much
part of the contract as the express terms, ie they are
the contract, the meaning, which these parties agree
this court needs to construe.
And importantly that is the backdrop against the
question of (a) construction, and (b) the question of
whether any further implied terms need to be implied.
This is important because one of those implied terms,
one barrel of it of course is the necessary co-operation
term.
MR JUSTICE FRASER: Or one of the agreed terms.
MR CAVENDER: One of the agreed terms, my Lord, yes.
So you will have to, in my submission, when it comes
to the final analysis, work out how that term, which is
effectively oil to the commercial relationship, works
with the express terms of the agreement and work that
out before deciding, well, in light of that is there
a necessity -- and the word is appropriate,
"necessity" -- under Marks & Spencer to imply any
further implied terms and, if so, what.
You will see that the claimants' admission of these
implied terms is recorded in the order for the Common
Issues trial at {B7/7/13}.
These implied terms, the Stirling v Maitland and the
necessary co-operation term, I will now call them the
agreed implied terms.
MR JUSTICE FRASER: Are we looking at the older version of
the Common Issues or the consolidated Common Issues?
MR CAVENDER: Consolidated, my Lord.
MR JUSTICE FRASER: I think consolidated might be a better
place to go.
MR CAVENDER: Have I got the wrong reference?
MR JUSTICE FRASER: That isn't the wrong reference, that is
the original schedule to the original CMC order.
A better place to go is probably the consolidated Common
Issues.
MR CAVENDER: My Lord, yes, but I think the point is the
same obviously in both.
MR JUSTICE FRASER: I know it's the same. I am just talking
about efficacy or utility of the cross-referencing.
MR CAVENDER: I am obliged.
MR JUSTICE FRASER: So which one do you want me to look at?
MR CAVENDER: {B7/7/13}.
MR JUSTICE FRASER: No, that is the Common Issues.
MR CAVENDER: {B1/2/1} I am being told.
MR JUSTICE FRASER: Yes, that is the consolidated one.
MR CAVENDER: It's the bottom of page 3. So {B1/2/3} at the
bottom, above paragraph 3:
"For the avoidance of doubt, the implied terms
admitted at Defence paragraph 105 are agreed."
Does my Lord have that?
MR JUSTICE FRASER: I do, yes. It's not exactly what
I meant but it doesn't matter.
MR CAVENDER: These implied terms, the necessary
co-operation and the Stirling v Maitland ones, are
ordinary implied terms, unobjectionable, and are often
implied into complex commercial agreements.
The claimants here try and argue that because we
aver and accept that these terms are to be implied that
somehow that gives some kind of succour or raft to other
implied terms as well and/or that somehow that shows
that we accept the contract was badly drafted.
We accept neither of these things. These terms are
conventionally applied into all sort of sophisticated
well drafted contracts. They are perfectly suited to
filling gaps that cannot sensibly be filled by express
provision. The whole point of them is they will often
have gone without saying but are necessary for practical
commercial coherence of the agreement.
It is now common ground these are to be implied into
these contract. They are, as I say, equivalent
therefore to express terms. Like the express terms they
have a proper construction. They form part of
a contract into which my learned friend has to persuade
you that his additional terms should be implied. The
claimants' 244 pages of written opening almost entirely
ignore them or the effect they have on the arguments in
this case.
Your Lordship will see, and my learned friend turned
to it a little bit at the end of his submissions this
morning, that Post Office often criticised at length not
showing in more detail how they would work, those
implied terms would work in practice, and whether they
cover some of the ground of the terms my learned friend
urges you to imply as well.
We are attacked for not having done even more than
we have to help the claimants understand our case. In
my submission, that whole attack is misconceived. They
have accepted this these terms are to be implied, and
now it seems, having done that, they want us to tell
them what they mean, what it is they have accepted, what
their precise effect might be in a myriad of possible
factual circumstances.
Imagine they were to do the same in relation to an
express term of an agreement, explain how express term X
overlaps with our alleged implied term. That would
never be a proper request or exercise. These agreed
implied terms are as good as express terms when it comes
to the question of construction and the question whether
other contested implied terms should be incorporated.
It is therefore for the claimants to show that they
are necessary, these further implied terms, and part of
that burden showing why they are necessary
notwithstanding the existence of the agreed implied
terms.
The second point: is we have in fact done a good
deal, to try and provide further clarification. We have
had a counsel to counsel meeting, we have produced
a table to compare the obligations. In our written
opening you will see we gave further examples at
paragraphs 181 and following {A/2/53}.
The reason we can't go any further is because these
implied terms are, by definition, ambulatory. They fit
in a number of things within them. You would have to
posit particular factual circumstances before -- and
plead those out, if you want to take the pleading point,
before you could sensibly ask the opposing party, say,
well, would your implied term react here and in what
way? That has never been done.
We have done our best to try and give examples of
the extremes of where it would definitely work and where
it would definitely not work. See paragraph 181. But
what we can't do is fill in the multitude in the middle
of degrees of situations where they may or may not
respond, or how.
I am slightly at a loss to see why my learned
friends are doing this. Maybe they are shy about making
the argument, attacking the implied terms, the agreed
implied terms, because they quite like having them, and
they don't want to say too much about them being narrow
in case that is all they are left with, and at the
breach trial they have to say in fact they're wonderful
and involve all sorts of possibilities. That is a
possibility.
It is interesting it note, though, in my learned
friend's opening at paragraph 165, bundle {A/1/65}, we
can perhaps turn that up.
He says at the end:
"... albeit, the defendant's own implied terms ..."
Because he is not taking ownership, he is still
saying they are ours even though he has adopted them.
"... of wide application, namely implied duties to
co-operate and not to prevent performance of the
contracts."
So he says they are "of wide application".
So, my Lord, what he has to do is ride two horses.
He is saying the necessary co-operation term has a wide
application on the one hand, and then married with the
express terms. At the same time he is trying to say
that it is necessary, to give commercial coherence to
this contract, to imply a raft of other implied terms.
So that is what is going on and that is what he needs to
do.
Of these, the master of the implied terms really he
is implying is the relational contract debate to which
I now turn.
MR JUSTICE FRASER: That is probably a good time to give the
shorthand writers a break. So we will take ten minutes
and resume at 3.24 pm.
(3.15 pm)
(A short break)
(3.24 pm)
MR CAVENDER: We are going to relational contract. The
first point to note here is the whole purpose of
characterising a contract as "relational" is to take
a step towards arguing for the implication of a term of
good faith. We of course do not accept there is any
real utility in this step because we do not consider
Yam Seng to add anything to the existing law, but for
the purpose of this argument assume it to be
a worthwhile exercise at least to investigate the
principle.
There are a number of problems with the argument
this is a relational contract here. I will list them
and then expand on a few of them. Firstly, it only
applies to long-term agreements.
Secondly, it normally applies where there is
a lacuna or gap in a relationship. Here there is no
gap, there is an agency relationship and a detailed
contract.
Thirdly, there is a difficulty of the agreed implied
terms and the necessary co-operation term already doing
a good deal of the work that is said to be covered by
this good faith term.
Fourthly, in the terms put it would be contrary to
the express terms of this contract.
MR JUSTICE FRASER: Contrary to them?
MR CAVENDER: Contrary to, my Lord, yes.
And finally, it is far too wide and far too deep in
terms of the things put forward in its wake to begin to
be justified in Yam Seng. We will go to Yam Seng. If
you remember, there was this debate about good faith, a
very interesting discussion about it. But in the final
analysis Mr Justice Leggatt implied two very narrow
implied terms based on honesty, so he rejected anything
wider.
What we see here, standing back from it, is my
learned friend saying relational, relational, Yam Seng.
He then lists a whole number of incidents, he says, of
that. And then he has his 21 implied terms he says are
justified by reference to it. So just bear in mind that
is the structure of it.
MR JUSTICE FRASER: He may or may not be right about any or
all or none of them, but whether a contract is
relational or not doesn't necessarily require the
implication of all 21 of those terms. It is the
characterisation of the contractual relationship, isn't
it?
MR CAVENDER: Yes. And even if it is relational, it doesn't
necessarily mean you imply any term at all, let alone
a good faith one. What it is is -- what certain cases
have done is identify a relationship where sometimes the
court looks with particular care about whether certain
terms might be implied or not. The same in joint
venture agreement. Ross River, there we managed to get
the judge to imply a term of good faith in a joint
venture agreement and it was upheld by the Court of
Appeal. But not because it was a joint venture, because
it was an odd joint venture where the sleeping partner
had virtually no power and the operative partner had all
the power and all the money and paid it to himself.
MR JUSTICE FRASER: But whether a contract is -- the term
"relational contract" is one generally understood as
being a particular characterisation of imports into the
contract, a standard of dealing between the contracting
parties which wouldn't necessarily otherwise be there.
MR CAVENDER: My Lord, I'm not sure I would agree with that.
MR JUSTICE FRASER: I think you said Yam Seng doesn't change
the law at all.
MR CAVENDER: No, all it does, it's the application. We'll
go to it. What the judge actually did, he had really
interesting debate about lots of things, but what he
actually did was imply two terms he found to be
necessary.
On the first point, the first obstacle in
the road -- we will come to Yam Seng -- was the
long-term point. In Yam Seng itself and all the cases
that we cite in our opening at paragraph 210, a case
called Acer and a case called Hamsard, see paragraph 210
of our opening {A/2/63}, they were -- no implied term of
the type, the good faith one, was implied, and one of
reasons for that was the absence of a long-term minimum
duration.
In Yam Seng itself, as we will see at paragraph 142,
we will come to it, the judge was talking about longer
term relationships. In Al Nehyan, paragraphs 168 to
169, and again we will come to this, I am just trying to
get the flavour at the moment, the two cases he relies
upon, Bristol Groundschool and D&G Cars, both were long
term. Bristol Groundschool was a contract for five
years, then extended on a rolling basis, D&G Cars
similarly was for five years with an option to extend
for a further year. Lord Justice Beatson in
Globe Motors, tab 7 of the bundle, again said a
relational contract must involve a longer term
relationship.
So just taking those points cumulatively, a contract
terminable on short notice is a non-starter. Here one
contract was terminable on three months' notice, the
other on six months' notice. Based on that one
principle alone, these are not relational contracts.
What that then tells one is for this to get off the
ground at all, my learned friend has to win on
Autoclenz. He has to strike out, effectively, the three
month and the six month notice provisions. Because if
he doesn't, then they can't begin to be long term. But
even if he does, he won't quite tell you what term he
says should be implied, but he does at one point in his
opening talk about 12 months. Even 12 months, the term
he says should be implied when you vacate the three and
six month terms, is only 12 months. It isn't the
five-year rolling contract that the authorities
anticipate.
That is the first obstacle.
The second is that again in Yam Seng, if you recall,
I think there were five clauses, it was a handmade
agreement. There was a huge hole in the middle of that
relationship. Similarly in Al Nehyan there was
a friendship relationship between a businessman and
another individual. There was huge -- potentially
lacunas in those contracts.
Here we have an agency relationship. We have
express terms of contracts. They in turn incorporate
manuals and directives. There is no failure to make
provision.
The further road block is the agreed implied terms.
Again, at the stage when you are saying do you imply,
because it is relational, any kind of good faith type
term, you have to have regard for the fact you have
already got a necessary co-operation term within the
contract.
I'm not sure if your Lordship has seen the most
recent edition of Chitty on this story. We have
uploaded it to the -- and it should be in
the authorities bundle at the back. Did it find its way
into your Lordship's hard copy authorities bundle?
MR JUSTICE FRASER: Do you mean the core authorities or the
bigger one?
MR CAVENDER: The ones for the opening. (Handed)
MR JUSTICE FRASER: I have looked at the 33rd Edition but I
can't ... I was looking at it actually in the book. Let
me just have a look.
MR CAVENDER: It's paragraph 1-058 really.
MR JUSTICE FRASER: Shall I add this to ...
MR CAVENDER: At the back, my Lord, yes. Implied terms
start at 57. 57 starts about -- it deals with the
implied term of trust and confidence in employment
contracts.
MR JUSTICE FRASER: Yes.
MR CAVENDER: Then at the bottom of that page {A1.3/6/3}
where it says:
"On the other hand, it has been said that a court
should not imply a term requiring good faith in a party
to a contract where it would be 'inconsistent with the
express terms which set out the parties' mutual
obligations', though this leaves a duty of honesty."
Then we come to "A general implied term to perform
in good faith", and we come to Yam Seng at 1-058:
"In Yam Seng ... Leggatt J. considered, obiter, that
a contract for a licence to distribute and for the
supply of branded goods contained an implied term of
good faith in its performance which had the significance
in the context of not knowingly providing false
information on which the other party was likely to
rely."
MR JUSTICE FRASER: Chitty disagrees with it.
MR CAVENDER: What it says is that -- he disagrees with the
general debate, but he says in this case what he did was
perfectly orthodox on Marks & Spencer, you know,
necessary implied term.
But my learned friend doesn't rely on that, he
relies on the more general academic discussion for
representing the law of England which, in my submission,
it does not.
MR JUSTICE FRASER: It is, I think, generally accepted it's
a difficult area.
MR CAVENDER: A difficult area?
MR JUSTICE FRASER: Relational contracts. They are
a controversial subject.
MR CAVENDER: There have been a number of cases. And
Mr Justice Leggatt -- obviously in Yam Seng there is a
very interesting debate about it. The Court of Appeal
have expressed their views a couple of times since and
are certainly, to put it mildly, less enthusiastic
about --
MR JUSTICE FRASER: But not saying there is in such concept.
MR CAVENDER: My Lord, no. But the concept really is just a
door to another debate, really, and the debate is
Marks & Spencer is the law on implied terms.
MR JUSTICE FRASER: Yam Seng is seen as the first word on
a duty of good faith in commercial contracts. Not all
commercial contracts.
MR CAVENDER: But that preceded Marks & Spencer, obviously.
MR JUSTICE FRASER: I know.
MR CAVENDER: What the authors of Chitty say in this debate
is that the broader comments in Yam Seng -- we will go
to it -- are not really justified and they undermine the
general reluctance of English law to imply good faith in
contracts.
MR JUSTICE FRASER: Which was the entire point of the dicta
or obiter dicta in Yam Seng, that English common law's
hostility to a doctrine of good faith has effectively
been watered down over time, is the general summary.
MR CAVENDER: My Lord, yes.
MR JUSTICE FRASER: But the editors of Chitty don't agree
with that.
MR CAVENDER: No. And what they say is it shouldn't be seen
as a general principle but rather is recognised as a
particular example of a contract where a term as to good
faith, meaning honesty, should be implied.
MR JUSTICE FRASER: I know. But that passage in here is
wrong because the judge is rather careful to say -- or
the way he puts it is: bad faith does not mean
dishonesty. So if bad faith doesn't mean dishonesty,
good faith can't mean honesty, it means something else.
MR CAVENDER: My Lord, I will go to Yam Seng and I will show
you what he says. And I'm not sure I am going to agree
with you.
MR JUSTICE FRASER: Let's go to Yam Seng now then, because
I would rather look at the authorities than look at what
the editors of Chitty say the case says.
MR CAVENDER: My Lord, before you do, can I, if I may, look
at the last paragraph before 059:
"Moreover, the approach of the Supreme Court to the
implications ... in Marks & Spencer ... may lead to a
greater reluctance in the courts to imply terms
requiring good faith in at least some commercial
contracts ..."
So you do have the spectre of Marks & Spencer --
MR JUSTICE FRASER: There is a Court of Appeal authority
from this summer, which I think is called Birmingham
City Council v Amey, which says the PFI contract in that
case is a relational contract but it is unnecessary to
go any further. So as a tag it does exist.
MR CAVENDER: My Lord, yes. I am not saying it doesn't
exist, it is really what it tells you. As I said at the
beginning, the relevance of it is people say it in order
to try and get some good faith kind of implied term off
the ground.
MR JUSTICE FRASER: If you are saying a contract could be
what is currently described as a relational contract,
that does not mean it imports any obligation of good
faith. Well, that is an argument. But it is generally
understood, as far as I am concerned, that it is
a shorthand tag for a contract that has an obligation of
good faith within it.
MR CAVENDER: My Lord, we will come to it in detail when we
come to it. Let's --
MR JUSTICE FRASER: Let's look at it now.
MR CAVENDER: Let's look at Yam Seng. It's behind tab 2.
{A1.1/43/1}.
The first point is paragraph 26 {A1.1/43/10}:
"The distribution agreement is a short document,
which was evidently prepared by the parties themselves
without the assistance of lawyers. It consists of eight
clauses ..."
So two points there. It was a handmade agreement,
very short, and therefore very easy to incorporate terms
within, potentially.
At paragraph 121 {A1.1/43/28}, the judge recites the
general reluctance about good faith. We don't need to
detain ourselves about that.
Paragraph 131 {A1.1/43/30}:
"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."
That is all orthodoxy.
It then goes on at paragraph 134 and following
{A1.1/43/31} about the background, expectations of
honesty and things of that kind.
At 138 he mentions --
MR JUSTICE FRASER: You need to look at the beginning of
138.
MR CAVENDER: "In addition to honesty, there are other
standards of commercial dealing which are so generally
accepted that the contracting parties would reasonably
be understood to take them as read without explicitly
stating them in their contractual document. A key aspect
of good faith, as I see it, is the observance of such
standards. Put the other way round, not all bad faith
conduct would necessarily be dishonest."
MR JUSTICE FRASER: That is exactly the point I made on the
Chitty passage.
MR CAVENDER: Quite so.
MR JUSTICE FRASER: So if Chitty is looking at it from the
point of view that good faith means honesty, that is not
what the judge is talking about in Yam Seng.
MR CAVENDER: Actually Chitty quotes that paragraph --
MR JUSTICE FRASER: Whether it does or not, the sentence
that we are debating is a passage in Chitty, a sentence
in Chitty that has been put in by the editors.
MR CAVENDER: My Lord, yes. Let's see what the judge does
in fact --
MR JUSTICE FRASER: Yes. That is what we are doing.
MR CAVENDER: Yes. Let's go to paragraph 154 {A1.1/43/34}:
"I have emphasised in this discussion ..."
So he is bringing the threads together now.
"... the extent to which the content of the duty to
perform a contract in good faith is dependent on
context. It was Mr Salter’s submission that the relevant
content of the duty in this case ..."
So he's looking now, going from the general to the
specific, and this is my point:
"... was captured by two more specific terms which
Yam Seng contends are to be implied into the agreement."
So to paraphrase, he has had the debate about good
faith and relational, and now he's saying, okay, how
does that apply here?
MR JUSTICE FRASER: I understand that. But in
paragraphs 139 through all the way to 145 --
MR CAVENDER: He is talking more widely.
MR JUSTICE FRASER: Yes, and it is that discussion of wider
principle that Mr Green is relying on. I appreciate
your points as to why you say that doesn't apply, but
those specific paragraphs deal with the potential
importing into a relational contract of the doctrine of
good faith and what that might mean in practice.
MR CAVENDER: My point is, yes, I see the discussion, let's
see what the judge did in this case, so how he sees it
being applied.
MR JUSTICE FRASER: In the Yam Seng case?
MR CAVENDER: Exactly. We are at paragraph 155
{A1.1/43/35}. So he is saying here that the submission
is that there are two -- the content of the relevant
duty here, the Yam Seng duty, the good faith duty,
whatever it is, is given expression in these two terms.
So firstly a duty not to give false information:
"The first more specific term said by Yam Seng to be
implied in the agreement is a term that 'insofar as ITC
instructed or encouraged Yam Seng to incur marketing
expenses it would not do so for products which it was
unable or unwilling to supply, nor offer false
information on which Yam Seng was likely to rely to its
detriment'."
That was the proposal of counsel based on the
Yam Seng principle.
The judge says:
"As I see it, the essential difficulty with this
formulation is that it does not distinguish between
encouraging expenditure in the expectation that products
would be supplied, or providing false information,
dishonestly and doing so innocently. In my view, such
a distinction is critical."
He goes on, the words down:
"The position would be different if ITC wilfully led
Yam Seng to expect that products would be supplied in
circumstances where ITC did not in fact intend to supply
them or knew that it would be unable to do so."
Last line:
"By contrast, it was clearly implied ITC would not
knowingly provide false information on which Yam Seng
was likely to rely."
So if you take, below 156, "dishonest" and draw
a line to "knowingly", what the judge is clearly saying
is the implied term he is willing to imply here is
either a knowing/dishonest term. So the term would
read: you shall not dishonestly encourage Yam Seng to
incur marketing expenses for products which it was
unable or unwilling to supply. A very narrow implied
term and one based on dishonesty. He expressly disavows
that put forward by counsel on a general basis.
He does exactly the same in relation to the second
implied term dealing with pricing, the duty not to
undercut duty free prices. You will see that at the end
of 164.
MR JUSTICE FRASER: He finds that there were three features
that led him to conclude that there was an implied term.
MR CAVENDER: Exactly. And the thing to ask yourself,
my Lord -- so the first point is he is talking here
about dishonesty and that is why no doubt Chitty have
picked up on that. Because he has the discussion but
then, when it comes to it, he rejects counsel's view of
a general duty. He says no, you have to be knowing or
dishonest.
What they were doing in this case was dishonestly
providing -- or alleged to be doing -- information to
the parties, the distribution agreement, to incur
marketing expenses for goods they weren't going to
supply, had no intention of supplying or couldn't.
MR JUSTICE FRASER: But that doesn't apply to the
undercutting prices point. It does apply to the first
point.
MR CAVENDER: It does. My Lord, but there were particular
features of the cutting prices point which he
outlines --
MR JUSTICE FRASER: I think they were features of the case
because what he says at 160:
"In ordinary circumstances there would be no
justification for implying such a term ..."
Pausing there, the term is that the supplier would
not prejudice the sales by selling the same products at
a lower price.
MR CAVENDER: Quite. Because it was a duty free thing, and
the duty free was always meant to be cheaper than the
outside price. That was the basis of --
MR JUSTICE FRASER: Exactly. But the three features he
identifies in 161, 162 and 163 lead him to imply such
a term.
MR CAVENDER: Exactly. But that is rather different,
really. It is there, I'm not sure it helps this debate.
This debate, my Lord, is in the particular case he
actually rejected counsel's more general implied terms
saying there has to be dishonesty. And in terms of the
focus of our debate, question: would a necessary
co-operation term of the type I advance prevent you
giving dishonest information to the other party to
encourage it to incur expenditure?
MR JUSTICE FRASER: If the definition of a duty of good
faith is as you are explaining it to be, then a certain
set of consequences will flow. And I understand your
case being that is how you should approach relational
contracts, that is what they are, and there is no
necessity for finding it's a relational contract because
there is the agreed implied term that effectively does
the same job.
MR CAVENDER: It doesn't do the same job, my Lord. It -- it
fills any gap it is necessary it fill. Because
"necessary" is the game we are in here, Marks & Spencer.
And it more than fills the gap that is there.
If we go to Al Nehyan as well, have a quick look at
that, which is the subsequent case. It's at tab 8.
It's a bit more difficult to access, but he again
obviously refers to Yam Seng.
If we start maybe at paragraph 150 and pick it up
there under the heading "Partnership" {A1.1/72/40}.
Then over the page at 153 {A1.1/72/41}, fiduciary
relationships, he refers to the Ross River case there
and joint ventures and then distinguishes that
relationship to some lesser form of good faith.
He picks it up at paragraph 167 {A1.1/72/45}, having
found there was no fiduciary duty:
"It does not follow ... that he did not owe any
fiduciary duties ..."
That his entitlement was untrammelled.
At 168 he then refers to the Bristol Groundschool
case and at 169 the D&G Cars case. Both have five-year
terms with rollover in them.
MR JUSTICE FRASER: 167 really summarises at least what the
judge himself considered Yam Seng to be about.
MR CAVENDER: Yes, obviously -- yes, exactly. That is very
fair. He does do that.
MR JUSTICE FRASER: It might be thought the editors of
Chitty would possibly give a bit more consideration to
167 in this case than they do to their -- but that is
a sort of comment en passant.
MR CAVENDER: Paragraph 170, my Lord, in this, where the
judge quotes Lord Justice Beatson in Globe Motors is
quite interesting because he says:
"... duty of good faith which he characterised
essentially as a duty to co-operate."
So that is where my point comes around.
Lord Justice Beatson said we are talking about this as
a duty to co-operate. So it is obviously an interesting
area.
MR JUSTICE FRASER: It is an area that is currently open to
some debate.
MR CAVENDER: In terms of the Court of Appeal, my Lord, they
have expressed their views on this. You have probably
seen MSC Shipping. I'm not sure that made its way into
my bundle actually.
MR JUSTICE FRASER: I don't think it did.
MR CAVENDER: But certainly there Lord Justice Moore-Bick,
it is paragraph 44, wasn't very enthusiastic about the
approach. Also the Carewatch case, which I think is
Mr Justice Henderson, is behind tab 3 of my bundle.
That is worth having a quick look at because that is
quite similar to this case in the sense that it was
a long term contract, although ours isn't, but this one
was. So it is potentially into the realm of
a relational contract. {A1.1/53/1}. Taking on
your Lordship's point, if it is relational, somehow you
get good faith in --
MR JUSTICE FRASER: No, no, that is not what I said.
I didn't say, if it is relational, you somehow get good
faith in. I was explaining that my understanding of the
term "relational contract" is a term which refers to
a contract that has a duty of good faith within it.
That might be right or wrong.
MR CAVENDER: I think what Carewatch tells us is it might
not be right, because this was a long term contract that
had some of the features that people who say things
a relational contract contains, and the judge looked at
it and said: no, there is a perfectly good written
agreement here. I see no --
MR JUSTICE FRASER: But just because it is not a relational
contract in that case doesn't mean that the
categorisation of a relational contract as connoting
a duty of good faith is incorrect, does it?
MR CAVENDER: My Lord, I think the only debate between us --
and it is just semantics really -- is whether you say,
in order to call it a relational contract, that
presupposes you have implied a duty of good faith or
whether you say it is relational before you decide that
question, into which you may or may not imply a duty of
good faith.
MR JUSTICE FRASER: It is rather important when one takes
account of the fact that Common Issue 1 is:
"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 ..."
Et cetera, et cetera. I have to decide that. That
is an issue agreed --
MR CAVENDER: Quite.
MR JUSTICE FRASER: -- the wording of which is agreed. It
is correct that co-operation is one of the six
components within there.
MR CAVENDER: And good faith is as well.
MR JUSTICE FRASER: Yes. It is good faith, fair dealing,
transparency, co-operation, trust and confidence. And
you say, I think, that it could be -- well,
I don't know. We will explore this in due course on
another occasion. But you say there is no necessity to
find that in favour of the subpostmasters because the
agreed implied term of co-operation fills the gap that
is necessary.
MR CAVENDER: Correct. Exactly so.
MR JUSTICE FRASER: Understood.
MR CAVENDER: So going to Carewatch then, this is
an application in this area. If you go to -- I won't go
to the detail of it. Carewatch was the second largest
provider of home care services in the UK, see
paragraph 2. The implied terms here, see paragraph 101,
were very wide-ranging, pretty similar to the kind of
thing that is being done here {A1.1/53/2}. Implied term
of the agreements, the purpose was to enable it to carry
on business, et cetera. If you flick over those. The
argument was (a) they are too wide and don't know what
they mean and (b) they are not necessary and counsel won
on both points.
