This is the unperfected transcript of the 14th day of the Common Issues trial in the Bates and others v Post Office group litigation.
It is the first day of closing submissions from the Post Office's QC David Cavender, and should be read alongside Mr Cavender's written closing submission, which you can read on Scrib'd via this link or embedded on this blog here.
This is the menu for the other transcripts and the Common Issues Trial Menu which has links to my write-ups and more documents:
Day 14 follows:
It is the first day of closing submissions from the Post Office's QC David Cavender, and should be read alongside Mr Cavender's written closing submission, which you can read on Scrib'd via this link or embedded on this blog here.
This is the menu for the other transcripts and the Common Issues Trial Menu which has links to my write-ups and more documents:
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
Wednesday, 5 December 2018
(10.30 am)
Closing submissions by MR CAVENDER
MR CAVENDER: Good morning, my Lord.
MR JUSTICE FRASER: Mr Cavender.
MR CAVENDER: The court obviously has the benefit of some
detailed written closing submissions from my side and
I'm obviously not, given the time available, going to be
able to go through all of those, but of course
everything we say in there and have said throughout the
case is maintained. What I am going to try and do is
bring the case to life in the important aspects to make
our position clear.
What I intend to do, by way of roadmap, is firstly
to do an introduction to outline the tools available
really for the job set for your Lordship, indicate the
findings we think you should make and some comments on
the approach of the claimants. That is a rather longer
section than I would like, but there are matters going
to the background of this trial and what it is and isn't
to determine that we need to go into.
Secondly, I am going into the law on interpretation
of contracts and on implied terms. Again, very
important because there seems to be a gulf between
the parties as to the application of those terms.
Thirdly, I am then going to go into construction to
construe the express terms of the contract, particularly
those relating to accounting, namely, clause 12 in
section 12 and clause 4.1.
I am then going to move to the agreed implied terms,
because they are agreed. My learned friend has not
sought to withdraw his admission of those. They
themselves have a construction and a meaning which the
court needs to determine. And only then go to the
question of relational contract and the implied terms
debate that goes with it.
I may or may not get on to agency today. I suspect
not but I might.
MR JUSTICE FRASER: So that is for today, yes.
MR CAVENDER: My Lord, yes.
MR JUSTICE FRASER: Agency is effectively going to be part
two with today being part one.
MR CAVENDER: Correct. But it depends --
MR JUSTICE FRASER: It depends how you get on.
MR CAVENDER: -- how much debate I have with my Lord whether
we go through it quicker or not, but we may or may not
get to agency.
So introduction then. Standing back, in my
submission it was recognised at the outset the depth and
the breadth of the attack on the contractual
relationship that is mounted by these claimants, and in
my submission and experience, is unprecedented. They
seek to replace the existing relationship of principal
and agent in the business context and replace it with
some kind of pick and mix employee-type, but not
employee, relationship, treating the SPMs as employees
when it suits them and not when it doesn't.
If you imagine a copy of the SPMC or the NTC that
contains all of the caveats to the express terms, the
constructions my learned friend puts forward, all the
implied terms, the strikings out based on whether
incorporation or UCTA, you would have a document so
covered in red that it wouldn't represent anything like
the bargain the parties struck at inception. That
should cause your Lordship serious concern, but that is
what the claimants' case is.
The weapons they use to do that are: recasting the
nature of the relationship entirely, ignoring agency,
ignoring the fiduciary duties. Blatantly ignoring the
words of the contracts, treating them as if they are not
there, and putting in their place words that they think
better fit. Ignoring the existence of the other implied
terms, the agreed implied terms. You didn't hear a word
from my learned friend on that, literally not a word.
They then seek to imply, without warrant or
authority, a further 21 implied terms they say on the
authority of Yam Seng, which would introduce completely
one-sided and unworkable obligations and obligations
that would be contrary to the express terms of the
contract and the express nature of the agency
relationship.
Then they seek to argue that the main operative
terms, that is all the operative terms, are not
incorporated into the contract. Insofar as they are
incorporated they then seek to strike them down under
UCTA, and so far as the termination provisions are
concerned, they say they don't represent the true
agreement, see Autoclenz.
My Lord, you should not approach this in a silo and
look at each of these points completely independently
when adjudicating upon them. It is the whole effect on
the contractual relationship that your Lordship is
concerned with. Of course there are different rules and
different approaches to the different points they make,
but the overall effect is one your Lordship should keep
in mind.
What it is, without sounding too pompous about it,
is the attacks we see in this case are an attack on the
freedom of contract in terms of a commercial
relationship and on the certainty of law. The attacks
go so deep and so far they do in fact attack those very
basic principles.
The determinations to be made at this trial relate
principally to interpretation and the implication of
terms. Your Lordship said in debate with my learned
friend yesterday, or perhaps the day before, quite
rightly, you can interpret a contract without evidence.
You can also imply terms without evidence and often you
do. Usually you do. You can sometimes have a little
bit of factual matrix to set the background that may or
may not be true and relevant.
But what has happened here is something quite
different. There has been an industrial scale
introduction of evidence.
As your Lordship will know, and I will go through
the law, facts relating to how the relationship
proceeded post-contract and questions of breach are
irrelevant to making determinations as to the meaning of
the words in the contract. Similarly, they are
irrelevant to the implication of terms. So too are the
subjective views of either side, including views on
policy documents, that wouldn't have been available to
the contracting parties.
This is not a case where there are allegations of
estoppel or waiver. We are not dealing with
rectification. We are dealing with interpretation and
implication.
So in my submission, approaching this the court
should recognise that such matters are irrelevant in
normal litigation, but in my submission, my Lord, this
is not normal litigation, it is group litigation. So
they are doubly irrelevant, the factual matters that
apply to these particular six. Because the outcome of
this trial affects 557 people, and therefore the
individual facts and experiences of this particular six,
randomly chosen, is even more irrelevant.
The six leads were never intended to be and are not
representative of the 557. They are just six random
leads, three chosen by each party, the only criteria
being that they cover the SPMC and the NTC periods.
Any judgment that is based closely on the
experiences of those six is going to be, in my
submission flawed, and of no use to the rest of the
group, which is the reason why so much money and time
has been spent on this case. It isn't for the six, it
is for the 557.
My learned friend tries to obscure this by inventing
what he calls generic evidence which he says has been
given in this trial. But there is no such thing as
generic evidence. What your Lordship has heard from the
six is their own experiences. That is the result of
your Lordship ordering that the Common Issues be
determined in the context of the six lead claims. But
what has happened in this court over the last four weeks
is much more akin to some sort of public inquiry into
the Post Office contracts which, in my submission, is
an inappropriate way to proceed.
The court will bear in mind, as we say at
paragraph 16 of our closing {A/8/10}, a significant
number of the 11,500 subpostmasters in the network are
in fact companies or multiples. The way my learned
friend has presented this case is as if all of them are
individuals in the position of someone like Mrs Stubbs.
They are not. So if your Lordship took the view and
interpreted the contract on the basis they were, in my
submission that would be wrong.
In my submission, given the avalanche of irrelevant
evidence and questioning by the claimants about such
post-contractual facts and breach, there is a real risk
of this court being led inadvertently into error by
implicitly taking that evidence into account when
deciding the questions of interpretation and implied
terms as they apply to the 557 claimants.
The claimants must anticipate that, otherwise their
approach would be pointless. Now that we have the
claimants written submissions, that flawed approach has
been made clear. They set out in the first 134 pages of
their narrative what can only be described as what they
say is post-contractual evidence, or what is
"post-contractual evidence", in inverted commas, and
then they get to the issues. A review of that evidence
shows it is often partial and sometimes inaccurate.
We have, and I will hand up in a moment, a table of
a number of those inaccuracies. I'm not going to go
through them all. But you should proceed with care with
that document because in some respects it is tricky.
The claimants expressly ask the court to make
findings on the meaning of the contract based on
post-contractual evidence, views of what witnesses are
said to retrospectively have expected. That, my Lord,
is the wrong test.
If you look at paragraph 22 of their closing
{A/6/11}, they say contractual liability for debts falls
to be considered against that background having set out
in the earlier parts a whole range of inadmissible
evidence. No legal justification is suggested for that
then or now.
If you remember my learned friend yesterday, twice
he said he was going to take your Lordship and explain
to you the basis of the admission of all this
post-contractual evidence. He has not done so. He was
obliged to do so to help the court, he was going to take
an expansive view of this issue-by-issue to outline what
evidence he says that he knows is contested is
admissible on each of these issues and what the legal
justification for it is.
He has nowhere done that. If you read their closing
submissions, there is just acres of evidence and then
incorporation by reference saying all admissible. It is
not.
At paragraph 86 {A/6/32} of his closing, he asked
the court to consider the robustness of Horizon and then
seeks to refer to evidence that suggests that Horizon
was not robust. This is the wrong question. The
contractual question is what parties at the time of
contracting would have reasonably expected in relation
to Horizon. And that was the question I was seeking to
elicit from the witnesses, not about implied terms, but
by way of contractual background for a reasonable person
in that position. This is to say nothing of the fact
that this is clearly a Horizon issue.
In relation to Horizon, while we are here, there is
no pleaded issue or case about the knowledge of
Post Office about problems with Horizon. There is
nothing in the opening of these claimants suggesting
that Post Office had a certain knowledge at a certain
level of seniority which was corporate knowledge about
Horizon and its operation or difficulties with it.
No questions were put to any witness, let alone
a senior witness, to try and elicit, over the period
when Horizon was in play, what the corporate knowledge
of the Post Office was about Horizon.
MR JUSTICE FRASER: By "corporate knowledge", do you mean at
board level?
MR CAVENDER: My Lord, yes. But there is no building of
a case.
MR JUSTICE FRASER: In terms of corporate knowledge at board
level, I don't think there were any directors, were
there? I might be wrong.
MR CAVENDER: No, my Lord. But there was
Angela Van Den Bogerd, the most senior witness. If you
look at her, it was never put -- investigated what her
knowledge was at different stages and what the view of
Post Office was. And also this would be almost a plea
of quasi-fraud, that you knew that this system had
serious problems -- my learned friend's case -- and you
hid that from somebody. If you are going to make that
case, (a) you have to plead it, and (b) you have to put
it. Neither was done.
MR JUSTICE FRASER: Let's put quasi-fraud to one side
because I'm not quite sure what that means.
Mr Green did put to Mrs Van Den Bogerd a series of
documents demonstrating what he said showed an awareness
within the Post Office of certain operating either
difficulties or features or whatever neutral term one
wants to put.
MR CAVENDER: Quite.
MR JUSTICE FRASER: At the end of which he asked her why he
had had to effectively ferret it out of her in
cross-examination. So he did put that case to her.
MR CAVENDER: He did, but what he didn't -- what it seems to
be, and your Lordship has asked for these documents to
be collated, which caused me some concern, which is why
I am making this submission, is that if there is a case
somewhere that on interpretation -- part of the factual
matrix, we say, is that the parties at the time,
reasonable parties in the position, would have expected
Horizon to be robust and all the things I put. That
case has not been impugned on this basis and nor could
it be, because the one thing you would get from all the
witnesses in Post Office side is a complete faith in
Horizon. That is one of my learned friend's complaints,
that he said almost they were blind to it. They had
blind faith in it, I think. He doesn't say that, but
that is the effect when he is dealing with the
complaints, that Post Office believed in their system.
So there is no factual basis for it either, in
truth, even though --
MR JUSTICE FRASER: As far as the exploration of the way in
which the six in fact operated when they were
subpostmasters, as a point of construction concerning
each of their individual contracts, then obviously the
orthodoxy is clear about the way in which that is done.
But so far as Common Issues 12 and 13 are concerned,
which are the agency accounting point, the court had to
have evidence as to how that was in fact (a) required to
be done or supposed to be done --
MR CAVENDER: My Lord, no, that is a question of
construction.
MR JUSTICE FRASER: I'm not sure it is, Mr Cavender. If you
turn up the Common Issues. I know there are various
versions of these floating around because I asked for
the pleading references to be extracted. I am actually
looking at the one produced --
MR CAVENDER: Which one, my Lord?
MR JUSTICE FRASER: I am looking at the one produced for the
beginning of the trial but I don't think it much matters
because the wording of the issues is the same in all of
them. If you look at number 13, and in fact can someone
give me the reference on the common screen so we can
call it up, the Common Issues on the common screen.
MR GREEN: {B1/1/1}. Common Issue 13 I think is on
{B1/1/3}.
MR JUSTICE FRASER: So {B1/1/3}.
It is of course correct that a court can and often
does construe contractual terms without evidence because
sometimes -- well, for all the reasons we don't need to
go through. But the wording of these Common Issues was
agreed by the parties.
MR CAVENDER: Indeed.
MR JUSTICE FRASER: Now, absent any evidence at all or any
agreement as to facts between the parties, which at one
early naive stage of the case I did invite your
predecessor and Mr Green to do and it only went a
particular distance, how without evidence of any
claimant would any judge know how or what any branch
trading statement account that was signed and/or
returned to Post Office, even mechanically, was
approached or expected to be approached by
a subpostmaster?
MR CAVENDER: My Lord, the fact of the document, obviously
you need to fit it into -- but in terms of the burden,
the obligation. Obviously 13 -- if you read from 12
first, 12 is the extent really -- the legal effect of
the agency is really what 12 is because the extent is
not in dispute, ie these people were annuals. My
learned friend accepted yesterday, very fairly, that
they are fiduciaries in relation to the stock and cash.
So it is really the legal effect. They're agents, a
certain law is imported in relation to that. And my
learned friend's point is to what extent does the full
effect of that apply to me? We say it applies to full
effect, but obviously if there is a disputed item when
you submit your account then that is outside it.
MR JUSTICE FRASER: That is something which may or may not
have become more important recently. But so far as
evidence being irrelevant of how a subpostmaster or
postmistress operates their branch, absent evidence from
a claimant along the lines of: these are the buttons,
this is what would happen, these are your choices, this
is in fact how you go about it. And countervailing
evidence from the Post Office along the lines of: well,
actually, what was supposed to happen was X, Y or Z, or
these were the choices. And as you put it to each of
the claimants: actually, that is not your choice. What
you are supposed to do is A, B, C, not X, Y, Z.
I am struggling to see how that evidence in law can
be irrelevant to Common Issue -- well, in particular 13,
but also partly 12.
MR CAVENDER: 12 is a question of law as I've just outlined.
13 --
MR JUSTICE FRASER: If you look at the Defence, paragraph
91(1) at {B3/2/41}, 91(1) describes the functions --
MR CAVENDER: Agent fiduciary.
MR JUSTICE FRASER: From line 3 onwards, evidence as to how
those functions were performed, surely that has to be
relevant.
MR CAVENDER: Relevant to what, my Lord?
MR JUSTICE FRASER: It is the Post Office's pleading. It is
relevant to what the subpostmasters were in fact doing.
MR CAVENDER: What they are doing is unpacking the fiduciary
duties and the nature of the accounting relationship,
ie they were agents and this is what they were doing.
The way --
MR JUSTICE FRASER: Exactly. That is exactly the point.
They were agents and this is what they were doing.
MR CAVENDER: Under the contract.
MR JUSTICE FRASER: Obviously. But the way in which they
were doing it, how can that be said to be irrelevant?
MR CAVENDER: Because the debate is ... well, it's not --
they are agents, contractual agents, they are
responsible for the cash and stock at the branch. They
are fiduciaries in relation to that. The law -- so it's
a question of construction of the contract. The law of
agency is then incorporated and that is the position.
Mr Green's case, as I understand it, is that for
some reason the full law of agency doesn't apply. There
are certain principles of law where an agent can
challenge an account or set it aside and we accept
those. In principle, on the facts, individual agents
can try and do that.
We also say in this relationship if there is -- and
in any relationship -- if an agent disputes an account
when making it, obviously he is not stating that part of
the account he disputes. That isn't peculiar to
Post Office or how they do it, that is just a simple
statement of law. That if you state an account but put
reservations in it or make it subject to dispute, you
are not -- the imprimatur of the legal principle doesn't
apply to that bit you are disputing. That is a question
of law.
How the mechanics of that happened here aren't
particularly relevant. We have heard about them.
I make no complaint about the bare fact that there is
some high level description of the system. But,
my Lord, what we have gone into in this case, because of
the evidence, is all the accounting evidence, their
particular experiences, their potential falsification of
accounts. And you will see in my submissions I have
steered well clear of that as well because it is unfair
to those witnesses to make findings about that, there
has not been full disclosure on these matters, and this
is not an appropriate trial to get into the detail of
how they accounted.
MR JUSTICE FRASER: On an individual basis.
MR CAVENDER: On -- certainly on an individual basis but
also, my Lord, there has been no -- Post Office has not
led any evidence on the accounting relationship more
generally and how it all fitted together. There is no
witness statement, there is -- no one gave that evidence
other than by reference to my learned friend, in a
rather scattergun way, without being rude to him, over
the period of the 20 years, various documents. And
there is a real risk of my Lord getting the wrong end of
the stick or not getting the full nature of the
evidence, because there hasn't been full disclosure on
that, there has not been evidence in relation to it, and
it is not an issue for this trial.
So in some ways I confess and avoid, in relation to
the second of the two issues, yes, you need an
understanding, a very Noddy understanding --
MR JUSTICE FRASER: A very ...?
MR CAVENDER: Noddy understanding, of how the system worked
here just to talk about burden of proof. But all you
need to know is there was a branch accounting statement,
it was done monthly or five-weekly, they were able to
dispute it. That is all you need to find. Then as
a matter of law you decide who the burden of proof is on
having regard to the clauses and having regard to the
nature of the relationship.
MR JUSTICE FRASER: So the choices that presented themselves
to a subpostmaster in terms of accept now, make good for
cash, make good by cheque or settling centrally, you are
saying (a) I don't need to know them, and (b) I think
you are saying they are irrelevant to deciding Common
Issue 13. Is that right?
MR CAVENDER: My Lord, it's the granular detail of the
things you talked about --
MR JUSTICE FRASER: That is what I am exploring.
MR CAVENDER: -- beneath the point you do have to determine
which we say, in answering the Common Issue, is the
normal rules of accounting apply, they are agents,
fiduciaries, subject to any amounts they put in dispute.
And they can do that in various ways. Your Lordship may
find it more helpful to put it in that general way
because putting a dispute obviously in Post Office
language is you ring up and you register a dispute.
Your Lordship may say, and this is why it is
important to know what one is doing here, that
maybe --that certainly would be sufficient. There may
be things short of that that would indicate a dispute if
you had raised some query or done something else in
individual cases. You might have written a letter.
I think in relation to one of the -- Mr Sabir hadn't
actually disputed, do you remember, he hadn't accounted
for the £5,000 and then disputed it. He said he had
been in -- some two years earlier there had been
a letter and this sort of thing. So that wasn't
accounting for it and then disputing it under the
system.
MR JUSTICE FRASER: So you do accept that I need to consider
how the process of accounting operated? Because if
I didn't I wouldn't necessarily, for example, be able to
decide what you have just submitted, whether that is
correct or not.
MR CAVENDER: My Lord, it is a question of degree,
I suppose. But what you don't need to do and what in my
submission you cannot do -- there has not been a full
disclosure of this -- is the full accounting in relation
to how it worked. You haven't -- for instance, there
has not been disclosure of all the details of, say, the
TCs my learned friend is very keen on. You haven't seen
any of the list of the TCs with supporting information
that is given to them. You haven't seen and there has
not been disclosure of all the accounting evidence you
need to go through to draw the inferences my learned
friend on a -- again without being rude -- smoke and
mirrors basis asks you to make.
So these sort of questions will need to be
determined on proper evidence at the breach trial. What
your Lordship is doing now is deciding what the rules
for that are going to be, obviously together with the
Horizon trial.
MR JUSTICE FRASER: That is correct. But by "the rules",
one has to consider, doesn't one, the way in which the
system that the Post Office set up to deal with TCs and
discrepancies and account for them or not account for
them and execute a branch trading statement was
established. Because otherwise all any judgment --
well, no judgment on a case of this nature would be
adequate if it simply said in two sentences: and each
subpostmaster or subpostmistress was required to account
to Post Office for the trading of the branch in
the preceding month. That is not what Common Issue 13
requires me to do.
MR CAVENDER: My Lord, that point you just made is not in
dispute that they had to account.
MR JUSTICE FRASER: I know it is not. But what I am saying
is when one looks at Common Issue 13 -- it would have
been possible in a different -- if the parties had
approached this differently, it would have been possible
at the very beginning for the Common Issues trial simply
to have established points of contractual construction
and just said to the court "Please decide what is the
proper legal construction of clause 12(12), what is the
proper legal construction of 4.1". The parties jointly
didn't do that. They drafted these very numerous, 23 of
them, issues. Some of them are pure points of law on
the wording but others of them aren't, it seems to me.
Have I got that wrong?
MR CAVENDER: My Lord, I think you have in a way, because
the burden is just an incidence of the relationship of
agency which is contractual. And Issue 13 is trying to
put meat on the bones of, well, in this relationship was
there something different or not? Clearly there wasn't.
They were agents, they were fiduciaries.
MR JUSTICE FRASER: I know that and I know that is
the Post Office's case. But the claimants' case is the
opposite to that.
MR CAVENDER: I'm not sure it is. My learned friend hasn't
got a case, and I think you put this to him yesterday,
that the postmasters were unable to dispute matters they
didn't want. When all was said and done throughout the
period, they could dispute shortfalls in TCs or TCs that
became shortfalls or free-standing shortfalls. They
could do so and in a variety of ways, but the best and
most obvious way, repeatedly in documents and in
evidence, was they could ring the Helpline.
So if that were otherwise, if somehow there was some
case being run here that they could not do so, so they
were forced to false account, they were forced to --
I could begin to see it. But that is not the case being
run.
MR JUSTICE FRASER: A different way of putting it is
this: the answer to Common Issue 13 is not agreed
between the parties.
MR CAVENDER: No.
MR JUSTICE FRASER: That therefore means in order to address
Common Issue 13 I have to address my mind, don't I, to
how a subpostmaster or subpostmistress came to account
to Post Office each month or each period?
MR CAVENDER: My Lord, no. In my submission that looks at
the wrong question. There is no claim here that
Post Office agreed at some time, or within the contract,
to disapply or limit in some way the agency principles.
That is not a claim being advanced, nor could it be. So
you are starting from the position you have an agency
relationship, a fiduciary relationship, in relation to
stock and cash and what goes on in the branch. And you
are told -- and you can have evidence if you like, it is
in the documents -- that they have to account monthly or
five-weekly in the later period.
In terms of mechanics how do they do it by way of
a branch trading statement? All 13 asks you to do is
really pulling out anything from 12 as a matter of law.
How is that done in terms of burden of proof? Well,
look at the answer to 12, they are agents, and if they
want to dispute account they have to do so. It doesn't
require you and entitle you, in my submission, to go
into in fact all the details of the relationship
et cetera, particularly in a case where it is no part of
the case that (a) the contract was varied in some way to
delimit the principles, or (b) for some reason they
could not dispute amounts in their accounts. So you
shouldn't keep them to the stated account because the
system put in place by -- was so impossible that it
would be wrong to do so. Again that case has not been
mounted.
My Lord, I will come to this in more detail when
I come to agency. But that at the moment has been a
helpful exchange to see what --
MR JUSTICE FRASER: It arose in the context of you
submitting that effectively, as I understood your
submission, the entirety of the different claimants'
evidence about how Horizon worked or was supposed to
work or did in fact work was, in law, irrelevant to any
of the Common Issues.
MR CAVENDER: My Lord, in terms of the detail of it all,
that must be right.
MR JUSTICE FRASER: I understand that is your submission.
All right.
MR CAVENDER: So I was dealing with, if I may return to the
script, the different ways in which the parties have
presented the case in terms of the evidence. If you
look at paragraphs 374 and 375 of the opening, they seek
to give lip service to the correct test.
MR JUSTICE FRASER: Do you mean opening or closing?
MR CAVENDER: Closing, my Lord, sorry. {A/6/186} They say
all the evidence relied upon set out in the first
91 pages of the written closing was what I am saying,
cannot fit within the rubric of what was reasonably
expected at the date of contracting.
What they do is say what their witnesses expected
with hindsight, and you have to be very careful, my
Lord, when reading their closings to bear that in mind.
If you look at, for instance, paragraph 458 on
suspension, they talk about "in light of the evidence".
{A/6/229}
Now, suspension is the contractual right. You don't
look at it in light of how it operates in fact, and the
facts. At this stage -- that comes to breach. At this
stage you are trying to discern what the contract means.
Another example is at paragraph 481 {A/6/240},
a criticism that:
"... Post Office's interpretation fails to accord
with the view of any of its witnesses ..."
It doesn't matter what witnesses think about various
points of interpretation.
So we say the approach taken by the claimants
throughout this trial is wholly inappropriate, and nor
is it justified by the notion they were trying to
demonstrate that in practice the relationship was
different to that agreed by the contracts. That point
is only limited to the Autoclenz point on termination.
We say even now, even when I am closing, no proper
basis for the inclusion of this evidence has been made.
In terms of admissibility, my learned friend
Mr Green said, well, I dealt with all this in October,
in the October strike-out hearing. But that of course
was an interlocutory based on a threshold test, whether
we had managed to persuade your Lordship that all of
this was irrelevant at an interlocutory stage. We
failed to do so and I say no more about it.
At this stage, as a matter of law, your Lordship has
it determine in fact whether this evidence is admissible
or not and you have been given no assistance at all by
the claimant on that. And if you recall submissions
made to you by Mr de Garr Robinson Queen's Counsel, they
put forward a very full, detailed analysis of all the
evidence and all the issues, which is what your Lordship
is going to have to do, in my submission, if you are
going to allow any of this evidence in to identify the
issue you are allowing it in on and the legal
justification for it, because in my submission there is
none.
The law in this subject has been established at the
highest level and is free from doubt and of course is
binding on this court. Put simply, the court can only
have regard to matters that were known to the parties,
both of them, and/or would have been known or available
to a reasonable person in their position at the date of
contracting. You simply cannot have regard to
post-contractual matters, what happened in fact, policy
documents, views of witnesses. All of this is
irrelevant.
MR JUSTICE FRASER: In construing the contract.
MR CAVENDER: In construing the contract and deciding the
implication of terms.
MR JUSTICE FRASER: Which is part of construing the
contract.
MR CAVENDER: My Lord, in my submission it is not.
MR JUSTICE FRASER: If you construe a contract you decide on
the meaning of express terms, you decide on whether
there are any implied terms or not, and if there is
a need for them, if there is a gap for them, and what
they are.
MR CAVENDER: If that is --
MR JUSTICE FRASER: That is what I am using as a shorthand.
I'm not departing from what I think one of the
authorities says is the cardinal rule that you do the
express terms first.
MR CAVENDER: It is not just that, my Lord. In M&S, and
I'll take you to it, they are radically different
processes --
MR JUSTICE FRASER: Yes, but they are all part of deciding
what the contract between the parties in fact means.
MR CAVENDER: Indeed. In that sentence I agree.
MR JUSTICE FRASER: And you don't take post-contractual
matters into account on either footing.
MR CAVENDER: Or hindsight or views from hindsight. You
have to ask the right question. The right question is
not: well, is it reasonable? You don't ask: well, what
term should be implied in light of what happened in
fact? That is the mistake made in Bou Simon by the
First Instance that the Court of Appeal identified. And
there is a real risk of doing that here --
MR JUSTICE FRASER: I don't think there is.
MR CAVENDER: It's an easy mistake to make as Bou Simon
shows. There is a lot of evidence here of that nature.
My learned friend has put his case both in
cross-examination and his closings on that basis. So
you have a yawning invitation to make a mistake and it
is my job to try and prevent that happening and I intend
to try and do that. But in doing that, you have to be
very careful what question you ask and what evidence you
have regard to when you ask it.
I will just divert a moment and put some skin on
those bones. When you are looking at implied terms
particularly, my learned friend is fascinated by doing
it in the guts of the dispute and the thing going wrong.
When you know a lot more detail -- and at that stage you
would be able to identify certain cardinal obligations
and things that have gone wrong and try and put them
right. "Tempting but wrong", in the words of M&S.
At the stage you're contracting you know very much
less. You have a very high level view of what you
expect. So the very notion of being able to imply
precise terms dealing with suggested infelicities or
difficulties down the line is itself wrong headed
because you wouldn't be able to do that.
That is a distinction between my learned friend's 21
terms, which I find rather surreal he didn't take you to
any of them but he didn't. The idea you would imply all
those at the date of inception of these contracts is
nonsensical and what is much more sensible is the
implication of a necessary co-operation term, because
that is generic and general. It is the kind of thing,
if asked, the notional person at the time of
contracting, "Do you think we should give necessary
co-operation both ways and not inhibit the other side?"
They would say "Of course".
That is why that is a much more secure building
block in a case like this, in a contract like this. My
learned friend makes a category error really in relation
to the way he presents his case.
The common reference we get from my learned friend
is reference to commercial reality, see paragraph 400 of
his closing {A/6/203}, or for commercial and practical
realities, paragraph 3(1).
This is directly contrary to Arnold v Britton in
terms of that is all we have regard to. Of course I'm
not saying you don't have regard to commercial
realities, but in relation to construction of terms you
look at the words. That is the prime -- that's what
Arnold v Britton tells us.
In relation to implied terms, Marks & Spencer, again
my learned friend doesn't really deal with, is: is it
necessary? And those two cases, both presided over by
Lord Neuberger, Arnold v Britton and M&S, are a return
to clarity and orthodoxy in this area.
There is no special or different rule when we come
to relational contract, to get that out of the way, as
was suggested to the court and recorded in the court's
judgment at paragraph 31 of judgment number 2
{B7/27/12}. I don't need to go to it. But that in my
submission is simply wrong. There is no special or
different rule to interpretation or the implication of
terms where there is an allegation of relational
contract.
If you recall, and I will go to it, Lord Justice
Beatson in Globe Motors, paragraph 68, says just that.
{A1.1/62/1}
Making good the point about retrospective evidence
of what happened, see paragraph 298.4 of the closing
{A/6/142}. Seeks to rely on retrospective evidence of
what happened, transposing to what reasonable parties at
the date of contracting would have known.
We will come to it in due course in more detail, but
we say relational contract is simply a way, it's a step
along the way to arguing for implied terms of a certain
type. It is not a warrant card to tear up the orthodoxy
on implied terms or Marks & Spencer, it is just a way of
looking at certain types of contract where the court
will have a look with more care at whether certain terms
are necessary to be implied. In the same way, my Lord,
as JVs, for very long time the same has happened. In
JVs, they are often informal and they're put together
and often one side or other suggests some form of good
faith term. I did so in Ross River and I was successful
in doing so, only because of the extreme facts in that
case. And we will go to that because it is referred to
in Yam Seng.
But that is not to say that every JV has a good
faith term implied into it, no more than every
relational contract, whatever that turns out to mean,
we're at an early stage in the jurisprudence on it, not
every relational contract either will have a good faith
term, whatever that might mean in that context, either.
But it is a helpful and a recognised, as my Lord
pointed out to my learned friend at Court of Appeal
level, a recognised label for a certain species of
contract where the court might look with particular care
at certain terms.
The claimants' approach generally seems to be to
give -- to encourage the court to give lip service to
the law on admissibility while ensuring the jury light
is burning bright throughout. Your Lordship said
earlier on in this litigation that this wasn't a jury
trial, it clearly is not, and your Lordship has said,
and no doubt you will, apply the law.
But it seems that the claimants hope, by partially
inaccurate description of the facts and the evidence,
and partial evidence, to gain some kind of sympathy. At
this stage it is probably as well to hand up my table of
obvious mistakes or errors in the closing.
(Handed)
What I have done is gone through the closing and
identified things that are inaccurate, at times
misleading. The first one by way of example,
paragraph 65 of the closings {A/6/21}, suggests
Mrs Van Den Bogerd accepted Post Office did not allow
more than one set of losses to be settled centrally at
one time. But what she really said, if you look at all
the references we put in the right-hand column, was that
you could only have one repayment plan at any one time.
My Lord, all we say is care needs to be taken when
dealing with the closing and we have identified these
particular points to take particular care about.
We also say it was somewhat cynical of the claimants
to take this approach because there has not been full
disclosure on either side dealing with the issues they
now seem to want to be dealt with. In particular, what
we call the breach allegations, we only have a few
documents that happen to be caught in the net of the
word searches. Your Lordship should not think that we
have full disclosure on all these issues. We do not.
And the real temptation here is to think you have and to
draw inferences from an incomplete documentary record,
incomplete evidence, which would in my submission be
obviously wrong.
So, for instance, your Lordship should not be fooled
into thinking there has been anything like proper
disclosure on allegations as to training or shortfalls
or investigations. Your Lordship did not order such
disclosure, there has not been such disclosure, and
Post Office has not led evidence on those issues. My
learned friend has put questions on those areas --
MR JUSTICE FRASER: You have led evidence on training.
MR CAVENDER: My Lord, only very, very high level. I think
it was a couple of paragraphs --
MR JUSTICE FRASER: Quite a lot of your evidence was high
level in some areas, and I'm not criticising, I'm
observing, but you did lead evidence on training.
MR CAVENDER: My Lord, only just high level evidence. If
you wanted evidence on training, we would have evidence
from trainers and the proper documentary record of the
plans et cetera. All we did was have a few slides, that
wasn't proper evidence.
The other thing about training of course is it is
wholly irrelevant. Why? Because my learned friend's
case is that all the contracts were made in advance of
even initial training, let alone subsequent training, so
the whole question is wholly irrelevant.
MR JUSTICE FRASER: The irrelevance point I understand, but
it is wrong to submit you didn't put in any evidence on
training --
MR CAVENDER: We didn't put any proper evidence on
training --
MR JUSTICE FRASER: Mr Cavender, there is no distinction
between putting in evidence and putting in proper
evidence. You might have a point that it could have
been more comprehensive --
MR CAVENDER: There has been no disclosure on training.
MR JUSTICE FRASER: There might not have been. But you did
put in evidence on training because some passages of
your witness statements expressly deal with training.
MR CAVENDER: My Lord, yes, there is a paragraph or two in
Mrs Van Den Bogerd's statement that on a very high level
says. But not evidence of training where your Lordship
can make any finding. Her evidence is about what could
have been known or anticipated at the date of inception,
that is what her evidence goes to if you look at it, not
the actual experience of training, how good or bad it
was, were shortfalls dealt with in sufficient detail,
which is the point my learned friend wants it for.
MR JUSTICE FRASER: By "date of inception", do you mean ...
MR CAVENDER: The contractual date.
MR JUSTICE FRASER: The contractual date.
MR CAVENDER: Indeed. That is why it is so general.
MR JUSTICE FRASER: I will just have to take a view about
that. But your case on the date the contract is
formed -- why don't you just tell me what that is now in
a couple of sentences, because obviously Mr Green's case
is that it pre-dates -- I won't go into calendar dates
in each case because I have it in my notes.
MR CAVENDER: He says it is when the thing was signed, the
first thing was signed, the contract or the conditions
of terms that -- and our case is the same. That is
exactly right.
MR JUSTICE FRASER: So that submission is that evidence of
training you have put in is evidence in respect of
knowledge that would have been in both parties' -- or in
this case effectively the subpostmasters' knowledge --
as at that date.
MR CAVENDER: Yes, that would be their expectation based on
what had been said to them in interview and things of
that kind. It is not findings on what the training was,
whether it was good, bad or indifferent, whether it be
the classroom training or subsequent training. When
I am talking about training that is what I am talking
about.