MR JUSTICE FRASER: Where is the part where the judge
expressed his disagreement about the nature of
relational contracts?
MR CAVENDER: No, he doesn't express it, my Lord, but this
is an example of a case that has the incidence, if you
like, the characteristics of a long-term relationship
that has the toing and froing of information, all the
ingredients that point you towards this is relational
but he says, no, he is not going to imply this raft of
implied terms.
MR JUSTICE FRASER: Right.
MR CAVENDER: If you look at paragraph 109.
MR JUSTICE FRASER: Yes, I have seen that.
MR CAVENDER: He cites Yam Seng at the top, above 109
{A1.1/53/34}.
MR JUSTICE FRASER: Yes. I think he is actually citing
Hamsard v Boots, isn't he?
MR CAVENDER: Yes.
MR JUSTICE FRASER: The commentary of Mr Justice Norris on
Yam Seng.
MR CAVENDER: Indeed. At 109 is really his finding:
"In the light of these principles, the first point
to make about the Norwich agreement is that it contains
very detailed express terms, dealing with all aspects of
the franchised business from its inception to its
termination."
So too ours, I would say.
"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."
So too here, I say.
That is really just an example of the application of
the principle in that case.
We say the important point is there is no specific
rule of construction or approach to relational contracts
any more than there is to joint ventures.
MR JUSTICE FRASER: Is that a semantic point or is that
a point of substance?
MR CAVENDER: It might be dependent on the way you approach
it. Certainly joint ventures have for a very long time
been the kind of contract that people sometimes try and
imply a duty of good faith, and Ross River is
an example. That does not mean to say in every joint
venture agreement so-called there is a duty of good
faith. That is the only point I make.
Moving on then to termination on notice. It's
rather difficult to follow my learned friend's case
because he says at paragraph 102.5 {A/1/46} of his
opening he:
"... does not contend the court should use duties to
co-operate or to act in good faith to cut across the
express provisions."
And any with limitations in them. But nevertheless
he seems to ask you to read down the express right to
terminate from three and/or six months. And we see from
his paragraph 402 at {A/1/155} the period they seem to
have in mind is twelve months. You will see what we say
about this in our written opening at paragraphs 326 and
following. That is in bundle {A/2/92}. And we say
there is no proper basis to read in any of the vague
restrictions that the claimants want to introduce.
For instance, the court is asked, taking claimants'
case at its lowest, to read in the words "at least three
months" to mean notice of three months would
not necessarily be enough. There is some subjectivity
in that. Those words, as your Lordship knows, or
similar, apply and appear in many commercial contracts
and have a very clear meaning.
So when parties say "this contract may be terminated
on notice by giving three months' notice", they don't
mean to say "this contract may be terminated on notice
by giving such notice as may be reasonable but never
less than three months." That is really the import of
what my learned friend is asking you to find.
Of course, to find that, there would be a dramatic
change in the law and there is no justification for it.
In this case the parties are entitled to certainty and
a minimum period of termination on notice. It has
advantages for both sides, as I have said. It is
a two-way street. It is reciprocal.
My learned friend doesn't spend any time working out
what that means for his case. Is he saying that his
chosen twelve months goes both ways in both the SPMC and
in the NTC? He is silent on that.
One of the other requirements added in is the idea
of conscientious consideration; there is some duty
before we exercise to give conscientious consideration.
Again, it is clearly an unwarranted and unworkable
requirement. And presumably it is mutual. How does it
work the other way? If a postmaster gives notice for,
say, health reasons, do we have to investigate that and
see whether that is conscientious or not or whether they
just want to leave for their own reasons. None of this
has been thought through.
The case on termination has all the hallmarks of
a case that has been invented to try and create
liability for Post Office for doing what it was
permitted to do, namely, give notice of three or six
months rather than trying to make sense of the words of
the agreement itself.
We say there is nothing unfair or inappropriate
about a mutual right to terminate. Very many commercial
agreements have it. It would be very unusual not to
have it.
Mr Geys, the example I gave earlier; he had
a provision in a contract and was terminated, and that
was an employment relationship, where the courts do give
a degree of consideration of policy, considerations of
that kind, as Lord Sumption said in that case. But only
to a limited degree, that being a case about repudiatory
breach, if you recall. So the idea that somehow you
should give these words of termination anything but
their natural meaning in commercial law is, in my
submission, a non-starter. And pointing to the fact
that in practice Post Office might not -- as a matter of
its own commercial reasons not enforce those contractual
terms to its full force is neither here nor there. That
is a matter for it if particular circumstances apply,
but that doesn't alter the meaning of the clause.
Similarly, payments made to outgoing subpostmasters
when there were closure programmes again says nothing
about the right of Post Office to rely on its contract.
On going through these submissions, my Lord, one of
the points that -- and perhaps I should have dealt with
it in relation to the implied terms in relational
contracts is the claimants' case is all at sea in
relation to what they are alleging at any given time.
So if you look at the pleading, it is paragraph 63 of
the Amended Generic Particulars of Claim, we have seen
that so many times, you know what that says about
the pleading of good faith, fair dealing, transparency,
trust and confidence. But if you look in their written
opening, paragraphs 138 to 143, there is a germ of
a different case. If we turn it up. {A/1/57}. At
paragraph 138, we have the normal -- what we expect,
139, 140. If we go to 142 in particular {A/1/58}:
"For present purposes, the claimants invite the
court to find that the content of the implied obligation
extends to:
"Acting honestly with fidelity to the bargain.
"Not acting dishonestly ..."
This seems to be potential for a different case.
MR JUSTICE FRASER: I think those are expressions within
Yam Seng itself.
MR CAVENDER: I think they are from Al Nehayan actually.
MR JUSTICE FRASER: I think you will find they are in --
MR CAVENDER: They might be in both then. But what it
doesn't do, my Lord, obviously the claimants have to
plead a case of what the implied term meant, and
of course you can justify it by legal principles but
ultimately you have to come down to, as Yam Seng did and
Mr Salter did, what is your implied term. And it is
a concern that we seem to be ranging the whole range of
principles without identifying what the actual implied
term is. If you read 142 on its own:
"For present purposes, the claimants invite the
court to find that the content of the implied
obligation ..."
Ie the whole of it, I think, is that. And we don't
see that anywhere else. That is the first we see that,
acting honestly, et cetera. I just raise it. Because
obviously, if my learned friend wants to amend his
pleading, then he certainly hasn't done so yet.
Moving on to evidence, my Lord. You know the
Post Office's position on evidence and the extent and
utility of it in this trial. You won't be surprised to
hear me say that the focus will be on pre-contractual
evidence in terms of documents received, things of that
kind. But of course it won't be limited to that any
more. I necessarily have to stray further afield. The
lead claimants are asking you to prefer their
recollection to the policies and processes of
Post Office at the time, and the quality of their
recollection is obviously -- and even their credibility
in some cases is in issue. So that will need to be
tested.
It is also the fact that they are telling the whole
of their story for the jury effectively, involving
losses and things of that kind and, when they swear
their evidence, it all goes in. What I don't want to be
said at the end is, well, this evidence is evidence, you
never challenged it. Therefore, this is the evidence.
So I need to challenge that as well.
MR JUSTICE FRASER: What, challenge the evidence going to
specific losses you mean?
MR CAVENDER: My Lord, yes. Not specifically, but just the
processes really. Because if my learned friend is going
to have this sort of jury type trial and put all this
in, I at least need to test --
MR JUSTICE FRASER: I would have thought I have now made it
clear to both of you at least a dozen times and put it
in my written ruling and I will make it clear again
today: you are not having jury trial.
MR CAVENDER: My Lord, no. But the point is that these
people are quite understandably putting forward their
complaints and their experiences, much of which we say
is wholly irrelevant but --
MR JUSTICE FRASER: I know. But, Mr Cavender, that was the
subject matter of a strike-out application and I have
given you a ruling on it.
MR CAVENDER: Exactly. All I am saying is the consequences
of that, so we are all on the same page, one of the
things is of course the timetable was done on that
basis. I'm not saying there is a problem with the
timetable, we will see how we go, but I may have to ask
to start early or stay late one day by a little bit.
That is all I am saying. I am just raising a little
flag saying I need to go wider than originally
anticipated. I may well not have to but, if I do, at
least I have mentioned it in opening, that there might
be some tension on one or two of the days.
The other point you would have noticed, my Lord, in
my learned friend's opening -- this really is a point
for you -- it is paragraph 253 of his opening.
{A/1/99}. He says he doesn't want findings on
particular cases on incorporation. Did you recall that?
Paragraph 253.
MR JUSTICE FRASER: Which paragraph?
MR CAVENDER: Paragraph 253, my Lord. I'm not quite sure
what that means really for the trial. It seems to be
saying that he doesn't want any findings as to what
individual lead claimants -- what documents they got and
what was incorporated into their contract. He doesn't
want any findings of fact on that. Which, in my
submission, is somewhat surprising. I thought that was
one of the main reasons you were having lead claimants.
MR JUSTICE FRASER: I read that as going to termination.
But I might be wrong.
MR CAVENDER: No, I think this is talking about bringing
terms to the attention of the parties. Look at the last
line, my Lord. It is going towards -- when we get
a lead claimant up, there are various documents I will
put to them, like the Serv 135, the ARS this, the ARS
that. 250 I think makes that point clear.
My understanding is that one of the main reasons we
have lead claimants is to give the arguments on things
like Interfoto and UCTA some real substance. So you
say: yes, I find they received Serv 135 or they received
whatever it was, so knew at the time or had the
opportunity to take legal advice, all these things.
Therefore, they were incorporated into their contracts.
MR JUSTICE FRASER: Yes.
MR CAVENDER: My learned friend seems not to do that, and
I'm not quite sure why. I would have thought that was
one of the main reasons they are here. Otherwise, why
have them really at all? Because that is one of the
main roles they serve factually. I am in
your Lordship's hands. Obviously you make findings or
don't make findings but I thought I would bring to your
attention this is what is being asked for. He has
not covered it opening.
MR JUSTICE FRASER: I understood from what you said about
ten minutes ago -- I might be wrong -- that you are
going to approach each of the lead claimants
conventionally in terms of putting documents to them
that they saw at the time or didn't see at the time,
et cetera.
MR CAVENDER: Correct. But the question is what you do
with -- is the court going to say it is not going to
make findings on that or ...
MR JUSTICE FRASER: I think that is probably something to be
addressed in closing, isn't it? Rather than in advance
of the evidence.
MR CAVENDER: Possibly. I just wondered if we could agree
what the game is on that score; whether it is just
exemplar or whether we are actually drilling down --
because it may depend how long I spend and the time the
court spends on this. If it is all hypothetical and it
is just exemplar of the sort of things that were around,
that is one thing. If there are to be findings of fact
that Mrs Stubbs or Mr Bates or whoever received their
contract on date X, then that is a rather different
beast. And here the claimants are asking you not to
make findings on it, which is slightly unusual, in my
experience. But there you are. I can't say any more
about that.
You will see what we said in our written opening
about things that it would be useful -- findings to make
and not to make. In your number two judgment you made
it clear you are not making findings on the breach
allegations or allegations about Horizon.
MR JUSTICE FRASER: Everyone is agreed about that.
MR CAVENDER: See paragraph 52. What I also ask that you
don't do is make any findings of fact that go to -- are
ancillary to those breach allegations or Horizon
allegations, rather than the Common Issues. Otherwise,
again, you have the difficulty of overlap and arguments
about issue estoppel and all these kinds of things.
MR JUSTICE FRASER: It depends what you mean by findings of
fact that go to breach. I imagine, if there are any
necessary findings of fact at the end of the evidence in
terms of disputes of fact as to whether Mr Bates got
document X, you won't want me to leave that floating in
the air, will you?
MR CAVENDER: My Lord, no. That goes to my first
category of --
MR JUSTICE FRASER: I know that and I haven't yet bottomed
that out with Mr Green. Because, on one view, a finding
of fact that goes to breach could involve any finding of
fact in relation to the contractual relationship,
couldn't it?
MR CAVENDER: But what I am talking about is downstream. So
the training wasn't good enough, that they didn't have
sufficient report writing, that they didn't have enough
help with investigations; all those things that are
downstream. Potentially breach. We haven't brought the
evidence to the trial to deal with it. There hasn't
been full disclosure on some of these issues. So we
won't be dealing -- and this has been our persistent
position -- obviously this is a trial about the contract
and the relationship. Those are my submissions.
Obviously the court will do what it will do.
The only other point I was going to touch on was the
question of order of closing submissions. We will come
to that later, but the reason I raise it is, and we have
raised it in our written openings, is how many times --
and it is quite surprising when you go through it -- we
don't know what the claimants' case is.
MR JUSTICE FRASER: I have heard that many times from many
different defendants.
MR CAVENDER: My Lord, in this case -- let me give you two
examples then. They say that all the relevant
contractual terms that are in issue in this case, all
the real ones, are all unreasonable under UCTA. They
have no pleaded case on why, in relation to each term,
that is the case. Normally you have a trial that is
about one of them perhaps --
MR JUSTICE FRASER: You want to go last.
MR CAVENDER: Correct. I have to go last.
MR JUSTICE FRASER: You have an almost unanswerable case as
to why you should go last, which is Mr Green has not
opened on the law at all. So if you are going to be
given the opportunity to reply on the law, you would
have to go last. As I have made clear to everyone, this
case is not going to be decided on who gets the last
word.
MR CAVENDER: But, my Lord, this is an extraordinary case,
in my experience, where you don't know what the other
side is saying. For instance, they say every discretion
or right in the contract is subject to an implied term
of exercising it, not capriciously, et cetera. They
don't identify which terms they say that applies to.
MR JUSTICE FRASER: I understand.
MR CAVENDER: It is grossly unfair for me to get up first,
given there is nothing in the opening to decide which
ones --
MR JUSTICE FRASER: Mr Cavender, I understand.
MR CAVENDER: I am obliged. I won't say any more about
that.
MR JUSTICE FRASER: You have raised that point before in
slightly different terms. I understand the position
about closings. One question I have for you both, but
I will ask you first, is: I'm always concerned in any
lengthy trial when somebody mentions tensions with the
timetable. You have seen I think, well, I know you
have, that I managed to carve out an extra week, so that
we are now using the week of the 3rd.
MR CAVENDER: My Lord, yes. For submissions.
MR JUSTICE FRASER: You will have also hopefully on your
desks this morning had a bunch of miscellaneous points
about some minor timetable --
MR CAVENDER: My Lord, yes.
MR JUSTICE FRASER: When you say "tensions in the
timetable", do you mean that you anticipate now going
past the end of Wednesday the 14th to cross-examine the
claimants' witnesses?
MR CAVENDER: My Lord, that is what I anticipate, but
I anticipate I won't need to with a little bit of
wriggle room for half an hour here and there.
MR JUSTICE FRASER: Because anticipating that four days
isn't going to be enough is more than a tension of the
timetable, it is actually seeking a review of the
timetable.
MR CAVENDER: My Lord, what I am trying to say is I might --
if, for instance, Mr Bates takes longer because he is
the first.
MR JUSTICE FRASER: I understand that.
MR CAVENDER: So if I finish tomorrow at 4 o'clock and
Mr Bates is in the witness box, which is possible, and
Mrs Stubbs is meant to be appearing as well, then
I really need to finish Mr Sabir by the end of Monday,
come what may.
MR JUSTICE FRASER: This is why I need you -- and, in fact,
I thought I had asked you to do this last time, and the
timetable that came through was two-thirds complete, you
have to plan out between the two of you which people are
going to be called on which days.
MR CAVENDER: We have done that, my Lord.
MR JUSTICE FRASER: No one has told me that.
MR CAVENDER: I think if you look at the chronology, and
behind that is --
MR JUSTICE FRASER: No, the one I have is just running
order. I don't have a document -- and in fact, that is
why it is included on that point of miscellany.
Let's not take up time. If it exists, send --
MR CAVENDER: It exists, my Lord. If you don't have it, we
can provide a hard copy.
MR JUSTICE FRASER: I know Mr Bates is going to be first,
and I assumed you would be most of tomorrow with him.
MR CAVENDER: Exactly. It depends how we go, but Mrs Stubbs
is also on the ticket for tomorrow.
MR JUSTICE FRASER: Is she on the ticket going over into
Monday or not?
MR CAVENDER: Yes. She is, yes. So is Mr Sabir. If I get
through Mr Sabir on Monday then we are okay. But what
I might do tomorrow, if we don't get on that well, is to
ask to maybe sit at 10 o'clock on Monday. We are not
talking about extra days.
MR JUSTICE FRASER: I understand. It is just that it
affects other court business, that is why I raise it.
(Handed) Thank you very much. Yes, I haven't actually
got this document. Thank you very much.
MR CAVENDER: My Lord, those really were my --
MR JUSTICE FRASER: And the hard start for your witnesses on
that Thursday the 15th, which is the point I made this
morning, I assume that is uncontroversial ...
MR CAVENDER: My Lord, yes.
MR JUSTICE FRASER: Good.
I need to ask Mr Green two points which have arisen
out of what you said. Is there anything you would like
to add?
MR CAVENDER: My Lord, no.
MR JUSTICE FRASER: Do be assured -- and I know it might not
seem this necessarily to everyone in court -- I have
read both of your written submissions, including all the
appendices or annexes with considerable care and I will
be reading them again.
MR CAVENDER: I am obliged.
MR JUSTICE FRASER: Mr Green. The first point about order
of closings is, so far as I am concerned, a non-point.
But you have the opportunity to spend a couple of
minutes trying to persuade me I am wrong; that
Mr Cavender should have the Wednesday and the Thursday
and you should have the Monday and Tuesday.
MR GREEN: My Lord, can I just raise one issue and that is
this complete opacity about which of our implied terms
are included, or "governed" as they said in their
pleading, by the terms that they have admitted. So --
MR JUSTICE FRASER: No. I am dealing purely with
a logistical point. I am giving you the opportunity --
MR GREEN: I am happy to go first --
MR JUSTICE FRASER: I don't want to hear whining about
pleadings on the point that I am asking you about.
MR GREEN: My Lord, can I express the whining in a different
way and say I am perfectly happy to go first, so that my
learned friend is left in no doubt, provided that his
position by the end of the trial, by the end of the
evidence, as to which of the incidents --
MR JUSTICE FRASER: Mr Green, that might be a very good
forensic point but it might be that the position is no
more clear, in which case it is what it is and I will
take a view. I understand --
MR GREEN: I am only highlighting the difficulty I will
face.
MR JUSTICE FRASER: I know. I am just talking about the
order in which the two parties go, and I think I have
made it clear on the basis -- apart from anything else,
just conventionally -- you haven't opened on the law.
I understand why that is; you only had half a day. So
it is sensible for him to go second and you can go
first.
MR GREEN: My Lord, I am grateful.
MR JUSTICE FRASER: I haven't actually really given you
anything but I am happy that you are grateful. The next
point is Mr Cavender's point on your paragraph 253.
MR GREEN: We had understood that was the fruit of
defendant's own sensitivity. Because issues 5 and 6,
when those issues originally came up and were agreed, we
had understood it was the defendant that was sensitive
to not having any actual findings in a specific case as
to whether in fact adequate notice had been given of the
terms.
MR JUSTICE FRASER: Mr Green, it sounds as if you have
misunderstood or their sensitivities have in fact
resolved themselves.
MR GREEN: Which is fine by us.
MR JUSTICE FRASER: Then you don't need to say anything
else.
MR GREEN: I am most grateful.
MR JUSTICE FRASER: Obviously we will start with Mr Bates
tomorrow. I am grateful to you all for your submissions
today. 10.30 am. And, Mr Cavender, we will just review
progress generally at the end of tomorrow and we will
generally review it -- ordinarily I would review it
every Thursday, but we might review it and keep it under
constant review because of the points you have made.
Anything else?
MR GREEN: My Lord, no.
MR JUSTICE FRASER: Thank you all very much.
(4.20 pm)
(The court adjourned until 10.30 am on Thursday,
8 November 2018)
INDEX
Opening submissions by MR GREEN ......................1
Opening submissions by MR CAVENDER ..................80
(10.30 am)
MR JUSTICE FRASER: Mr Green.
Opening submissions by MR GREEN
MR GREEN: May it please your Lordship, I appear at this
Common Issues trial on behalf of the claimants with
Ms Donnelly, Mr Warwick, Mr Miletic and Ms MacKenzie,
and my learned friend Mr Cavender appears with Mr Draper
and Mr Cohen.
With your Lordship's leave, might one of my juniors
sit in this row?
MR JUSTICE FRASER: There is actually a practice direction
about this. You don't have to sit in the second row
just because you are a junior anymore, so it's
completely up to you --
MR GREEN: We didn't want --
MR JUSTICE FRASER: It is completely up to you where your
juniors sit.
MR GREEN: I am most grateful.
My Lord, your Lordship will have had details,
written openings from both parties.
MR JUSTICE FRASER: Yes.
MR GREEN: In the claimants' written opening I proposed to
take your Lordship to three important aspects of the
relationship against which the Common Issues fall to be
determined and which won't have found expression or
perhaps come to life fully in the written arguments.
MR JUSTICE FRASER: Just before you do that, and may be it
is not necessary to say anything about it, but
I received an application, or what was expressed to be
an application from the Press Association last night.
Do either of you know about that?
MR GREEN: My Lord, no.
MR JUSTICE FRASER: Give me one second then. It was sent
effectively as a matter of courtesy, but just putting me
on notice that today the Press Association was going to
seek to have certain of the documents provided to the
press so that they could report the proceedings
accurately. The reason for mentioning it now is two of
the documents specifically identified were each side's
written openings.
MR GREEN: My Lord --
MR JUSTICE FRASER: Now, I imagine it is not an issue
because there is binding authority on it, but --
MR GREEN: It is not an issue.
MR JUSTICE FRASER: All right. Very well. Good.
MR GREEN: I am most grateful, my Lord.
My Lord, the three facets of the imbalance in
the relationship which I wish to address are, first, the
imbalance in the contracts, second, a mechanical or
practical imbalance which I will explain, and third,
an information imbalance. And I can't pretend those
three categories are hermetically sealed but they are
each important.
In relation to the imbalance in the contracts, it is
common ground that the standard contract terms were not
open to negotiation by subpostmasters. True it is that
matters such as opening hours and what improvements
might be made to the premises were recorded and agreed
individually under what were known as conditions of
appointment, but the standard terms themselves were just
that, standard terms. Those standard terms included
a unilateral right to vary the terms exercisable by
Post Office, such that important aspects of the
relationship could be varied without the agreement of
individual subpostmasters.
There were various aspects to such variations.
There were variations to the general contracts and there
were variations to the individual postmaster's
relationship with Post Office in relation to disputed
shortfalls. And I will show your Lordship that when we
come to the losses and gains policy, but the short point
is that where there was a shortfall which
a subpostmaster was required to make good but could not
do so immediately, they would be given time to pay on
condition that all subsequently occurring discrepancies
or losses said to be due to discrepancies would be paid
without dispute. That practice has obviously got stark
implications for a subpostmaster afflicted by more than
one shortfall that is disputed in a row.
So in addition to the standard contract terms and
the unilateral power to vary, the third aspect of the
contract which contributed to an imbalance was the
defendant's sole control of Horizon, its interface, its
processes and how it had to be used by subpostmasters.
Not only the imposition of Horizon for subpostmasters
such as Mr Bates and Mrs Stubbs who previously started
under the old paper-based system but also the
requirement for all new subpostmasters to use that
system, and the defendant's ability, for example, to
change the periods when balancing took place, which was
initially a week and then moved to a four- or sometimes
five-week balancing period, at the end of which
a trading statement had to be produced and signed off by
the subpostmaster.
And it was a contractual requirement that the
subpostmasters would keep their accounts as required by
Post Office. There is no surprise that there is such
a provision but it is the import of that provision which
I will be directing your Lordship's attention to.
MR JUSTICE FRASER: You mean the effect of that provision,
or the fact that that provision was imported?
MR GREEN: The fact that it was imported and its effect
taken together.
There was also a change in 2005 to the way in which
suspense accounts worked, and from 2005 any sum that was
disputed and put into a suspense account had to be
cleared off in the trading period even if the
subpostmaster did not believe that the sum was correctly
recorded as due and owing, or, in some cases, even if
the subpostmaster did not believe that the gain reported
in their accounts was properly due to them.
A not insignificant point when one comes to consider
the position of a postmaster forced to accept on
an accounting system a claim for money that they do not
believe they are entitled to.
Those were matters over which subpostmasters had no
real or effective practical choice. We would say no
choice at all.
So, my Lord, that is a very brief identification of
the key points on the contractual imbalance side:
standard terms, unilateral variation and Horizon.
Under the mechanical or practical imbalance I am
going to have to take your Lordship to some documents to
make the point good. There were two important aspects
of the practical or mechanical way in which the system
worked, to which I have already adverted obliquely. But
if we look at the trial bundle at {B3/2/18}, which is
the Generic Defence, at paragraph 46(1), your Lordship
will see that the defendant admits there the practical
reality which I am about to identify in real life:
"It is admitted that there is no 'option within
Horizon' to dispute a shortfall, in the sense that the
process of raising and resolving a dispute does not take
place through the Horizon system. The process for
disputing a shortfall requires the dispute to be lodged
by calling the Helpline."
Your Lordship will immediately see, given the
emphasis placed on accounting obligations by
Post Office, the emphasis they place on accounting
obligations, that this is not a standard accounting
situation where one party is entitled to produce the
account that they believe is correct and submit it. It
is a materially distinct system, for the reasons that
I will identify, in relation to transaction corrections
and the balancing at the end of the balance trading
period.
As to transaction corrections, could your Lordship
look kindly at page {F3/68/1}. This is a 2008 document.
And if we could look, please, at page 3 of this
"Transaction Correction/Debt Recovery Process" document
{F3/68/3}, your Lordship will see at the foot of the
page --
MR JUSTICE FRASER: You are now jumping quite quickly. Can
we go back to the page we started at which I think is
page 1 {F3/68/1}. Do you want me to read that?
MR GREEN: Only to note the heading, my Lord, which is
"Transaction Correction/Debt Recovery Process".
MR JUSTICE FRASER: Well, the whole of paragraph 1 explains
the background, doesn't it?
MR GREEN: It does indeed. And in fact one can see in 2008
a new step being introduced at the bottom of that page
under "Transaction Correction Disputes". Three lines
down in that paragraph:
"A further step within the dispute process has been
agreed whereby subpostmasters can further dispute
a debt ..."
An important word we will come to.
"... (branch discrepancy/transaction correction) by
providing a written submission of evidence to the branch
analyst."
So that was new in 2008, that development.
MR JUSTICE FRASER: And by "agreed", that is agreed with the
National Federation?
MR GREEN: It looks as if it was likely to be agreed with
the National Federation.
On page 3 of that document {F3/68/3} there is
a diagram, but for present purposes I simply direct the
court's attention to the foot of the page:
"Please note --"
MR JUSTICE FRASER: Which is the end of it?
MR GREEN: At the bottom.
MR JUSTICE FRASER: So you don't want me to go through
the --
MR GREEN: I am not going to take your Lordship through it
because I have some discrete points on that.