In my submission, the court should be focusing its
findings on the date of contracting, we just touched on;
what each lead claimant knew or could be taken to have
known at the date of contracting through his or her own
due diligence and through the interview process;
findings as to what a reasonable person in the position
of the claimant would have understood about
the relationship as at the date of contracting; and
points of credibility going to lead claimants where they
bear on any of those earlier points.
On credibility we have a problem here, because
of course someone in my position would like to rely on
the answers of these individuals and how they accounted,
some of which in my submission was dishonest or at least
not credible. The trouble with that submission is that
would require your Lordship to make findings as to that
which, given the nature of this trial, I am not in
a position to do, because not least there has not been
full disclosure of the accounting relationship, all the
TCs and all the detail, and so I don't do so. Because
I have the same approach to that evidence as I have to
all the evidence in this case.
MR JUSTICE FRASER: Yes, you say I don't need any of the
evidence.
MR CAVENDER: No, subject to just the obvious background
stuff: the subpostmaster was in charge of the branch,
they were there. Just that very basic background stuff.
All the evidence, proper evidence, doesn't really
assist.
MR JUSTICE FRASER: Whether it assists or not is rather
different from whether it is admissible.
MR CAVENDER: My Lord, yes.
MR JUSTICE FRASER: For example, Mr Abdulla -- and it may be
that towards the end of the case this became less of a
gulf between the parties than it was in the second week,
but you put to him a fairly detailed and rather
different account of how -- when I say "account", let me
use a different word. A rather different version of how
he said he in fact had mechanically to deal with matters
on a weekly basis in terms of accounting.
So on the basis of that way that the case was put by
the Post Office, there were issues of fact between the
parties as to what in fact a subpostmaster was
physically able to do when a transaction correction came
through, for example.
Now, it would be bold to submit that the whole of
that is irrelevant.
MR CAVENDER: When you say "that" ...
MR JUSTICE FRASER: Mr Green took me to it yesterday and
reminded me of it, the sequence of physical acts that
Mr Abdulla had available from which to choose which you
took him through quite carefully. And he was quite
clear with you as to what he said, that in respect of
your points: that is not what you do, that isn't how you
do it, these are your options.
Have those issues of fact been completely resolved?
I don't think they have.
MR CAVENDER: But they are not relevant to this trial.
What I am saying is someone in my position would
normally say, well, credibility, Mr Abdulla is a bad'un,
he lied about this, that and the other. Therefore when
he says he didn't receive his contract you shouldn't
believe him. That is what someone in my position would
normally say if this were a normal trial of all the
issues.
It is not a normal trial of all the issues. I was
cross-examining him on questions of breach -- I didn't
want to but I had to because the evidence was in -- in
order to try and counteract the impression given by
those witnesses that their account of what happened was
a complete account. Having done that, given that there
has not been full disclosure on the accounting
relationship on any of those breach matters, it would be
quite wrong and unfair for me to ask your Lordship to
make findings against him on the basis of that. And
I don't do so, because there has been not been full
disclosure or complete evidence on it.
MR JUSTICE FRASER: But so far as the issues of fact between
the Post Office and the claimants about what the options
are when someone is sitting at a terminal and deciding
what they should do with transaction number 59 --
MR CAVENDER: I am not sure there is any dispute about it.
MR JUSTICE FRASER: That's why I asked you, have those
issues gone away?
MR CAVENDER: I think it is very clear from all the
documents and what you could do. Are you talking about
TCs now? I think my learned friend explained that. My
learned friend gets kind of stuck on the word "accept"
and "settle centrally" and then "disputing", as if
somehow he wants to stop the clock.
MR JUSTICE FRASER: When you said "disputing", I think you
indicated just then -- for the transcript -- pressing
a button. I think the disputing is done by telephone.
MR CAVENDER: By phone. Indeed.
MR JUSTICE FRASER: But so far as the activity at the
terminal or in the branch is concerned that doesn't
involve phoning the Helpline, it did seem to me for the
first part of the case, and in fact this went into
a number of your witnesses and it may have all been
resolved, that there were specific issues of fact
between the parties in this litigation about what
an SPM's choices in fact were. Have they gone away?
MR CAVENDER: I think they have, yes. I don't think there
is any ... Yes, my learned junior is right. If we go to
Mr Abdulla, and we'll do it later, using the word
"accept" and "settle centrally", you saw there was
a confusion between us --
MR JUSTICE FRASER: You weren't confused, but he kept using
the expression "accept centrally".
MR CAVENDER: Exactly.
MR JUSTICE FRASER: That might be where Mr Draper is
steering you. But that was not the full essence of the
issues of fact as it appeared to me during the
cross-examination, but because of what Post Office's
case was or how it was being put to the SPMs about what
their choices were in the branch.
MR CAVENDER: My Lord, there is no debate I think as to what
buttons they could press.
MR JUSTICE FRASER: There isn't.
MR CAVENDER: No. But my learned friend's point is he wants
to stop the clock once you press "accept" and "settle
centrally", and he says that's it, you stop then. And
you say, well, within Horizon, narrowly construed, that
has a certain effect. And I'm saying no. As was known,
and as was in fact used, the system includes the
Helpline and the ability to phone.
MR JUSTICE FRASER: I do understand that.
MR CAVENDER: So that is the difference between the parties,
not what buttons you could press or not press.
MR JUSTICE FRASER: Well, if there is no dispute about what
buttons an SPM can press or can't press, has Mr Green
correctly analysed it or, if not, what has he got wrong
about "accept now" and then those three choices? And
I will tell you what my understanding is and then you
can correct me if I have got the wrong end of the stick.
If a transaction correction comes in, an SPM has
a choice of whether to press a button "accept now" or
effectively defer the question of accepting it for
a particular length of time but only to the end of the
branch trading period, is that correct?
MR CAVENDER: Those two are correct. And later on there was
a "seek evidence" button, if you remember.
MR JUSTICE FRASER: Just remind me when that was introduced.
MR CAVENDER: It was only for some ... and of course that
is, if you like, a subcategory of deferring, in a way,
because you are saying I want evidence before I consider
it.
MR JUSTICE FRASER: So you accept now or defer.
MR CAVENDER: So you press "accept" and then you get
a choice whether to settle centrally.
MR JUSTICE FRASER: As I understand what happens once
someone has pressed "accept now", there is make good by
cash, make good by cheque or settle centrally, is that
correct?
MR CAVENDER: Correct.
MR JUSTICE FRASER: Right. What I would like you both to
do, and when I say "both" I don't mean you and
Mr Draper, I just mean you and Mr Green, and on the
basis of what you have said I am sure this can be
accomplished without any difficulty, is simply to agree
a single sequence flowchart of this particular series of
choices.
MR CAVENDER: My Lord, yes.
MR JUSTICE FRASER: Because that will just be very useful
for me.
MR CAVENDER: Indeed.
MR JUSTICE FRASER: Those differences have gone away but
I accept -- I understand your submission: you are not,
because of the nature of the peculiar situation in which
the claimants find themselves, inviting me to make
adverse findings on their credibility.
MR CAVENDER: Correct.
MR JUSTICE FRASER: Is that right?
MR CAVENDER: It is.
MR JUSTICE FRASER: So when you put to at least some of
them, I think, that they weren't telling me the truth,
do you want me to ignore their answers?
MR CAVENDER: My Lord, it is really a matter for you at the
end of the day, what you think is proper. What I am
saying is that there has not been full disclosure on
those matters, that the reason that it was put was to
seek to undermine the impression they had given in their
witness statements that they were telling the full
story. So what we are left with, my Lord, in my
submission, is, you should treat their witness evidence
with caution, because you have seen that not in every
respect has their account of the way things worked out
been full or sometimes fair.
But the other point of course is that a lot of this
evidence is very, very old, and in terms of looking at
the documents, compared to their evidence anyway, one
would normally prefer the documents and the
probabilities. And it's only really in relation to
whether they received the contract or not, that is
really the crucial factual point you have to make in
relation to the six LCs.
MR JUSTICE FRASER: To some of them.
MR CAVENDER: Well, to some of them. Certainly the last two
signed it and there was no problem --
MR JUSTICE FRASER: That is why I said "some of them".
MR CAVENDER: Indeed. Mr Bates, although he has a special
case, Mrs Stubbs is special for a different reason, and
then we have Mr Abdulla and Mr Sabir who say, well, they
don't know or they don't think they got it, things of
that kind. I will come to that later.
MR JUSTICE FRASER: But Mrs Dar and Mrs Stockdale signed
one.
MR CAVENDER: Quite.
MR JUSTICE FRASER: And I would have thought across the
500-odd that it is highly unlikely that all of them fall
into exactly the same category.
MR CAVENDER: Quite. And that is why I said in my opening,
if you remember, that although hypothetical findings
aren't generally liked, here if you took a particular
view that a certain document was or wasn't obtained or
got at an early stage, and therefore you find a certain
result flows from that, it might be helpful to express
a view, well, if that document had been obtained or seen
or signed it would alter your view, because there might
be some of the 557, there most certainly would be, where
that would be useful.
MR JUSTICE FRASER: An example is the Mr Bates situation
because I think you asked him where he got his number
from in his witness statement, about there are lots of
people in that situation, and he said he got it from the
spreadsheet. Let's put that to one side.
Even if he were the only person, he said it wasn't
in the envelope. If it was in the envelope certain
consequences might flow. If it wasn't in the envelope
certain consequences might flow. You are not inviting
me to avoid making a finding as to whether it was in
the envelope.
MR CAVENDER: Quite.
MR JUSTICE FRASER: But I should go on and explain what
would happen if someone in his position had received it
in the envelope compared to if they hadn't.
MR CAVENDER: Precisely.
MR JUSTICE FRASER: Because it will help --
MR CAVENDER: Exactly.
MR JUSTICE FRASER: -- so far as some of the claims.
MR CAVENDER: My Lord has the point.
MR JUSTICE FRASER: So far as the claimants' evidence is
concerned, therefore, you say treat it all with caution
for all the reasons you have gone through, but you are
inviting me not to make any findings on their
credibility.
MR CAVENDER: Indeed.
MR JUSTICE FRASER: Any adverse findings on their
credibility, is that right?
MR CAVENDER: Yes, because to do so you would have to make
findings as to the accounting system, to the TCs, what
happened in fact, and you haven't had full evidence on
that by any means.
You can test it in this way: these are questions of
breach, this is a classic question of breach. This is
what they will be if there is a breach trial in October,
or whenever it is going to be, that will be exactly what
these witnesses will be putting forward. But then with
the benefit of the judgment here as to what the rules
are, and with Horizon and how good or bad that is. But
this will be the meat and drink of that breach trial.
Now, what has happened in this court in the last
four weeks is a fact. It has been recorded, it is in
the transcript. Those witnesses can of course be taken
back to that evidence during the breach trial and it
will be surprising if they were not. So it is not
wasted, it is in the can... It is still as a matter of
record it is there. But for you to make findings on it,
my Lord, we go further, for the same reason you
shouldn't make findings on the accounting processes
generally and all these other matters that have come in
by a side wind but there has not been full disclosure
on.
I am going to go through in a minute to remind you
of some of the disclosure orders you made and some of
the contests and how you resolved them and on what basis
you did so. That was on a much more orthodox basis, it
was before the IPOCs were drafted, which then broadened
out everything, and then the witness statements were
based on that. But before that, the disclosure was on
a much more orthodox, narrow basis.
MR JUSTICE FRASER: Mr Cavender, just to consider the
Mr Bates situation for a moment, Mr Bates gave evidence
which you tested quite strongly as to whether
a particular chunky document was in an envelope, and he
said it wasn't, and you put to him quite forcefully that
it was. It is accepted that I need to find whether it
was or not for the obvious contractual reasons. How
do I do that without making a finding about Mr Bates'
credibility?
MR CAVENDER: Well --
MR JUSTICE FRASER: I am slightly puzzled.
MR CAVENDER: Because you can make findings on the basis of
reliability generally. His memory. The documents
I showed him in that case, do you remember, the two- and
three-page documents in his evidence there about he
thought that was the standard terms, which in my
submission it clearly wasn't and he knew it wasn't.
Evidence that he was a details man and if a set of flags
came in he would notice two were missing, he would
certainly notice if there was a contract missing. So he
constructs an account really around that, and then he
does the same thing at the back end in relation to
the contract and the complaint. He over-reaches himself
by constructing a case that is obviously false because
he must have had the contract to write the letter. My
learned friend says, oh well, he just got the date
wrong. It's not quite as simple as that.
So Mr Bates, and the fact of course he is obviously
a campaigner, et cetera, and has convinced himself
no doubt that what he is saying is true. It doesn't
mean to say it is true.
MR JUSTICE FRASER: But those submissions you have just made
in the last half a page are classic features, aren't
they, that are taken into account when any judge is
deciding on the credibility of a witness.
MR CAVENDER: Indeed.
MR JUSTICE FRASER: I'm not saying there is not material
there. What I am saying is it seems to me that inherent
in resolving an issue of fact, which you correctly
identify is an issue I do have to resolve, I will be
considering Mr Bates' credibility, won't I?
MR CAVENDER: You will, but there might be certain features
of it. He is not a good example, in a way, because
although we made complaints about the way he accounted,
and he seemed to think it was getting him to seek to
pay, that was the dichotomy there. It was no, no, no,
we're not asking you to pay, we're asking you to
account. We'd like you to pay but we want you to
account properly. And whether you took a view on that
or not. To do that, you would need to understand much
more about his accounting, his records. In his case we
don't have them, but if it was another claimant we
would, and you would then be able to -- because
otherwise, my Lord, you would be making inferences and
findings based on partial evidence and partial
disclosure. That, in my submission, would be unfair.
And although every bone in my body says, oh yes, let's
make wonderful submissions on credibility because we
made some headway with some of these witnesses --
MR JUSTICE FRASER: You just made submissions on credibility
about Mr Bates --
MR CAVENDER: But my Lord, going beyond that, going to the
liability and breach issues. None of those submissions
touched on that.
MR JUSTICE FRASER: No, and I am entirely clear that nobody
wants me to go near breach.
MR CAVENDER: But you would have to in order to make
findings on credibility relating to breach --
MR JUSTICE FRASER: But I have to make findings of
credibility relating to their evidence about contract
formation, don't I?
MR CAVENDER: Exactly.
MR JUSTICE FRASER: For example Mrs Stockdale, there is
an issue of fact about what happened at her interview.
She says one thing. I can't remember the name of the
witness --
MR CAVENDER: Mr Trotter.
MR JUSTICE FRASER: Mr Trotter.
MR CAVENDER: Sorry, Mr Carpenter.
MR JUSTICE FRASER: Mr Carpenter. Now, to decide -- those
are issues of fact which I imagine both parties want me
to decide.
MR CAVENDER: In that case --
MR JUSTICE FRASER: Unless the interview record has been
miraculously de-encrypted, which I imagine it hasn't.
MR CAVENDER: We are still trying.
MR JUSTICE FRASER: So as at today I have two people's
account and I have to decide, haven't I?
MR CAVENDER: My Lord --
MR JUSTICE FRASER: Or do you say I don't?
MR CAVENDER: In many ways in relation to those cases, it is
the NTC cases, they have signed it and all the rest of
it, I don't know what is left -- what happened at the
interview in relation to those cases. In relation to
the cases of the SPMC, of Mr Sabir and Mr Abdulla, there
may be in those cases the interview -- because they say
they may not receive the contracts, it becomes more
germane than. But the NTC ones, it is of much less
relevance, I think, what happened at the interview.
MR GREEN: My Lord, I'm sorry to interrupt, but I have let
this run since page {Day14/38:14}, what my learned
friend is saying. He said someone in his position might
say Mr Abdulla lied. Well, that is exactly what he does
say at paragraph 592 of his closing submissions
{A/8/210}. So I don't understand --
MR JUSTICE FRASER: All right.
MR GREEN: -- where he is on it.
MR CAVENDER: But I don't ask for findings on it.
MR JUSTICE FRASER: Mr Green, as a rule, I am not saying you
can't make these points, but you might want to store
them up.
MR GREEN: I am grateful.
MR JUSTICE FRASER: All right.
MR CAVENDER: Because we say you can obviously make findings
on admissible pre-contract evidence, obviously. The
bright line I am making is issues of breach really.
MR JUSTICE FRASER: You are saying don't go near findings
that relate to breach, is that right?
MR CAVENDER: Indeed.
MR JUSTICE FRASER: Is that the best way of summarising it?
MR CAVENDER: It is, and we said that at the beginning. And
your Lordship said in judgment 2 you are not going to
make findings on breach, and I said good, obviously, but
also don't make findings of fact leading to those
questions of breach. Not obviously whether there is
a contract or not, you could -- if you took that too
far. But not in directly leading up to findings on
breach, or would do. Platforms of fact that would lead
to that.
MR JUSTICE FRASER: Understood.
MR CAVENDER: There is a number of reasons for that, and
maybe I should give you an example of why we are
concerned about this. It arose out of yesterday's
debate with my learned friend, in relation to the losses
and gains policy. Does your Lordship remember that?
MR JUSTICE FRASER: I do. Well, I remember the losses and
gains policy.
MR CAVENDER: The suggestion was by my learned friend,
effectively, that the old losses and gains policy, he
doesn't know when it ended, but it went on for ever was
kind of the point.
My learned friend has not built any evidential
foundation for that, as he hasn't in most of the
documents in this case where they have an earlier date.
There has been no attempt really to analyse or
forensically go through and say what date did they
no longer operate.
So let's take the losses and gains policy, one of
his favourites. Yesterday he took you to, can we put
this on screen, {F4/66/1}. And for your Lordship's note
this passage was Day 13, page 106, lines 14 to 24
{Day13/106:14-24}, when he said that the court should
infer the losses and gains policy was still in force in
2010.
This document, despite the date on the print-out
there, is a 2010 document, not 2018.
MR JUSTICE FRASER: Yes, because it just -- I think that was
explained that it is a field that refreshes itself
whenever it is opened.
MR CAVENDER: Exactly. This document wasn't put to any of
our witnesses, so it is without explanation as to what
it is. It only refers to parts of the L and G policy
and not parts that my learned friend likes about SPM
liability.
So if we go to page {F4/66/2} of this, you see it
is, looking at the top there, dealing with HOL back
office reports. That is its focus. And if you look to
page {F4/66/7}, you can see here it's dealing with
surprise stock levels and things of that kind, halfway
down, surprise stock checks. It is that part which
indeed is covered in the losses and gains policy that
seems to have a reflection in the later document, not
this thing about losses. The parts of the old losses
and gains policy that deals with shortfalls and reliefs
are specific to the SPMC and pre-date Horizon, let alone
HOL, which is what this is dealing with.
We have identified in correspondence with the
claimants various documents, after the losses and gains
policy, that replaced it. And they have different
names. Which is why my learned friend says at page 106,
lines 3 to 5 {Day13/106:3-5}:
"There is no other disclosed document which is
a losses and gains policy so-called anywhere."
That's a very careful statement. And he is right,
there is no document with that title, but there are
other documents that deal with issues of things of that
kind. One replacement document at {F3/212/1}, you will
notice again it's a document not put to any witness
despite the fact at the top you see it is a John Breeden
document.
MR JUSTICE FRASER: How do I see that?
MR CAVENDER: At the top, my Lord, "Contracts team".
MR JUSTICE FRASER: Yes. What the date of this document?
MR CAVENDER: First version is September 2013. This
particular version is 4 December 2014.
MR JUSTICE FRASER: And this is called a policy document,
yes?
MR CAVENDER: Yes, in service debt. And if we go through it
{F3/212/2}:
"The purpose of this policy is to clearly set out
the processes Post Office will follow to recover debt
incurred by Post Office ..."
Et cetera."
MR JUSTICE FRASER: Yes.
MR CAVENDER: So why I show you this is you would be left
with the impression, if I hadn't shown you this, that my
learned friend's point was right, there was a losses and
gains policy, and there is no evidence to show that this
didn't go on forever.
There is a risk of that throughout this case. The
way this case has been presented there has been no
attempt to build it properly from the bottom up. There
has been an approach of effectively a scattergun on
this.
And if you go on this same point to an earlier
document {F3/36/1} in 2004. This is a 2004 document and
you will see it's talking about the recovery of invoice
debts and the approach to be taken to that.
MR JUSTICE FRASER: How many documents are there after what
is in fact entitled the "Losses and Gains Policy" going
forward in the sequence?
MR CAVENDER: My Lord, I am giving you some -- again, we
have no evidence on this --
MR JUSTICE FRASER: This is a useful -- Mr Draper, do just
give me a second with Mr Cavender, if that is all right.
This is quite important because so far as the evidence
is concerned, and I have looked at this again carefully,
the evidence goes as follows: Mr Green put the 1998
losses and gains policy to Mrs Van Den Bogerd. She said
that wasn't the policy anymore. He said this is the
most recent document that we have that is called "Losses
and Gains Policy", and that was as far as the evidence
went. And her evidence to me was, well, that is not
what we do. Along those lines.
Now, that evidence falls to be looked at from a very
different perspective. If there are subsequent
documents dealing with policy that post-date the 1998
one --
MR CAVENDER: Which is what I am doing now.
MR JUSTICE FRASER: Which is what you are doing, compared to
if there aren't.
MR CAVENDER: The slight confusion is these documents aren't
called necessarily losses and gains, so it is that
rubric, but they deal with the subject matter.
MR JUSTICE FRASER: How many are there on your list?
MR CAVENDER: There are four. I have taken you to one, this
is the second, and there are two others. This is 2004.
MR JUSTICE FRASER: So {F4/66/1}, what was the date of that
document? That is the HOL document Mr Green showed me
yesterday. So you have given me {F3/212/1}.
MR CAVENDER: 2014.
MR JUSTICE FRASER: Although it originated
in September 2013. And {F3/36/1} is?
MR CAVENDER: 2004.
MR JUSTICE FRASER: And what is that called?
"Implementation of New Initiatives".
MR CAVENDER: For recovery of debt from postmasters. But it
deals with --
MR JUSTICE FRASER: It's just so I have a specific note.
MR CAVENDER: I'm not suggesting this is a replacement of
the losses -- because that is a big document, but it is
aspects of losses and gains --
MR JUSTICE FRASER: By "that is a big document", you are
talking about the 1998 document?
MR CAVENDER: Exactly.
MR JUSTICE FRASER: But the fact this says "New Initiatives"
does suggest the process for recovery of debt in 2004
was changed.
MR CAVENDER: Exactly.
MR JUSTICE FRASER: From the 1998 document.
MR CAVENDER: Exactly.
MR JUSTICE FRASER: And you don't object to me looking
at these, do you?
MR CAVENDER: I am not quite sure what the relevance of any
of this is.
MR JUSTICE FRASER: Maybe you are not. Maybe you are not.
MR CAVENDER: And I am not sure, what I'm saying is not
admissible --
MR JUSTICE FRASER: You are saying these documents are not
admissible?
MR CAVENDER: For what purpose? My learned friend hasn't
established a case for what their relevance is.
MR JUSTICE FRASER: Well, no, Mr Cavender, it really just
comes down to the correct way in which the evidence is
dealt with. He put a 1998 document to your witness and
her answer to that was effectively: that is an old
document, it doesn't contain what our policy is or our
recent or modern policy is.
MR CAVENDER: Correct.
MR JUSTICE FRASER: You didn't put an alternative document
to her in re-examination, though you would have been
entitled to do so but you didn't. That is fine.
Mr Green made his submission yesterday, which is along
the lines of: there is no more recent document. As
a matter of fact you are correcting that by giving me
these references.
MR CAVENDER: Indeed.
MR JUSTICE FRASER: So I imagine if, in the process of
writing my judgment, I take the view that I need to
consider or recite or in other words "look at" the way
Post Office dealt with losses and gains, you don't want
me to stop at 1998.
MR CAVENDER: No, of course, no. If we are doing the job,
we have to do the whole job. My question is whether the
job should be done at all. But, yes, if we are doing
the job, let's do the job.
MR JUSTICE FRASER: I know that. So we have 2004,
{F3/36/1}.
MR CAVENDER: Indeed. Then we go to {F3/45/1} which is
2006.
MR JUSTICE FRASER: I thought we were going in reverse
chronological order. Don't worry. If there are only
four, it doesn't matter. "Losses Policy - Overarching".
MR CAVENDER: Then {F3/210.1/1}, a 2014 document.
MR JUSTICE FRASER: That is 2014?
MR CAVENDER: My Lord, yes.
MR JUSTICE FRASER: Dispute process. {F3/210.1/1}. Okay.
MR CAVENDER: So the reason I do that is for that reason.
Also just to make sure your Lordship is aware that you
should be quite careful in the way the case is presented
with documents, not only the way the witnesses were
dealt with, going across 20 years with different
documents going to and fro with the same subjects and
putting something else in and back. Sometimes I don't
understand what my learned friend is saying, so the
witnesses should be excused for not understanding
either. But the point here is you should be very
careful about -- it seems my learned friend's request to
accept inferences, et cetera, for him to say yesterday:
well, 2010 losses and gains, it's (inaudible) document,
isn't it, is actually quite misleading in terms of what
in fact the documentary record shows.
A similar point can be made about the induction
document that Mr Bates refers to at {E1/12/1}. That is
a 1990s document. My learned friend is very keen on
citing it. Do you remember it has all the warm feelings
about the relationship? There is no evidence that
anyone but Mr Bates got this document.
MR JUSTICE FRASER: Anyone but Mr Bates?
MR CAVENDER: Correct.
MR JUSTICE FRASER: I know, but Mr Bates is one of the six
lead claimants.
MR CAVENDER: But my learned friend tries, when you look at
his submissions, to sort of broaden it out to say this
reflects ... and he cross-examined everyone about: well,
would you agree with that? Again Mr Bates can say that.
He got this. But the others can't. So you have to be
slightly careful with the dates of documents and almost
the assumption that this continued forever when there is
no evidential foundation for that.
Also the approach of the claimants on issues of
finding -- issues of fact is scattergun. So for
instance at paragraph 70.5 they seek a finding on the
issue of Mr Abdulla's accounting. They actually ask you
at paragraph 70.5 to do that, and at paragraphs 121 and
122 they seek findings on training despite the fact
their case is it is irrelevant. So we have a scattergun
approach; a lack of analysis as to what findings the
court can make or should make in support of the case
that is being run.
My Lord, is that a good time for a break?
MR JUSTICE FRASER: That is probably not a bad idea.
12.05 pm.
(11.55 am)
(A short break)
(12.05 pm)
MR CAVENDER: My Lord, carrying on with the introduction,
an important feature; you will notice the claimants have
sought to subtly move away from their admission that
the agreed implied terms are to be implied into the
agreements by seeking to suggest they are somehow
Post Office's terms now, and you will see that at
paragraph 322.3 of their closing where claimants refer
to the agreed implied terms as terms for which the
defendant contends. It is obviously too late for them
to do so, they have not sought permission to withdraw
any admission and the agreed implied terms are terms of
these contracts and those are, at this stage, no less
terms than the express terms of the contract. They have
meaning and effect, they have a construction, and my
learned friend did not say a single word on these. He
seeks to disown them. That, in my submission, was
a serious error because it is upon him the burden to
show, notwithstanding their existence, that there is
space and lacuna into which he can put his 21 further
implied terms. He has made no attempt to explain to
your Lordship the meaning and effect of those agreed
implied terms, the necessary co-operation term and the
Stirling v Maitland term. He would necessarily have had
to have done so to make the case he purports to make.
Because there is a space occupied by, firstly, the
express terms of the contract, the legal relationship of
agency and the fiduciary relationship that that involves
and the agreed implied terms. They have in effect, the
way they have presented this, tried to shift the burden
on to Post Office to show that further terms are not
necessary. And that, as we will see, is completely the
wrong approach.
So in summary on important points of this
introduction in terms of scope, the court should not
have regard to post-contractual evidence, evidence of
breach, for two distinct reasons: firstly, to do so
would involve a basic error of law, and, secondly, would
involve a serious procedural irregularity. It would do
the second because the orders of the court setting out
the issues for trial and the issues on which evidence
were to be admitted is set out in the Common Issues.
The Statements of Case have been ordered to be limited
to those issues, see paragraph 8, and the witness
statements were limited to those issues, see
paragraph 10. That is the trial Post Office has
attended and involved itself in. It has not engaged in
wide-ranging evidence on breach, which the claimants
have, and so not only would it be an error of law to
have regard to it, it would also be procedurally unfair
for that reason. Because in the absence of full
disclosure on matters such as the dispute, Horizon,
accounting, procedures, deficits, training and Helpline,
without full evidence and disclosure on all those
points, the court should not engage in inferential
findings or comments along the way. It shouldn't do so
as a matter of procedural fairness but also particularly
given there are two other trials that have been loaded
in the system effectively on Horizon and on breach,
where on those very matters there will be full
disclosure, there will be full evidence and there will
be determinations.
The other point I mentioned I think earlier was
whether you should also be careful because of the nature
of the way it has been set up -- we had a humorous
debate about whether it was odd or not, but whether you
should make comments as well about "be careful to",
because, otherwise, an independent observer might think,
wrongly obviously, that the comments you make are
a route along the way to reaching a particular view or
a finding, which you would then have to find in judgment
two or three -- sorry, in trial two or three. So again
there is that sensitivity, which your Lordship no doubt
will obviously have in mind.
In terms of the disclosure piece, let me give you
a little bit of detail just for your note essentially,
in terms of reminding your Lordship what happened. I am
sure you remember but just for your note --
MR JUSTICE FRASER: I'm not sure I do remember to be honest.
These are on the contested disclosure hearings?
MR CAVENDER: My Lord, yes. Just to get a view on whether
I am saying is right or wrong. Obviously I say it is
right. Firstly, stage one and stage two disclosure
ordered before the Individual Particulars of Claim and
was not scoped by reference to the broad allegations in
those pleadings. It was done by reference to the
general Particulars of Claim, which is much more
generic. For your Lordship's note, stage one disclosure
was ordered under paragraph 9, Schedule 1 of the second
CMC order on 2 February {B7/11/4} and {B7/11/7}.
MR JUSTICE FRASER: Can you just give me a date for that
order.
MR CAVENDER: That was 2 February, my Lord. Stage two
disclosure was ordered under paragraph 10, Schedule 2 to
the same order, see {B7/11/4} and {B7/11/11}.
The court determined the disputes over disclosure by
reference to the likely relevance of documents to the
Common Issues, not the broad allegations of breach that
the claimants decided to plead in their IPOCs.
Your Lordship will recall the court also had a view
giving early disclosure would properly be required
anyway in relation to Horizon and Post Office does not
resist that. Such approach was entirely for good reason
just by way of background. But the overwhelming focus
was on the documents that might be relevant to the
Common Issues. So to give two examples at the hearing
on 22 February the court rightly rejected a request for
broader disclosure in relation to Helpline on the basis
of the operation of the Helpline "does not arise in
the Common Issues at all" and that is {B8.4/4/46}
referring to paragraph 61 of the defence.
At the same hearing the court ordered only limited
disclosure in relation to certain policy and process
documents relating to shortfalls, pointing out the
requests seemed to be aimed at fundamentally Horizon
issues, see {B8.4/4/39}.
So the upshot of the approach taken to disclosure is
the Post Office has not conducted searches for documents
that would enable the parties and the court to properly
explore all the irrelevant post-contractual material and
breach that the claimants want to put in issue at this
trial nor has Post Office extracted documents from
custodians other than the 62 that were largely chosen by
the claimants.
So to give concrete examples, we do have records of
TCs that were issued to these six branches. We do not
have the underlying documents as to how that TC was
decided upon, the evidence underlying it, the
transaction data, internal communications relating to
the decision-making process; the kind of thing that
would go to whether the TC was rightly made, mistaken or
how the mistake came about.
We have no disclosure or evidence from the Helpline
operators; nothing with which to meet the suggestion
a particular operator said something wrong on
a particular date in 2002 or 2010.
We have no disclosure showing how enquiries and
disputes were then escalated and addressed by the
Helpline. Your Lordship will recall a reference to
classification of calls as "low priority". No evidence
as to what that means because it doesn't fall within the
Common Issues, and the relevant documents would not be
caught by the disclosure that was ordered.
MR JUSTICE FRASER: When you say "we have no disclosure",
what you really mean is the claimants have no
disclosure. Because they are all your documents, aren't
they?
MR CAVENDER: My Lord, yes, "there has been no disclosure"
is probably the correct way of putting it. By "we"
I mean the court and the parties really. We have --
MR JUSTICE FRASER: The court and the claimants, because
Post Office has got it. Because it is all Post Office
documents.
MR CAVENDER: We haven't searched for it --
MR JUSTICE FRASER: I am just being precise about it.
MR CAVENDER: Yes, my Lord, you are right. We have not
given disclosure covering investigations into
shortfalls, emails and other documents from within the
FSC for example, we heard something about. Any
documents of that kind that are in the bundles have been
caught incidentally through disclosure orders aimed at
something else by luck or because one of the selected
disclosure (inaudible) happened to have it within the
exchanges; potluck and not a proper approach on which to
examine what happened.
Your Lordship will recall my efforts to piece
together from a few documents here and there what
investigations had in fact been done into Mrs Stubbs'
problems, and you will recall there was quite a lot
done. She said: well, I thought you were doing nothing
and I put to her a whole slew of documents that happened
to be in the bundles by accident or mistake that showed
in fact we were going back to Fujitsu, we were asking
questions. If you are going to form a view, my Lord, on
any of that, you need the full documentary record, you
need evidence led on it and tested, not it be done in
this sort of casual half-hearted way.
MR JUSTICE FRASER: If the documents you were putting to
Mrs Stubbs were only there by accident or mistake, there
was nothing to stop you producing a document, was there,
which showed the conclusion or upshot of the
investigation which she had been promised? If such
a document existed.
MR CAVENDER: My Lord, that is true in relation to all of
the six, in relation to every TC and every dispute.
MR JUSTICE FRASER: No, no, I am asking a focused question
on the investigation in relation to Mrs Stubbs.
MR CAVENDER: My Lord, yes. But that hasn't been done.
That is not our understanding of what this trial was
about or the disclosure sought or the issues to be
determined. I am giving that example for saying where
I thought I ought to correct that impression with that
witness. I was able to by luck with a number of
documents. But it is not the full documentary record at
all, clearly not, and we didn't have evidence from the
people that were doing the investigations, et cetera, so
your Lordship could then opine and see whether it was
good, bad or indifferent. You are asked to do so on
a very casual basis on a partial -- not partial, without
the full documentary record at all. And it would be
wrong to do so, in my submission.
To complete the disclosure reference, also model C
disclosure was ordered on 22 February and the order at
{B7/12/1} that followed the same approach to that which
I have already outlined.
By way of example, as you have seen, many references
in the leading claimants' witness statements to
Post Office staff that were not witnesses. For example
Mr Abdulla at paragraph 93 refers to a TC signed off by
a Karen Cooper. {C1/4/18}. We have no disclosure
relating to that TC or evidence from Mrs Cooper.
Mrs Dar refers at paragraphs 114 and 115 of her witness
statement to communications with a Jamie Haugh
{C1/5/21}. He was not a disclosure custodian. He has
not given evidence. Mr Sabir at paragraph 73 of his
witness statement refers to intervention visits and
a verbal warning from a Ms Wrangham --
MR JUSTICE FRASER: There is a series of documents flashing
up on the common screen and then disappearing. Are
these the ones that you are --
MR CAVENDER: I think they are, yes. I don't intend to take
you to them. It is just for your note.
MR JUSTICE FRASER: It's just the top of my screen has been
cut off, so I can't actually tell whose statements they
are to be honest. {C1/5/21}.
MR CAVENDER: That is Mrs Dar.
MR JUSTICE FRASER: Which paragraph?