MR JUSTICE FRASER: But that is the flowchart which sets out
what is supposed to happen if there is something
identified at the beginning which falls within the
description of an identified P&BA or branch error.
MR GREEN: Indeed. This is as at 2008.
MR JUSTICE FRASER: Understood.
MR GREEN: At the foot of that is a note saying:
"Please note the acceptance of a TC may still result
in a dispute. Branch trading forces the acceptance of
the TC on the Horizon system to enable the kit to roll
over."
So Post Office's internal document about this
recognised that the transaction correction is -- the
subpostmaster has no choice but to accept a transaction
correction at the end of the branch trading period in
reality.
MR JUSTICE FRASER: In respect of a shortfall or
a discrepancy.
MR GREEN: Discrepancy. It can even be a gain.
MR JUSTICE FRASER: Yes.
MR GREEN: But they think, hold on a second, I'm not owed
£5,000.
MR JUSTICE FRASER: So by "the acceptance of a TC", is that
referring to acceptance by the Post Office or acceptance
by the subpostmaster?
MR GREEN: By the subpostmaster. So the acceptance -- so
what happens is the transaction correction shows up on
their screen, either during the course of the branch
trading period or at the end of it.
MR JUSTICE FRASER: Yes.
MR GREEN: And they can defer -- this is actually the next
point I am going to show your Lordship, but the basic
point is they can either defer dealing with it to try
and give them some time to investigate it, or they can
pay it in cash or cheque, or they can say settle
centrally, which means I agree the debt, subject to me
making any -- raising any dispute on the Helpline.
There is no option to dispute a discrepancy on the
Horizon system as the defendant itself admits in its
Defence.
MR JUSTICE FRASER: The way it works is the dispute aspect
of it is done separately from the Horizon system itself.
MR GREEN: Yes, it is separate, and it is orally to
a Helpline.
MR JUSTICE FRASER: I understand that, but that is
a separate route than using Horizon to do it.
MR GREEN: Yes. So the subpostmaster is thereby required by
Post Office to state an account with which the
subpostmaster may strongly disagree. There is no option
to do anything else.
That is a feature of the way Horizon works, which
I will briefly touch on under information, because that
is an unusual feature, we would respectfully submit, and
no subpostmaster -- no hopeful subpostmaster about to
contract with the Post Office would understand that that
was going to be the system. They would not have notice
of the absence of any control in their hands over
rendering an account of transactions said to be within
their branch.
I have not been able to find, my Lord, an example in
a reported case of a similar system where a disputed sum
becomes a debt subject to later dispute. I looked,
I can't say there aren't any, but I haven't found
a similar accounting relationship of this type.
Could I take your Lordship then, please, to
{F4/73/1}. In fact, I am sorry, it's probably easier to
do it in one go and just go to {F3/87/1}.
MR JUSTICE FRASER: Another policy document.
MR GREEN: This is another policy document in relation to
the creation and management of transaction corrections
in POLFS, which is the Post Office's internal
reconciliation office.
MR JUSTICE FRASER: What is the date of this document?
MR GREEN: This document is 10 February 2010, and it's
a document to be explored more in the course of
evidence.
But can I ask your Lordship to look at {F3/87/8} at
paragraph 2.2.6. In 2010 -- by 2010 a high value
transaction correction authorisation signature
requirement had been introduced, and as that paragraph
explains:
"As part of the transaction correction creation
process a high value authorisation series of signatures
has been introduced. This is a form that goes with the
evidence and is signed by the level of manager dictated
by the value. Between £10,000 and £29.99K team leader's
signature, £30,000 to £49.99K senior manager's
signature, and over £50K requires the head of P&BA to
sign it."
MR JUSTICE FRASER: P&BA is branch accounts office?
MR GREEN: Branch accounts department.
"These forms are then filed with the paperwork. The
reason for creating this extra check step was two fold;
firstly to prevent large credit transaction corrections
being issued, then a long period for the debit to be
issued ..."
So the cashflow point, where they make a mistake in
favour of the subpostmaster, and it takes them a long
time to spot that they have made an enormous mistake in
favour of the subpostmaster.
MR JUSTICE FRASER: Who is "they"?
MR GREEN: Post Office.
MR JUSTICE FRASER: Do you mean Post Office within Horizon
or Post Office ex-Horizon?
MR GREEN: My Lord, the only difficulty I should flag up now
is --
MR JUSTICE FRASER: That is why I am asking.
MR GREEN: Your Lordship is right. In the pleadings we
defined Horizon to include everything, but for the
purposes of the March trial we have a smaller definition
of the Horizon issues, a narrower field of functions.
Your Lordship will remember my learned friend
Mr Cavender saying that he wanted to keep
reconciliation, the manual reconciliation of data
outside of it.
So the way it looks to the subpostmaster, my Lord,
because there are two different perspectives. The way
it looks to the subpostmaster is the subpostmaster
either is sent a transaction correction saying you are
entitled to take so many thousand pounds out of the
till, or you owe so many thousand pounds, whatever it
is. Or at the end of the branch trading period, when
they go to balance, they go to balance and they find
there is an enormous discrepancy not previously
foreshadowed. So those are the two ways.
But what they don't see from their -- they see it as
Horizon, a problem on Horizon. What they don't see is
the fact that there are a number of data streams,
Horizon sends data out of the system to third party
clients, they send their data back. Some of that data,
for example, Camelot, can create an auto transaction
correction, and other data more typically, where there
is a discrepancy, gets referred to the reconciliations
team who manually seek to reconcile, make a judgment
about whether it is the subpostmaster's fault, and then
send a transaction correction which will have a limited
amount of information on it, typically. Or sometimes
they will send some evidence in the post to the
subpostmaster about it.
So that is how it seems to the subpostmaster. So
from the subpostmaster's perspective, Horizon is the
system they are obliged to work with, it's the terminal,
and it is through that terminal that they see
everything. But Post Office's perspective is rather
different because they have their people doing
reconciliations, they have people monitoring the
performances of the Horizon system itself. They have
also of course got their own cash centres receiving cash
remittances and sending out stock, and there are
sometimes errors, human errors, on that side. But they
will typically then find expression in the Horizon
system from the perspective of the subpostmaster.
So what this high value transaction correction
authorisation signature requirement was directed at was
two things, and we respectfully say both of them are
important: the first one was where Post Office was
worried that it would wrongly send out a transaction
correction for a credit to a subpostmaster, and then
getting it back -- working out what had gone wrong and
getting it back would take a long time. So
Post Office --
MR JUSTICE FRASER: It wouldn't only take a long time, it
also says here that debit might be disputed and blocked.
MR GREEN: Indeed.
MR JUSTICE FRASER: So there are two parts to it.
MR GREEN: Exactly. There is a time and a dispute --
MR JUSTICE FRASER: And the possibility of a dispute on the
debit.
MR GREEN: Exactly.
The second reason being to ensure that branches are
not hit by a large value transaction correction which is
subsequently found not to be proper to that branch. So
Post Office by 2010 had recognised that it was important
to have a policy by which those high value errors would
be less likely to occur because of the additional
signatures required.
MR JUSTICE FRASER: There is an extra layer of consideration
required in order for a signature to be given.
MR GREEN: Exactly.
MR JUSTICE FRASER: Depending on how much the value is.
MR GREEN: Precisely. So that extra filter was hoped to
reduce the scope for those errors. And that is --
your Lordship will see, or just for your Lordship's note
perhaps, the policy itself is at {F3/79/1}. If we just
look at that for a moment, that is actually the policy
itself. Your Lordship sees that actually is deployed
in June 2009. It says it is revised in May 2009 but it
is also said to be version 0.1. So it looks as if it
came in for the first time on 1 June 2009.
So mechanically, in relation to transaction
corrections, they had to be cleared at the end of the
balance trading period. And then as to balancing
itself, at the end of the period when the subpostmaster
does the balancing exercise they can find that there is
an error which they weren't expecting. And we are not
talking about a book of stamps adrift.
MR JUSTICE FRASER: Do you mean an error or do you mean
a discrepancy?
MR GREEN: A discrepancy in the accounts for which they are
said to be liable.
MR JUSTICE FRASER: That is why I asked about the use of the
word "error".
MR GREEN: I apologise. I shouldn't have conflated the two.
MR JUSTICE FRASER: So at the end of the period they might
find a discrepancy which they were neither expecting nor
aware of.
MR GREEN: Yes. If we look at the witness statement of
Pam Stubbs at {C1/2/21} and we look at paragraph 90,
Mrs Stubbs had taken over this branch the day after the
death of her husband.
MR JUSTICE FRASER: Yes.
MR GREEN: And had been operating the branch for some years
by the time we get to December 2009.
At paragraph 90 she explains:
"During December 2009, I closed the office for three
days before Christmas for my daughter's wedding. We
were closed over Christmas and New Year. Nonetheless,
the trading statement on 5 January showed a shortage of
£9,033.79. This was entirely unexpected as I knew that
there had not been this amount of cash unaccounted for
in the branch during the trading period and the branch
had been closed for a number of days. I immediately
reported it to the Helpline, who gave no assistance
apart from to inform me to double-check my figures which
I had already done. As I mentioned above, the Helpline
marked this as 'low priority'."
MR JUSTICE FRASER: That really goes with the paragraph
before, doesn't it, in terms of the chronological
sequence?
MR GREEN: It does, because there had been a previous
attempt. In one sense, starting with the prior one, the
mere fact that this is actually in a genesis which
actually starts at the top of the page.
MR JUSTICE FRASER: Top paragraph.
MR GREEN: Exactly. And your Lordship will see at 89
obviously she is saying she had no option but to make
the payment to the Post Office by cheque:
"I was not advised that I could dispute the
shortfall. As I mention above, there does not appear to
be a record of my call the following day in
Post Office's disclosed call logs."
In December 2009 she closed for three days which
I have just read out.
End of paragraph 90, it is marked as "low priority".
We only know that because of disclosure in these
proceedings.
She explains at paragraph 91:
"I believed I had accurately accounted for the cash
and stock held at the branch and I was able to confirm
this when I reviewed the records that I had retained
which I refer to below. Helpline advised me that unless
I formally declared that I wished to dispute a shortfall
then this would not be considered disputed. I had not
been informed of this before, either. I naturally
assumed that I had the right to dispute any alleged
losses and that calling Helpline to question an apparent
shortfall would give rise to an investigation. My
understanding was that Post Office would be obliged to
do so as that was necessary in order to get to the
bottom of the problem.
"As I mention below, I understand the extent to
which the cause of shortfalls was a matter within my
knowledge is to be considered at the Common Issues
trial. Given the concerns I had, from 6 January 2010
I obtained as much transaction information as was
available to me on Horizon, specifically, transaction
logs going back 42 days prior to that day, for example,
a transaction log for 5 January ... I sought to retain
this paperwork in an attempt to assist me in finding the
problem."
Could I just ask that we are shown that transaction
log in the margin there {E2/37/1}, just so the court has
sight of -- and that goes on {E2/37/2}. If you scroll
down, your Lordship will see ...
MR JUSTICE FRASER: I'm not sure I will, actually.
MR GREEN: It is not the easiest thing --
MR JUSTICE FRASER: If we can zoom in?
MR GREEN: Yes, can we zoom in a bit. So this is the
information that subpostmaster can print out of the
narrow print roll in their branch in order to try and
trace what has gone wrong at the end of the trading
period. And this roll ran to some length.
MR JUSTICE FRASER: It will be however long the number of
transactions are, won't it?
MR GREEN: Exactly. So during a busy period that could be
quite long.
MR JUSTICE FRASER: Which entry do you want me to look at?
MR GREEN: My Lord, there is no specific entry here. I just
wanted your Lordship to have sight of the type of
document that we were considering.
MR JUSTICE FRASER: I see. But these are the transaction
logs.
MR GREEN: Yes, going back 42 days.
MR JUSTICE FRASER: Yes.
MR GREEN: And then handwritten accounts for herself. If we
look at {E2/35/1}, and go over the page, please
{E2/35/2}. Pam Stubbs maintained all of these.
MR JUSTICE FRASER: What are the headings?
MR GREEN: "Deposits". And I think -- I understood that to
be -- I think it is "Rems out". Remittances out is the
full title.
MR JUSTICE FRASER: Then "Withdrawals".
MR GREEN: "Withdrawals". And "ONCH" is overnight cash
holdings.
So if we can return back to the witness statement at
paragraph 93 {C1/2/22}:
"But despite carefully 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 full information from
Horizon, to which Post Office had access and not me.
"Though I had disputed the apparent shortfall,
I began receiving demand letters from Post Office, which
stated that I was contractually obliged to repay it, and
asked me to settle the sum and threatened to deduct it
from my remuneration if I did not do so within seven
days."
Could you please click on {E2/40/1}.
MR JUSTICE FRASER: At the bottom that says it excludes
items currently in dispute.
MR GREEN: "... or held awaiting transaction correction."
But the point is --
MR JUSTICE FRASER: I have got the point. There are
probably two. This witness's evidence is that she had
done all that was necessary under her instructions to
dispute the item.
MR GREEN: Precisely. And nonetheless -- my Lord, the
problem is that mechanically, and this is why I put it
under the mechanical/practical heading, is what
subpostmasters have to do at the moment they are going
to close out that branch trading period and then roll
over to open the office next day, they have to accept
any transaction corrections that are in dispute.
So at that moment they have to sign an account
saying that they owe the money but make a telephone call
to the Helpline. So the account that they have no
choice but to go along with records it as a debt owing
to them -- owing from them to Post Office even in
circumstances such as this.
And it may be, we think it is likely, that when it
refers to:
"The statement excludes any items currently in
dispute --"
MR JUSTICE FRASER: It must mean for that trading period.
MR GREEN: Yes. What it means is you can't rely on this as
your total liability.
MR JUSTICE FRASER: Whether that is right or not, what you
are saying is that last passage only makes sense if it
is interpreted as meaning items currently in dispute in
the instant accounting period.
MR GREEN: Yes. Not in the accounting period to which that
related because you had to roll over already.
Precisely.
But on any view, firstly you get a letter referring
to a debt.
MR JUSTICE FRASER: Yes.
MR GREEN: And that is the first line of the letter, an
outstanding debt. So by the mechanical device of not
offering, on the menu, any way of disputing this, a debt
is created in the account even if it is one with which
the subpostmaster completely disagrees. It is then
recorded as a debt in the letter. And then the second
paragraph, and we will see the source of this when we
come to information, records:
"Since you are contractually obliged to make good
any losses incurred during your term of office ..."
And your Lordship will know that under the SPMC
that's any losses caused by your own negligence or
error.
MR JUSTICE FRASER: Clause 12 of section 12.
MR GREEN: Indeed. So the contractual recital and I think
the broad pattern, to try and be fair to Post Office,
the broad pattern is that the initial few letters
chasing the debt recite this with no reference to the
necessary condition of fault, and then eventually
a letter tends to come in the series where that then
does appear.
MR JUSTICE FRASER: Understood.
MR GREEN: If we can go back to the witness statement, just
to complete this short piece {C1/2/22}. Can you look
at -- would your Lordship look kindly at paragraph 96 on
that page:
"I continued to contact the Helpline about my
concerns, and each time they said either that they were
unable to assist or that they would look into the matter
and call me back, which they didn't. Eventually
I requested direct access to Fujitsu, who I knew handled
the Horizon system for Post Office, so that I could
discuss the problem but this was refused.
"Instead I was told by the Helpline that Post Office
would contact Fujitsu themselves. Having apparently
spoken to Fujitsu, Post Office said that there was
nothing wrong with Horizon, though they had not asked me
to produce the evidence I had assembled, to which
I refer above, nor attended the branch at this point.
"I am aware from Post Office's call logs that it
appears that in late January 2010, Fujitsu or
Post Office had identified a further large cash
shortfall. I asked the Helpline if Post Office had
accounted for a cash remittance of £26,000 which had
occurred on 5 January 2010. Despite --"
MR JUSTICE FRASER: When it says "which had occurred", that
effectively means which had been paid by this branch,
doesn't it?
MR GREEN: Yes, Pam Stubbs had remitted £26,000.
MR JUSTICE FRASER: Yes. Saying "cash remittance which had
occurred" is slightly neutral language.
MR GREEN: I agree.
MR JUSTICE FRASER: It means she paid --
MR GREEN: She paid £26,000. Exactly:
"Despite Helpline staff saying they would check this
and confirm, they never came back to me. I have since
seen from Post Office's call logs that it had no record
of this cash remittance at the time. I do not
understand how I could ever have been expected to
investigate and conclude either way why there was
an apparent shortfall when Post Office did not have
a record of one straightforward transaction and
a remittance going back to its own cash centre. Out of
concern at the missing cash remittance in early February
2010 I called Post Office's cash centre and was told the
£26,000 cash remittance had in fact been received on
8 January 2010."
My Lord, I'm not obviously going to -- there is
a lot of this sort of evidence, but I thought it might
be helpful for your Lordship to see that one of them and
see what the process was and how that was gone through.
So that is the system on balancing transactions.
The significance of that is that a postmaster is
required to make that account good by cheque or cash.
Because you have to -- there are two layers of
implications. There is the visual and accounting
implication of having to accept and make good on the
screen and say you have put in cash or cheque to make
good a shortfall, and then there is the practical
implication of being there at 6.30/7.00 that evening,
finding this number, and knowing that you are
contractually obliged, because there is no way of
disputing it, to put a cheque for £9,033-odd or cash of
your own to that value into the till then and sign and
say you have done so.
MR JUSTICE FRASER: Aren't they just two different sides of
the same coin?
MR GREEN: Precisely. One imports the obligation. The
obligation to either accept a transaction at the end of
the period which hasn't been -- transaction correction
at the end of the period, or to make good on the balance
at the end of the branch trading period, both present
the subpostmaster with this obligation to put cash or
cheque into ...
And of course if a transaction correction emerges
close to the balance trading period end, or if it is
just a balancing shortfall which you find out about when
you do balancing at the end, you are then presented with
this obligation to put in this case £9,000 of cash into
the till. And if you haven't got that in your wallet or
available to you practically, you have to write
a cheque.
MR JUSTICE FRASER: Mr Green, that is really what the case
is about, isn't it?
MR GREEN: Indeed. That is exactly what the case is about.
MR JUSTICE FRASER: So I think I have grasped that point
some months ago.
MR GREEN: I am grateful.
So, my Lord, we then move to the information
imbalance. So I have dealt with the contracts point,
the mechanical point, the mechanical/practical way
Horizon worked. And the third limb of the imbalance in
the relationship is the information imbalance.
The first point which I have already adverted to is
that incoming subpostmasters, prior to contracting with
Post Office, would have no knowledge of how Horizon
itself worked and in particular the accounting points
that I have just been referring to. It's a very
one-sided mirror in that respect.
The second point is that the manner in which
subpostmasters were informed about any liability for
losses was not consistent and was qualified and wasn't
particularly clear.
To give your Lordship examples, some of the lead
claimants received no notice of the liability clause,
although Pam Stubbs says she thought she would only be
liable if something was her fault. But she was not
provided with a copy of the standard subpostmasters'
contract after her husband died.
Others, such as Mr Sabir and Mr Abdulla, were
provided with documents in advance. And if we can look
at {E3/53/3}, we can see that the brief summary of
certain sections of the subpostmasters' contract
includes there a paragraph at the bottom of the page in
relation to losses:
"The subpostmaster is responsible for all losses
caused through his own negligence, carelessness or
error, and also for all losses caused by his assistants.
Deficiencies due to such losses must be made good
without delay."
At the top of the page it says:
"For use as a guide only; Post Office Limited will
be in no way responsible for any action taken as
a result of this summary."
So it wasn't something that they could rely on.
And if we look at page {E3/53/7}, please.
MR JUSTICE FRASER: But it does refer to the subpostmasters'
contract.
MR GREEN: Absolutely. There is a question as -- it does
indeed, my Lord, yes.
If we go to page 7, there is a note --
MR JUSTICE FRASER: This is page 8. Do you mean 7 of 11?
MR GREEN: 8 of 11. The note says:
"The above paragraphs summarise certain sections
only of the subpostmasters' contract. They are by no
means a comprehensive description of the contract and
should not be used in place of a thorough review of the
contract. A subpostmaster may not rely upon points made
in this summary as they are for reference purposes
only."
Your Lordship should know, at this stage he has not
been sent the contract.
MR JUSTICE FRASER: No.
MR GREEN: It does refer to a contract, absolutely, and it
does refer to a liability for losses.
MR JUSTICE FRASER: And it also refers -- I know the
situation is different for some of the different lead
claimants.
MR GREEN: Indeed. The terms themselves in both the SPMC,
both versions of the SPMC, and the NTC --
MR JUSTICE FRASER: Can we look at those quickly?
MR GREEN: Certainly. I have a discrete piece on those.
Can I --
MR JUSTICE FRASER: Alright. Are we going to look at them
when we get to --
MR GREEN: We are, yes, exactly. The terms themselves were
in quite a large volume of documents.
MR JUSTICE FRASER: I understand that. In fact part of the
reason I asked is I actually found some difficulty
finding it originally, because one of them at least has
the appendices inserted within the document itself.
MR GREEN: The 2006 contracts, both the standard and the
modified, have between 40 and I think 48-ish individual
prior sheets of variations or qualifications or
additions before you get to the actual document.
MR JUSTICE FRASER: I understand that. But even when you
get to the actual document, in one of versions some of
the appendices are then inserted within the document.
MR GREEN: Indeed.
MR JUSTICE FRASER: I don't know if that has been done for
the purposes of the trial or whether it was given to the
individuals like that.
MR GREEN: That is how we understand the individuals got it.
MR JUSTICE FRASER: But part of the reason for asking to go
to it is it is relatively difficult to track through it
to the parts that you want to see.
MR GREEN: Indeed. So the clauses were there.
MR JUSTICE FRASER: Yes.
MR GREEN: In relation to the meaning of the clause at
12(12), obviously that is one of the Common Issues, and
it is notable that the defendant's construction for
which it contends in the Generic Defence at
paragraph 94.1 on page {B3/2/43} -- your Lordship will
have seen in my learned friend's written opening the
suggestion that the claimants are trying to rewrite the
contract. And we know what section 12, clause 12 said.
And the defendant's version at 94(2) is:
"On the true construction of section 12, clause 12,
subpostmasters are responsible for all losses(as defined
in paragraph 41 above) disclosed in their branch
accounts save for loss which is 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."
So the irony of the defendant's position in relation
to the clarity of that clause is that in order to get
the construction for which they contend, they have not
metaphorically rewritten the clause, they have actually
rewritten the clause as they now contend they would like
it to be. So at the very lowest, the clause was lacking
in clarity if the defendant had intended to achieve by
its drafting a result which essentially inverts the
words they actually chose to use at the time and
reverses that qualification putting all the burden on
the subpostmasters.
My Lord, just to compare -- I know your Lordship has
it -- but if we just quickly go to {D2.1/3/53}. This is
clause 12(12) in the 1994 standard SPMC contract. So as
your Lordship knows, there was a standard SPMC contract,
and then there was a modified one which was for former
Crown Offices. They were largely but not completely the
same. But for these purposes, for this purpose, the
clause 12 in section 12 was the same.
So a very ready comparison between what the
defendant chose to draft where it had unilateral power
to impose anything it liked, and what it has identified
as what it wants the contract to mean in 94(2), shows
the difference up quite starkly.
MR JUSTICE FRASER: Can we go to the page before this,
please {D2.1/3/52}.
MR GREEN: Indeed. There is also, my Lord, I should
probably mention, I think if we go two pages on
{D2.1/3/54}, your Lordship will see "Relief":
"Counter losses. A subpostmaster may exceptionally
not be required to make good the full amount of certain
losses at his office. If he feels entitled to relief in
making a good a loss he should apply to the retail
network manager."
And then there is theft or burglary and fraud dealt
with separately. But that is under relief. I just
mention that because that becomes relevant when we look
in a minute at the policies that Post Office operated in
relation to the application of section 12(12).
MR JUSTICE FRASER: So the one that you have just taken me
to, which is at {D2.1/3/53}. The one at {D2.1/1/39} and
{D2.1/1/40}, that is the earlier version, the 1991
version?
MR GREEN: That is the 1991 version.
MR JUSTICE FRASER: But the wording is exactly the same.
MR GREEN: The wording is exactly the same. Your Lordship
has slightly led me to the point I was about to make,
which is essentially they the kept the contractual terms
in this respect identical but Horizon came in which
completely changed the way everyone was working. But
the contractual provisions in that respect did not
change at all.
MR JUSTICE FRASER: And in a way that is why there is
notionally a potential watershed between -- some of the
claimants already had existing contractual relations
when Horizon was brought in, and the bulk of them it
appears didn't and Horizon was already in existence --
MR GREEN: Exactly. So basically the split is 2/4, it's
Mr Bates and Mrs Stubbs, who are pre-Horizon, and the
other lead claimants post.
I think just to foreshadow at least our broad
submission on that, we respectfully say that because of
the particular way that Horizon operated on this point,
we would say in fact there ends up being no difference.
MR JUSTICE FRASER: I --
MR GREEN: You anticipate that submission.
MR JUSTICE FRASER: I am aware of that. That is a point
down the line.
MR GREEN: Yes. I am most grateful.
MR JUSTICE FRASER: But the terms stay the same.
MR GREEN: The terms stay the same. There is then
a question of what they mean in this context.
So under this third limb of imbalance, which is the
information imbalance, the first point is that those
contracting didn't understand the operation of Horizon
in the way that I have described, either because when
they came in, Mr Bates and Mrs Stubbs, it didn't exist,
or because of the very particular way in which these
debts were created, and other matters, were not likely
to be in their minds prior to contracting.
The second point is the information in the contracts
relating to losses which I have dealt with by reference
to those examples.
The final example was just Mr Bates only got the
Serv 135 document, which makes reference to losses, on
his transfer day. So he never had the SPMC. He got the
SPMC when he queried an issue relating to holiday pay.
My Lord, could I just take your Lordship to
{D1.1/2/1}.
MR JUSTICE FRASER: This is the certificate of appointment.
MR GREEN: This is the certificate of appointment. It says:
"I ... agree to be bound by the terms of my
contract, the personal declaration signed by me, and by
the rules contained in the Book of Rules and the
instructions contained in those postal instructions
issued to me."
Your Lordship will know from our written opening
that the Book of Rules, so-called, doesn't seem to have
existed at this time, and no document by that title has
been disclosed or claimed to exist by Post Office.
So one of the features of this case, just to give
your Lordship a feel for how well acquainted people were
likely to be with what they were agreeing to, is on the
very face of the certificate of appointment it refers to
a document by a title, capitalised, which as far as we
are aware does not exist by that title. It may have
done in the 1980s, but we are not aware of that document
existing anywhere and it hasn't been disclosed. No
document by that title has been disclosed at all.
If we can just look quickly at {D1.3/4/1}. It is
the rules contained in the book of rules, small B, small
R. And your Lordship will be shown the profusion of
manuals and documents which there are.
MR JUSTICE FRASER: This is Mr Sabir.
MR GREEN: This is Mr Sabir. And then if we look at
{D1.5/3/1}, this is Louise Dar's, Mrs Dar's one. And
that is an NTC contract, my learned friend Ms Donnelly
helpfully reminds me.