MR CAVENDER: Paragraphs 114 to 115.
MR JUSTICE FRASER: But you don't want me to look at them
now?
MR CAVENDER: No, I am making the general point, I am giving
some examples of the kind of evidence you would normally
expect to get if you were going to have a proper go at
making findings on this. So it is not just
a theoretical point, I am trying to ground it in
a granular basis.
Mr Sabir refers at paragraph 73 of his witness
statement to intervention visits and verbal warning from
Ms Wrangham. That is {C1/3/13}. She was not
a disclosure custodian either and she has not given
evidence.
Your Lordship will also know a point I put to
various witnesses is we hadn't had disclosure from the
claimants' retail businesses; in terms of the accounts,
what the money is that was, whether there was
a possibility there was cross-over, things of that kind,
which of course will be relevant to whether a mistake
has been made and things of that kind. It just hasn't
been done. Because that goes to breach.
You will recall that the direction for evidence was
expressly limited to disclosure in respect of each lead
claimant in relation to the Common Issues, see
paragraph 10 of the first CMC order {B7/7/5}. That
is what Post Office has done, and that is why there is
no substance to my learned friend's reference to
"generic evidence"; there is no such beast, there is
just evidence given by the lead claimants.
My Lord, that is the introduction phase of the
submissions. I'm now going to move on, with
your Lordship's leave, to the question of the law on
interpretation of contracts.
I would not normally feel the need in a case like
this to go through the basic authorities on
admissibility and interpretation but, given the approach
of the claimants, I think it is important that at least
your Lordship is told and go through them, if briefly,
to see what the rules are. Particularly alarming, my
learned friend makes no reference to Arnold v Britton,
the leading authority on construction, in their summary
of the law on construction at paragraph 381 of their
closing. In fact it is not referred to in their closing
at all. That must be almost unprecedented in a trial on
contractual construction in recent years and it rings
alarm bells that they can make submissions without
reference to it.
As I said earlier, my Lord, the law on this subject
is clear, free from doubt and obviously binding on this
court. The key principles are on admissibility of
matrix. You look at what the parties to the contract
knew or what reasonable people in the position of the
contracting parties will have known. On interpretation,
unsurprisingly the words of the contractual provision
are the main tool, but the words of the relevant clause
need to be construed in the light of the contract
as a whole and any admissible matrix. Business
common sense has a role to play but that role is not to
rewrite the contract, especially not with the benefit of
hindsight.
On the first of those, what you don't include --
MR JUSTICE FRASER: This is matrix?
MR CAVENDER: Of matrix, my Lord, yes. If you go to what
the claimants say. At 393.8 they rely on possible
errors in Horizon. That is --
MR JUSTICE FRASER: We are in their closing, are we?
MR CAVENDER: 393.8, my Lord. {A/6/200}.
MR JUSTICE FRASER: Yes. 393.8.
MR CAVENDER: My Lord, yes. We say that is obviously not
relevant to construction. It is doubly irrelevant
because of course it ignores the differential between
this trial and the Horizon issues trial. At
paragraph 397, while you are there, they ask
your Lordship to have regard to internal Post Office
documents in relation to TCs. No suggestion any of
these were seen by the claimants at any relevant time.
MR JUSTICE FRASER: 397, did you say?
MR CAVENDER: My Lord, yes, 397.5. They ask your Lordship
to have regard to the payments mismatch error. Again,
no suggestion that is a matrix to anyone's contract.
And paragraph 398 you will see relies on further
inadmissible evidence.
The one excuse, one sees the admission of all this,
is at paragraph 400, which is a classic from my learned
friend's style which is to say that the reference to
"the commercial reality which the evidence speaks to".
I'm not quite sure what that means but I do know it is
an invitation, at the very least, to make the error of
law that Lord Neuberger warned against in paragraph 19
of Arnold v Britton, which I am taking you to in
a moment.
On business common sense, my learned friend's case
appears to be, at 381.2:
"The approach of the court should start and finish
with common sense."
Clearly that is not the right approach, and
of course it is not the approach your Lordship will
doubtless take. We can see the invitations you are
being made constantly is to fall into error. So Arnold
v Britton is in the authorities opening bundle at tab 4.
{A1.1/58/1}. If we go to the headnote -- your Lordship
I am sure is aware of the broad facts of this. It
related to payment obligations under some leases for
chalets. If we go to the middle of the headnote, three
lines down from D:
"Clause 3 of the group of leases including
clause 3.2 are lessees covenant to pay a proportionate
part ... (Reading to the words) ... to pay a variable
sum, being a fair proportion to the cost of providing
the services which are the specified sum, being no more
than a cap on their maximum sum payable."
If we go down:
"The judge accepted the construction contended for
tenants though dismissed claim ... (Reading to the
words) ... whereas the construction contended for by the
tenants would involve rewriting the bargain which the
parties had made."
Then:
"Dismissing the tenants appeal, the Court of Appeal
affirmed the High Court's reasoning and held
additionally the words 'a proportionate part' were not
inconsistent with a fixed charge."
It goes to the House of Lords, Lord Carnwath
dissenting:
"The interpretation of contractual provision
including ones of service charges involved in
identifying ... (Reading to the words) ... The
commercial common sense was relevant only to the extent
of how matters would or could have been perceived by the
parties by reasonable people in the position of the
parties at the date on which the contract had been
made."
So that was the background, and you can see the
merits of the point; that it appeared to be an
unreasonable result, it appeared not to be -- to be
a service charge that was meant to be for provision of
maintenance but what in fact provided was a much larger
sum, and of course the opponents were shouting: it was
unfair, the words can't mean that.
In terms of the decision, if we go to paragraph 14
and following where the principles applied to those
facts are outlined. We are in the decision here of
Lord Neuberger. At paragraph 15, having dealt with
Rainy Sky in 14, just above H talking about Chartbrook:
"... and it does so by focusing on the meaning of
the relevant words in this case clause 3.2 of each of
the 25 leases in their documentary, factual and
commercial contexts."
That is setting up the test. Then over the page at
paragraph 16 the learned judge then outlines and
emphasises seven factors:
"First, the reliance placed in some cases on
commercial common sense and the surrounding
circumstances should not be invoked to undervalue the
importance of the language of the provision which is to
be construed."
Three or four lines down:
"The parties have control over the language they use
in the contract ..."
And again:
"Save perhaps in a very unusual case, the parties
must have specifically focused on the issue covered by
the provision when agreeing the wording of that
provision.
"Secondly, when it comes to construing the centrally
relevant words, and I accept the less clear they are, or
to put it another way, the worse their drafting ... can
properly depart from the natural meaning."
Paragraph 19, and this is the crucial point:
"The third point I should mention is commercial
common sense is not to be invoked retrospectively."
That exactly in my submission is what my learned
friend is asking you to do:
"The mere fact that a contractual arrangement, if
interpreted according to its natural language, has
worked out badly or even disastrously for one of
the parties is not a reason for departing from the
natural language. Commercial common sense is only
relevant to the extent of how matters would or could
have been perceived by the parties or by reasonable
people in the position of the parties at the date when
the contract was made."
I emphasise those words. At 20:
"Fourthly, while commercial common sense is a very
important factor to take into account when interpreting
a contract, a court should be very slow to reject the
natural meaning of the provision as correct simply
because it appears to have been a very imprudent term
for one of the parties to have agreed, even ignoring the
benefit of wisdom of hindsight."
That is expressly rejecting my learned friend's case
that I outlined earlier; that it begins and ends with
commercial common sense. It does not. At 21:
"The fifth point concerns the facts known to the
parties ... (Reading to the words) ... which existed at
the time the contract was made and which were known or
reasonably available to both parties."
Then:
"Sixthly, in some cases an event subsequently
occurs which is plainly not intended or contemplated ...
it only based on what the parties had in mind when
entering the contract."
Going back to the knowledge point, and the seventh
doesn't really apply. It is about service charges and
restrictions in that particular case.
MR JUSTICE FRASER: The seventh ... everyone runs out of
steam when they get to seven because it is really quite
case-specific.
MR CAVENDER: Quite, and I follow that well-trodden path.
But then I get more steam when I go to 24:
"When one turns to clause 3.2 ... the natural
meanings of the words, at least until one considers the
commercial consequences, seems clear."
So you start with the natural words. What you don't
do is start with the commercial consequences and say:
well, this can't have been intended, which is my learned
friend's approach. You start with the words. Over the
page at 28, at the bottom of paragraph 28,
Lord Neuberger says:
"As already explained, the mere fact that a court
may be pretty confident that the subsequent effect or
consequences of a particular interpretation was not
intended by the parties does not justify rejecting that
interpretation."
That is important. Over the page at the top:
"However, as explained in paragraphs 24 and 25 above
this argument would, in my view, involve the court
inventing a lack of clarity in the clause as an excuse
for departing from its natural meaning in the light of
subsequent developments."
So what he is saying there is you can't invent some
difficulty and say: well, it's not clear and then say:
therefore, I can wade in and change it. That is not
an approach that Supreme Court would find attractive.
At 32 it shows the judge is not immune to the
merits:
"Despite the unattractive consequences, particularly
for the lessee holding a chalet under one of the ...
leases, I am unconvinced by this argument ..."
Namely, how could they have intended it on
a commercial basis set out 30 and 31:
"... involved departing from the natural meaning of
clause 3(2) in each of those leases and it involves
inserting words which are not there."
Then Lord Hodge at paragraph 66. He agrees with
Lord Neuberger and then he says, quite interestingly, at
paragraph 77 about this process which is particularly
relevant I think here, talks about the unitary exercise
involves an iterative process. There is no debate about
that.
MR JUSTICE FRASER: Where are we --
MR CAVENDER: 77, my Lord, opposite C. Four lines down he
says this:
"But there must be a basis in the words used and the
factual matrix for identifying a rival meaning. The
role of the construct 'the reasonable person' is to
ascertain objectively with the benefit of the relevant
background knowledge the meaning of the words which the
parties used. The construct is not there to rewrite the
parties' agreement because it was unwise to gamble on
future economic circumstances in a long-term contract or
because subsequent events have shown that the natural
meaning of the words has produced a bad bargain for one
side. The question for the court is not whether
a reasonable and properly-informed tenant would enter
into such an undertaking. That would involve the
possibility of rewriting the parties' bargain in
the name of commercial good sense."
That is what my learned friend asks you to do:
"In my view Mr Moorhead's formulation at paragraph
67 above on which his case depends asks the court to
rewrite the parties' leases on this illegitimate basis."
As we will see when we come to 12(12) and 4.1 my
learned friend asks you to do the same.
MR JUSTICE FRASER: Are we moving on from Arnold v Britton
now?
MR CAVENDER: I have a few more comments on it, my Lord.
MR JUSTICE FRASER: I just have one question on it, but
I will leave it until you have finished.
MR CAVENDER: A couple of points to note. The parties to
this are people taking leases of chalets in Wales, not
huge companies or commercial people, they are ordinary
people. So if there is an ordinary people test my
learned friend is applying, you don't see it in Arnold.
It is a strong case, in my submission, where the
words of the clause were clear and didn't permit of any
alternative construction, and Lord Neuberger's speech
provides a very clear and authoritative statement on the
principles of construction, when we come to my learned
friend's construction of 12(12), where he seeks to
import a whole range of words into 12(12), about the
meaning of loss and what Post Office have to do in order
to qualify as loss, it is not construction, it is
a series of further implied terms in reality, as we will
see, but it is a million miles from the process of
construction that Arnold v Britton instructs
your Lordship to do.
My Lord, I was going to finish there. So your
question?
MR JUSTICE FRASER: If you go back to paragraph 17 between
letters C and D {A1.1/58/10}, and this is a different
feature of the instant proceedings, where Lord Neuberger
says:
"Unlike commercial commonsense and the surrounding
circumstances the parties have control over the language
they use in a contract."
In this case, if one takes "the parties" to mean
a particular subpostmaster or subpostmistress and the
Post Office, the subpostmaster or subpostmistress
doesn't have any control over the language, do they?
MR CAVENDER: My Lord, I think that is to mis-state the
point. What Lord Neuberger is here saying is -- he is
talking about freedom of contract generally. He is
taking the general principle. Applied to the particular
facts of Arnold of course these were leases for chalets,
which were standard form. So the same point put to
my Lord would also be available on the facts of this
case. In our case actually the postmasters are in
a better position because they do have a trade union
type organisation negotiating for them. So in fact in
this case the parties are in a better position vis-a-vis
that point than the unfortunate chalet owners in that
case.
MR JUSTICE FRASER: So you are saying that actually he
didn't really mean that, are you?
MR CAVENDER: No, he did mean it, my Lord. But he was
obviously aware that -- what he was doing was reflecting
the position of freedom of contract. Obviously the
reality is, depending on the relationship, you have more
or less freedom. In this particular case, in Arnold,
they have no freedom at all. They were standard form
leases, as you can see. But the point I am putting,
my Lord, is in the present case these claimants are in
a better position.
MR JUSTICE FRASER: And if I were to be persuaded by
Mr Green that actually the National Federation
of Subpostmasters is no such thing, so far as an
independent ...
MR CAVENDER: Sorry, my Lord?
MR JUSTICE FRASER: I am just waiting for the boisterousness
of your juniors temporarily to subside.
MR CAVENDER: So am I, my Lord.
MR JUSTICE FRASER: They are an energetic pair. If I were
to be persuaded by Mr Green that I shouldn't pay too
much attention to the involvement of the NFSP, what
would you have to say about the inability, as
I understand it on the evidence, of an intending
subpostmaster or subpostmistress to have any effect over
the language? Are you saying their freedom is whether
to be a subpostmaster or subpostmistress or not?
MR CAVENDER: Exactly. Really, in effect. As it was in
Arnold to have the chalet or not. It's exactly the
same. But whatever view you take of the NFSP, and
obviously there is not full disclosure on this, but it
is quite clear they do act on behalf of postmasters and
don't always agree with Post Office. They are -- true
it is their independence is subject to the fact they are
funded under the plan and we all know what that is, but
to say they have no say and they have less say than the
lessees in Arnold would be wrong. At least they have
someone who is in position to negotiate for them, who
can take legal advice, we heard, on the document on
their behalf, to report to them. These are all
functions the lessee in Arnold did not have.
So what Arnold v Britton says is a strict approach
to the notion of business common sense. It doesn't
provide a warrant to read over the actual words and,
just because the construction is tough, doesn't mean to
say the court should roll up its sleeves and rewrite the
agreement.
So Wood v Capita was the next I was going to refer
you to. {A1.1/67/1}. This involved, if you recall,
interpretation of an indemnity in a contract of purchase
of shares. A company was involved in the issuance of
brokerage in classic cars and there was an indemnity.
If you look at the headnote you can see what happened
there in line four. The indemnity was:
"... to indemnify the Borough against inter alia all
fines, compensation or remedial actions or payments
imposed on the company arising out of claims or
complaints registered with inter alia the FSA."
What then happened:
"The purchasing company carried out a review and
ruled in many cases the company's telephone operator had
misled customers ... (Reading to the words) ... The
seller defended the claim on the ground that the
compensation scheme fell outside the scope of the terms
of the indemnity clause properly understood. The judge
construed 'indemnity' as requiring the seller to
indemnify the buyer even though there had been no claim
or complaint."
That was the point, my Lord; whether it was a claim
or complaint under the scheme set up. So because there
was no claim or complaint, that therefore the scheme set
up wasn't within the four corners and the sums paid
under it didn't attract the indemnity:
"The Court of Appeal construed the indemnity clause
as being confined to losses arising out of customers'
claims or complaints and accordingly allowed the
seller's appeal ... (Reading to the words) ... That that
was not a literalist exercise focused solely on the
parsing of the wording of a particular clause but
required consideration of the contract as a whole ...
more or less weight was given to elements in the wider
context ..."
And reference there to the unitary exercise. So
that was the context of what was done. We pick up
Lord Hodge at page 12, having outlined above page 12
between 8 and 12 some background cases.
MR JUSTICE FRASER: Sorry, which paragraph?
MR CAVENDER: Paragraph 12 is the place I want to take you
to.
MR JUSTICE FRASER: Yes.
MR CAVENDER: It talks about the unitary exercise:
"... involves an iterative process ... (Reading to
the words) ... commercial consequences are
investigated."
And Arnold is cited there. He says:
"To my mind, once one has read the language in
dispute ... does not matter whether the more detailed
analysis commences with the factual background ... or
close examination. Textualism and contextualism are not
conflicting paradigms in ... (Reading to the words)
... which the parties have chosen in their agreement."
At 15:
"The recent history of the common law of contractual
interpretation is one of continuity ..."
(Interruption due to alarm)
MR JUSTICE FRASER: I can safely say that is not a drill.
So if there is a further announcement, it might be
an evacuation. But, until we get that, it is perfectly
in order to continue.
MR CAVENDER: I am obliged. So paragraph 15 then:
"The recent history of the common law of contractual
interpretation is one of continuity rather than
change ... (Reading to the words) ... particularly in
regard to contractual interpretation."
What happened here of course you can see in practice
was a narrow view was taken --
(Interruption due to alarm)
MR JUSTICE FRASER: It just goes to show one can't always
predict what the next announcement is going to be.
MR CAVENDER: So what you can see in this case is that
a narrow view was taken of the words.
MR JUSTICE FRASER: In Woods.
MR CAVENDER: In Woods, yes. Again. It is another standard
case where, although you might think that the indemnity
in terms of spirit, and the first instance judge thought
this, was to cover claims more generally in that area,
the court looked at the words of contract and applied
it.
MR JUSTICE FRASER: But, Mr Cavender, one interesting
passage in Woods is at paragraph 14 which basically says
there is no difference between Rainy Sky and Arnold.
MR CAVENDER: My Lord, with the greatest respect I think
that is just a kind way of saying --
MR JUSTICE FRASER: That Rainy Sky is wrong.
MR CAVENDER: Quite. People understood it incorrectly.
People understood it to mean a much more liberal
approach than -- as a much more liberal approach than
the words of Rainy Sky deserved, and certainly in Arnold
that was the case and Wood v Capita was -- effectively
Lord Hodge was saying, well, that is how you look at
those two lines of authority.
MR JUSTICE FRASER: But whether Rainy Sky and Arnold say the
same thing or not, if one reads Arnold and Woods
together, they are the bedrock on how one should
approach it.
MR CAVENDER: Indeed. That is a very fair way of putting
it.
(Interruption due to alarm)
MR JUSTICE FRASER: I'm very happy to continue, Mr Cavender.
MR CAVENDER: I am loving this, my Lord.
MR JUSTICE FRASER: I will see what happens when the
associate comes back. We don't have that long before we
need to stop anyway.
MR CAVENDER: I will move on now from contractual
interpretation to the law on implied terms.
MR JUSTICE FRASER: Yes.
MR CAVENDER: Here of course we are dealing with M&S. I'm
sure your Lordship is --
MR JUSTICE FRASER: Tab 5.
MR CAVENDER: Tab 5 of the opening authorities, my Lord.
{A1.1/61/1}. Our written submissions on this are
between paragraph 79 and 92 of our written closing.
Looking at the headnote, if you recall, this is
a case where there was a termination of a lease based on
the terms and, as a result of the date at which that
was done, there was in effect overpayment of rent
because the lease was terminated, you see on line 3, on
24 January 2012. But because of the way the rent
quarters fell, rent was paid to 24 March 2012. So what
was said was: look, that can't have been intended.
Please can I have the extra rent back? And you can see
the commercial sense in that.
You can see the judge allowed the claim, the
Court of Appeal allowed the landlord's appeal and the
Supreme Court dismissed the appeal. It said:
"A term would be implied into a detailed commercial
contract only if it were necessary to give the contract
business efficacy or so obvious that it went without
saying."
MR JUSTICE FRASER: Given it is 12.50 pm and you are about
to take me to M&S, I think we will stop now. I will
actually go and re-read, not only the full authority,
but those paragraphs again and that will probably save
the constant interruption, which I don't think is really
fair to you to be honest. Unless you would rather
I didn't do that?
MR CAVENDER: I am happy for that.
MR JUSTICE FRASER: It seems a sensible, pragmatic solution.
We will resume at 2 o'clock. There is a chance that at
2 o'clock this building might be evacuated and we can't
get back in. If that is the case and we are not allowed
in, I will present myself in the roadway outside the
front of the Rolls Building and will just address with
both of you two the practicalities based on any
knowledge I will have gleaned by then about whether
there is a proper alarm or not. That has happened only
once before. I think it is unlikely. But just in case.
Other than that, we will start again at 2 o'clock.
(12.50 pm)
(The short adjournment)
(2.00 pm)
MR CAVENDER: Good afternoon, my Lord. We were about to
look at M&S, I think your Lordship took the opportunity
over the break to re-read it for which I am much
obliged. {A1.1/61/1}
You had obviously read the facts and about the rent
period, I think I mentioned that before the alarm became
intolerable.
The points I would like to pick up at paragraph 19
and following, if we may {A1.1/61/12}. I just say in
passing that we deal with this at paragraphs 79 to 92 of
our written closing. {A/8/34}
So 19 {A1.1/61/12} is where the Philips Electronique
case is mentioned by Lord Neuberger:
"... which distilled the essence of ... almost be
misleading."
And then refers to what Lord Bingham
Master of the Rolls, as he then was, says below letter B
which we draw your Lordship's attention to in particular
because we say that is what might happen if we're not
careful {A1.1/61/13}:
"The question of whether a term should be implied,
and, if so, what ...(Reading to the words)... which will
reflect the merits of the situation as they then appear.
Tempting but wrong."
My Lord, we say that is an approach you should have
very close regard to in this case to make sure you don't
fall into that trap.
Then at 21 Lord Neuberger says:
"In my judgment, judicial observations so far
considered represent a clear, consistent and principled
approach."
Then he outlines in a number of paragraphs, six
paragraphs, numbered principles. 21:
"First, in Equitable Life Lord Steyn rightly
observed the implication of a term was not critically
dependent on proof of an actual intention of parties."
He then goes on three lines down:
"... one is not strictly concerned with the
hypothetical answer of the actual parties but that of
a notional reasonable person in the position of the
parties at the time they were contracting."
That's the important point I make there. Because
a lot of the stuff we say my learned friend prays in aid
is not at the time of contracting, with hindsight, in
the jaws of the dispute or alleged dispute on his
version of the facts later on saying, well, given these
facts, it would be a jolly good idea to imply these
terms. That is with the greatest of respect the wrong
approach.
"Secondly, the term should not be implied into a
detailed contract merely because it appears fair or
because one considers the parties would have agreed it
if it had been suggested to them."
Another problem with my learned friend, when he
cross-examines witnesses whether a thing could be
reasonable or fair to put it in, that is the mistake he
is making there too:
"Thirdly, it is questionable whether Lord Simons'
first requirement ... (Reading to the words) ... it is
vital ..."
And I emphasise that word:
"... to formulate the question to be posed by him
with the utmost care ... Sixthly, necessity for business
efficacy involves a value judgment."
Pausing there. My learned friend relies on that
throughout his submissions and he mischaracterises it.
MR JUSTICE FRASER: What does value judgment mean?
MR CAVENDER: I can tell you what it doesn't mean.
MR JUSTICE FRASER: You can tell me what it doesn't mean?
MR CAVENDER: Yes. It doesn't mean an entry into all the
facts that under the hindsight principle wouldn't be
allowed in. And I can tell you what it does include,
which is an objective evaluation as at the date of
contract based on the facts known to the parties at that
time.
MR JUSTICE FRASER: Objective evaluation of what, though?
MR CAVENDER: Of the situation in which the parties are
embarking on the commercial endeavour and what is
necessary by reference to that endeavour, if anything.
MR JUSTICE FRASER: Because it is a phrase -- I'm not being
difficult. "Value judgment" is a phrase lots of people
use, and I am never sure necessarily everyone is using
it in the same way.
MR CAVENDER: All it is saying I think is that it involves
a judgment by the court as to what the necessity, really
the degree of necessity, I suppose --
MR JUSTICE FRASER: Degree of necessity.
MR CAVENDER: Yes. I think that is clear from the bit that
follows {A1.1/61/14}:
"It is rightly common ground ..."
So if you ask that question and pause and then read
this bit:
"It is rightly common ground on this appeal that the
test is not one of 'absolute necessity' ...(Reading to
the words)... the contract would lack commercial or
practical coherence."
Again any suggestion that is the watering down, as
my learned friend kind of flirts with, of the business
necessity test is in my submission wrong. What it is
really saying about coherence is it doesn't make sense.
That is another way of putting the point.
MR JUSTICE FRASER: But that is rather different to business
necessity, isn't it? Or isn't it?
MR CAVENDER: I think it is an aspect of it. I will go to
a case in a moment, the Ukraine case, where the Court of
Appeal considered this word. But sticking with this
case for the moment, 23:
"First, the notion that ..."
That paragraph. If you go down to the words:
"The first proviso emphasises that the question
whether a term is implied is to be judged at the date
the contract is made ...(Reading to the words)... For
the same reason it would be wrong to treat Lord Steyn's
statement in Equitable Life that a term will be implied
if it 'essential to give effect to the reasonable
expectations of the parties' as diluting the test of
necessity."
That is really important:
"That is clear from what Lord Steyn said earlier on
the same page, namely, 'the legal test of implication
of ... a term is ... strict necessity' which he
described as a stringent test."
Then over the page to 28 {A1.1/61/15}:
"In most, possibly all, disputes about whether
a term should be implied into a contract, it is only
after the process of construing the express words
...(Reading to the words)... difficult to see how one
can set about deciding whether a term should be implied
and, if so, what term."
Reading on:
"Further, given that it is a cardinal rule that no
term can be implied into a contract if it contradicts an
express term, it would seem logically to follow that
until the express terms of the contract have been
construed it is at least normally not sensibly possible
to decide whether a further term should be applied."
Pausing there. We say that is obviously right. We
say in due course that the implied terms that my learned
friend advances do conflict with the express terms. And
furthermore we say under that principle you should also
have regard to the agreed implied terms, because they
are every bit part of the contract as the express terms,
before deciding what, if any, implied terms that are
disputed you are going to imply.
29 {A1.1/61/16}. Any notion my learned friend again
flirted with the construction of the contract or
interpretation of the contract and the implication of
terms are anywhere close together, they are distinct and
different processes. What we learn at 29 is the process
is very different:
"In any event, the process of implication involves
a rather different exercise from that of
construction ... (Reading to the words) ... The
implication of contract terms ..."
And these are the words I emphasise:
"... involves a different and altogether more
ambitious undertaking: the interpolation of terms to
deal with matters which ex hypothesi the parties
themselves have made no provision it is because the
implication of terms. It is because the implication of
terms is so potentially intrusive that the law imposes
strict constraints on the exercise of this extraordinary
power."
In their words I particularly emphasise.
So you can see the discussion that goes on in terms
of the application of those principles to this case that
you have read. And you can see the background this:
every commercial reason why you might say that rent that
effectively is being paid into the yonder, simply
because of the timing of the termination, would on one
view seem to be uncommercial. And you will see that
recorded at paragraph 37 {A1.1/61/18} where
Lord Neuberger says:
"There is considerable force in the points discussed
at paragraphs 33 to 35 above ...(Reading to the
words)... however, it is necessary to consider
countervailing arguments."
And he goes on. 38 very detailed, 39 express
provisions. And we know the result.
My Lord, in my submission that is obviously binding
Supreme Court authority, absolutely clear, returning to
the orthodoxy, back to the old days of Liverpool v
Irwin, that kind of approach.
The fact is that that approach also applies to
relational contracts, when we come to that later. This
is implied terms of all sorts, it is not delimited or
restricted in any way.
The value judgment. My learned friend refers
for instance on Day 12, pages 60 to 61 {Day12/60:1} and
Day 12, page 127 {Day12/127:1}, to the practical
realities of the relationship. I'm not saying you can't
have regard to the relevant factors, but it is very
clear that you can't have hindsight and you must have
the right question to the reasonable person at the date
of contracting. Those are crucial. Because that is
reflective of the requirement for necessity.
If we go to Ukraine on the meaning of the word
"coherence" et cetera. That is volume V2, tab 42.
{A1.1/73/1}. A decision of the Court of Appeal.
MR JUSTICE FRASER: V2?
MR CAVENDER: Yes, my Lord, as my learned friend has called
it. It's a decision of the Court of Appeal. I'm not
going to the facts, it doesn't particularly matter. The
argument on this point is at --
MR JUSTICE FRASER: It's invasion and defaulting on bonds,
isn't it?
MR CAVENDER: Exactly. The argument put forward as relevant
for this point is at {A1.1/73/55}.
MR JUSTICE FRASER: Paragraph 200?
MR CAVENDER: Yes, 200, my Lord. What happens at 200 is the
Court of Appeal set out the contentions the barrister
there, Mr Thanki, at (v) and (vi):
"... based on a misunderstanding of ... the business
efficacy test ...
"... if the test were whether the contract could be
effective without it, the implied term against
preventing performance would never arise."
Those were the kind of points being made.
And then the judgment of the court is at 210 on this
point {A1.1/73/63} given by Lady Justice Gloster:
"Secondly, we agree with the judge that the
suggested implied terms are unnecessary the Agreements
work perfectly well without the suggested terms; they do
not 'lack commercial or practical coherence' without the
inclusion of such terms. Nor do we consider that the
judge's conclusion represents a misunderstanding of the
business efficacy test as explained by Lord Neuberger in
Marks and Spencer plc at 21, as quoted above, as Mr
Thanki submitted. The question is not whether the
implied terms create a commercially coherent result but
rather whether the terms are so necessary or obvious
that, without such terms, the contract would lack
commercial or practical coherence. Despite the attempts
by Ukraine to re-characterise the arrangement as a
bilateral loan, or a tri-partite agreement, the court
must look at the terms of the actual contracts entered
into."
And you can see they are given:
"Given this reality, the suggested terms are not
necessary for business efficacy."
The next authority I want to show you on the same
point is Bou Simon, the opening authorities tab 9,
please. Another decision of the Court of Appeal on
implied terms. I'm not sure the facts are beyond those
in the headnote, particularly to take you to
{A1.1/75/1}.
If we go to paragraph 13 -- at paragraph 12 it
starts with "Discussion and Conclusion", does my Lord
have that? {A1.1/75/12}
MR JUSTICE FRASER: Yes.
MR CAVENDER: "It seems to me that the judge succumbed to
the temptation described by Bingham MR in the Philips
case ... (Reading to the words) ... the parties would
have it if it had been suggested to them."
And obviously reference there to Lord Neuberger.
"Furthermore, in my view, the judge began the task
of determining whether a term should be implied from the
wrong starting point ... (Reading to the words)
... Until one has determined what the parties have
expressly agreed, it is difficult to determine ... what
the term should be."
Then missing out the bits of the quote:
"It seems to me that in doing so, he construed the
agreement in order to fit the implied term rather than
begin with the express terms themselves."
We can then jump to paragraphs 18 and 19
{A1.1/75/14}:
"In my view, therefore, the reasonable reader ...
(Reading to the words) ... On the contrary, there was no
lacuna of the kind BGC contends for ..."
MR JUSTICE FRASER: "At all".
MR CAVENDER: Indeed, "at all", my Lord, yes.
Then paragraph 21 {A1.1/75/15}:
"Furthermore, it seems to me that there is no lack
of commercial or practical coherence ... (Reading to the
words) ... there is nothing uncommercial or absurd about
a limited recourse loan."
Pausing there. You can see what was being said
here, that under the terms of the agreement itself this
was the result and that can't have been intended.
"The agreement was drafted on the basis that
Mr Bou Simon would become a partner ... (Reading to the
words) ... It was not subject to decision by the judge
below and is not before the court on this appeal."
And then 22 the Lord Justice further criticises the
judge:
"The judge failed to exercise the utmost care in
formulating the question which one ought to pose to the
officious bystander ... (Reading to the words) ... As
Lord Neuberger pointed out, a term which is not
necessary to give business efficacy to a contract is
very unlikely to be so obvious that it goes without
saying."
So, my Lord, you will see the relevance of this to
our case. The claimants have all sorts of
non-contractual claims against the Post Office,
including in deceit you will recall from the pleading.
The contracts do not need to be rewritten to seek to
deal with all eventualities, even those not anticipated
by reasonable parties at the date of contracting, even
those which would be unlawful for other reasons, eg
fraud or restitution. Your Lordship will recall the
alleged implied term not to conceal various things,
a term that seems to be invented merely to provide
a contractual basis for a claim that can only properly
be advanced in deceit.
So the takeaway points from this passage on implied
terms: the judgment must be done at the time of making
the contract; you can't rely on hindsight; the term must
be necessary, not merely reasonable.
Pausing there, that produces a real problem for
these claimants because we know, and the court can't
close its eyes to the fact, that these six are part of
a body of 557. They are also part of another body of
11,500, all of whom operate on one or other of these
contracts perfectly well and have no necessity, whether
absolute or otherwise, for the rewriting and the
implication of the 21 terms that my learned friend
implies here.
That is not just a jury point. It is very unusual
for someone in my position to be able to say that, to
say, look, here's the contract, and look, there is
a test bed over there, there is a culture plate, the
test, in which you can see what is happening.
I can say that, and I can say it to the sound of
trumpets because there are many -- I see your Lordship
is not impressed by it but --
MR JUSTICE FRASER: It is a jury point really if one is
approaching it as a matter of law.
MR CAVENDER: Is that right?
MR JUSTICE FRASER: Well, if the test is business necessity,
and you have very carefully taken me through the proper
sequence of considering that, what difference does it
make that you say there are lots of SPMs for whom it
works perfectly well?
MR CAVENDER: Because the threshold, as we have seen, for
implying a term, is necessity. I can point unusually in
this kind of case to many thousands of other people who
operate on these contracts perfectly well, without the
term. It's powerful evidence and it requires answering
I'm not saying it is a slam dunk but it is relevant.
And my learned friend has to grapple with that and
explain why, despite that fact, it is necessary. Not
just reasonable or he would like it for these six or
these 557, but why it is necessary and why otherwise the
contract lacks practical coherence. Because those
11,000-odd other people don't think so and they operate
every day on the ... they don't think there is any
problem at all.
So that was the second point: you can't have
hindsight, must be necessary, not merely reasonable.
There must be a gap or hole in the contract, a lacuna,
necessary to fill in order to give it practical
coherence, or I prefer business necessity.
So although it is not absolute logical necessity,
I accept that, it is nonetheless a very high hurdle to
overcome.
MR JUSTICE FRASER: It is business necessity, isn't it?
MR CAVENDER: Indeed. We have looked at the cases where it
has come up and it is a harsh test. The idea of
interpolation of terms into agreements is an ambitious
undertaking. To imply 21 terms into a contract is a
particularly ambitious undertaking.
You would also, my Lord, even if you embarked on
this course at all, you would have to re-address the
test after you implied each term. Because you would
have to ask yourself, having implied one of the terms,
does that then obviate the necessity to imply any more?
And normally in a case it doesn't matter because there
is one term or two terms, but when we have 21 that is
a real point. You have to reassess the test after each
term. Because it may be said that or your Lordship may
form the view the implication of one of them is
sufficient and there are other areas where you are not
satisfied it is necessary to imply a term.
So the task my learned friend has given you,
without, with great respect, any real assistance, is
quite a special one. It is particularly special when he
has not actually shown you any one of the 21 terms.
I will take you to them under the implied term
section but let's have a look now just to remind
your Lordship. I'm not going to go through them but
just to remind you in terms of getting you warmed up and
thinking about what you are being asked to do and the
scope of it.
MR JUSTICE FRASER: So we are putting the authorities away.
MR CAVENDER: We are putting -- after this I am going to
construction, but before I do that I want to --
MR JUSTICE FRASER: Just in terms of my clearing my desk.