Your Lordship will be aware from the hearing of the
application on 10 October that there is some uncertainty
as to exactly on which date the obligations with which
the court is concerned are entered into. Is it when the
first document is signed? It varies between claimants,
we will explore this. Or is it on the moment of branch
transfer where they sign their acknowledgment of
appointment? And is that a novation or is that taking
on a wider group of obligations than was there before?
But it is, shall we say, reasonably neutrally, for
an organisation such as Post Office it would have been
possible, throughout the period with which the court is
dealing, to have made the contractual position clearer
to individual subpostmasters.
So, my Lord, that is -- so still under
the information pillar. The three pillars, contracts,
mechanical and practical and information. Still under
the information pillar, there is Horizon, and obviously
then what the contractual documents said. And I will
supplement this a little when I show your Lordship some
aspects of the contractual documents in a moment.
The first one is what the contractual documents
said. The second one is order of magnitude of losses.
And a subset of that is order of magnitude of losses of
this sort. And the short point is the extent to which
a notional reasonable party in the position of
a subpostmaster going into this relationship, provided
with such information as they were provided by
Post Office, would have appreciated that they were
taking a commercial risk of this magnitude in relation
to sums which they would wish to dispute, such that
those substantial sums, very large sums, would
automatically become debts owed by them, save insofar,
from Post Office's perspective, as they could find
an explanation for what had gone wrong.
So that is the third point, the order of magnitude
point and the extent to which, for example, in
interviews some of Post Office's witnesses say yes,
I mentioned it could be hundreds of pounds. That is
a factual issue between the parties.
So the extent of that sort of awareness of those
losses, and losses on that magnitude and of that type.
MR JUSTICE FRASER: The subjective awareness cannot affect
the process of construing the terms.
MR GREEN: My Lord, no. The only point is that
your Lordship needs to reach an informed view of what
a notional reasonable party would be likely to have
known, and you can only do that from a real appraisal of
some lead cases and their facts. The particular
eccentricities of one lead claimant or another are
neither here nor there.
MR JUSTICE FRASER: Nor their subjective awareness.
MR GREEN: Precisely.
Then the fourth point under this heading is the
other thing that subpostmasters weren't aware of was how
in practice, as a matter of process, Post Office dealt
with these losses. Could I ask, please, for the court
to be shown the Losses and Gains Policy at {F3/8/1}.
My Lord, this is an internal Post Office policy about
how internally Post Office deals with subpostmasters.
If we go over the page {F3/8/2}.
MR JUSTICE FRASER: POCL is Post Office Counters Limited.
MR GREEN: Which at that time was the relevant party.
Version 1, 20 November 1998. So it pretty
conveniently gets the sweep, before the sweep of events
with which the court is concerned.
If we go to the next page, please {F3/8/3}, we have
index and we can see section 3 deals with accounting
losses. Section 5 authority levels, write off authority
levels. Appendix B deals with financial hardship. D,
losses and gains at agency outlets. G, transaction
errors. And another write off related one at appendix L
which is the write off process. So that is
the structure of the document.
Then if we can just go over to page {F3/8/4}. The
policy, it says:
"... has been developed under the auspices of
Counters Risk Management Committee in order to provide
clear and consistent guidelines about financial losses
within the agency network."
The overall purposes are:
"To ensure probity, objectivity and conformity
across the network.
"To protect business finances and minimise
outstanding losses.
"To clarify roles and responsibilities.
"To ensure equality and fairness of treatment of
subpostmasters and other agents."
It replaces a previous document from 1988 which
I don't think we need to deal with because this
pre-dates the introduction of Horizon. And it replaces
all preceding instructions on the treatment of agency
losses. So it is helpful because a lot of Post Office
documents interrelate with others but this document at
least gives us a clear navigation point to start from.
Your Lordship has probably seen already the key
paragraph immediately follows:
"From a purely contractual perspective ..."
And we respectfully say that that is the perspective
with which this court is concerned on this issue:
"... a subpostmaster or other agent is responsible
for all losses caused through his own negligence,
carelessness or error. He is also responsible for all
kinds of losses caused by the actions of any assistants,
managers or relief subpostmaster employed by him.
However, this stance may be varied in appropriate
circumstances. These guidelines, which are consistent
with the contractual relationships we have with our
subpostmasters and other agents, seek to clarify those
circumstances where some mitigation might be admissible
and provide a clear framework for line managers to
approach the issues of financial losses within outlets."
Then it explains:
"The general principles ... are, of necessity,
mandatory upon regions."
And then:
"... the detailed processes by which these
principles are deployed are for regions to determine in
the light of their particular circumstances ..."
There is some variation there.
Then the final paragraph on the next page {F3/8/5}:
"These guidelines are structured by initially
looking at the preventative measures that are available
to minimise the occurrence of losses in the first place,
followed by consideration of the approaches to be taken
when there is crime committed against the Post Office
which leads to financial loss. They also cover
accounting losses at outlets which are not due to crime
but may be due to careless and poor accounting practice.
Finally they deal with appropriate levels of authority
that should be deployed for write offs."
When we go, please --
MR JUSTICE FRASER: I am just going to get you to pause
there for this reason: because we have an electronic
trial bundle the transcript will be hyperlinked. So if
you say "the next page" or "over the page" --
MR GREEN: I apologise.
MR JUSTICE FRASER: You don't need to apologise, it is the
first time it has happened. It is less helpful than
saying the reference, because that will go in the
transcript, and then when you read it this evening you
will just be able to click on it.
MR GREEN: I am most grateful, my Lord.
If we look at {F3/8/6} -- my Lord, would noon be
a convenient moment for the break?
MR JUSTICE FRASER: Yes, any time between about 10 to 12 and
12 o'clock.
MR GREEN: I am grateful.
If we look at "Preventative Measures", the layout is
that item 1 is preventative measure by outlets. And
then item 2 on {F3/8/7} is preventative measures by
POCL. And the regional network manager loss control
process makes them:
"... accountable for all [underlined] losses at
their outlets and therefore the need to practice
preventative measures in this area cannot be
over-emphasised. This is particularly true in misuse of
funds cases, which are breaches of contract and must not
be treated leniently since this encourages low standards
of financial propriety."
Authority to hold losses in unclaimed payments is
then dealt with:
"The subpostmasters' contract requires that losses
are made good without delay. Immediate settlement is
therefore the contractual norm. RNMs, however, can
authorise losses to be held in unclaimed payments for
a period up to 8 weeks."
So this is before the 2005 change in suspense
accounts as we understand it.
"This arrangement should not be seen as a rubber
stamping exercise and agents should have to justify
their reasons for not making losses good immediately
(eg known error made and error notice to be issued;
misbalance is against current balancing record).
"Immediately following the 8 week period, it is the
RNM's responsibility to pursue such cases. Where error
notices have not been issued to clear the original loss
then arrangements should be made without further delay
to make the loss good."
We have some letters which your Lordship will see in
the course of evidence where that was used and the eight
weeks come to an end without resolution.
If I could now look, please, at {F3/8/14}.
At 3.1:
"The subpostmaster is required to make good all
losses however they occur."
So there is an immediate difference noticeable
between the recital of the purely contractual
perspective at the beginning of the document at {F3/8/4}
and the actual policy as in fact it worked in practice.
And what in fact happens --
MR JUSTICE FRASER: Did you mean to go back to ...
MR GREEN: ... at {F3/8/14}, if I may go back to that, is
after reciting the bare position that we see -- for
example, we have seen in the position of Pam Stubbs, in
her case of £9,033 and so forth, make good all losses,
without qualification.
MR JUSTICE FRASER: And then gives a reference to the clause
that is in fact the correct clause.
MR GREEN: Indeed.
It says:
"However, there may occasionally be exceptional
circumstances that allow for relief. The table below
details types of losses and the scope that may be
considered for relief. Error notices issued should be
brought it account in the next available/possible cash
account."
Then there are different sorts of relief available
there which are for new agents --
MR JUSTICE FRASER: Is a new agent a type of loss?
MR GREEN: No, it is -- I think what is intended to be there
is losses occurring under a new subpostmaster.
MR JUSTICE FRASER: What does C/A mean?
MR GREEN: Cash account, I'm told helpfully. The first six
cash account weeks. Because at that time the balancing
was done weekly.
MR JUSTICE FRASER: Understood.
MR GREEN: So the short point is that there is relief being
considered here, and what appears to be happening is
that Post Office are conflating the provision that
I showed your Lordship in the 1994 SPMC standard
contract for relief with the entire universe of events
when a subpostmaster will not be liable.
The reason that I make that submission is
twofold: one is that postmasters would not have -- a
notional reasonable subpostmaster taking up
an appointment would not have expected this approach
from the contractual term, which says something
different in words. And the second point is that my
learned friend's written opening makes very clear that
the court is almost being warned against adopting
a construction of the legal relationship which differs
from Post Office's present practice.
So at paragraph 3 of the defendant's skeleton, which
is at {A/2/3}.
MR JUSTICE FRASER: The "existential threat".
MR GREEN: The "existential threat" paragraph. It just
requires a tiny bit of unpicking.
Paragraph 3:
"In broad summary, the claimants mount a two-pronged
attack on (1) the responsibility of SPMs to Post Office
for what goes on in their branches (with money and
stock) and to duly account to Post Office in respect
thereof, and (2) the ability of Post Office to terminate
the agency contract on notice (or otherwise) when things
go wrong. If claimants were right in the broad thrust
of their case, this would represent an existential
threat to Post Office's ability to continue to carry on
its business throughout the UK in the way it presently
does."
My Lord, we foreshadow, we anticipated this argument
at paragraph 209 of our skeleton which is internal
page 80 {A/1/84}.
MR JUSTICE FRASER: Which paragraph?
MR GREEN: 209:
"The defendant's position involves two assumed, if
not express, premises:
"That deviating from its own practices would be
unfairly disruptive to the defendant and impose
impossible or undue administrative burdens; and
"Therefore, the court's contractual construction
must conform to the defendant's own internal practices -
the very subject of this dispute."
My Lord, where a party before the court makes
a submission to that effect, the extent to which their
own practices align or do not align with the words they
have chosen to put in the contractual documents
themselves requires some proper scrutiny. So it's
against that background, if I could just go back, if
I may, to --
MR JUSTICE FRASER: If you are going to another document
I think we will have a break.
MR GREEN: I am grateful.
MR JUSTICE FRASER: I am only going to say this once and it
is just because it is the first day of the trial and the
court is quite full. We have a break part-way through
the morning and part-way through the afternoon for the
two ladies here who are doing the simultaneous
transcription which is a quite a burdensome exercise.
It's usually about ten minutes. The break is actually
for them, it's not for all of you, and it is quite
difficult for the Associate to make sure everyone gets
back into court in time.
Please feel free to leave court, but please make
sure you are back so that the ten minutes doesn't become
15, and the 15 doesn't become 18. We will resume, using
that clock, at 12.05 pm.
(11.55 am)
(A short break)
(12.05 pm)
MR GREEN: Just to pick up where I was returning to,
{F3/8/14}. In this accounting losses section there is
the approach to granting relief and your Lordship has
already seen the way in which the subpostmaster's
liability was recited at 3.1. Just for your Lordship --
MR JUSTICE FRASER: Yes. We have seen that at the
beginning, the text.
MR GREEN: Yes.
MR JUSTICE FRASER: Now we are looking at the box, I think.
MR GREEN: Indeed.
MR JUSTICE FRASER: Is that where we are going to now?
MR GREEN: Can I just make good one point on the 3.1 text
before I then deal with the box.
If your Lordship looks over the page at {F3/8/16}
your Lordship will see at 4.1, this is in relation to
recovery of deficiencies following termination. The
reminder is in the same terms as the practical line that
is being taken at 3.1 during the period. So all losses
incurred during the period of office. So that is
a consistent theme throughout.
Going back to {F3/8/14}, there are the new agents
who get relief -- up to full relief, that is at
the discretion of the CNM, the contract network manager.
"Unidentified cash account loss" is:
"No relief unless financial hardship caused."
And that of course may conceal the necessary prior
question of whether something that is shown on the
system as a cash loss actually is one.
MR JUSTICE FRASER: Understood.
Error notice?
MR GREEN: "Error notice with no compensating misbalance."
So that is:
"Errors should be brought to account in the next
cash account - special checks of vouchers can be
arranged. Amount may be held in unclaimed payments for
a period of up to 8 weeks pending result of checks. If
checks reveal nothing no relief unless financial
hardship caused."
So that's the suspense account maximum period of
eight weeks when they had that system. So you could
have an error which you are trying to dispute and get to
the bottom of, but if you, as a subpostmaster, haven't
managed to get to the bottom of it within the eight
weeks you have to pay it.
MR JUSTICE FRASER: So those are checks by the
subpostmaster.
MR GREEN: Yes, and they can ask for checks to be made by
Post Office. To what extent Post Office has to
co-operate is one of the aspects that is in issue in
this trial.
MR JUSTICE FRASER: Understood.
MR GREEN: Then:
"Transaction errors including irregular payments and
RD cheques."
I think those are -- I will come back to what RD
cheques are, I think they're returned but ...
The precise meaning of the RD cheque doesn't
actually matter. The point being made is that in
relation to transaction errors:
"No relief if evidence is conclusive. If evidence
is not conclusive, up to 100 per cent relief."
Then "Disputed remittance error":
"No relief providing distribution centre can supply
evidence unless financial hardship would be caused. If
no evidence available, up to 100 per cent relief."
My Lord, then you have "Loss by relief
subpostmaster":
"No relief unless financial hardship ..."
Then "Loss incurred during sudden illness of agent":
"Up to full relief for one cash account week."
And it could be extended in exceptional
circumstances.
When we go back to the SPMC at {D2.1/3/54} ...
MR JUSTICE FRASER: Which is the 1994 -- the one we were
looking at.
MR GREEN: The 1994 standard SPMC which we looked at. We
would respectfully submit that these matters properly
fall under clause 17.
MR JUSTICE FRASER: Not 12?
MR GREEN: Not 12.
MR JUSTICE FRASER: Understood. But on the basis that is an
internal policy document anyway, I know that affects the
factual experiences of the individual claimants. But so
far as the points of construction are concerned ...
MR GREEN: That is the point I am coming to, my Lord. That
the consequence of this information asymmetry is that
this document wasn't given to subpostmasters. So we
would respectfully say nor would they expect the clause
to be applied in the way that we can see it was.
MR JUSTICE FRASER: But how it is applied and what it means
in law are two different things.
MR GREEN: Completely. What I mean, my Lord, is this.
Your Lordship's point, the first one, is that this is
an internal policy, it doesn't affect construction of
the clause, subject to my learned friend's in terrorem
point if not the existential threat point. But as
a matter of law, we say it cannot possibly alter the
contractual construction of the clause, the true
contractual construction which is actually recited in
the policy in any event at the beginning.
But what it does show or what is striking is that
the subpostmasters, the lead claimants, were not aware
of any criteria by which financial hardship -- any
availability, any criteria by which any hardship relief
would be granted at any stage.
MR JUSTICE FRASER: But the financial hardship aspect of it
is a subsequent one to whether there is a liability.
MR GREEN: Indeed, completely subsequent. Really the
contractual point of construction I was seeking to make
is that there is an anterior condition in clause 12(12)
as to when there is liability at all, and that is
necessarily a prior exercise to considering any relief
under clause 17 from the liability imposed by clause
12(12).
MR JUSTICE FRASER: Understood.
MR GREEN: 17 is not a substitute for the exercise for which
clause 12(12) provides.
Could I now ask my Lord to look at {F3/8/15}, it's
back in the Losses and Gains Policy document.
Clause 3.2 details the RNM's role in deciding the
amount --
MR JUSTICE FRASER: RNM standing for ...
MR GREEN: Retail network manager.
MR JUSTICE FRASER: Yes.
MR GREEN: And informs the subpostmaster of the decision and
his rights of appeal:
"The RNM should in this correspondence ask how the
agent intends to pay the decided level of contribution.
If the agent claims they are not in a position to repay
the sum immediately, the RNM can give consideration to
the repayment being spread over instalments. This is
a discretionary action that must conform to the
following commitments:
"Losses are made good by deduction from
remuneration.
"The repayment period is up to a maximum of 12
months.
"During the repayment period, further losses must be
made good immediately.
"Any credit error notice relating to the same cash
account week must be used to reduce the outstanding
balance.
"The amount will become payable in full should the
agent's contract with POCL come to an end.
"The standard vouchers ... must be used.
"No more than two repayment cases for the same agent
have previously been allowed in the past two years."
Then 3.3 and 3.4 deal with the right of appeal.
And at this stage, in 1998, your Lordship will see
from 3.4:
"The appeal can be conducted in writing or in person
... The head of retail network will take a view on the
case put to him about whether the contribution requested
is appropriate and whether the repayment terms are
consistent with the financial position of the agent."
When that has been done, your Lordship will see from
3.3 that in the appeal the agent has the right to be
represented by a recognised trade union and/or friend.
MR JUSTICE FRASER: As long as they --
MR GREEN: As long as they work for them, exactly.
So that basically mirrors the provisions that the
Labour Government introduced in relation to employees'
rights in the late 1990s.
My Lord, just pausing there, one last point to make
on this policy. This is basically a pre-introduction of
Horizon policy. It is in the run-up to the introduction
of Horizon. And it may be, and certainly the evidence
of Mr Bates and Mrs Stubbs would suggest, that the scope
for any errors or shortfalls that they couldn't explain
was of a quite different order of magnitude if not close
to vanishing point. Certainly close to vanishing point
for sums of the sizes that we are considering here,
hundreds, sometimes thousands of pounds.
So it may be that practically Post Office thought
that that was a reasonable way to approach it before
Horizon came in. I am afraid I can't speculate --
MR JUSTICE FRASER: It doesn't matter.
MR GREEN: It ultimately doesn't matter. So that is the
application.
Then as to the causes of errors and the information
available to the respective parties using the Horizon
system, can we look, please, at page {E2/10/2}.
My Lord, this relates to, by way of context, this
relates to shortfall and Horizon system crashes, about
which --
MR JUSTICE FRASER: And the electricity supplier.
MR GREEN: Exactly, Pam Stubbs was concerned back in 2000.
If we look at the top hole-punch, there is a message
from Frank Manning to Sue Lock. The subject line is
"Horizon matters - Barkham SPSO":
"We talked about this case when I was in St Albans
last month and it is still ongoing. I visited there
today and was too scared to accept a cup of tea in case
the Horizon system crashed cos the electricity supply is
still a live (excuse the pun) issue.
"The balances are a mess (in pre-Horizon times the
postmistress virtually achieved a clean balance every
week) and I have got the RNM going in there next
Wednesday to see what actually happens on the ground but
[in bold] I worry that something like 25 reboots in one
day is having an effect overall.
"Need your best offices to get this case to a proper
solution - she keeps getting promises of attention - but
nothing is actually being done now to clear up the
problem."
Then in bold:
"It is Horizon related - the problems have only
arisen since install and the postmistress is now barking
and rightly so in my view."
That is referred to by Pam Stubbs at paragraph 78 of
her witness statement. The two points on information
asymmetry here are, one, that she was not herself able
to demonstrate and prove that the problem was Horizon
related, and we know that the defendant has expressly
pleaded in its Generic Defence that no subpostmaster has
ever been able to prove that the problem, a shortfall,
is caused by Horizon error. Ever. And she is one of
them.
So there is that dimension, the difference in
information available to the subpostmaster about what
the true cause was. And the second point is that she
has only found out about that view from disclosure in
these proceedings.
MR JUSTICE FRASER: Both of those are, however, jury points.
MR GREEN: My Lord, we respectfully say that if there was
in fact no way in the Horizon --
MR JUSTICE FRASER: I know that that is your case, and I'm
not saying that it is a good or bad case at the moment.
But what I am saying is that the two points about this
particular event are effectively jury points, really,
because the whole basis of the claimants' case, as
I understand it, is they simply were unable to and did
not have the tools to demonstrate that it was Horizon.
MR GREEN: Precisely.
MR JUSTICE FRASER: Vis-a-vis the argument between the two
parties about who has the burden of showing what was
causing the losses.
MR GREEN: Precisely. All I was trying to do was just to
show examples, and I accept the jury point to some
extent, but just to show examples of the types,
categories of information which in a generic sense, not
a prisoner to the particular facts of a particular
person, but in a generic sense the defendant, Post
Office, had access to the sort of information that could
allow it to reach a view of that sort.
MR JUSTICE FRASER: Understood.
MR GREEN: And that was not something that a notional
reasonable subpostmaster would ordinarily have.
MR JUSTICE FRASER: Understood. And in terms of issues in,
for example, Mrs Stubbs' case, moving on through the
different sequences of trials, the fact that she could
not demonstrate it was a Horizon issue, and there was no
notification to her that Post Office employees
considered it was, is probably a point very strongly in
her favour. However, for the Common Issues it is a jury
point.
MR GREEN: I am grateful, my Lord.
MR JUSTICE FRASER: That is not to disparage what happened
to Mrs Stubbs.
MR GREEN: My Lord, I am sure that is understood by
Mrs Stubbs.
On that basis, your Lordship has seen in
an interlocutory hearing, following my learned friend's
skeleton argument where there was a statement that
errors in Horizon do not cause errors in branch
accounts, in response your Lordship will remember we
provided to the court copies of the payments mismatch
error documentation demonstrating that that was
factually incorrect as a basic premise. The degree and
so forth are matters for another trial, but the
impossibility of that happening has already been
canvassed before the court in the payments mismatch
documents. And I had been minded --
MR JUSTICE FRASER: That is a Horizon issue, really, isn't
it?
MR GREEN: All I would say is this: on the premise that it
is possible for it to happen, the degree of that is
a Horizon issue.
MR JUSTICE FRASER: Yes.
MR GREEN: And I think that is agreed. So, my Lord,
your Lordship will remember the payments mismatch
document was the document in which there were identified
errors affecting a number of branches, about which it
was recorded the subpostmasters were not aware, and they
had made those good under the system which I described
in the mechanical/practical section of --
mechanical/practical pillar, these three pillars of
relational imbalance.
And the payments mismatch document is an opposed
document I think. I don't know whether any -- it was
originally opposed, that was before 10 October, so
I don't know whether that is a point to be taken. But
it is at {G/8/2} in the bundle.
MR JUSTICE FRASER: It says here "opposed by D" at the top
of ...
MR GREEN: My Lord, that is correct. So that was recording
that prior to 10 October that was an opposed document
for inclusion in the bundle. We are not sure why,
because it is the defendant's case that knowledge of
these things lay peculiarly within our knowledge, and
I'm not absolutely sure whether my learned friend is
actually going to object to me showing your Lordship the
document now.
MR JUSTICE FRASER: Mr Cavender, are you objecting to me
looking at this document?
MR CAVENDER: My Lord, we have made our position clear about
the risks in this trial. I don't want to be silly. If
you want to read it, you can read it. But I do repeat
my points about Horizon and issues of that kind being
separate.
MR GREEN: My Lord, I only want to focus on the information
imbalance between parties at this stage. So the
receipt/payments mismatch issues note refers to a
discrepancy between the Post Office office system and
the Horizon system.
The second line at the top records:
"So the branch will then believe they have
balanced."
Then it says:
"If at the next screen the rollover is completely
cancelled, then no harm is done. However, if the
rollover is re-attempted at this point, the rollover
will continue without any discrepancy meaning Horizon
doesn't match POLSAP or Credence."
Which are the two Post Office internal systems.
"This has the following consequences: there will be
a receipts and payments mismatch corresponding to the
value of discrepancies that were 'lost'.
"Note the branch will not get a prompt from the
system to say there is a receipts and payments mismatch,
therefore the branch will believe they have balanced
correctly. When the branch begins the new branch
trading period, the discrepancies will show at zero.
However, the receipts and payments mismatch will carry
over into the next period."
So this is unlike -- this is just a slightly
different problem in terms of the mechanical system,
just so your Lordship has it in mind. This is one where
instead of appearing at the end of the branch trading
period, it actually --
MR JUSTICE FRASER: Rolls over.
MR GREEN: -- goes into a different period.
MR JUSTICE FRASER: Actually I won't use the word "rollover"
because that is used in the document. I understand. It
carries over into the next period.
MR GREEN: Indeed.
And then impact is considered at the bottom:
"The branch has appeared to have balanced, whereas
in fact they could have a loss or a gain.
"Our accounting systems will be out of sync with
what is recorded at the branch.
"If widely known could cause a loss of confidence in
the Horizon system by branches.
"Potential impact upon ongoing legal cases where
branches are disputing the integrity of Horizon data.
"It could provide branches ammunition to blame
Horizon for future discrepancies."
Then there is consideration on how to deal with this
over the page at {G/8/3}. The proposals there in the
middle of the page are three possible solutions to the
impacted branches.
So pausing there. My Lord, this had been going on
I think for a few months and a number of branches had
been affected but at this stage were completely unaware
that they were affected branches.
MR JUSTICE FRASER: Just give me the date of this document.
MR GREEN: So the document is dated ... sorry, can I give
your Lordship the date in a second?
MR JUSTICE FRASER: Don't worry, I will be able to find it.
17 October 2012.
MR GREEN: 17 October.
MR JUSTICE FRASER: Yes.
MR GREEN: So the difficulties for Post Office in terms of
how they dealt with that were addressed by the group who
met, we can see on the first page, which is
representatives of Post Office and Fujitsu. Their
recommendation is that solution two should be progressed
but they give three possible solutions for
consideration.
"Solution one":
"Alter the Horizon branch figure at the counter to
show the discrepancy. Fujitsu would have to manually
write an entry value to the local branch account."
So that means Fujitsu writing in an entry value in
the local branch's account.
"Impact":
"When the branch comes to complete next trading
period they would have a discrepancy which they would
have to bring to account."
"Risk":
"This has significant data integrity concerns and
can lead to questions of tampering with the branch
system and could generate questions around how the
discrepancy was caused. This solution could have moral
implications of Post Office changing branch data without
informing the branch."
"Solution two":
"Branch will journal values from the discrepancy
account into the customer account and recover/refund via
normal processes."
I think the overall -- there was a net loss,
I think -- we will come to that in a moment.
"This will need to be supported by an approved POL
communication. Unlike the branch POLSAP remains in
balance albeit with an account (discrepancies) that
should be cleared."
"Impact":
"Post Office will be required to explain the reason
for a debt recovery/refund even though there is no
discrepancy at the branch."
"Risk":
"Could potentially highlight to branches that
Horizon can lose data."
Then "Solution three":
"It is decided not to correct the data in
the branches (ie Post Office would prefer to write off
the 'lost'."
"Impact":
"Post Office must absorb circa 20K loss."
My Lord, I think the figures we see elsewhere show
that while some branches had a gain, others had a loss,
but the net figure would effectively represent 20,000
loss to the Post Office.
"Risk":
"Huge moral implications to the integrity of the
business as there are agents that were potentially due
a cash gain on their system."
So that -- what that means is it is all very well
for Post Office to write off the net loss but that would
mean some would suffer and others ...
MR JUSTICE FRASER: Understood.
MR GREEN: And the document that goes with that document, if
your Lordship wants to look at it, is {G/9/1} and gives
further detail.
But what is clear is that there obviously is the
ability to write an entry value in a local branch
account, because it is recited there as a possible way
of doing it, and it sharply shows the degree of control
that Post Office and Fujitsu have over not only the
Horizon system itself but also how errors that arise,
system-related errors that arise, are dealt with.
And all the way down to the individual branch
accounts, at least potentially. So that the control and
the imbalance in the relationship is not only because
Post Office is a huge organisation and individual
subpostmasters are mostly self-employed agents of
theirs, but also for these reasons, the contracts,
mechanical and practical side, and then the information
side, coming all way down to this.
Finally, my Lord, in relation to information, there
are two further points. One is Post Office's
understanding of what information should be made
available to postmasters even when they have been
suspended.
The document there is {G/28/32} which is
Post Office's response to the Second Sight report. That
was formerly an opposed document as well. I only want
to look at three paragraphs relating to data that is not
available after suspension and what Post Office said
about that. I don't know if that is ...
MR CAVENDER: My response is the same, my Lord.
MR JUSTICE FRASER: Same approach. Understood.
MR GREEN: 10.13, this is responding to concerns expressed
by Second Sight in the mediation scheme which your
Lordship will remember was set up at the invitation of
the Select Committee to try and address the difficulties
subpostmasters had encountered.
The Post Office response at 10.13 says:
"Paragraph 10.10 of the report highlights that some
applicants were refused access to data following their
suspension and access to their own records that may have
been seized upon audit. As a result they say they were
unable to defend themselves from any claim made by
Post Office for the recovery of monies."
10.14:
"Whilst Post Office are aware some applicants have
raised the issue that their own records were removed and
not returned to them, there is no evidence produced or
referenced by the report to support the position that
data being withheld has prejudiced an applicant in any
way."
10.15:
"As to other branch records, these are the property
of Post Office. In the event of a subpostmaster being
suspended, Post Office may take away some branch records
for investigation."
So, my Lord, that is a reference to both the
information and control aspects which were inherent in
the contractual -- in the express terms of the contract
and the fact that Post Office owns the branch records.
That may speak, we would respectfully submit --
obviously we are going to pull these strands together in
closing, but that may speak to the need for any implied
term to give commercial and practical coherence to
a situation that otherwise results in quite a stark
picture.
MR JUSTICE FRASER: Yes.
MR GREEN: My Lord, those are the -- that was the last two
points.
A final one is at {E2/99/4}. This refers to the
raising of an ARQ, a questionnaire from Fujitsu in the
case of Mrs Stubbs in 2010:
"Nigel. No probs with requesting data from Fujitsu
but it will take around three weeks. Has Jason agreed
to take this case on, because we don't hand over Horizon
logs to an SPMR. It needs an expert to understand what
it says and usually this requires one of the
investigators.
"I will give Jason a call in the morning then I will
raise an ARQ from Fujitsu.
"Is this for our benefit, as there is a cost
attached to ARQ requests, we do get a supply free of
charge as part of the contract but we usually don't have
enough, therefore we usually charge the defence
lawyers."
We have got elsewhere in the bundle, the sum charged
I think was between about £400 and £500 per request.
So we respectfully submit that the basis upon which
Post Office chose to procure the Horizon system and its
maintenance is not relevant and cannot be relied upon in
opposition to any terms that would require Post Office
to provide relevant information to subpostmasters.
MR JUSTICE FRASER: Understood. In other words, the terms
of their contract with Fujitsu are not relevant to
construing the contract between them and the
subpostmasters.
MR GREEN: That is our submission.
MR JUSTICE FRASER: I understand.
MR GREEN: I am most grateful.
MR JUSTICE FRASER: And by "defence lawyers", one assumes
that is referring to other subpostmasters who have found
themselves being prosecuted.
MR GREEN: Or sued.
MR JUSTICE FRASER: Or sued civilly for recovery.
MR GREEN: Yes. Prosecution allows -- if there was a guilty
plea that would allow POCA to be used and get a recovery
order that way, so it had some advantages.
MR JUSTICE FRASER: Yes.
MR GREEN: But there were both.
My Lord, those are the three pillars which I wished
to address in relation to the imbalance between
subpostmasters and Post Office: contracts, mechanical
and practical and then the information one.
I did say I would take your Lordship to the
contracts themselves.
MR JUSTICE FRASER: You did.
MR GREEN: Can I -- I showed your Lordship already the SPMC,
the standard SPMC provisions at section 12(12) and
section 12(17).
MR JUSTICE FRASER: Yes, relief.
MR GREEN: Can I take your Lordship in a little bit more
detail to the pack that Mrs Dar was sent, who is an NTC
claimant. So your Lordship effectively has an SPMC at
the beginning and an NTC at the end, if that is
a convenient way of doing it.
So could we look first, please, at {E5/148/1}.
Your Lordship will immediately see that this is headed
"Preface". Sorry, it's easier if we go, please, to
{E5/137/3}. That is a better way through it.
So this is the actual pack as sent. I was taking
your Lordship to the one she signed and returned. This
is the pack as sent. Your Lordship will see at the top
this is the NTC agreement for Mrs Dar. At the top
your Lordship will see the word "Preface" and then
"Part A", and then:
"All capitalised terms not defined in this preface
have the meanings given to them in the standard
conditions for the operation of a local Post Office
branch (off site, Post Office Limited cash) (the
standard conditions).
"This preface is part of an agreement between
Post Office Limited and the operator for the operation
of a local Post Office branch (as defined in the
standard conditions) at the branch premises ...
"The agreement consists of the following documents:
this preface and the following appendices to it ...
"Appendix 1 - works at the branch premises and plan.
"Appendix 2 - equipment.
"Appendix 3 - conditions of appointment."
I can just show your Lordship very quickly those,
where they are found. Appendix 1 is at {E5/137/10}. So
that is planning for what works will be done. We
needn't tarry too long with that. Then equipment is at
{E5/137/22}. Identifying equipment. Then appendix 3
conditions of appointment, {E5/137/24}.
Those conditions of appointment, if we just scroll
down a page, please, to {E5/137/25}. Then that is
tabulated accessibility conditions of appointment, and
then that document runs on to {E5/137/27}, please. And
ends there.
Then begin the standard conditions {E5/137/28}. Can
we go back to {E5/137/3}, please. I am taking
your Lordship back to the first page, the preface page.
So we have looked at --
MR JUSTICE FRASER: We have seen the three appendices.
MR GREEN: Next is standard conditions, after that is manual
and then the fees booklet.
MR JUSTICE FRASER: Are we going to standard conditions?
MR GREEN: We are going to standard conditions now, and
standard conditions are at {E5/137/28}. So these are
the standard conditions themselves. Your Lordship will
see an agreement under clause 1.1:
"The local Post Office agreement between Post Office
Limited and the operator relating to the branch and
consisting of the documents listed in the preface as
each of them may be amended by Post Office from time to
time in accordance with these standard conditions."
MR JUSTICE FRASER: Yes.
MR GREEN: My Lord, just to let your Lordship know, the
difference in that respect was there was three months'
notice in the NTC contracts and there wasn't in
the SPMC. So that is the only difference in relation to
the unilateral power to vary which I mentioned earlier.
Then moving forward --
MR JUSTICE FRASER: Fees booklet is defined on {E5/137/29}.
MR GREEN: Exactly, and then the manual is referred to, if
we look {E5/137/30}.
MR JUSTICE FRASER: Yes, I have seen that.
MR GREEN: Your Lordship has seen that. Then if we go to
{E5/137/63}, we get the manual for a local branch at the
bottom of that page. If we go over the page
{E5/137/64}, the manual is listed to include the
documents your Lordship then sees in turn included. So
these are the grandchildren, if you like.
MR JUSTICE FRASER: Yes.
MR GREEN: And that is a list. Your Lordship can see it
there. I don't need to read it out. The only one
I direct your Lordship's attention to is the last one
which says that the manual, the definition of manual
includes:
"... any other instructions to operators or updates
to such instructions issued by Post Office Limited from
time to time."
MR JUSTICE FRASER: There is also the on-line help and the
user guide for Horizon as well.
MR GREEN: Indeed, and the Horizon system user guide is
550 pages I think. So within that document, which
I won't spend much more time on given the time it is
now, if we look at {E5/137/39}, this is where one finds
the liability provision for Post Office cash and stock,
at clause 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 Post Office Limited's security procedures or
by taking reasonable care. Any deficiencies in stocks
of products and/or any resulting shortfall in the money
payable to Post Office Limited must be made good by the
operator without delay, so that in the case of any
shortfall Post Office Limited is paid the full amount
when due in accordance with the manual."
So your Lordship I think made the point to me
in fact that the manual includes the Horizon operating
manual. That obviously imports all the processes that
I identified for -- except settled centrally and so
forth on the Horizon system.
There is one significant feature of this clause,
just in passing, my Lord -- your Lordship has our
submissions in writing, but it is interesting how it is
worded. The first line is:
"The operator shall be fully liable for any loss of,
or damage to, any Post Office cash and stock ..."
So those are things that are in the branch.
MR JUSTICE FRASER: Then you are going to say it goes on
"however, to include any shortfall ..."
MR GREEN: It is quite interesting how they have done it.
Can I just pause there, breaking it down finally.
Your Lordship will remember paragraph 3 of my learned
friend's skeleton argument, the one about the
existential threat, which is {A/2/1} --
MR JUSTICE FRASER: There is no need to turn it up. I have
it here.
MR GREEN: I am grateful:
"In broad summary Cs mount a two-pronged attack on
(1) responsibility of SPMs to Post Office for what goes
on in their branches."
Well, no, they don't. That is no part of the
claimants' case. Responsibility for what goes on in
your branch is defined under clause 12(12) very clearly
and these claimants were not saying: this happened in my
branch but I am denying responsibility for it. They
were saying: this doesn't seem to be anything to do with
my branch.
MR JUSTICE FRASER: The cash and stock in the earlier
versions, not of the NTC but of the --
MR GREEN: SPMC.
MR JUSTICE FRASER: -- SPMC has the phrase I think it is
"strictly responsible", and it is a clause about five or
six clauses earlier than clause 12.
MR GREEN: Exactly.
MR JUSTICE FRASER: Is it all rolled up together in this or
are you going to take me to another clause dealing with
the parallel of clause 12 in this document?
MR GREEN: I think this clause I think deals with -- is it.
MR JUSTICE FRASER: So rather than them being dealt with
separately, they have been rolled up together.
MR GREEN: It looks that way. What is interesting is it
says:
"... fully liable for any loss or damage to any
Post Office cash or stock ..."
Then lists how -- except where it is criminal,
a break-in they couldn't have prevented with reasonable
care, a robbery. So one understands that. But what is
interesting is that it then says:
"Any deficiencies in stocks of products and/or any
resulting shortfall in the money payable to Post Office
must be made good by the operator without delay."
So in the case of any shortfall, Post Office is paid
the full amount when due in accordance with the manual.
Your Lordship will have seen in our written opening
the emphasis in the cases on the different approaches
which may apply to construing contracts which have been
the subject of detailed negotiation between firms of
commercial solicitors on the one hand, and there is
a different end of the spectrum. We would respectfully
say that neither 12(12) nor this is a model of clarity.
My Lord, given the time, I was only proposing to
deal now with two very short final points.
Your Lordship has seen in our written opening the
observations we have made about the utility of this
trial and the approach to identifying the reality of any
implied terms which fall under the umbrella of the terms
for which the defendant contends, and we have set that
out reasonably extensively and I don't want to make any
submissions about that matter which might seem
ungracious but I do want to clarify three points, if
I may.
The claimants make no complaint that the defendant
does not agree with the claimants about the terms to be
implied. That is their right. That is what this court
is for; to determine the difference between us. The
only complaint is that the defendant has not been
prepared to clarify in a way which will actually
contribute to the successful resolution of this group
litigation what the incidence of its implied terms mean
insofar as they overlap with or indeed conflict with the
implied terms or express terms; either the implied terms
for which we contend or the express terms which are --
MR JUSTICE FRASER: Do you mean incidence or do you mean
effect? Because they concede two implied terms,
I think.
MR GREEN: Indeed.
MR JUSTICE FRASER: And I think your criticism is they
haven't said what effect that concession has. Is that
what it comes down to?
MR GREEN: Precisely. The way we worded it in the actual
Common Issue itself, by agreement and as ordered by the
court, if we look at the consolidated Common Issues
{B1/2/1}, "Implied Terms":
"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."
That is by agreement, and that was obviously because
if, in reality, they accept that the breadth of a term
that they admit includes an obligation to provide
adequate training, it is pointless us arguing about it.
MR JUSTICE FRASER: Understood.
MR GREEN: Your Lordship has seen that we have taken quite
a lot of trouble and indeed obtained an order to try
and clarify that. And, to be fair, Post Office has done
what it said in the sense that they refused to provide
details on the pleadings on the basis that that was
a matter for submissions. And they have made some
submissions about it, but our concern is that the
submissions are unhelpful for two reasons: the first is
that they don't actually condescend to the particulars
necessary for the court to determine what is actually in
issue in real life. I don't mean on the particular
facts of a particular subpostmaster's case.
Could we look at {E6/128.1/1}.
MR JUSTICE FRASER: No, I don't think that is the right
reference. Where do you want to go?
MR GREEN: Sorry, {E1/42.2/2}. Can we just go up a page
{E1/42.2/1}.
MR JUSTICE FRASER: It is a termination letter, is that
right?
MR GREEN: It is a letter actually about allowing access at
the time of termination.
MR JUSTICE FRASER: Yes.
MR GREEN: Your Lordship will see that in the fourth
paragraph Post Office writes to Mr Bates:
"I agree that this situation is not expressly
covered in the standard subpostmasters' contract but
I am sure you will appreciate that Post Office needs to
inspect the area to see if there will be any
problems ..."
If we go over the page to {E1/42.2/2}:
"Although not a specific term of the contract,
I have been advised that it would be an implied term of
the contract to allow Post Office Limited's business to
function properly that access should be granted to
an authorised Post Office employee who properly
identifies himself."
So Post Office themselves, when they need to, have
no problem whatsoever in defining a perfectly workable
specific term which may differ in application in
different situations on the ground but is at a lower
level of abstraction and generality than the two
overarching terms which Post Office has admitted but
refused to clarify against the terms which the claimants
contend for.
MR JUSTICE FRASER: I understand.
MR GREEN: My Lord, that is our concern. In a case listed
to take five weeks, there is obviously more that could
be said, but I hope that has been helpful.
MR JUSTICE FRASER: I have your extensive written
submissions as well. Thank you very much.
MR GREEN: I am most grateful.
MR JUSTICE FRASER: So we are going to have the short
adjournment now until 2 o'clock. Mr Cavender, you have
the afternoon. Thank you all very much.
(1.00 pm)
(The short adjournment)
(2.00 pm)
Opening submissions by MR CAVENDER
MR CAVENDER: Good afternoon, my Lord. Can I hand up
an index to a bundle, index to bundle I. (Handed)
This is a new bundle that was put on the system at
my instigation having found it difficult to navigate
around the existing ones. What it is -- it is
electronic, you can have a hard copy if you like -- is
by each lead claimant is essentially the core documents,
so the various contractual, or we say contractual, there
is some debate, sometimes they are contractual, but the
main documents.
MR JUSTICE FRASER: The main documents that go with each of
the lead claimants.
MR CAVENDER: In terms of the things leading up to their
contract, the things they were shown or signed, the
actual contract or reference to it, and the main manual
that applies to them.
So you hopefully have in what is two lever-arch
files the main documents in the case. There are other,
in F bundles, various manuals and other things that we
will go and see, but they are the pain documents.
I found it helpful to have them in one place and you may
as well.
MR JUSTICE FRASER: And that has gone on the Opus?
MR CAVENDER: It has, as bundle I, my Lord. Last night
I believe. You couldn't see it previously but then we
agreed you could.
MR JUSTICE FRASER: Yes. It's called something slightly
different.
MR CAVENDER: Custom bundle, my Lord, yes. If you want
a hard copy, we have a hard copy here for you.
MR JUSTICE FRASER: Yes, please. Thank you. (Handed)
You have pre-empted one of my miscellaneous points.
MR CAVENDER: My Lord, you have the benefit obviously of
very lengthy written submissions for which I apologise.
MR JUSTICE FRASER: You don't have to apologise.
MR CAVENDER: For the length, I mean, rather than the
content. The submissions I am going to make really are
under probably six heads. Firstly, an introduction.
Secondly, to look at the liability provisions,
clause 12(12) and 4.1. Then to look at the agreed
implied terms. Then to touch on the relational contract
aspect. Termination. And then look, if we have time at
the end, at the evidence and explain the approach we are
going to take to it.
Firstly, introduction. You will have seen in our
written opening what we say is about the essential
nature of the Post Office business. A few points that
bear emphasis.
Of course, Post Office is required by Government to
maintain a broad network of branches across the country,
even in locations where that would not normally be
commercially viable. It has to do that so important
Governmental and other services are available to almost
everyone.
I think we said, to give you some size of scale,
there are approximately 47 million transactions
undertaken in Post Office branches every week. At any
given time, some £643 million in cash is held within
that 11,000-odd branches. It means an average branch
roughly holds about £50-60,000 in cash. There are more
Post Offices, vastly more branches than there are Tescos
or branches of any other supermarket.
So it is an enormous outfit, it has very wide reach,
and of course that is relevant to the background of
this -- my learned friend -- it's obviously a standard
form contract. It needs to control the network.
In order to do that, to operate that network, it has
to rely upon and trust its agents to look after its cash
and stock and to account to it properly in relation to
it. It is, of course, Post Office's cash and stock, not
the cash and stock of the postmaster.
In terms of the relationship created by postmasters,
it's the Post Office that contracts with the providers
of the goods, so the clients as Post Office calls it.
That contract is with Post Office, not the postmaster
himself. Post Office has obligations to those clients
as to how those goods and services are sold and
sometimes in how many branches.
It is Post Office that contracts with the customer
that buys those goods in the branch, not the postmaster.
The postmaster is not a party to that sale. He
contracts as agent and binds the postmaster through that
relationship.
MR JUSTICE FRASER: Binds Post Office.
MR CAVENDER: My Lord, yes.
MR JUSTICE FRASER: You said postmaster.
MR CAVENDER: I apologise. So binds Post Office obviously.
The net effect is of course that all the
transactions that take place in agency branches are the
Post Office's transactions.
If a customer in a branch withdraws money from
a bank account, taking cash from the branch, if the bank
fails to make payment to Post Office in relation to that
withdrawal it is the Post Office that loses out, not the
postmaster.
If a customer has complained about a good or
service, that complaint comes to Post Office, not the
subpostmaster.
If a customer brings a claim in relation to
something purchased in an agency branch, Post Office
defends the claim, not the subpostmaster.
So that is quite important to understand the nature
of that relationship. It is Post Office that has the
contractual relationship both with the client and with
the customer, and it is the subpostmaster as agent that
contracts with the customer in the branch.
More on that, if one wanted it, at paragraphs 77 to
80 of Angela van den Bogerd's witness statement
{C2/1/23}.
So the net effect of that is under that agency
business model the subpostmaster is protected from much
of the ordinary commercial risk of running
a cash-intensive business. He also has very modest
set-up costs compared to a stand-alone business. He
does not need to find vast numbers of clients because
they come to the Post Office brand. He doesn't need to
find large amounts of working capital. He does not need
to enter contracts with all the third party clients. He
doesn't need to worry about regulations, things of that
kind. All that is dealt with. What he does, he enters
into a contract for a prepacked business. That is
really what he does. The quid pro quo of all this is
the Post Office must have a measure of control in
return.
Subpostmasters have very large amounts of cash and
stock that belong to Post Office. If they or their
assistants are careless or incompetent or dishonest, the
Post Office stands to lose large sums of money. What
the contract does, what the contract of agency does, is
provide essential controls and protections. The fact
that it does so does not turn this business contract
into a contract of employment or anything like it. My
learned friend concedes the first, but contests the
second. This is, at the end of the day, a business
agreement.
It is common ground that the subpostmasters were
agents for the Post Office. It's also common ground
that that is an express term of both the subpostmasters'
contract and the NTC. So it's an express term of the
contract that the parties have agreed that the
relationship of agency will govern their relationship.
What the claimants try and do in this case is to
water down almost to vanishing point the effect of that
agency-principal relationship and say somehow it is
marginal. The simple point is a matter of law, because
where parties agree as an express term, or at least in
the case of an express term and otherwise, the agreement
of agent and principal brings with it a whole lot of
common law by definition, just by saying you are
an agent.
This is a reference to Chitty, paragraph 31-006.
Perhaps we can flick that up {A1.3/2/24}.
We can see there the basic position:
"On the orthodox and accepted common law analysis,
the full paradigm relationship of principal and agent
arises where one party, the principal, consents that
another party, the agent, shall act on his behalf, and
the agent so consents to act."
So that is basic and is basic to this case.
We are all familiar with those principles, that
Post Office is entitled to their single-minded loyalty,
they're required to account to Post Office honestly, and
of course by definition not to render false accounts.
That all goes just from the nature of the relationship.
Of course the parties can modify the application of
those common law principles by the words of the
contract. But what you don't do is what these claimants
do, which is ask the court really to enter de novo, as
if there is a blank piece of paper, and then filling it
with what are the obligations they say should arise.
What they need to do is say the express terms of the
contract disapply certain of these agency principles and
therefore you should construe the arrangement in
a certain way. That is what they should do but that is
not what they do do.
Every time they want to say the ordinary agency law
principles are somehow not part of this contractual
relationship they have to point to where in these
contracts, as a matter of construction, those principles
are excluded, because if they don't then they are
included. And they have to do that as a matter of
contractual construction, not as a matter of value
judgment or discretion, this is how they would prefer it
to be, which is how they present their case.
So the starting point is these parties have chosen
a specific type of legal relationship called agency
known to the law. They have then expressed how that is
to operate by the express terms of a contract. They
must be construed against the backdrop that this is
an agency contract. And of course there is a lot of
granular detail to how that relationship is to operate
in the various manuals that you see.
So we say the express and implied terms of the
subpostmasters' contract, the NTC, have to be looked at
through the prism of that expressly created
relationship. The express terms sit atop the body of
law of the agency regulating that relationship.
Despite the control, the degree of control that
Post Office has, and influence, it remains the case the
Post Office branches are in important respects their own
business. They invariably run alongside completely
free-standing commercial business offerings. The lead
claimants all had such businesses. Indeed the key
attraction, very often, of people becoming
subpostmasters is that freedom and the availability of
Post Office products and services to drive footfall and
increase the turnover of that separate business. That
is the attraction.
So they have their free-standing business they want
to run, and they want another business in that space,
and the Post Office provides that further business
relationship. It's a business-to-business relationship.
On both sides it is driven by commercial objectives,
both sides profiting from the operation of that branch
in a commercial way. The subpostmasters produce
business plans and they ask to discuss those plans.
A significant number of the postmasters are limited
companies, partnerships, or those that run multiple
branches. So out of the 557 in this group litigation,
I am instructed there are 26-odd of claimants who are
companies or partnerships, 30 who are contracted through
limited companies and some 84 who are multiples, that is
they run one or more branch.
But of course we are not just dealing with the
claimant group here when we are looking at this
contract, we are looking at the 11,000-odd, and there
are within that, I don't know the precise figures,
significant numbers of corporate entities that you are
contracting with. So Mrs Stubbs is used as an example
by my learned friend quite a lot today and she of course
is one end of the spectrum, but there are other people
at the other end as well, and this contract applies to
them all. One of the challenges to the court might be
how it approaches that situation where its sympathies on
one side might be in a certain subpostmaster group in
one direction and with a more commercial group another.
I just point that out.
MR JUSTICE FRASER: There is no personal sympathy involved
in any of the decision-making, just to put everybody's
mind at rest.
MR CAVENDER: My Lord, no. But it is a matter of
background. My learned friend made a number of jury
points today, I am just conscious to try and move things
back to a case involving a contract and construction.
But we say at all events this is a million miles
away from a consumer relationship or the type of
relationship where policy considerations were at the
height. For instance, in the Autoclenz case, the car
wash case, which I think my learned friend was
personally involved in as junior counsel in that case,
we are millions of miles from that position.
These are business people and they have chosen to
engage in running a business. They decide how much work
to carry out themselves, they decide whether to carry
out any work at all in the branch, whether to delegate
the whole of it to assistants.
And as regards assistants and looking at the
construction of the clause, as we will in due course,
the normal position is if you are appointed as
a subpostmaster or anything and you wish to employ other
people to perform that role, then you are normally
responsible for them and what they do. We say the
construction of the clause merely reflects that. The
dichotomy we have seen about the postmaster being
responsible for all acts of assistants is not
a surprise, it's merely a reflection of what you would
expect in a situation where they choose, but don't have
to, to employ assistants.
Similarly, as befits any business-to-business
relationship, the subpostmasters could if they wanted
have taken legal advice on any of the contractual terms
on offer. A business can decide to do that or not, it
is really up to them. They have the opportunity to do
so, and if they didn't do so then they can't blame, in
my submission, the Post Office.
My learned friend will try and persuade you the
court must intervene to undo this commercial bargain
and strike a different one that would better suit the
claimants in the events that have occurred or they say
have occurred. But he misses the point that the
existing commercial bargain is an entirely
comprehensible one. It has benefited many thousands of
subpostmasters over the years and it works perfectly
well and has worked perfectly well.
So the idea of tearing it all up and saying, well,
in business common sense in terms of interpretation or,
we'll see, implication of terms this must happen is, in
my submission, an unattractive one against that
background.
That takes me to the nature and extent of the
attacks on the contracts. In these proceedings the
claimants seek to try to rewrite the agency contracts by
what they call construction and by the implication of
some 21 implied terms, and rejecting the agreement on
termination with what they call the true agreement under
Autoclenz. The goal of all this seems to replace what
is a principal to agent business-to-business
relationship with some kind of quasi-employment
relationship.
There are two introductory points on this. First,
it is common ground the subpostmasters were not employed
by Post Office. On the contrary, the agreements
expressly appoint them as agents. And as I have said
a moment ago, some of those were companies or
partnerships or multiples. It's very hard to see how
you could say it's quasi-employment on some spectrum.
It's a million miles from that.
Second, C's case would be extreme and wrong even if
it were an employment relationship. We referred in
opening to a case called Geys v Societe Generale in
the Supreme Court in which I acted for Mr Geys. He was
a senior banker for Societe Generale. He reputedly,
according to The Times, earned more money than the
chairman of SocGen, and he was given three months'
notice. He was basically too successful to keep on. He
had built up this team. The reason they dismissed him,
rather cynically, was to prevent him getting his
year-end bonus. They dismissed him on three months'
notice. They mucked up, as it turned out, the machinery
of that.
But the important point is although it was cynical,
although it was unfair, it was lawful. They gave him
three months' notice, that is what happens. So even in
employment relationship you are entitled to have notice
provisions and you are entitled to exercise them.
Whether the Employment Rights Act 1996 has something to
say about that unfair dismissal, of course it does. But
what my learned friend is trying to do here is trying to
bring in by the common law really some doctrine of
unfair termination of commercial agreements, that is
what he is doing, and in my submission it is completely
impermissible.