MR CAVENDER: Indeed, my Lord, yes, we have. As I say, I'm
only dipping my toe in this now just to remind you
within that debate what are being asked to do.
So it's bundle B, {B3/1/35}.
MR JUSTICE FRASER: Common Issue 2?
MR CAVENDER: My Lord, yes. It's implied terms. It's
paragraph 63 of the pleading I want to go to.
MR JUSTICE FRASER: We are going to the pleading?
MR CAVENDER: Yes, {B3/1/35}. What we have in 63 is the
so-called Yam Seng term with --
MR JUSTICE FRASER: It is not "so-called". It is the
Yam Seng term, isn't it?
MR CAVENDER: Well, not the term that was implied in that
contract in fact.
MR JUSTICE FRASER: No, but 63 seeks -- we can go round and
round in circles on semantics and it is very tedious.
Relational contracts are effectively a tag which was
first expounded in Yam Seng. So that is what 63 is.
And that, as I understand your submissions on approach,
is a question I should come to at the end having done
express terms and implied terms.
MR CAVENDER: Express terms and agreed implied terms.
MR JUSTICE FRASER: Well, you say agreed. Whether agreed or
not, you say express terms, the agreed implied terms and
other implied terms after that because of the necessity.
MR CAVENDER: Indeed.
MR JUSTICE FRASER: And once I have done those two
categories, then I can go on to consider the case that
is advanced on relational contracts.
MR CAVENDER: My Lord, yes.
MR JUSTICE FRASER: Because it has to be considered at some
point. Mr Green said he wasn't much bothered whether it
was second or third but he agreed express terms had to
be done first. You say it should be done after implied
terms.
MR CAVENDER: Yes, as part of really. Because my learned
friend, the way he puts the case is his term in 63,
largely the Yam Seng term is like an authority or
warrant card he uses for justifying, implying the 21.
He also does so separately --
MR JUSTICE FRASER: He does it separately as well. That is
why I was anxious -- "anxious" might be the wrong
word -- careful to explore the sequential order that
each of you seeks to have me adopt. Because Mr Green
has relational contracts as a separate tag, but he also
uses it as a springboard for his other implied terms.
And it can't be a springboard if you are going to do the
implied terms before you do Yam Seng. So do you say it
can be done contemporaneously?
MR CAVENDER: It doesn't matter whether you do it at the
same time or not because Yam Seng is a step along the
way to implying a term, so it is part of the implied
terms debate. As my Lord says, it is simply -- or we
say, I'm not sure if he accepts it or not -- it's
a staging post along the way, a recognised type of
contract, which may require the court to look
particularly carefully at certain possible implied
terms.
MR JUSTICE FRASER: Or at the nature of the relationship.
MR CAVENDER: Yes.
MR JUSTICE FRASER: Which within it would include, if one
found a relational contract, the potential for implying
terms as a function of it being a particular species of
contract.
MR CAVENDER: We say that is the wrong way of looking at
it --
MR JUSTICE FRASER: Okay, it may or may not be semantics.
But I think in opening your position was somewhat more
robustly against it as a concept at all.
MR CAVENDER: My Lord, no, no. It is obviously a concept,
it has been recognised. The debate we had, and I don't
want to have it again because it's out of order, but if
you look at what Lord Justice Beatson says in Globe, it
is quite clear he is saying that a relational contract
is a thing. Whether or not in a particular relational
contract you imply the Yam Seng duty will depend on the
terms of the contract. Once you take that on board, it
is very clear in my submission that he would not advance
or accept the position that the finding of a relational
contract in and of itself means you then imply the
Yam Seng term.
They are separate stages and in my submission -- and
I will make it good -- that is the position, and it's
for good reason because even my learned friend accepted
you can imagine a relational contract, ie one that
fulfils some of the criteria, having sufficient express
terms not to require the Yam Seng term. Point one.
Point two, the danger with rolling it up in the way that
attracts my Lord is the danger of not applying --
MR JUSTICE FRASER: Why do you say the way that I am
attracted to?
MR CAVENDER: Because when you put it to me, you seem to be
attracted at the moment to the idea that as part of the
finding of a relational contract --
MR JUSTICE FRASER: No, I am just fairly clear as to what a
relational -- what the consequences of finding
a relational contract are.
MR CAVENDER: Yes, my Lord, and I'm not agreeing with you.
MR JUSTICE FRASER: I think you are. But if and insofar as
you are not, this arose in opening and it may just be
a miscommunication issue, the expression "relational
contract" has certain characteristics or it is used to
describe a contract with certain characteristics. The
way in which parties' obligations are defined between
the two of them in a contract situation, insofar as they
are not expressly agreed, express terms, they are
implied.
So if one says, well, a relational contract means
a duty of good faith, that duty of good faith can only
go into a contract by means of an implication if it is
not dealt with expressly. That is all it comes down to.
MR CAVENDER: My point in response, my Lord, is I can
imagine a world, Lord Justice Beatson can too, where you
have a relational contract, you say it is long-term,
there's lots of communication, all the incidents that
one gets. It's quite an early stage of the
jurisprudence on what a relational contract is, but it
has those. But nonetheless there is no necessity to
imply a term of good faith.
MR JUSTICE FRASER: That might simply be a way of saying it
isn't a relational contract. If one defines relational
contract --
MR CAVENDER: That is the point.
MR JUSTICE FRASER: That is the point.
MR CAVENDER: Yes.
MR JUSTICE FRASER: And I understand the Post Office's
position is effectively, whether it is a relational
contract or not, there is no duty of good faith --
MR CAVENDER: Correct.
MR JUSTICE FRASER: -- in this contract.
MR CAVENDER: Correct. But I say, and this is important in
terms of the development of jurisprudence, it is
important as a question of developing that jurisprudence
to isolate the elements that make it potentially
a relational contract, what that then makes you as
a judge look at to see the kinds of terms you might
imply, decide whether in fact you are going to imply
them, and then apply the Marks & Spencer test to that.
If you do it all in one, and you can do, there is a real
risk in missing the stages, particularly the application
of the Marks & Spencer test in that, which clearly has
to be done.
MR JUSTICE FRASER: There is no doubt the Marks & Spencer
test clearly has to be applied to see what implied terms
exist.
MR CAVENDER: My Lord, yes.
MR JUSTICE FRASER: There may also be no difference in
result depending on the stage at which one does it.
MR CAVENDER: Quite.
MR JUSTICE FRASER: But I understood the Post Office case
from opening, and it seems I have misunderstood it, was
effectively challenging the concept of relational
contracts at all.
MR CAVENDER: My Lord, no.
MR JUSTICE FRASER: I explored it in quite a lot of detail
on the first day and I think invited you to go back and
re-read some of it because it didn't seem to me
necessarily to make -- to be entirely easy to follow.
As I understand it now, you accept as a legal
species there is a type of contract that can be
described as a relational contract.
MR CAVENDER: Indeed.
MR JUSTICE FRASER: But, and if I am wrong tell me, you
don't accept that simply because something is as, so
described, a relational contract, it necessarily
includes a duty of good faith.
MR CAVENDER: Correct.
MR JUSTICE FRASER: Right.
MR CAVENDER: You have to decide that separately and you
have to decide what type of implied term, because good
faith is obviously a full church, you are minded to
imply and then apply the M&S test to that.
MR JUSTICE FRASER: Therefore if there are two types of
relational contract, one that has a duty of good faith
and one that doesn't, what terms should one use to
describe a relational contract that does not have any
such duty?
MR CAVENDER: It is a relational contract. It is --
MR JUSTICE FRASER: It has the same name as the one that has
a duty of good faith?
MR CAVENDER: What about a joint venture agreement? You
have a joint venture --
MR JUSTICE FRASER: Not all joint ventures are relational
contracts though.
MR CAVENDER: I know, but some have the term of good faith
implied, see Ross River, and some do not. What it is is
a helpful road along the way for the court to identify,
very usefully, that it is a species of contract where
you have ongoing co-operation and long-term. And
your Lordship has put your finger on this, I know it is
not in the authorities, but you are quite right when you
say the long-term element is crucial. Why? Because you
are locked in. You are locked in for a period of time
and one knows from life that events change in, say,
a five-year term or 25 years in the case you brought our
attention to.
In a short-term contract or one with a notice period
that is short your response to that as contracting party
is you can terminate and leave. In a long-term contract
you cannot do that. And in a relational contract that
makes it even worse because you are thrown together.
It's not just the bilateral sale of goods or something,
it is an ongoing relationship. And those are the two
elements that require an answer from the court to have
particular regard to whether, in those circumstances, it
is necessary to imply a term.
MR JUSTICE FRASER: It is very clear to understand,
therefore, that the Post Office case is that a contract
can be a "relational contract" but not necessarily
include a duty of good faith.
MR CAVENDER: Correct.
MR JUSTICE FRASER: All right.
MR CAVENDER: We will go to Globe and see --
MR JUSTICE FRASER: No, no, that is fine.
Right. So we went to the pleadings so you could
show me the implied terms.
MR CAVENDER: Not to go through them, just to see the order
of magnitude having just looked at the test of what you
are being asked to do. So you have the headline term of
Yam Seng, and then cast your eye down in 64 {B3/1/35}
the range of the 21 terms that you are being asked to
imply here.
So we have at 64.1 training, 64.1A reasonably fit
for purpose system. Then 64.2 through to 64.12 is all
about accounting and what you can and can't do. 64.13
is suspension, 64.14 is termination, 64.15 to 18 is good
faith and other things.
So the scope of what you are being asked to do and
say that each and every one of these is necessary to
give coherence to the contracts, and you are asked to do
that without any submissions, detailed submissions on
which ones of these and on what basis. So very globally
in closing by my learned friend. He touches on it and
he tries to parse them up and no real work is done to
try and justify them. And this is being done when you
have already got the agreed implied terms, necessary
co-operation, which my learned friend says, we will come
to it in a moment, is a wide term, filling the space,
along with the fiduciary relationship, the agency, as
well as the express terms. So that is the task on which
your Lordship is asked to embark. I will return to
implied terms in due course.
As you have not seen them before --
MR JUSTICE FRASER: I have seen them before.
MR CAVENDER: But not in terms of submissions and ...
MR JUSTICE FRASER: No.
MR CAVENDER: So now we are getting to the construction
point, express terms, clause 12(12).
MR JUSTICE FRASER: Can I just check before you do as
a global headline point, because obviously the first
four lead claimants are on the SPMC, the fifth and sixth
are on the NTC. Is there scope for, given the different
knowledge of the parties or the hypothetical reasonable
person, so far as the NTC formation is concerned,
because it is so much later in time, the different
implied terms in the NTC than in the SPMC? Or do you
say the answer will inevitably be the same for both
contracts?
MR CAVENDER: My Lord, I think it would be really.
MR JUSTICE FRASER: It would inevitably be the same.
MR CAVENDER: Yes, because I don't think there has been any
attempt by either side to put forward factual matrix
that would differ.
MR JUSTICE FRASER: The factual matrix is going to be
different, isn't it?
MR CAVENDER: But not appreciably. We say the main factual
matrix in closing is that the SPMs have control of the
branch, they know what is going on, they are doing the
transactions --
MR JUSTICE FRASER: But that is after they formed the
contract, you're saying then.
MR CAVENDER: No, no. They know that is going to happen.
MR JUSTICE FRASER: That is correct. But if one looks at
the two NTC claims, Mrs Dar and Mrs Stockdale, they are
forming their contracts, what, 12 years, 14 years, 16
years after some of the other lead claimants.
MR CAVENDER: Indeed.
MR JUSTICE FRASER: And the question which has to be posed,
which is -- I don't have the exact terms written down in
front of me, about the state of knowledge of the
reasonable person, might be different in 2012 than it
was in 2000.
MR CAVENDER: Theoretically of course that must be right and
no one has identified any material difference that is
relevant to construction.
MR JUSTICE FRASER: And you might well be right about that,
but it just seems to me a potential wrinkle which is why
I wanted to ask you about it.
The Justice for Subpostmasters had in fact been
created pre-2012, I think, the Parliamentary inquiry
et cetera, et cetera, that had all happened
pre-claimants five and six. Well, not all of it but
some of it had. So there is a possibility for
a different factual matrix for claimants 5 and 6 than 1
to 4. But if your case is in practical terms it is
going to be the same, then that is your case.
MR CAVENDER: My Lord, it is. Because remember it has to be
known to both parties if you are going to have it in as
a matrix. We are talking about construction here.
MR JUSTICE FRASER: All right. It has to be an objective
evaluation, remember.
MR CAVENDER: Indeed.
MR JUSTICE FRASER: All right.
MR CAVENDER: So we say the point of departure for
construction is the fact that this is a contract of
agency.
MR JUSTICE FRASER: Yes.
MR CAVENDER: An express appointment both under the SPMC and
the NTC. The appointment of an agent is an important
feature when considering the issues of construction and
implied terms, we will come to later. That agency
necessarily brings with it fiduciary obligations owed by
the subpostmaster as agent to their principal, the
Post Office, which I think was accepted by my learned
friend yesterday, and necessarily so.
So in short, the relation of agency is a fiduciary
one and the contractual provisions we are debating sit
atop that. That is important. Your Lordship will have
seen the claimants seem to be moving away from the
admission they were agents, see paragraph 339.1 of the
written closings {A/6/161}, and they make the striking
submission that the subpostmasters' express agency
special agreement to be a fiduciary gave rise to what
they call a "relatively hollow" agency relationship.
I'm not sure what that means. They were agents and they
had all the obligations of an agent and a fiduciary
relating to the cash and stock and the running of the
branch and I'm not sure that can be sensibly contested.
So going to the clause itself, my Lord, can we turn
up the clause in whichever version you have.
MR JUSTICE FRASER: "The clause" being 12(12)? {D2.1/3/53}
MR CAVENDER: 12(12), yes. A couple of things before we
come to the actual words. Because of the way it has
been debated in court you can sort of approach it almost
from the wrong angle.
Firstly, this clause is obviously dealing with
losses, but it is not solely dealing with
Horizon-generated losses and trying to get them in or
out of the wording. That is the first point. I am
assuming for the purposes of this argument that
Horizon-generated losses or bugs are in fact a thing.
I'm assuming that.
The second point to make is that this clause was
introduced before Horizon but its application in
post-Horizon times has been the main focus of the
debate, and understandably. Within that there has been
particular focus on whether there is contractual
allocation of burden within the clause and, if so, what
allocation. That again has been the main focus.
But before we get to burden of proof, leave that to
one side, the court first has to determine the meaning
of the clause. Because once it does that it may find
that issues of burden satisfy or answer themselves.
So in my submission there are two stages. One is
what is the meaning of the clause? And keeping one eye
to how Horizon-generated losses fit into that. And
secondly, what is the burden of proof in the clause, if
any?
MR JUSTICE FRASER: If I keep one eye on how
Horizon-generated losses fit in I am applying hindsight,
am I not? Don't I look at the words as though Horizon
hadn't even been invented?
MR CAVENDER: My Lord, yes. But it is more for the purposes
of the argument because my learned friend effectively,
as I understand his argument, says, look,
Horizon-generated losses are a thing, they are included
within losses and 12(12), and postmasters had the burden
of disproving all of that and isn't that a terrible
thing. So that is the argument that is put.
So what I say is that isn't right. Let's look at
the meaning of the clause first and then look at burden
second, and then what we will do, third, is to run
through how in fact my construction would work as
a matter of practice at the breach trial, and that is
where the inference point arises. Not as a matter of
construction, not as a prior point. The reason I do
that is to persuade my Lord I'm not trying to sell you a
false prospectus and give you a construction that won't
work in fact. So I am working it through and saying
this is my meaning, this is the burden of proof, this is
how it would work in fact in relation to Horizon
relating to the submission of an account. This is how
it would work in fact.
Not that you have to find that in this trial, just
to give you comfort that my construction is correct.
So meaning. Again, with the Horizon-generated
losses on my shoulder I say Horizon-generated losses do
not come within 12(12) due to the meaning of the clause
and that is for two distinct reasons. One, because of
the word "deficiency". You will see the word there, it
starts with losses and errors, and it says finally
deficiencies due to such losses must be made good
without delay.
Deficiency, the Post Office meaning on that is
simple. Deficiencies often in this litigation have been
referred to as shortfalls, they are the same thing.
A deficiency focuses on what has gone on at the branch
and a deficiency is reflective of the fact there is
a loss. A deficiency is a difference between what is
shown in terms of cash and stock counting at the branch,
what I refer to as the "as is" position, comparing that
and what the position should be as shown by the
transactions entered into on Horizon in the branch, what
I call the "should be" position. A deficiency is
a difference between those two things.
Therefore, it does not include any sums entered on
to the Horizon system by way of a bug or something of
that kind. They are not a deficiency.
MR JUSTICE FRASER: That is a circular argument. But let's
say for the sake of argument that it is correct. If
that is correct and what are described as
Horizon-generated losses don't fall under 12(12), under
which clause would Post Office seek to recover losses of
other types? I'm not pegging it to Horizon, to do it
neutrally. Losses of other types would be recovered
under which clause in section 12(12) or any other
section?
MR CAVENDER: They would come under 12(12).
MR JUSTICE FRASER: They would come under 12(12).
MR CAVENDER: Yes, other types. I defined deficiency and
explained it is a comparison between two things. So if
for instance you compared the "as is" position with what
you had entered into Horizon, you had made a mistake of
£100, and so you have £100 less than you should, that is
a loss, it is a deficiency, and under 12(12) you would
be responsible for it.
MR JUSTICE FRASER: But I thought you started this passage
by saying you were going to assume, for the purposes of
argument, that Horizon-generated loss was a thing.
MR CAVENDER: Yes.
MR JUSTICE FRASER: Right.