In terms of the implied terms, they need to be
implied on the orthodoxy in accordance with the very
clear guidance in Marks & Spencer: it must be necessary.
None of the implied terms which are put forward by my
learned friend are necessary and begin to meet that
test.
So a potted summary of the issues on this trial,
although there is lots of paper and lots of noise, are
really on two elements. One is the clause 12(12)/4.1
point, and one is the termination provisions, three
months under the SPMC and six months under the NTC.
But essentially it is that (inaudible). The
responsibility of the subpostmasters to Post Office and
what goes on in their branch with money and stock and to
duly account. That is dispute one. Dispute two is the
ability of Post Office to terminate the agency contract
on notice or otherwise when things go wrong. They are
really the two debates. So the contractual terms
governing liability for losses and termination are the
two main targets. And my learned friend today, in
showing the contracts, only showed you really the
section 12(12) point and 4.1, he didn't show you the
termination provisions, they're not very exciting. But
that is really what this case is all about.
MR JUSTICE FRASER: By "this case", do you mean the Common
Issues or do you mean the litigation as a whole?
MR CAVENDER: No, the Common Issues, my Lord. I am limiting
myself obviously to this trial.
MR JUSTICE FRASER: Because in a way, the way you framed the
first issue, which is the responsibility of the
subpostmasters to the Post Office and what goes on in
their branch with the money. By "what goes on in their
branch with the money", that is open to different
interpretation so far as Horizon is concerned, isn't it?
MR CAVENDER: Obviously that includes their operation of
Horizon in the branch.
MR JUSTICE FRASER: Their operation of Horizon.
MR CAVENDER: That is correct.
MR JUSTICE FRASER: Well, that is the whole point, isn't it,
in a way?
MR CAVENDER: It is. But what it doesn't do, and I'll come
to this in a moment, if Horizon, as my learned friend
alleges in the Horizon trial, introduces bugs and other
things, that is not their responsibility.
MR JUSTICE FRASER: Well, on the way he seeks to have the
contract construed.
MR CAVENDER: Yes.
MR JUSTICE FRASER: That is what he says.
MR CAVENDER: But I agree.
MR JUSTICE FRASER: You agree it is not their
responsibility?
MR CAVENDER: Yes. We will come to this, and this is
perhaps not made clear but it is in our written
submissions in some detail. If there are, and we
actually define in our pleading, Horizon-generated
losses, if there is such a beast, then that is not
something that is either caused by an assistant, in the
word of clause 12, nor caused by the negligence or error
of the postmaster.
It doesn't fit within clause 12, it doesn't even get
into the gateway. This is what we have been saying all
along. I will come to this but I am pleased
your Lordship asked that because it does kind of help
that argument, help bring it out.
We say if they were right about those two attacks,
that they weren't fully responsible for what goes on in
branch, didn't have to account to us in the way a normal
agent would, and we couldn't terminate them, then that
would be a real threat to the way the Post Office does
business at the moment. Because it needs those two
controls to maintain these 11,000 branches throughout
the UK with all this money and all these transactions.
They are the two pivotal point in the relationship.
So it isn't some veiled threat, as my learned friend
said, at all. What it is, it's indicating the scale of
the rewriting, I think, that my learned friend engages
in to completely nullify, really, the existing
relationship, as the parties have agreed in this
contract, and replacing it with something very
fundamentally different.
So to give a specific example: if in relation to
liability it were right that Post Office had to prove
how specific losses of cash and stock had occurred in
a branch in order to recover them, that would have
a very serious impact. Post Office is not in
the branch, it does not know and cannot know whether the
missing cash has been mistakenly provided to a customer,
lost in the associated retail business, put in the wrong
till or something of that kind, or simply shovelled into
someone's pocket or handbag or rubbish bin.
To give a specific example on termination: if
Post Office is not able to bring contracts to an end on
three or six months' notice when problems have emerged,
Post Office would be required to keep in place
subpostmasters who, for whatever reason, were failing to
meet the standards set by Post Office and they could
no longer be trusted.
It would be a relationship where neither party could
extricate themselves. It would be utterly exceptional
that where the subpostmasters are our agents, they can't
be terminated on notice in accordance with the terms of
the contract, putting the assets of the Post Office at
risk for still longer period.
It cuts the other way, of course. These terms my
learned friend is implying I am assuming must be mutual
on termination. So if you are going to have, say,
a year's notice, which I think is his favourite number,
that would be reciprocal. So the postmaster would, on
this score, have to be kept in post for a year even
though he didn't want to.
It's very odd. It's almost akin to those cases on
slavery and things and contracts and not wanting to
perform a service but being made contractually to do so.
It is completely uncommercial to have a term of that
type, of that length, to keep an agent in position when
he wants to go.
Those are just two examples. There is a myriad of
other bizarre uncommercial consequences that flow from a
free rein to rewrite these contracts.
Further, your Lordship will have seen the claimants
advance an entirely unparticularised case on
incorporation and the validity of terms using the
Interfoto and UCTA principles. They also invoke the
exceptional principle of Autoclenz to say that the
express terms in the termination don't reflect the true
agreement. We say there are short answers to many of
these radical arguments that Cs advance.
The only sensible inference I can draw by them
seeking to essentially ask for the world, that if you
ask for so much you may not get that but you might get
some little bit at the end.
MR JUSTICE FRASER: This is your half a loaf point.
MR CAVENDER: Yes, my Lord. But of course that is not how
the law works, it's not how contractual construction
works.
Moving now to the second head which is the lead
claims and their role in this. Your Lordship is faced
with a large number of claims, 557 currently. The lead
claims are little more than 1 per cent of the body of
claims. And of course you will bear in mind that 557
claimants are, in turn, an only very small minority of
the 35,000-odd subpostmasters who we anticipate have
operated Post Office branches over the last twenty
years, so about 1 per cent. Because what my learned
friend is doing is attacking the whole of the edifice of
this relationship over -- since 2000.
Your Lordship is only inevitably going to see those
cases where something is alleged to have gone wrong.
The 99 per cent who are perfectly happy and who work
perfectly well are not here. What you are seeing is the
most exceptional of exceptional cases chosen as leads.
Now, the purpose of this Common Issues trial is to
advance the resolution of the group litigation by
construing the key provisions in the contract. My
learned friend I think put at the first CMC:
"The relevance of the evidence here is to give
the court the context in which to construe and determine
the contractual questions and to provide evidence the
court is not doing the exercise in a vacuum."
But the six cases before this court are lead cases,
not test cases technically. They have not been chosen
and couldn't be chosen to represent the large proportion
of claims in this group or beyond.
MR JUSTICE FRASER: You have each chosen three, I think,
haven't you?
MR CAVENDER: We have, simply because -- by no criteria
other than to cover the SPMC and the NTC. But there is
no attempt that they are representative of anything,
they are just vehicles to bring before the court the
contractual documents that they were shown in that
experience.
But they are only exemplar, really, of that. So you
don't do it in a vacuum. You could have not had them at
all and had -- you could have agreed ten notional people
with certain characteristics. They saw the Serv 135,
they didn't sign the ARS110, or something, and see
whether that altered the background.
But we have them, of course they are very welcome,
and we will test the evidence. But one needs to be
careful about what regard you have and the relevance you
give to their experience as being representative of
others because they are not. The only representation is
they cover the broad periods and have two of the main
contract types.
Of course the Post Office acknowledges that many of
the claimants feel aggrieved and wish to put forward
their stories, and they have done so. And that is
of course an important part of the process of the group
litigation as a whole. But it is very much less a part
of this trial which is interpreting the agreements.
Each of the six leads have put in evidence of what looks
to be their whole story, and at the recent strike-out
application the court was not persuaded to shut that out
on the basis -- paraphrasing obviously -- that it may
turn out to have some relevance. My learned friend
urged the court really to wait and see.
For our part we have waited but not seen. We have
seen 244 pages of written opening, and nowhere there
will you see any reference to this evidence and its
supposed relevance to this trial.
MR JUSTICE FRASER: It's a mischaracterisation of my written
ruling on the strike-out to say that I left the evidence
in on a wait and see basis.
MR CAVENDER: I didn't ... it was more my learned friend's
submission I think that I was trying to paraphrase.
What your Lordship did was to say we didn't reach the
threshold to make it clear it was clearly relevant. It
may be relevant to some issues.
But on that, and based on the submissions you heard,
on one view you may have been sold a false prospectus
because there is no pleading or even argument in the
244 pages that, for instance, Mr Bates' experience was
relevant to the interpretation to Mr Abdulla or Mr Sabir
or somebody else's contract. You just don't see that.
It has never been pleaded. But there is no argument
either in that opening that gives you any sense of the
relevance of it and on one view that is quite
surprising. Because if the argument was, and I think
this is how my learned friend was putting it, that
somehow Post Office had guilty knowledge in some way
about the defects in Horizon at a subsequent time from
Mr Bates' experience, they need to plead that. There is
no pleading to that effect. There is no argument to
that effect in the 244 pages.
So I won't say any more about it, but that is the
position that we are in.
Moving on to the liability provisions, section 12,
clause 12, and if we can take up the SPMC which is the
best place to find that, which is in bundle --
MR JUSTICE FRASER: Which version?
MR CAVENDER: The SPMC, the one that we are using is
attached to the pleading. It's the 1994 version I
think.
MR JUSTICE FRASER: Is that the one at --
MR CAVENDER: {D2.1/3/53}. We looked at this before and
your Lordship is obviously very familiar with it:
"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."
We deal with this in paragraph 84 and following of
our opening. That is at {A/2/25}.
The first point I want to make is a point I touched
on a moment ago. The claimants seem to want to think
that somehow we are fixing them with liability for
apparent shortfalls. That is things shown as shortfalls
that do not reflect the true position because of some
error or bug in Horizon's system.
Let me say very clearly: that is not and has never
been our case. The first point of why it can't be our
case, if you look at the words at clause 12. Imagine
an apparent shortfall, a Horizon-generated shortfall, as
we plead in the Defence. It is not a loss caused by the
negligence, carelessness or error of a subpostmaster.
It is not a loss caused by his assistant. So it's not
within clause 12.
MR JUSTICE FRASER: So on the analysis you have just given
me you accept that in those circumstances, if there was
a shortfall thrown up by the Horizon system, that would
be a loss -- or that would not be something which the
Post Office would try to pass on to the subpostmaster?
MR CAVENDER: It would not be -- yes, because if it is
a Horizon-generated loss it is not a loss for the
purposes of clause 12(12).
MR JUSTICE FRASER: Okay.
MR CAVENDER: We explain this at paragraphs 94 to 96 of our
written opening. If you want to go back and re-read
that with that knowledge then it might make more sense.
{A/2/28}
Coming then to the burden of proof which is really
what the real debate has been about this clause. It is
not really -- my learned friend tries to insert the word
"such" into this clause. We might as well deal with
that now.
He says that --
MR JUSTICE FRASER: Am I looking in yours or his?
MR CAVENDER: Of what, my Lord?
MR JUSTICE FRASER: Sorry, I thought you said go to 94 of
your written opening.
MR CAVENDER: No, it's at paragraphs 84 and following, my
Lord {A/2/25}. I don't want to read through that now
because it's a long section.
MR JUSTICE FRASER: I have read it already. I was just --
I misunderstood what you asked me to do, I'm sorry.
I interrupted you.
MR CAVENDER: My Lord, so sticking with the clause then and,
while we are looking at it, reminding you of the
construction that my learned friend urges upon you,
looking at clause 12(12) he wants you to insert the word
"such". So it says:
"... and also for such losses of all kinds."
Does my Lord see that?
MR JUSTICE FRASER: Yes, although based on what you have
just said about the way the word "caused" should be
considered vis-a-vis Horizon, whether "such" is in there
or not wouldn't necessarily make any difference to the
meaning at all.
MR CAVENDER: But it would to -- this argument, my Lord,
goes to the liability for assistants being absolute.
That is why -- it's on that argument.
MR JUSTICE FRASER: But "caused" can't mean a different
thing in line one than line two, surely.
MR CAVENDER: No, no. The point I made, the big point
applies obviously to both.
MR JUSTICE FRASER: Yes. That is where I understood the
"such" was aimed at but I might have misunderstood.
MR CAVENDER: I think you misunderstood, my Lord. I think
what "such" was trying to do was to bring in a carve-out
for assistants that mirrors the subpostmasters'
carve-out, which is only caused through his negligence
or error.
MR JUSTICE FRASER: I understand. Now I understand what you
mean.
MR CAVENDER: So what he says, "also for such losses". The
trouble with that of course is it is followed by the
word "of all kinds".
MR JUSTICE FRASER: But the example given in his written
opening, which may or may not be a valid example but it
is the one he gave, was imagine Mr Bates is at the
terminal and something happened, or his assistant is at
the terminal and something happened. And by
"something", I mean something Horizon related.
But on your analysis of the "caused", neither of
those scenarios would lead to a loss being sought to be
recovered from the subpostmaster.
MR CAVENDER: Correct. Absolutely.
So coming to burden of proof, because apart from
that "such" point most of the debate on this clause is
about burden of proof, and you can be very careful when
you are talking about this whether you are talking about
as a matter of construction does it allocate the burden
either expressly or implicitly, or whether you are
talking about what Phipson calls the persuasive burden,
that is the burden in terms of pleading and proof at the
trial. He who asserts must prove those kinds of
principles. Because the two are very easy to merge at
any given time as to what people are saying and the
basis on which they are saying it.
So the first point is that clause 12(12) doesn't
expressly, in my submission, allocate the burden of
proof at all, save in one respect, and I will come back
to that as it relates to assistants. But as you will
have seen from our submissions, Post Office accepts that
we have the persuasive burden of showing there is a loss
arising obviously from a shortfall or deficiency. In
the ordinary way, if you allege there is a loss you need
it show it. He who asserts must prove. But it is not
a matter of construction of the clause.
The Post Office will seek to discharge that
persuasive burden by relying on signed accounts or
evidence derived from audit or Horizon. But Horizon is
just evidence here. It will either be good enough or
not to prove a shortfall generally or in an individual
case. However, once a shortfall or loss has been shown
by Post Office, ie it is taken out on the balance of
probabilities, this being a Horizon-generated event, in
that world --
MR JUSTICE FRASER: What do you mean, it's taken out?
MR CAVENDER: In order to show loss we will need to show
that this is a loss which is not a Horizon-generated
loss.
MR JUSTICE FRASER: As a first step.
MR CAVENDER: Yes, as a persuasive burden we would have to
show that.
MR JUSTICE FRASER: Let's just put the word "burden" off to
one side and do a real world worked example so that
I can understand what your submissions are as to
Post Office's case on how this clause should be
construed. And in order not to personalise it, let's
just say Mrs X.
Mrs X is a subpostmaster or postmistress and she is
notified that Horizon is showing there is a shortfall at
her branch of £2,000. Do you say that notification
follows or precedes what you have just explained which
is that Post Office need to show that it is not
a Horizon-generated loss, or does that notification just
come at the same time as Post Office considers whether
it is or not?
MR CAVENDER: It is not really a timing thing. In these
cases what happens is generally the postmaster's in
charge of the branch, he does a trading statement, there
is a rollover, and he says there is a certain amount
of cash in the branch, et cetera. There is an audit and
the audit shows there is £2,000 missing and the
Post Office says, well, it looks like you owe me £2,000.
MR JUSTICE FRASER: Mr Cavender, you are astute enough to
know that you have moved on to dealing with an audit
I am dealing with a worked example of
a Horizon-generated -- sorry, of a shortfall which has
come to Post Office's notice as a result of what Horizon
is showing. Because that is what this case is about, it
is not about losses that are shown on audits.
MR CAVENDER: On your example, my Lord, how do Post Office
know this?
MR JUSTICE FRASER: Well, as I understand it, and this will
come through the evidence, the subpostmaster has notice
or is notified of a shortfall on the terminal, but it
may not be on the terminal, it may be in some other way.
That is not --
MR CAVENDER: It's normally when they balance, my Lord, that
is when it happens. They come to the end of a period
and they balance. That is when the shortfall, if you
like, of the event is crystallised.
MR JUSTICE FRASER: That is a good way of putting it.
Let me just ask Shams one question, he is the EPE
officer. (Pause)
Sorry, Mr Cavender.
MR CAVENDER: Not at all. The answer to your question might
be more readily found in our written opening at
paragraph 122, {A/2/36}.
MR JUSTICE FRASER: I'm not sure that ... I'm not sure it
does.
MR CAVENDER: It's 122(b), my Lord:
"Where the deficiency is not apparent from accounts
that have been signed off, any dispute as to the
accuracy of the figures on which Post Office relies to
show a deficiency is at large. Post Office may rely on
an inference from the general reliability of Horizon
..."
Saying that Horizon is generally reliable --
MR JUSTICE FRASER: Just pause there. Let me just find the
part I was asking you about. It's {Day1/107:23}, when
you said:
"... once a shortfall or loss has been shown by
Post Office, ie it is taken out on the balance of
probabilities, this being a Horizon-generated event ..."
I said:
"What do you mean, it is taken out?"
And you said:
"In order to show loss we will need to show it's
a loss which is not a general Horizon-generated loss."
And it was that point that I was exploring with you.
Am I therefore to equate that with the
antepenultimate line on page 36, or the third line of
122(b) {A/2/36}, which is Post Office relying on
an inference from the general reliability of Horizon.
Is that just a different way of saying the same thing?
MR CAVENDER: It is, yes.
MR JUSTICE FRASER: Right, thank you. Because actually
an inference is rather different to the way you were
explaining it to me at page 120, isn't it?
MR CAVENDER: I don't believe so, my Lord, and if it was --
MR JUSTICE FRASER: Okay. That is fine, I understand it
now.
MR CAVENDER: But what I am trying to do is to try and
address the case that somehow we are trying to fix
postmasters for all Horizon-generated losses. That is
the target of my -- we are not saying that. And 122 of
our opening makes that clear. 122(a) deals with the
inferences where they have signed off relevant accounts
et cetera, and 122(b) addresses the situation where they
haven't, which is more of your Lordship's example.
{A/2/36}
The point I was going on to make is once -- and this
is where your Lordship picked it up -- once a shortfall
or loss has been shown by Post Office, it is then for
the postmaster to show he doesn't have to pay it. And
that is when you get into the clause proper. That is
when we say it is for the postmaster to say you have
a loss at this stage and you are persuaded it is not
a Horizon-generated loss --
MR JUSTICE FRASER: Well, there you are making an inference,
aren't you?
MR CAVENDER: Of course, but --
MR JUSTICE FRASER: Mr Cavender, you must realise there is
a crucial difference between them. One is the default
position as I had understood it to be, on everything
I have been involved with on this case over 12 months,
is the way in which these incidents were approached
which, as I understand it from the written opening, it's
effectively an acceptance ab initio or an understanding
by Post Office that if Horizon says X, X being
a shortfall, then it is a shortfall. Whereas the way
I understood what you are saying orally is it's almost
as if there was a preliminary filter --
MR CAVENDER: My Lord, no, no. If you thought that then
I was --
MR JUSTICE FRASER: Because Post Office's approach is, as
I understood it, or was, and may still be, that Horizon
is reliable.
MR CAVENDER: Indeed.
MR JUSTICE FRASER: Ergo, a shortfall by definition is
something for the subpostmaster to demonstrate falls
within the caveat or the proviso in clause 12.
MR CAVENDER: No, but that is where there is the difference,
that there is a prior stage before you get into the
caveat, almost like a gateway point, that it's a loss,
and it's at that point the inferences of 122 come in.
Because of course we say at the early stage that
Horizon is reliable, and if it says there's a shortfall,
there's a shortfall. But the postmaster can say, well,
no, it's not, in the Horizon trial, and say no, no, that
isn't the case, not necessarily the case, or Horizon was
totally terrible.
MR JUSTICE FRASER: That of course is correct in terms of
specific issues, as in the way they have been split
between Common Issues and Horizon, save for this: so far
as the parties are arguing about who has the burden of
demonstrating what a discrepancy in fact should be
characterised as, whether it is a loss that falls within
12(12) or not, that is, as I understood it, something
that is being resolved at this trial.
MR CAVENDER: My Lord, I'm not quite sure that -- insofar as
it is construction of the clause, that is so. Insofar
as it is a persuasive burden, which I think in reality
it probably is, then strictly it is not a common issue.
But we have outlined our case on it, we are not being
funny about that, but you can see how the two -- it is
important to know whether you are talking about as
a matter of construction of the clause or are you
talking about the persuasive burden generally? But you
have my submission on what the persuasive burden is in
that eventuality.
The points I have made can be made either as
persuasive burden or, at a stretch, and I think it is
a bit of a stretch, an implicit allocation under the
clause. Because it really is -- it comes in advance of
construction of the clause.
My Lord, if in light of that hopefully highlighting
the subtly of this point you go back and read our
written submissions --
MR JUSTICE FRASER: I will do that many times. I am sure it
will come up in closing as well.
But when you describe it as the subtly of the point
or ... it isn't a subtle point at all, is it? It is
what a large part of this whole case is about.
MR CAVENDER: Quite.
MR JUSTICE FRASER: Yes.
MR CAVENDER: What it comes down to is we say Horizon is
reliable and when Horizon says there is a shortfall,
there is a shortfall.
MR JUSTICE FRASER: And it falls within clause 12(12).
MR CAVENDER: Not automatically, because the postmaster is
saying no, no, it doesn't. That is the
Horizon-generated shortfall. So it doesn't come through
the gateway and then into clause 12(12). That is
the argument, that is the conceptual difference.
MR JUSTICE FRASER: But the -- well, I suppose it depends at
what point one comes to apply what you describe as
a persuasive burden. But if you then take your analysis
to the next step, where the postmaster says no, it
isn't, it is a Horizon-generated shortfall, your
interpretation of the clause or the construction for
which you contend is that it is the postmaster
thereafter who has to demonstrate that it is in fact
a Horizon-generated shortfall.
MR CAVENDER: No, because you would have determined that
before you get through the gateway.
MR JUSTICE FRASER: But Mr Cavender, this is the point I am
struggling to follow. Because as I understand your
written submissions, the gateway is the inference that
everything Horizon tells you is reliable.
MR CAVENDER: My Lord, that is evidence really. It is
not --
MR JUSTICE FRASER: That really is not an answer. That is
not evidence. We are talking about the way in which the
clause works for a Horizon-generated shortfall. Okay?
And I am having difficulty in understanding why where
the gateway is, which is your word, could be a matter of
evidence.
MR CAVENDER: No, you misunderstand. Horizon is evidence at
that point. The results of Horizon are evidence. We
say Horizon evidences a shortfall that is real.
MR JUSTICE FRASER: Hence it is through your gateway.
MR CAVENDER: If the court accepts that, then it gets
through the gateway, yes.
MR JUSTICE FRASER: At the moment I just want to know where
your gateway is. Your gateway is a step that is reached
after applying your inference that Horizon is reliable.
MR CAVENDER: Correct.
MR JUSTICE FRASER: So if that is right ...
MR CAVENDER: You then get into the clause.
MR JUSTICE FRASER: That gets you into clause 12.
MR CAVENDER: Correct.
MR JUSTICE FRASER: Clause 12 says what it says. And the
postmaster says "This is not a loss that falls within
the clause because it hasn't been caused by my
negligence, carelessness or error". So in other words,
seeks to rely on the proviso.
And as I understand the burden point, Post Office's
case is that in each instance of this its reaction is
that is all very well and good, but you have the burden
of proving that, is that right?
MR CAVENDER: Correct.
MR JUSTICE FRASER: Therefore, based on your inference, what
role does the gateway play at all? Because if there is
such an inference, all the shortfalls which are
demonstrated on the Horizon system will automatically
all go through the gateway, won't they?
MR CAVENDER: My Lord, no.
MR JUSTICE FRASER: You explain the situation to me, please,
whereby something doesn't reach the gateway stage.
MR CAVENDER: Well, it doesn't go through the gateway
because in an individual case we say at the gateway
stage, "Look, there is a loss of £2,000 and we say
Horizon is fine. Based on a Horizon trial it is
reliable. Therefore the inference is there is
a shortfall". The postmaster says, "No, that is not
true, we don't accept that", for whatever reason in this
case. "I have my own expert evidence about this
particular loss and how it happened and there was
for instance a bug on that day or month affecting me.
Furthermore, I have CCTV, I have all these accounts
here, we only had ten transactions. There is no way we
could possibly have had that loss".
In that world the court may well say that on the
balance of probabilities on this occasion I don't accept
that Horizon was reliable, and so we have
a Horizon-generated shortfall.
MR JUSTICE FRASER: But to get to that point, as
I understand it, you are saying it doesn't in any way
affect the construction of this clause. This clause --
all Horizon losses will reach this clause because you
have just given me an explanation of something that got
through the gateway.
MR CAVENDER: My Lord, it wouldn't get through the gateway.
It would stop at the gateway. At the gateway stage that
wouldn't get through because it was a Horizon-generated
loss by definition.
MR JUSTICE FRASER: No, it isn't a Horizon-generated loss at
that stage because you say the court has to go through
the evidence and decide was, in fact, it something which
was caused by a bug?
MR CAVENDER: My Lord, yes. But the premise of my example
was the court would find in that example I gave that
Horizon was not reliable and therefore it was
a Horizon-generated loss. That was the example I gave
you.
So in the world in which there is, on the balance of
probabilities, a Horizon-generated loss at the gateway
stage it doesn't get through the gateway. It doesn't
get to clause 12 at all.
MR JUSTICE FRASER: Alright. Final question and then I am
going to-- I am going to expressly, though, invite you
to re-read the last eight pages of the transcript
because at the moment it is relatively unclear. But if
what you have explained is correct, are you saying that
in order to decide if something goes through the gateway
stage the burden is on Post Office, or the burden is on
the subpostmaster?
MR CAVENDER: That is the persuasive burden, and the
persuasive burden is normally on the person that is
asserting it.
MR JUSTICE FRASER: So in this case it is ...
MR CAVENDER: It would be Post Office would have the
persuasive burden.
MR JUSTICE FRASER: What, demonstrating that something
should go through gateway?
MR CAVENDER: Yes. It's a loss and a shortfall, yes, that
is right. And I think that is, if you read our opening,
that is what we say over a number of pages.
MR JUSTICE FRASER: Can you stop using the conditional.
I have read your opening, I have actually read it twice,
and I will read it again.
MR CAVENDER: My Lord, yes. But sometimes when things are
discussed orally, and you say, oh right, and then you go
back and read it, it can sometimes have a slightly
different complexion.
My Lord, moving on then from the general point of
postmasters to the liability for assistants point.
I touched on this a moment ago with the "such", this is
the "such" point, and your Lordship quite rightly put to
me that this is, if you like, of a lower order than the
point we have just been discussing.
This point is whether the caveats that applied to
the subpostmaster in clause 12(12) apply to assistants.
We say those caveats do not apply. The liability for
assistants is strict under this clause. My learned
friend says no, you have to rewrite the clause and put
the word "such" in. You have my submissions on that.
But putting "such" before the words "losses of all
kinds" creates a complete nonsense of it. It is clearly
not what was intended. It is not reflected by the other
clauses in the contract where the postmaster is liable,
unsurprisingly, for his employees, and I do not think
I need to say much more about it.
Coming now to clause 4.1 of the NTC. Again you were
shown that briefly. The relevant page is {D1.6/3/13}.
My learned friend's submission on this really is that it
is to be read as if it is clause 12(12). Not a very
promising start in a way because of course it is
a different clause and different words.
What is clear here is that there is no real
distinction between postmasters or their assistants. He
is:
"... fully liable for any loss of or damage to any
Post Office cash and stock (however this occurs ...)"
And "however this occurs" is of course an important
contractual indicator of including losses of all kinds.
And the last line:
"Any deficiencies in stocks of products and/or any
resulting shortfall in the money payable to Post Office
Limited must be made good ... without delay ..."
Et cetera.
So the points I have made, and your Lordship -- we
had a debate about, apply equally to this clause. It is
not as clear but the same point arises, that
Horizon-generated shortfalls, assuming there is such
a beast, if there were shown to be such a beast it would
not come within the wording of -- or come within the
structure of 4.1.
MR JUSTICE FRASER: Where would it come within 4.1 anyway?
Is it just -- is it the sentence that deals with
shortfalls?
MR CAVENDER: Yes, because it is not --
MR JUSTICE FRASER: "... and/or any resulting shortfall ..."
MR CAVENDER: Yes, it doesn't deal with apparent shortfall
because an apparent shortfall is not a real shortfall.
It is nothing. It is an error in Horizon. And what
clause 4.1 is doing is not dealing with things that
aren't real and so they don't get to 4.1.
MR JUSTICE FRASER: But if they do, they are not cash and
stock, it is the words "and/or any resulting shortfall
in the money".
MR CAVENDER: Indeed.
MR JUSTICE FRASER: Yes. Right. Because this contract,
unlike the earlier -- unlike the ...
MR CAVENDER: SPMC.
MR JUSTICE FRASER: SPMC, I'm getting my initials mixed up,
seems to roll together clause 5 and 12 of the SPMC into
clause 4.1.
MR CAVENDER: My Lord, you are right about that. Exactly
so.
Now I was going to have a passage on the law on
construction but I see the time. We have spent some
time on clause 12(12), and obviously so because it is
important. We produced a bundle of authorities.
MR JUSTICE FRASER: I was very grateful for that. It would
be useful to go to some law but I'm in your hands.
MR CAVENDER: We set out detailed submissions obviously
about the law on construction firstly. Paragraphs 32 to
43 of our written opening at {A/2/11}. I won't go to it
now. But we say most of the principles can be accessed
through two recent decisions of the Supreme Court,
Arnold v Britton and Wood v Capita. The reason we are
going to these is because the main thrust of my learned
friend's case on construction appears to be commercial
common sense that the contract can't mean that for
reasons of commercial common sense.
What you learn from Arnold v Britton which is in
tab 4 of the authorities bundle at {A1.1/58/1} --
I don't know if you have had a chance to read Arnold v
Britton or are otherwise familiar with it?
MR JUSTICE FRASER: I have and I am.
MR CAVENDER: You will see on one view the result, namely,
to impose on these -- pick a group of lessees. There is
quite, on one view, a draconian obligation, on one view,
to lack of commercial common sense. But nonetheless
that is what the words required and therefore that is
what the Supreme Court upheld.
Effectively, you remember, there was payment of
a yearly sum and that was fixed at £90 in that case.
And this idea of proportionate and all the rest of it
didn't work and there was a ratchet of 10 per cent
per annum which over a long period of time produced
a very large number, which the complainants there said
could not have been possibly anticipated. But the
majority dismissed the lessee's argument and said the
clause meant what it said.
We have elements of that in this case too, in my
submission. The main meat of the judgment is
Lord Neuberger, paragraph 17. {A1.1/58/10}
MR JUSTICE FRASER: Yes, 17 through to about 23. Although
23 is just dealing with service charge contracts
specifically.
MR CAVENDER: Indeed.
If you go over the page {A1.1/58/11}, you obviously
read those, there is no point in referring to those.
The point at the top of page 1631, internal numbering
{A1.1/58/13}, one thing Lord Neuberger did say is the
court shouldn't invent a lack of clarity in the clause
as an excuse for departing from its natural meaning in
the light of subsequent developments."
That is a point I think I need to pray in aid here.
MR JUSTICE FRASER: Yes. As I understand it, your position
is there is no lack of clarity and you don't need to go
further than just construing the natural words.
MR CAVENDER: Indeed, that is precisely so.
What I think you get from it is there is a very
strict view of this idea of business common sense that
some people sometimes lay more stall by, and you get
that both from Arnold v Britton and indeed from Wood v
Capita, the FSA case involving an indemnity. I won't
take you to it but the same points can be made, the
leading judgment there of Lord Hodge.
I will leave that there because I don't have much
time.
The next point is a pretty crucial point in
the structure of the argument in this case and that is
the agreed implied terms point. They are agreed implied
terms, I call them that, because they are agreed that
they are things that we asserted I think in pre-action
correspondence, they are things we plead in our defence,
and they are things that these claimants accept. So
they are agreed. They're no longer ours, we don't own
them. They are now part of the contract.
That is important because in terms of sequencing,
I think my learned friend has a passage on it in his
written opening. Before you consider contested implied
terms you have to look at the express terms and see what
they mean, and you also have to incorporate within that
in this case the agreed implied terms. They are as much
part of the contract as the express terms, ie they are
the contract, the meaning, which these parties agree
this court needs to construe.
And importantly that is the backdrop against the
question of (a) construction, and (b) the question of
whether any further implied terms need to be implied.
This is important because one of those implied terms,
one barrel of it of course is the necessary co-operation
term.
MR JUSTICE FRASER: Or one of the agreed terms.
MR CAVENDER: One of the agreed terms, my Lord, yes.
So you will have to, in my submission, when it comes
to the final analysis, work out how that term, which is
effectively oil to the commercial relationship, works
with the express terms of the agreement and work that
out before deciding, well, in light of that is there
a necessity -- and the word is appropriate,
"necessity" -- under Marks & Spencer to imply any
further implied terms and, if so, what.
You will see that the claimants' admission of these
implied terms is recorded in the order for the Common
Issues trial at {B7/7/13}.
These implied terms, the Stirling v Maitland and the
necessary co-operation term, I will now call them the
agreed implied terms.
MR JUSTICE FRASER: Are we looking at the older version of
the Common Issues or the consolidated Common Issues?
MR CAVENDER: Consolidated, my Lord.
MR JUSTICE FRASER: I think consolidated might be a better
place to go.
MR CAVENDER: Have I got the wrong reference?
MR JUSTICE FRASER: That isn't the wrong reference, that is
the original schedule to the original CMC order.
A better place to go is probably the consolidated Common
Issues.
MR CAVENDER: My Lord, yes, but I think the point is the
same obviously in both.
MR JUSTICE FRASER: I know it's the same. I am just talking
about efficacy or utility of the cross-referencing.
MR CAVENDER: I am obliged.
MR JUSTICE FRASER: So which one do you want me to look at?
MR CAVENDER: {B7/7/13}.
MR JUSTICE FRASER: No, that is the Common Issues.
MR CAVENDER: {B1/2/1} I am being told.
MR JUSTICE FRASER: Yes, that is the consolidated one.
MR CAVENDER: It's the bottom of page 3. So {B1/2/3} at the
bottom, above paragraph 3:
"For the avoidance of doubt, the implied terms
admitted at Defence paragraph 105 are agreed."
Does my Lord have that?
MR JUSTICE FRASER: I do, yes. It's not exactly what
I meant but it doesn't matter.
MR CAVENDER: These implied terms, the necessary
co-operation and the Stirling v Maitland ones, are
ordinary implied terms, unobjectionable, and are often
implied into complex commercial agreements.
The claimants here try and argue that because we
aver and accept that these terms are to be implied that
somehow that gives some kind of succour or raft to other
implied terms as well and/or that somehow that shows
that we accept the contract was badly drafted.
We accept neither of these things. These terms are
conventionally applied into all sort of sophisticated
well drafted contracts. They are perfectly suited to
filling gaps that cannot sensibly be filled by express
provision. The whole point of them is they will often
have gone without saying but are necessary for practical
commercial coherence of the agreement.
It is now common ground these are to be implied into
these contract. They are, as I say, equivalent
therefore to express terms. Like the express terms they
have a proper construction. They form part of
a contract into which my learned friend has to persuade
you that his additional terms should be implied. The
claimants' 244 pages of written opening almost entirely
ignore them or the effect they have on the arguments in
this case.
Your Lordship will see, and my learned friend turned
to it a little bit at the end of his submissions this
morning, that Post Office often criticised at length not
showing in more detail how they would work, those
implied terms would work in practice, and whether they
cover some of the ground of the terms my learned friend
urges you to imply as well.
We are attacked for not having done even more than
we have to help the claimants understand our case. In
my submission, that whole attack is misconceived. They
have accepted this these terms are to be implied, and
now it seems, having done that, they want us to tell
them what they mean, what it is they have accepted, what
their precise effect might be in a myriad of possible
factual circumstances.
Imagine they were to do the same in relation to an
express term of an agreement, explain how express term X
overlaps with our alleged implied term. That would
never be a proper request or exercise. These agreed
implied terms are as good as express terms when it comes
to the question of construction and the question whether
other contested implied terms should be incorporated.
It is therefore for the claimants to show that they
are necessary, these further implied terms, and part of
that burden showing why they are necessary
notwithstanding the existence of the agreed implied
terms.
The second point: is we have in fact done a good
deal, to try and provide further clarification. We have
had a counsel to counsel meeting, we have produced
a table to compare the obligations. In our written
opening you will see we gave further examples at
paragraphs 181 and following {A/2/53}.
The reason we can't go any further is because these
implied terms are, by definition, ambulatory. They fit
in a number of things within them. You would have to
posit particular factual circumstances before -- and
plead those out, if you want to take the pleading point,
before you could sensibly ask the opposing party, say,
well, would your implied term react here and in what
way? That has never been done.
We have done our best to try and give examples of
the extremes of where it would definitely work and where
it would definitely not work. See paragraph 181. But
what we can't do is fill in the multitude in the middle
of degrees of situations where they may or may not
respond, or how.
I am slightly at a loss to see why my learned
friends are doing this. Maybe they are shy about making
the argument, attacking the implied terms, the agreed
implied terms, because they quite like having them, and
they don't want to say too much about them being narrow
in case that is all they are left with, and at the
breach trial they have to say in fact they're wonderful
and involve all sorts of possibilities. That is a
possibility.
It is interesting it note, though, in my learned
friend's opening at paragraph 165, bundle {A/1/65}, we
can perhaps turn that up.
He says at the end:
"... albeit, the defendant's own implied terms ..."
Because he is not taking ownership, he is still
saying they are ours even though he has adopted them.
"... of wide application, namely implied duties to
co-operate and not to prevent performance of the
contracts."
So he says they are "of wide application".
So, my Lord, what he has to do is ride two horses.
He is saying the necessary co-operation term has a wide
application on the one hand, and then married with the
express terms. At the same time he is trying to say
that it is necessary, to give commercial coherence to
this contract, to imply a raft of other implied terms.
So that is what is going on and that is what he needs to
do.
Of these, the master of the implied terms really he
is implying is the relational contract debate to which
I now turn.
MR JUSTICE FRASER: That is probably a good time to give the
shorthand writers a break. So we will take ten minutes
and resume at 3.24 pm.
(3.15 pm)
(A short break)
(3.24 pm)
MR CAVENDER: We are going to relational contract. The
first point to note here is the whole purpose of
characterising a contract as "relational" is to take
a step towards arguing for the implication of a term of
good faith. We of course do not accept there is any
real utility in this step because we do not consider
Yam Seng to add anything to the existing law, but for
the purpose of this argument assume it to be
a worthwhile exercise at least to investigate the
principle.
There are a number of problems with the argument
this is a relational contract here. I will list them
and then expand on a few of them. Firstly, it only
applies to long-term agreements.
Secondly, it normally applies where there is
a lacuna or gap in a relationship. Here there is no
gap, there is an agency relationship and a detailed
contract.
Thirdly, there is a difficulty of the agreed implied
terms and the necessary co-operation term already doing
a good deal of the work that is said to be covered by
this good faith term.
Fourthly, in the terms put it would be contrary to
the express terms of this contract.
MR JUSTICE FRASER: Contrary to them?
MR CAVENDER: Contrary to, my Lord, yes.
And finally, it is far too wide and far too deep in
terms of the things put forward in its wake to begin to
be justified in Yam Seng. We will go to Yam Seng. If
you remember, there was this debate about good faith, a
very interesting discussion about it. But in the final
analysis Mr Justice Leggatt implied two very narrow
implied terms based on honesty, so he rejected anything
wider.
What we see here, standing back from it, is my
learned friend saying relational, relational, Yam Seng.
He then lists a whole number of incidents, he says, of
that. And then he has his 21 implied terms he says are
justified by reference to it. So just bear in mind that
is the structure of it.
MR JUSTICE FRASER: He may or may not be right about any or
all or none of them, but whether a contract is
relational or not doesn't necessarily require the
implication of all 21 of those terms. It is the
characterisation of the contractual relationship, isn't
it?
MR CAVENDER: Yes. And even if it is relational, it doesn't
necessarily mean you imply any term at all, let alone
a good faith one. What it is is -- what certain cases
have done is identify a relationship where sometimes the
court looks with particular care about whether certain
terms might be implied or not. The same in joint
venture agreement. Ross River, there we managed to get
the judge to imply a term of good faith in a joint
venture agreement and it was upheld by the Court of
Appeal. But not because it was a joint venture, because
it was an odd joint venture where the sleeping partner
had virtually no power and the operative partner had all
the power and all the money and paid it to himself.
MR JUSTICE FRASER: But whether a contract is -- the term
"relational contract" is one generally understood as
being a particular characterisation of imports into the
contract, a standard of dealing between the contracting
parties which wouldn't necessarily otherwise be there.
MR CAVENDER: My Lord, I'm not sure I would agree with that.
MR JUSTICE FRASER: I think you said Yam Seng doesn't change
the law at all.
MR CAVENDER: No, all it does, it's the application. We'll
go to it. What the judge actually did, he had really
interesting debate about lots of things, but what he
actually did was imply two terms he found to be
necessary.
On the first point, the first obstacle in
the road -- we will come to Yam Seng -- was the
long-term point. In Yam Seng itself and all the cases
that we cite in our opening at paragraph 210, a case
called Acer and a case called Hamsard, see paragraph 210
of our opening {A/2/63}, they were -- no implied term of
the type, the good faith one, was implied, and one of
reasons for that was the absence of a long-term minimum
duration.
In Yam Seng itself, as we will see at paragraph 142,
we will come to it, the judge was talking about longer
term relationships. In Al Nehyan, paragraphs 168 to
169, and again we will come to this, I am just trying to
get the flavour at the moment, the two cases he relies
upon, Bristol Groundschool and D&G Cars, both were long
term. Bristol Groundschool was a contract for five
years, then extended on a rolling basis, D&G Cars
similarly was for five years with an option to extend
for a further year. Lord Justice Beatson in
Globe Motors, tab 7 of the bundle, again said a
relational contract must involve a longer term
relationship.
So just taking those points cumulatively, a contract
terminable on short notice is a non-starter. Here one
contract was terminable on three months' notice, the
other on six months' notice. Based on that one
principle alone, these are not relational contracts.
What that then tells one is for this to get off the
ground at all, my learned friend has to win on
Autoclenz. He has to strike out, effectively, the three
month and the six month notice provisions. Because if
he doesn't, then they can't begin to be long term. But
even if he does, he won't quite tell you what term he
says should be implied, but he does at one point in his
opening talk about 12 months. Even 12 months, the term
he says should be implied when you vacate the three and
six month terms, is only 12 months. It isn't the
five-year rolling contract that the authorities
anticipate.
That is the first obstacle.
The second is that again in Yam Seng, if you recall,
I think there were five clauses, it was a handmade
agreement. There was a huge hole in the middle of that
relationship. Similarly in Al Nehyan there was
a friendship relationship between a businessman and
another individual. There was huge -- potentially
lacunas in those contracts.
Here we have an agency relationship. We have
express terms of contracts. They in turn incorporate
manuals and directives. There is no failure to make
provision.
The further road block is the agreed implied terms.
Again, at the stage when you are saying do you imply,
because it is relational, any kind of good faith type
term, you have to have regard for the fact you have
already got a necessary co-operation term within the
contract.
I'm not sure if your Lordship has seen the most
recent edition of Chitty on this story. We have
uploaded it to the -- and it should be in
the authorities bundle at the back. Did it find its way
into your Lordship's hard copy authorities bundle?
MR JUSTICE FRASER: Do you mean the core authorities or the
bigger one?
MR CAVENDER: The ones for the opening. (Handed)
MR JUSTICE FRASER: I have looked at the 33rd Edition but I
can't ... I was looking at it actually in the book. Let
me just have a look.
MR CAVENDER: It's paragraph 1-058 really.
MR JUSTICE FRASER: Shall I add this to ...
MR CAVENDER: At the back, my Lord, yes. Implied terms
start at 57. 57 starts about -- it deals with the
implied term of trust and confidence in employment
contracts.
MR JUSTICE FRASER: Yes.
MR CAVENDER: Then at the bottom of that page {A1.3/6/3}
where it says:
"On the other hand, it has been said that a court
should not imply a term requiring good faith in a party
to a contract where it would be 'inconsistent with the
express terms which set out the parties' mutual
obligations', though this leaves a duty of honesty."
Then we come to "A general implied term to perform
in good faith", and we come to Yam Seng at 1-058:
"In Yam Seng ... Leggatt J. considered, obiter, that
a contract for a licence to distribute and for the
supply of branded goods contained an implied term of
good faith in its performance which had the significance
in the context of not knowingly providing false
information on which the other party was likely to
rely."
MR JUSTICE FRASER: Chitty disagrees with it.
MR CAVENDER: What it says is that -- he disagrees with the
general debate, but he says in this case what he did was
perfectly orthodox on Marks & Spencer, you know,
necessary implied term.
But my learned friend doesn't rely on that, he
relies on the more general academic discussion for
representing the law of England which, in my submission,
it does not.
MR JUSTICE FRASER: It is, I think, generally accepted it's
a difficult area.
MR CAVENDER: A difficult area?
MR JUSTICE FRASER: Relational contracts. They are
a controversial subject.
MR CAVENDER: There have been a number of cases. And
Mr Justice Leggatt -- obviously in Yam Seng there is a
very interesting debate about it. The Court of Appeal
have expressed their views a couple of times since and
are certainly, to put it mildly, less enthusiastic
about --
MR JUSTICE FRASER: But not saying there is in such concept.
MR CAVENDER: My Lord, no. But the concept really is just a
door to another debate, really, and the debate is
Marks & Spencer is the law on implied terms.
MR JUSTICE FRASER: Yam Seng is seen as the first word on
a duty of good faith in commercial contracts. Not all
commercial contracts.
MR CAVENDER: But that preceded Marks & Spencer, obviously.
MR JUSTICE FRASER: I know.
MR CAVENDER: What the authors of Chitty say in this debate
is that the broader comments in Yam Seng -- we will go
to it -- are not really justified and they undermine the
general reluctance of English law to imply good faith in
contracts.
MR JUSTICE FRASER: Which was the entire point of the dicta
or obiter dicta in Yam Seng, that English common law's
hostility to a doctrine of good faith has effectively
been watered down over time, is the general summary.
MR CAVENDER: My Lord, yes.
MR JUSTICE FRASER: But the editors of Chitty don't agree
with that.
MR CAVENDER: No. And what they say is it shouldn't be seen
as a general principle but rather is recognised as a
particular example of a contract where a term as to good
faith, meaning honesty, should be implied.
MR JUSTICE FRASER: I know. But that passage in here is
wrong because the judge is rather careful to say -- or
the way he puts it is: bad faith does not mean
dishonesty. So if bad faith doesn't mean dishonesty,
good faith can't mean honesty, it means something else.
MR CAVENDER: My Lord, I will go to Yam Seng and I will show
you what he says. And I'm not sure I am going to agree
with you.
MR JUSTICE FRASER: Let's go to Yam Seng now then, because
I would rather look at the authorities than look at what
the editors of Chitty say the case says.
MR CAVENDER: My Lord, before you do, can I, if I may, look
at the last paragraph before 059:
"Moreover, the approach of the Supreme Court to the
implications ... in Marks & Spencer ... may lead to a
greater reluctance in the courts to imply terms
requiring good faith in at least some commercial
contracts ..."
So you do have the spectre of Marks & Spencer --
MR JUSTICE FRASER: There is a Court of Appeal authority
from this summer, which I think is called Birmingham
City Council v Amey, which says the PFI contract in that
case is a relational contract but it is unnecessary to
go any further. So as a tag it does exist.
MR CAVENDER: My Lord, yes. I am not saying it doesn't
exist, it is really what it tells you. As I said at the
beginning, the relevance of it is people say it in order
to try and get some good faith kind of implied term off
the ground.
MR JUSTICE FRASER: If you are saying a contract could be
what is currently described as a relational contract,
that does not mean it imports any obligation of good
faith. Well, that is an argument. But it is generally
understood, as far as I am concerned, that it is
a shorthand tag for a contract that has an obligation of
good faith within it.
MR CAVENDER: My Lord, we will come to it in detail when we
come to it. Let's --
MR JUSTICE FRASER: Let's look at it now.
MR CAVENDER: Let's look at Yam Seng. It's behind tab 2.
{A1.1/43/1}.
The first point is paragraph 26 {A1.1/43/10}:
"The distribution agreement is a short document,
which was evidently prepared by the parties themselves
without the assistance of lawyers. It consists of eight
clauses ..."
So two points there. It was a handmade agreement,
very short, and therefore very easy to incorporate terms
within, potentially.
At paragraph 121 {A1.1/43/28}, the judge recites the
general reluctance about good faith. We don't need to
detain ourselves about that.
Paragraph 131 {A1.1/43/30}:
"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."
That is all orthodoxy.
It then goes on at paragraph 134 and following
{A1.1/43/31} about the background, expectations of
honesty and things of that kind.
At 138 he mentions --
MR JUSTICE FRASER: You need to look at the beginning of
138.
MR CAVENDER: "In addition to honesty, there are other
standards of commercial dealing which are so generally
accepted that the contracting parties would reasonably
be understood to take them as read without explicitly
stating them in their contractual document. A key aspect
of good faith, as I see it, is the observance of such
standards. Put the other way round, not all bad faith
conduct would necessarily be dishonest."
MR JUSTICE FRASER: That is exactly the point I made on the
Chitty passage.
MR CAVENDER: Quite so.
MR JUSTICE FRASER: So if Chitty is looking at it from the
point of view that good faith means honesty, that is not
what the judge is talking about in Yam Seng.
MR CAVENDER: Actually Chitty quotes that paragraph --
MR JUSTICE FRASER: Whether it does or not, the sentence
that we are debating is a passage in Chitty, a sentence
in Chitty that has been put in by the editors.
MR CAVENDER: My Lord, yes. Let's see what the judge does
in fact --
MR JUSTICE FRASER: Yes. That is what we are doing.
MR CAVENDER: Yes. Let's go to paragraph 154 {A1.1/43/34}:
"I have emphasised in this discussion ..."
So he is bringing the threads together now.
"... the extent to which the content of the duty to
perform a contract in good faith is dependent on
context. It was Mr Salter’s submission that the relevant
content of the duty in this case ..."
So he's looking now, going from the general to the
specific, and this is my point:
"... was captured by two more specific terms which
Yam Seng contends are to be implied into the agreement."
So to paraphrase, he has had the debate about good
faith and relational, and now he's saying, okay, how
does that apply here?
MR JUSTICE FRASER: I understand that. But in
paragraphs 139 through all the way to 145 --
MR CAVENDER: He is talking more widely.
MR JUSTICE FRASER: Yes, and it is that discussion of wider
principle that Mr Green is relying on. I appreciate
your points as to why you say that doesn't apply, but
those specific paragraphs deal with the potential
importing into a relational contract of the doctrine of
good faith and what that might mean in practice.
MR CAVENDER: My point is, yes, I see the discussion, let's
see what the judge did in this case, so how he sees it
being applied.
MR JUSTICE FRASER: In the Yam Seng case?
MR CAVENDER: Exactly. We are at paragraph 155
{A1.1/43/35}. So he is saying here that the submission
is that there are two -- the content of the relevant
duty here, the Yam Seng duty, the good faith duty,
whatever it is, is given expression in these two terms.
So firstly a duty not to give false information:
"The first more specific term said by Yam Seng to be
implied in the agreement is a term that 'insofar as ITC
instructed or encouraged Yam Seng to incur marketing
expenses it would not do so for products which it was
unable or unwilling to supply, nor offer false
information on which Yam Seng was likely to rely to its
detriment'."
That was the proposal of counsel based on the
Yam Seng principle.
The judge says:
"As I see it, the essential difficulty with this
formulation is that it does not distinguish between
encouraging expenditure in the expectation that products
would be supplied, or providing false information,
dishonestly and doing so innocently. In my view, such
a distinction is critical."
He goes on, the words down:
"The position would be different if ITC wilfully led
Yam Seng to expect that products would be supplied in
circumstances where ITC did not in fact intend to supply
them or knew that it would be unable to do so."
Last line:
"By contrast, it was clearly implied ITC would not
knowingly provide false information on which Yam Seng
was likely to rely."
So if you take, below 156, "dishonest" and draw
a line to "knowingly", what the judge is clearly saying
is the implied term he is willing to imply here is
either a knowing/dishonest term. So the term would
read: you shall not dishonestly encourage Yam Seng to
incur marketing expenses for products which it was
unable or unwilling to supply. A very narrow implied
term and one based on dishonesty. He expressly disavows
that put forward by counsel on a general basis.
He does exactly the same in relation to the second
implied term dealing with pricing, the duty not to
undercut duty free prices. You will see that at the end
of 164.
MR JUSTICE FRASER: He finds that there were three features
that led him to conclude that there was an implied term.
MR CAVENDER: Exactly. And the thing to ask yourself,
my Lord -- so the first point is he is talking here
about dishonesty and that is why no doubt Chitty have
picked up on that. Because he has the discussion but
then, when it comes to it, he rejects counsel's view of
a general duty. He says no, you have to be knowing or
dishonest.
What they were doing in this case was dishonestly
providing -- or alleged to be doing -- information to
the parties, the distribution agreement, to incur
marketing expenses for goods they weren't going to
supply, had no intention of supplying or couldn't.
MR JUSTICE FRASER: But that doesn't apply to the
undercutting prices point. It does apply to the first
point.
MR CAVENDER: It does. My Lord, but there were particular
features of the cutting prices point which he
outlines --
MR JUSTICE FRASER: I think they were features of the case
because what he says at 160:
"In ordinary circumstances there would be no
justification for implying such a term ..."
Pausing there, the term is that the supplier would
not prejudice the sales by selling the same products at
a lower price.
MR CAVENDER: Quite. Because it was a duty free thing, and
the duty free was always meant to be cheaper than the
outside price. That was the basis of --
MR JUSTICE FRASER: Exactly. But the three features he
identifies in 161, 162 and 163 lead him to imply such
a term.
MR CAVENDER: Exactly. But that is rather different,
really. It is there, I'm not sure it helps this debate.
This debate, my Lord, is in the particular case he
actually rejected counsel's more general implied terms
saying there has to be dishonesty. And in terms of the
focus of our debate, question: would a necessary
co-operation term of the type I advance prevent you
giving dishonest information to the other party to
encourage it to incur expenditure?
MR JUSTICE FRASER: If the definition of a duty of good
faith is as you are explaining it to be, then a certain
set of consequences will flow. And I understand your
case being that is how you should approach relational
contracts, that is what they are, and there is no
necessity for finding it's a relational contract because
there is the agreed implied term that effectively does
the same job.
MR CAVENDER: It doesn't do the same job, my Lord. It -- it
fills any gap it is necessary it fill. Because
"necessary" is the game we are in here, Marks & Spencer.
And it more than fills the gap that is there.
If we go to Al Nehyan as well, have a quick look at
that, which is the subsequent case. It's at tab 8.
It's a bit more difficult to access, but he again
obviously refers to Yam Seng.
If we start maybe at paragraph 150 and pick it up
there under the heading "Partnership" {A1.1/72/40}.
Then over the page at 153 {A1.1/72/41}, fiduciary
relationships, he refers to the Ross River case there
and joint ventures and then distinguishes that
relationship to some lesser form of good faith.
He picks it up at paragraph 167 {A1.1/72/45}, having
found there was no fiduciary duty:
"It does not follow ... that he did not owe any
fiduciary duties ..."
That his entitlement was untrammelled.
At 168 he then refers to the Bristol Groundschool
case and at 169 the D&G Cars case. Both have five-year
terms with rollover in them.
MR JUSTICE FRASER: 167 really summarises at least what the
judge himself considered Yam Seng to be about.
MR CAVENDER: Yes, obviously -- yes, exactly. That is very
fair. He does do that.
MR JUSTICE FRASER: It might be thought the editors of
Chitty would possibly give a bit more consideration to
167 in this case than they do to their -- but that is
a sort of comment en passant.
MR CAVENDER: Paragraph 170, my Lord, in this, where the
judge quotes Lord Justice Beatson in Globe Motors is
quite interesting because he says:
"... duty of good faith which he characterised
essentially as a duty to co-operate."
So that is where my point comes around.
Lord Justice Beatson said we are talking about this as
a duty to co-operate. So it is obviously an interesting
area.
MR JUSTICE FRASER: It is an area that is currently open to
some debate.
MR CAVENDER: In terms of the Court of Appeal, my Lord, they
have expressed their views on this. You have probably
seen MSC Shipping. I'm not sure that made its way into
my bundle actually.
MR JUSTICE FRASER: I don't think it did.
MR CAVENDER: But certainly there Lord Justice Moore-Bick,
it is paragraph 44, wasn't very enthusiastic about the
approach. Also the Carewatch case, which I think is
Mr Justice Henderson, is behind tab 3 of my bundle.
That is worth having a quick look at because that is
quite similar to this case in the sense that it was
a long term contract, although ours isn't, but this one
was. So it is potentially into the realm of
a relational contract. {A1.1/53/1}. Taking on
your Lordship's point, if it is relational, somehow you
get good faith in --
MR JUSTICE FRASER: No, no, that is not what I said.
I didn't say, if it is relational, you somehow get good
faith in. I was explaining that my understanding of the
term "relational contract" is a term which refers to
a contract that has a duty of good faith within it.
That might be right or wrong.
MR CAVENDER: I think what Carewatch tells us is it might
not be right, because this was a long term contract that
had some of the features that people who say things
a relational contract contains, and the judge looked at
it and said: no, there is a perfectly good written
agreement here. I see no --
MR JUSTICE FRASER: But just because it is not a relational
contract in that case doesn't mean that the
categorisation of a relational contract as connoting
a duty of good faith is incorrect, does it?
MR CAVENDER: My Lord, I think the only debate between us --
and it is just semantics really -- is whether you say,
in order to call it a relational contract, that
presupposes you have implied a duty of good faith or
whether you say it is relational before you decide that
question, into which you may or may not imply a duty of
good faith.
MR JUSTICE FRASER: It is rather important when one takes
account of the fact that Common Issue 1 is:
"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 ..."
Et cetera, et cetera. I have to decide that. That
is an issue agreed --
MR CAVENDER: Quite.
MR JUSTICE FRASER: -- the wording of which is agreed. It
is correct that co-operation is one of the six
components within there.
MR CAVENDER: And good faith is as well.
MR JUSTICE FRASER: Yes. It is good faith, fair dealing,
transparency, co-operation, trust and confidence. And
you say, I think, that it could be -- well,
I don't know. We will explore this in due course on
another occasion. But you say there is no necessity to
find that in favour of the subpostmasters because the
agreed implied term of co-operation fills the gap that
is necessary.
MR CAVENDER: Correct. Exactly so.
MR JUSTICE FRASER: Understood.
MR CAVENDER: So going to Carewatch then, this is
an application in this area. If you go to -- I won't go
to the detail of it. Carewatch was the second largest
provider of home care services in the UK, see
paragraph 2. The implied terms here, see paragraph 101,
were very wide-ranging, pretty similar to the kind of
thing that is being done here {A1.1/53/2}. Implied term
of the agreements, the purpose was to enable it to carry
on business, et cetera. If you flick over those. The
argument was (a) they are too wide and don't know what
they mean and (b) they are not necessary and counsel won
on both points.
MR JUSTICE FRASER: Where is the part where the judge
expressed his disagreement about the nature of
relational contracts?
MR CAVENDER: No, he doesn't express it, my Lord, but this
is an example of a case that has the incidence, if you
like, the characteristics of a long-term relationship
that has the toing and froing of information, all the
ingredients that point you towards this is relational
but he says, no, he is not going to imply this raft of
implied terms.
MR JUSTICE FRASER: Right.
MR CAVENDER: If you look at paragraph 109.
MR JUSTICE FRASER: Yes, I have seen that.
MR CAVENDER: He cites Yam Seng at the top, above 109
{A1.1/53/34}.
MR JUSTICE FRASER: Yes. I think he is actually citing
Hamsard v Boots, isn't he?
MR CAVENDER: Yes.
MR JUSTICE FRASER: The commentary of Mr Justice Norris on
Yam Seng.
MR CAVENDER: Indeed. At 109 is really his finding:
"In the light of these principles, the first point
to make about the Norwich agreement is that it contains
very detailed express terms, dealing with all aspects of
the franchised business from its inception to its
termination."
So too ours, I would say.
"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."
So too here, I say.
That is really just an example of the application of
the principle in that case.
We say the important point is there is no specific
rule of construction or approach to relational contracts
any more than there is to joint ventures.
MR JUSTICE FRASER: Is that a semantic point or is that
a point of substance?
MR CAVENDER: It might be dependent on the way you approach
it. Certainly joint ventures have for a very long time
been the kind of contract that people sometimes try and
imply a duty of good faith, and Ross River is
an example. That does not mean to say in every joint
venture agreement so-called there is a duty of good
faith. That is the only point I make.
Moving on then to termination on notice. It's
rather difficult to follow my learned friend's case
because he says at paragraph 102.5 {A/1/46} of his
opening he:
"... does not contend the court should use duties to
co-operate or to act in good faith to cut across the
express provisions."
And any with limitations in them. But nevertheless
he seems to ask you to read down the express right to
terminate from three and/or six months. And we see from
his paragraph 402 at {A/1/155} the period they seem to
have in mind is twelve months. You will see what we say
about this in our written opening at paragraphs 326 and
following. That is in bundle {A/2/92}. And we say
there is no proper basis to read in any of the vague
restrictions that the claimants want to introduce.
For instance, the court is asked, taking claimants'
case at its lowest, to read in the words "at least three
months" to mean notice of three months would
not necessarily be enough. There is some subjectivity
in that. Those words, as your Lordship knows, or
similar, apply and appear in many commercial contracts
and have a very clear meaning.
So when parties say "this contract may be terminated
on notice by giving three months' notice", they don't
mean to say "this contract may be terminated on notice
by giving such notice as may be reasonable but never
less than three months." That is really the import of
what my learned friend is asking you to find.
Of course, to find that, there would be a dramatic
change in the law and there is no justification for it.
In this case the parties are entitled to certainty and
a minimum period of termination on notice. It has
advantages for both sides, as I have said. It is
a two-way street. It is reciprocal.
My learned friend doesn't spend any time working out
what that means for his case. Is he saying that his
chosen twelve months goes both ways in both the SPMC and
in the NTC? He is silent on that.
One of the other requirements added in is the idea
of conscientious consideration; there is some duty
before we exercise to give conscientious consideration.
Again, it is clearly an unwarranted and unworkable
requirement. And presumably it is mutual. How does it
work the other way? If a postmaster gives notice for,
say, health reasons, do we have to investigate that and
see whether that is conscientious or not or whether they
just want to leave for their own reasons. None of this
has been thought through.
The case on termination has all the hallmarks of
a case that has been invented to try and create
liability for Post Office for doing what it was
permitted to do, namely, give notice of three or six
months rather than trying to make sense of the words of
the agreement itself.
We say there is nothing unfair or inappropriate
about a mutual right to terminate. Very many commercial
agreements have it. It would be very unusual not to
have it.
Mr Geys, the example I gave earlier; he had
a provision in a contract and was terminated, and that
was an employment relationship, where the courts do give
a degree of consideration of policy, considerations of
that kind, as Lord Sumption said in that case. But only
to a limited degree, that being a case about repudiatory
breach, if you recall. So the idea that somehow you
should give these words of termination anything but
their natural meaning in commercial law is, in my
submission, a non-starter. And pointing to the fact
that in practice Post Office might not -- as a matter of
its own commercial reasons not enforce those contractual
terms to its full force is neither here nor there. That
is a matter for it if particular circumstances apply,
but that doesn't alter the meaning of the clause.
Similarly, payments made to outgoing subpostmasters
when there were closure programmes again says nothing
about the right of Post Office to rely on its contract.
On going through these submissions, my Lord, one of
the points that -- and perhaps I should have dealt with
it in relation to the implied terms in relational
contracts is the claimants' case is all at sea in
relation to what they are alleging at any given time.
So if you look at the pleading, it is paragraph 63 of
the Amended Generic Particulars of Claim, we have seen
that so many times, you know what that says about
the pleading of good faith, fair dealing, transparency,
trust and confidence. But if you look in their written
opening, paragraphs 138 to 143, there is a germ of
a different case. If we turn it up. {A/1/57}. At
paragraph 138, we have the normal -- what we expect,
139, 140. If we go to 142 in particular {A/1/58}:
"For present purposes, the claimants invite the
court to find that the content of the implied obligation
extends to:
"Acting honestly with fidelity to the bargain.
"Not acting dishonestly ..."
This seems to be potential for a different case.
MR JUSTICE FRASER: I think those are expressions within
Yam Seng itself.
MR CAVENDER: I think they are from Al Nehayan actually.
MR JUSTICE FRASER: I think you will find they are in --
MR CAVENDER: They might be in both then. But what it
doesn't do, my Lord, obviously the claimants have to
plead a case of what the implied term meant, and
of course you can justify it by legal principles but
ultimately you have to come down to, as Yam Seng did and
Mr Salter did, what is your implied term. And it is
a concern that we seem to be ranging the whole range of
principles without identifying what the actual implied
term is. If you read 142 on its own:
"For present purposes, the claimants invite the
court to find that the content of the implied
obligation ..."
Ie the whole of it, I think, is that. And we don't
see that anywhere else. That is the first we see that,
acting honestly, et cetera. I just raise it. Because
obviously, if my learned friend wants to amend his
pleading, then he certainly hasn't done so yet.
Moving on to evidence, my Lord. You know the
Post Office's position on evidence and the extent and
utility of it in this trial. You won't be surprised to
hear me say that the focus will be on pre-contractual
evidence in terms of documents received, things of that
kind. But of course it won't be limited to that any
more. I necessarily have to stray further afield. The
lead claimants are asking you to prefer their
recollection to the policies and processes of
Post Office at the time, and the quality of their
recollection is obviously -- and even their credibility
in some cases is in issue. So that will need to be
tested.
It is also the fact that they are telling the whole
of their story for the jury effectively, involving
losses and things of that kind and, when they swear
their evidence, it all goes in. What I don't want to be
said at the end is, well, this evidence is evidence, you
never challenged it. Therefore, this is the evidence.
So I need to challenge that as well.
MR JUSTICE FRASER: What, challenge the evidence going to
specific losses you mean?
MR CAVENDER: My Lord, yes. Not specifically, but just the
processes really. Because if my learned friend is going
to have this sort of jury type trial and put all this
in, I at least need to test --
MR JUSTICE FRASER: I would have thought I have now made it
clear to both of you at least a dozen times and put it
in my written ruling and I will make it clear again
today: you are not having jury trial.
MR CAVENDER: My Lord, no. But the point is that these
people are quite understandably putting forward their
complaints and their experiences, much of which we say
is wholly irrelevant but --
MR JUSTICE FRASER: I know. But, Mr Cavender, that was the
subject matter of a strike-out application and I have
given you a ruling on it.
MR CAVENDER: Exactly. All I am saying is the consequences
of that, so we are all on the same page, one of the
things is of course the timetable was done on that
basis. I'm not saying there is a problem with the
timetable, we will see how we go, but I may have to ask
to start early or stay late one day by a little bit.
That is all I am saying. I am just raising a little
flag saying I need to go wider than originally
anticipated. I may well not have to but, if I do, at
least I have mentioned it in opening, that there might
be some tension on one or two of the days.
The other point you would have noticed, my Lord, in
my learned friend's opening -- this really is a point
for you -- it is paragraph 253 of his opening.
{A/1/99}. He says he doesn't want findings on
particular cases on incorporation. Did you recall that?
Paragraph 253.
MR JUSTICE FRASER: Which paragraph?
MR CAVENDER: Paragraph 253, my Lord. I'm not quite sure
what that means really for the trial. It seems to be
saying that he doesn't want any findings as to what
individual lead claimants -- what documents they got and
what was incorporated into their contract. He doesn't
want any findings of fact on that. Which, in my
submission, is somewhat surprising. I thought that was
one of the main reasons you were having lead claimants.
MR JUSTICE FRASER: I read that as going to termination.
But I might be wrong.
MR CAVENDER: No, I think this is talking about bringing
terms to the attention of the parties. Look at the last
line, my Lord. It is going towards -- when we get
a lead claimant up, there are various documents I will
put to them, like the Serv 135, the ARS this, the ARS
that. 250 I think makes that point clear.
My understanding is that one of the main reasons we
have lead claimants is to give the arguments on things
like Interfoto and UCTA some real substance. So you
say: yes, I find they received Serv 135 or they received
whatever it was, so knew at the time or had the
opportunity to take legal advice, all these things.
Therefore, they were incorporated into their contracts.
MR JUSTICE FRASER: Yes.
MR CAVENDER: My learned friend seems not to do that, and
I'm not quite sure why. I would have thought that was
one of the main reasons they are here. Otherwise, why
have them really at all? Because that is one of the
main roles they serve factually. I am in
your Lordship's hands. Obviously you make findings or
don't make findings but I thought I would bring to your
attention this is what is being asked for. He has
not covered it opening.
MR JUSTICE FRASER: I understood from what you said about
ten minutes ago -- I might be wrong -- that you are
going to approach each of the lead claimants
conventionally in terms of putting documents to them
that they saw at the time or didn't see at the time,
et cetera.
MR CAVENDER: Correct. But the question is what you do
with -- is the court going to say it is not going to
make findings on that or ...
MR JUSTICE FRASER: I think that is probably something to be
addressed in closing, isn't it? Rather than in advance
of the evidence.
MR CAVENDER: Possibly. I just wondered if we could agree
what the game is on that score; whether it is just
exemplar or whether we are actually drilling down --
because it may depend how long I spend and the time the
court spends on this. If it is all hypothetical and it
is just exemplar of the sort of things that were around,
that is one thing. If there are to be findings of fact
that Mrs Stubbs or Mr Bates or whoever received their
contract on date X, then that is a rather different
beast. And here the claimants are asking you not to
make findings on it, which is slightly unusual, in my
experience. But there you are. I can't say any more
about that.
You will see what we said in our written opening
about things that it would be useful -- findings to make
and not to make. In your number two judgment you made
it clear you are not making findings on the breach
allegations or allegations about Horizon.
MR JUSTICE FRASER: Everyone is agreed about that.
MR CAVENDER: See paragraph 52. What I also ask that you
don't do is make any findings of fact that go to -- are
ancillary to those breach allegations or Horizon
allegations, rather than the Common Issues. Otherwise,
again, you have the difficulty of overlap and arguments
about issue estoppel and all these kinds of things.
MR JUSTICE FRASER: It depends what you mean by findings of
fact that go to breach. I imagine, if there are any
necessary findings of fact at the end of the evidence in
terms of disputes of fact as to whether Mr Bates got
document X, you won't want me to leave that floating in
the air, will you?
MR CAVENDER: My Lord, no. That goes to my first
category of --
MR JUSTICE FRASER: I know that and I haven't yet bottomed
that out with Mr Green. Because, on one view, a finding
of fact that goes to breach could involve any finding of
fact in relation to the contractual relationship,
couldn't it?
MR CAVENDER: But what I am talking about is downstream. So
the training wasn't good enough, that they didn't have
sufficient report writing, that they didn't have enough
help with investigations; all those things that are
downstream. Potentially breach. We haven't brought the
evidence to the trial to deal with it. There hasn't
been full disclosure on some of these issues. So we
won't be dealing -- and this has been our persistent
position -- obviously this is a trial about the contract
and the relationship. Those are my submissions.
Obviously the court will do what it will do.
The only other point I was going to touch on was the
question of order of closing submissions. We will come
to that later, but the reason I raise it is, and we have
raised it in our written openings, is how many times --
and it is quite surprising when you go through it -- we
don't know what the claimants' case is.
MR JUSTICE FRASER: I have heard that many times from many
different defendants.
MR CAVENDER: My Lord, in this case -- let me give you two
examples then. They say that all the relevant
contractual terms that are in issue in this case, all
the real ones, are all unreasonable under UCTA. They
have no pleaded case on why, in relation to each term,
that is the case. Normally you have a trial that is
about one of them perhaps --
MR JUSTICE FRASER: You want to go last.
MR CAVENDER: Correct. I have to go last.
MR JUSTICE FRASER: You have an almost unanswerable case as
to why you should go last, which is Mr Green has not
opened on the law at all. So if you are going to be
given the opportunity to reply on the law, you would
have to go last. As I have made clear to everyone, this
case is not going to be decided on who gets the last
word.
MR CAVENDER: But, my Lord, this is an extraordinary case,
in my experience, where you don't know what the other
side is saying. For instance, they say every discretion
or right in the contract is subject to an implied term
of exercising it, not capriciously, et cetera. They
don't identify which terms they say that applies to.
MR JUSTICE FRASER: I understand.
MR CAVENDER: It is grossly unfair for me to get up first,
given there is nothing in the opening to decide which
ones --
MR JUSTICE FRASER: Mr Cavender, I understand.
MR CAVENDER: I am obliged. I won't say any more about
that.
MR JUSTICE FRASER: You have raised that point before in
slightly different terms. I understand the position
about closings. One question I have for you both, but
I will ask you first, is: I'm always concerned in any
lengthy trial when somebody mentions tensions with the
timetable. You have seen I think, well, I know you
have, that I managed to carve out an extra week, so that
we are now using the week of the 3rd.
MR CAVENDER: My Lord, yes. For submissions.
MR JUSTICE FRASER: You will have also hopefully on your
desks this morning had a bunch of miscellaneous points
about some minor timetable --
MR CAVENDER: My Lord, yes.
MR JUSTICE FRASER: When you say "tensions in the
timetable", do you mean that you anticipate now going
past the end of Wednesday the 14th to cross-examine the
claimants' witnesses?
MR CAVENDER: My Lord, that is what I anticipate, but
I anticipate I won't need to with a little bit of
wriggle room for half an hour here and there.
MR JUSTICE FRASER: Because anticipating that four days
isn't going to be enough is more than a tension of the
timetable, it is actually seeking a review of the
timetable.
MR CAVENDER: My Lord, what I am trying to say is I might --
if, for instance, Mr Bates takes longer because he is
the first.
MR JUSTICE FRASER: I understand that.
MR CAVENDER: So if I finish tomorrow at 4 o'clock and
Mr Bates is in the witness box, which is possible, and
Mrs Stubbs is meant to be appearing as well, then
I really need to finish Mr Sabir by the end of Monday,
come what may.
MR JUSTICE FRASER: This is why I need you -- and, in fact,
I thought I had asked you to do this last time, and the
timetable that came through was two-thirds complete, you
have to plan out between the two of you which people are
going to be called on which days.
MR CAVENDER: We have done that, my Lord.
MR JUSTICE FRASER: No one has told me that.
MR CAVENDER: I think if you look at the chronology, and
behind that is --
MR JUSTICE FRASER: No, the one I have is just running
order. I don't have a document -- and in fact, that is
why it is included on that point of miscellany.
Let's not take up time. If it exists, send --
MR CAVENDER: It exists, my Lord. If you don't have it, we
can provide a hard copy.
MR JUSTICE FRASER: I know Mr Bates is going to be first,
and I assumed you would be most of tomorrow with him.
MR CAVENDER: Exactly. It depends how we go, but Mrs Stubbs
is also on the ticket for tomorrow.
MR JUSTICE FRASER: Is she on the ticket going over into
Monday or not?
MR CAVENDER: Yes. She is, yes. So is Mr Sabir. If I get
through Mr Sabir on Monday then we are okay. But what
I might do tomorrow, if we don't get on that well, is to
ask to maybe sit at 10 o'clock on Monday. We are not
talking about extra days.
MR JUSTICE FRASER: I understand. It is just that it
affects other court business, that is why I raise it.
(Handed) Thank you very much. Yes, I haven't actually
got this document. Thank you very much.
MR CAVENDER: My Lord, those really were my --
MR JUSTICE FRASER: And the hard start for your witnesses on
that Thursday the 15th, which is the point I made this
morning, I assume that is uncontroversial ...
MR CAVENDER: My Lord, yes.
MR JUSTICE FRASER: Good.
I need to ask Mr Green two points which have arisen
out of what you said. Is there anything you would like
to add?
MR CAVENDER: My Lord, no.
MR JUSTICE FRASER: Do be assured -- and I know it might not
seem this necessarily to everyone in court -- I have
read both of your written submissions, including all the
appendices or annexes with considerable care and I will
be reading them again.
MR CAVENDER: I am obliged.
MR JUSTICE FRASER: Mr Green. The first point about order
of closings is, so far as I am concerned, a non-point.
But you have the opportunity to spend a couple of
minutes trying to persuade me I am wrong; that
Mr Cavender should have the Wednesday and the Thursday
and you should have the Monday and Tuesday.
MR GREEN: My Lord, can I just raise one issue and that is
this complete opacity about which of our implied terms
are included, or "governed" as they said in their
pleading, by the terms that they have admitted. So --
MR JUSTICE FRASER: No. I am dealing purely with
a logistical point. I am giving you the opportunity --
MR GREEN: I am happy to go first --
MR JUSTICE FRASER: I don't want to hear whining about
pleadings on the point that I am asking you about.
MR GREEN: My Lord, can I express the whining in a different
way and say I am perfectly happy to go first, so that my
learned friend is left in no doubt, provided that his
position by the end of the trial, by the end of the
evidence, as to which of the incidents --
MR JUSTICE FRASER: Mr Green, that might be a very good
forensic point but it might be that the position is no
more clear, in which case it is what it is and I will
take a view. I understand --
MR GREEN: I am only highlighting the difficulty I will
face.
MR JUSTICE FRASER: I know. I am just talking about the
order in which the two parties go, and I think I have
made it clear on the basis -- apart from anything else,
just conventionally -- you haven't opened on the law.
I understand why that is; you only had half a day. So
it is sensible for him to go second and you can go
first.
MR GREEN: My Lord, I am grateful.
MR JUSTICE FRASER: I haven't actually really given you
anything but I am happy that you are grateful. The next
point is Mr Cavender's point on your paragraph 253.
MR GREEN: We had understood that was the fruit of
defendant's own sensitivity. Because issues 5 and 6,
when those issues originally came up and were agreed, we
had understood it was the defendant that was sensitive
to not having any actual findings in a specific case as
to whether in fact adequate notice had been given of the
terms.
MR JUSTICE FRASER: Mr Green, it sounds as if you have
misunderstood or their sensitivities have in fact
resolved themselves.
MR GREEN: Which is fine by us.
MR JUSTICE FRASER: Then you don't need to say anything
else.
MR GREEN: I am most grateful.
MR JUSTICE FRASER: Obviously we will start with Mr Bates
tomorrow. I am grateful to you all for your submissions
today. 10.30 am. And, Mr Cavender, we will just review
progress generally at the end of tomorrow and we will
generally review it -- ordinarily I would review it
every Thursday, but we might review it and keep it under
constant review because of the points you have made.
Anything else?
MR GREEN: My Lord, no.
MR JUSTICE FRASER: Thank you all very much.
(4.20 pm)
(The court adjourned until 10.30 am on Thursday,
8 November 2018)
INDEX
Opening submissions by MR GREEN ......................1
Opening submissions by MR CAVENDER ..................80
Day 1 transcript - Wed 7 November - Opening arguments
Day 2 transcript - Thu 8 November - Claimants: Alan Bates, Pam Stubbs part 1
Day 3 transcript - Mon 12 November - Pam Stubbs part 2, Mohammad Sabir
Day 4 transcript - Tue 13 November - Naushad Abdulla, Liz Stockdale
Day 5 transcript - Wed 14 November - Louise Dar
Day 6 transcript - Thu 15 November - Post Office: Nick Beal, Paul Williams
Day 7 transcript - Mon 19 November - Sarah Rimmer, John Breeden, AvdB part 1
Day 8 transcript - Tue 20 November - AvdB part 2
Day 9 transcript - Wed 21 November - AvdB part 3, Timothy Dance, Helen Dickinson, Michael Shields part 1
Day 10 transcript - Thu 22 November - Michael Shields part 2, Elaine Ridge, David Longbottom, Michael Webb
Day 11 transcript - Mon 26 November - Michael Haworth, Andrew Carpenter, Brian Trotter
Day 2 transcript - Thu 8 November - Claimants: Alan Bates, Pam Stubbs part 1
Day 3 transcript - Mon 12 November - Pam Stubbs part 2, Mohammad Sabir
Day 4 transcript - Tue 13 November - Naushad Abdulla, Liz Stockdale
Day 5 transcript - Wed 14 November - Louise Dar
Day 6 transcript - Thu 15 November - Post Office: Nick Beal, Paul Williams
Day 7 transcript - Mon 19 November - Sarah Rimmer, John Breeden, AvdB part 1
Day 8 transcript - Tue 20 November - AvdB part 2
Day 9 transcript - Wed 21 November - AvdB part 3, Timothy Dance, Helen Dickinson, Michael Shields part 1
Day 10 transcript - Thu 22 November - Michael Shields part 2, Elaine Ridge, David Longbottom, Michael Webb
Day 11 transcript - Mon 26 November - Michael Haworth, Andrew Carpenter, Brian Trotter