MR CAVENDER: And what I have done is identify by reason of
the meaning of the clause, not a gateway or anything
else. In terms of the meaning of the clause,
deficiency, because it compares two things the "as is"
position, ie the cash and stock in the branch, and the
transactions done on Horizon by the postmaster at the
branch, ie the stamps and stock that should be there, if
there's a difference between those two then there is
a deficiency. If there is a difference between those
two because there is a bug in Horizon, that is not
a deficiency.
MR JUSTICE FRASER: All right. So on your analysis of
Horizon-generated losses being a thing, how would that
be recovered within section 12(12)?
MR CAVENDER: It wouldn't.
MR JUSTICE FRASER: Mr Cavender, it might be me being a bit
dense but I have difficulties in following.
If you are going to accept for the sake of argument
that Horizon-generated losses do exist --
MR CAVENDER: That is a loss that is generated wholly by
a bug, nothing to do with the subpostmaster or any error
by him.
MR JUSTICE FRASER: But then you are not accepting for
purposes of argument any counterfactual scenario
relating to what this case is in fact about. Because
you are defining Horizon-generated loss as something
that would never, effectively, hit the radar of recovery
from the SPMs at all. And this whole case is about, and
I appreciate it is not going to be -- you can shake your
head but it is. Their case is that there were such
things.
MR CAVENDER: Yes.
MR JUSTICE FRASER: And that they were recovered from them
under clause 12(12).
MR CAVENDER: Correct.
MR JUSTICE FRASER: Incorrectly.
MR CAVENDER: That is what they say.
MR JUSTICE FRASER: Yes. So if for the purposes of argument
you are going to accept there is such a thing as a
Horizon-generated --
MR CAVENDER: Correct.
MR JUSTICE FRASER: It is not enormously helpful to say you
accept it for purposes of argument but then define it in
such a narrow way that it simply would never occur in
terms of recovery from an SPM.
MR CAVENDER: My Lord, it is, because that analysis involves
a misunderstanding and it is this --
MR JUSTICE FRASER: Well, I am misunderstanding whatever it
is you are saying.
MR CAVENDER: Clause 12(12) is about recovering loss for
which the postmaster is responsible.
MR JUSTICE FRASER: Understood.
MR CAVENDER: This is my second point, the second reason why
they are not responsible for Horizon-generated losses.
The first one is deficiency, they are not a deficiency.
The second is when you look at the terms of
clause 12(12), and let's look at it together now:
"... is responsible for all losses caused through
his own negligence, carelessness or error, and also for
losses of all kinds caused by his assistants."
Pausing there. A horizon-generated loss in the way
we have been describing is not caused by a subpostmaster
or by an assistant. So for the second distinct reason
it is not recoverable under clause 12(12). It has been
done so, then Post Office were not entitled to do that.
That, in my submission, is the proper construction
of 12(12) in terms of its meaning, deficiency on the one
hand and cause on the other, both independently working,
in terms of the words used, to make clear that assuming
that Horizon-generated losses are a thing, and I accept
that for the purpose of argument, they wouldn't get in.
So that is my gateway point that my Lord and I debated
in opening. They wouldn't get through the gateway.
I use that word in order to try and explain and make it
simpler. But I think actually it is probably simpler to
look at the meaning of the words.
MR JUSTICE FRASER: Yes.
MR CAVENDER: So therefore, to the extent that
Horizon-generated losses are a beast that exist at all,
and I accept for the purposes of argument they might be,
they do not fall within clause 12(12) and cannot be
recovered under it.
We then come to the separate question in light of
that of burden of proof.
MR JUSTICE FRASER: Yes.
MR CAVENDER: Post Office have the persuasive burden,
sometimes called the legal burden, I'm happy with either
term if you look at Phipson, of showing a deficiency.
This will include in cases where it is relevant or
suggested that the deficiency was not, in fact, a
Horizon-generated loss.
MR JUSTICE FRASER: Yes.
MR CAVENDER: When you get to discussing burden within
clause 12(12), Horizon-generated losses have already
been dealt with outside it. They can't come within it
for the two reasons I have said: they are not
a deficiency and have not been caused by
the subpostmaster or an assistant. So you don't need to
strangulate or alter the construction of 12(12) as
regards burden to get them out. They are already out.
So 12(12) is dealing with all other losses, apart
from Horizon-generated losses, at this stage of the
argument.
MR JUSTICE FRASER: I don't think it is, though, is it,
because 12(12) is only dealing with losses caused by the
negligence, carelessness or error of the postmasters.
Isn't it?
MR CAVENDER: The error, yes.
MR JUSTICE FRASER: So it is not dealing with all losses
except Horizon, although you are defining
Horizon-generated losses in a particular way to construe
it that way. There is at least on the words the
possibility of losses not caused by negligence --
MR CAVENDER: Carelessness or error?
MR JUSTICE FRASER: Or carelessness or error.
MR CAVENDER: It is possible, my Lord. But when it comes to
burden -- you are quite right, and this is where our
pleading comes in --
MR JUSTICE FRASER: What, your Generic Defence?
MR CAVENDER: Yes, the practicalities. At this stage you
say, well, you are in charge of the branch. If you do
things as you should do then you shouldn't suffer losses
unless you have made an error. It is possible you might
be robbed, there might be other things. But on balance
then that won't happen.
So when you look at our paragraph 93 of the Defence
in that light you can fully understand it.
So if we look at paragraph 93. {B3/2/42}
MR JUSTICE FRASER: I have it open.
MR CAVENDER: The famous paragraph my learned friend calls
it. "Infamous" may be a better word. But what that is
doing, my Lord, and bear in mind in 93 the first two
words of the second sentence:
"More generally ..."
So this is a generic pleading --
MR JUSTICE FRASER: But if you are using "shortfalls" as
being synonymous with "deficiencies", what is said at
93(1), the second line of 93(1), is contrary to what you
have just said to me in the last five minutes.
MR CAVENDER: Which part, my Lord?
MR JUSTICE FRASER: You said that you have the persuasive or
legal burden of showing a deficiency. 93(1) says, if
you read the introductory words of 93:
"... as regards shortfalls disclosed in
a subpostmaster's accounts ...
"(1) Where a subpostmaster asserts that he or she is
not responsible or liable for a shortfall, the legal
and/or evidential burden of proof is on him or her ..."
And I understood you a few minutes ago to accept
that the Post Office had the legal or evidential burden
of showing that there was a deficiency.
MR CAVENDER: My Lord, you have to read the whole of 93 and
94. 94 actually is the construction of section 12(12).
And read for me, my learned friend didn't, 94(2)
{B3/2/43}:
"On the true construction of section 12(12),
subpostmasters are responsible for all losses (as
defined in paragraph 41 above) ..."
Let's look at what that means because that imports
some definitions that are rather important in this
connection. It's page 15 of the pleading.
MR JUSTICE FRASER: I don't know why that is any more
helpful than the expression of legal or evidential
burden in 93(1).
MR CAVENDER: Because what it does --
MR JUSTICE FRASER: Go to 41.
MR CAVENDER: I'm not sure you have been there yet.
MR JUSTICE FRASER: I have that open as well. It's on
page 15, internal numbering. {B3/2/15}
MR CAVENDER: Exactly. So what you have is definitions
which are incorporated into 94 and 94(2) in particular.
You have a discrepancy which refers to the difference
between the actual cash and stock in the branch and the
cash and stock as shown on Horizon as derived from
transactions input by branch staff. That is exactly the
same as what I said to my Lord a moment ago in terms of
the difference between the "as is" and the "should be".
If you then go to subparagraph (3), a loss refers to
an event that causes a negative discrepancy. A
discrepancy is positive or negative and it's saying
a loss is a negative discrepancy.
Subparagraph (4), a shortfall refers to a negative
net discrepancy at the end of a trading period. All so
far consistent.
And then we have at (6) {B3/2/16} something called
a Horizon-generated shortfall, it refers to a shortfall
attributable to errors and/or bugs in Horizon.
You will see nothing in this pleading expressly or
implicitly that suggests that postmasters are liable for
Horizon-generated shortfalls.
MR JUSTICE FRASER: No, that is not the point. The point
was who has the legal and evidential burden of proof.
I know that Post Office's case is that they have never
chased any subpostmasters for Horizon-generated
shortfalls because they accept on one way of looking at
the case, and as they define Horizon-generated
shortfalls, that that is not something that could be
caused by the subpostmasters. But the reason for that
is because of how Horizon-generated shortfalls are
defined. What I am asking you about is the legal and
evidential burden.
MR CAVENDER: Quite. Let's go to that. This is talking
about generally. If you look at 93:
"More generally, as regards shortfalls disclosed in
a subpostmaster's accounts, Post Office notes the
following principles ..."
This is talking about downstream at a breach trial.
It is not saying as a matter of construction of 12(12),
what it is saying is once you decide what it means, this
clause, and we will come to this when I say its
implication. You will then have a debate about whether
clause 12(12) itself allocates the burden. And my
submission is it doesn't.
MR JUSTICE FRASER: Understood.
MR CAVENDER: But what you then do downstream is say in
a particular case Mr Abdulla with his problems, or
Mr Sabir, they say they didn't get the scratch cards or
didn't get whatever it was, and within that evidentially
there will be burdens of proof according to procedural
law or the law of evidence. All 93 is doing is saying
in that context later what Post Office is going to say.
It is not saying that what I have just said is wrong.
MR JUSTICE FRASER: All right.
MR CAVENDER: So 93(1) assumes a shortfall, and what it is
saying is in the absence of evidence that a shortfall
arose and was responsible, it is appropriate to assume
it is for them to explain. And that is doing no more
than stating the obvious because you have
Horizon-generated shortfalls out of the picture, you
have a difference between the cash and stock at branch
and what the transaction you have entered on to Horizon
show. And you then say -- we say, well, this doesn't
happen by osmosis, this happens due to normally an error
or negligence on behalf of the postmaster. You as
a matter of practice have more knowledge about that. So
when the court is allocating -- is deciding burden of
proof at the breach trial, you will have regard to those
factors.
MR JUSTICE FRASER: Mr Green, I am sure the sotto voce
chirping stage left is not going to be useful. If
Mr Cavender wants you to help him explain it, I am sure
he will invite you. But for the moment these are the
Post Office's submissions, and they didn't interrupt you
on Monday or Tuesday.
Mr Cavender.
MR CAVENDER: My Lord, some of the confusion that has been
brought in here I think in this aspect of the case is
people not being absolutely clear as to the burden of
proof at what stage. So I say what you must first do is
decide what the words mean. You decide then whether
contractually there is any allocation of burden
expressly or implicitly within the clause.
MR JUSTICE FRASER: Yes.
MR CAVENDER: Whatever the answer to those questions, you
then say at the breach trial, in light of those
findings, depending on the allegations of breach,
remember, and what particular product it is and how it
was said the problem is caused, Mr Abdulla says he
didn't receive the scratch cards or someone says they
didn't receive the lottery tokens, whatever it is,
inherent within that there will be evidentially they
would have to prove certain things. They didn't receive
a certain amount of cash, they received another amount.
So it is in that connection that 93 is particularly
relevant.
But of course that is not for this trial. That is
not for your Lordship to determine. And you couldn't,
absent the facts of the relevant -- the breach facts in
a given trial, how you finally allocate the evidential
burden, if you like, based on the allegations. All
your Lordship can do sensibly, in my submission, is see
whether there is an express or implicit burden within
the clause.
MR JUSTICE FRASER: Yes.
MR CAVENDER: So my submission on that is that the clause
itself does not expressly allocate the burden. It
doesn't say as some clauses do in some contracts: you
can do this, that or the other if you want this
further -- the seller, if he delivers late, to justify
the reason why, otherwise he has to do this that or the
other.
That kind of language that expressly says it is for
one party or the other to do something or provide
a certificate or a record or something to enjoy some
kind of contractual right. So it is not express in that
sense.
The next level is: is it implicit in some way? Are
there words there we can implicitly see that there is
an allocation of burden there? In my submission, no to
that as well.
But insofar as you want to go down that particular
route, let's have a look to see if that is right or
wrong. As a matter of construction of clause 12(12),
the first thing the subpostmaster has to do is show that
the loss was not one caused by his assistant. Why?
Because losses caused by his assistant, there is strict
liability. The own negligence, carelessness or error
only applies to the subpostmaster. That is what the
words say. And it is obviously right that they say that
because, as we know, subpostmasters are not obliged to
employ assistants, they employ them or not at their own
will, they choose them, they train them, they supervise
them. Whether they do so is a matter entirely for them
so it is not surprising that the clause reflects that
differential.
So the first stage is, looking at burden of proof,
it is for the postmaster to show, in relation to
a particular loss for which claim is made, that it was
not caused by his assistant. If he can do that, we then
get into: was it caused by your error or carelessness?
In my submission at that stage, implicitly it is for him
to show that. If he is going to escape liability and
say, firstly, "I can fulfil the burden that it wasn't my
assistant", and he says "Well, it wasn't due to my error
or negligence", which at this stage remember are not
Horizon-generated losses, these are losses based on the
difference between the "as is" and the "should be", it
is for him to show that.
Otherwise, it would be -- for Post Office to recover
under this clause would require it to prove precisely
the cause of a given loss by something done by its agent
in branch about which the Post Office will never have
any knowledge but the postmaster potentially will. At
least he is in a much better position to know in
the ordinary course of events.
That approach, in my submission, is also in keeping
with clause 17, relief, where {D2.1/3/54}:
"A subpostmaster may exceptionally not be required
to make good the full amount of certain losses at his
office. If he feels entitled to relief in making good a
loss he should apply to the retail network manager."
Again, in my submission, that clause can only be
interpreted that it is the burden on the postmaster who
wants to achieve relief under that clause to put forward
facts and matters that could relieve it.
(inaudible) contractual scheme to implicitly place
the -- well, place the burden on the postmaster for the
second line of clause 12(12) to show it wasn't caused by
his assistant, place the burden on Post Office to show
that the loss which at this stage must have been caused
by the postmaster was by his error or carelessness. And
then in relation to clause 17, it is for the postmaster
to prove facts for him to obtain relief.
That would not, in my submission, be implicitly
a sensible construction of this clause as regards burden
assuming for a moment that it does implicitly contain
such a provision.
My learned friend says this is a new construction.
It is not. I have just shown my Lord where in
the pleading these terms have originated. It is fair to
observe that in the way this case has been pleaded out,
my learned friends haven't pleaded a proper construction
of 12(12). So we never got into the detailed pleading
to make this point even more obvious. It is true the
pleadings never got to that stage, but that is not
something the Post Office in my submission should be
criticised for simply because the claimants didn't
ever -- and you can see it in the pleading -- plead
a proper meaning of 12(12).
You will never see any reference in our pleadings to
saying that postmasters are responsible for
Horizon-generated losses. They are not, it has never
been our case that they were. It has been my learned
friend's straw man to suggest that somehow we were
saying that in order to effect the proper construction
of 12(12) for all losses. Despite the fact it is
fiduciary, despite the fact it is an agent, he is saying
despite all that, because of the existence of the
Horizon-generated problem, to use that as a stalking
horse to say it is all so difficult, enormous
difficulty, therefore you should construe 12(12) about
all losses in the way he suggests.
What my argument does is say no, no, no (a) that is
not the right reading, and (b) your Trojan horse of
Horizon-generated losses is outside 12(12).
My Lord, is that a convenient moment for a break?
MR JUSTICE FRASER: I think it is. Ten minutes. We are
only able to go to 4.15 pm but we can start at 10
tomorrow and go until 5 o'clock to make up some time
from this morning.
(3.11 pm)
(A short break)
(3.22 pm)
MR CAVENDER: My Lord, moving on with the analysis, what I
am now going to do is give two examples of putting in
practice my favoured construction in two separate
situations. One is where there is a loss but it is not
covered by agent-submitted accounts, let's say it has
been settled centrally subject to dispute. And then
I am going to an example where the lost amount is
subject to the postmaster's declaration of accounts.
So what I am doing now is adding the third feature
here, the agency relationship, and the submission of
accounts, and how that impacts on this analysis in terms
of the breach trial we are talking about here. So we're
moving off construction and we are testing my
construction in those circumstances to see whether it is
good, bad or indifferent.
The first example is where the loss is not covered
by agent-submitted accounts. I accept the burden is on
Post Office there to show there is a deficiency/loss
with the meaning of the clause, ie gets into the clause.
So this includes where, if the postmaster puts it in
issue to say it is a Horizon-generated loss, to show on
balance that it is not.
Post Office would ordinarily discharge that
burden -- this is your inference point -- by reference
to the figures produced by Horizon and relying on that
as evidence and saying because Horizon is a good system,
look at your second judgment your Lordship is going to
bring. This is, remember, looking at the breach trial,
so on that basis.
MR JUSTICE FRASER: So it's going to be the -- when you say
"second judgment"?
MR CAVENDER: The second trial, my Lord.
MR JUSTICE FRASER: The Horizon trial.
MR CAVENDER: Indeed. As a result of that we will say, if
we did well there, it's a hypothesis, it's a generally
reliable system. In the balance of probabilities the
loss is not a Horizon-generated loss and therefore that
possibility on balance should be excluded.
The loss deficiency then gets through into the
clause and is dealt with by the mechanics of the clause
as previously described. At this stage of the analysis
the loss or deficiency is not by definition
a Horizon-generated loss, and the subpostmaster is
liable for it unless he can show it was not caused by
an assistant and it was not caused by his error.
If the Post Office is able to demonstrate that, as
regards the point in issue, Horizon was reliable, the
loss wouldn't even get into 12(12) and the
subpostmaster, as I say, wouldn't be liable for it.
So discussing that, standing back, at this stage,
once Horizon-generated losses are put to one side, if
there is a loss Post Office say the overwhelming
likelihood is that that resulted from an error on the
part of the postmaster or his assistant. It seems to be
on one view a high submission, but it merely reflects
a simple fact that a proper executed transaction doesn't
result in deficiency. That is not to say that the
circumstances might -- things can go wrong, and
of course the subpostmaster can adduce evidence to show
in his case things did go wrong.
The claimants' attempt to make this a point of
construction about Horizon issues and unfairness is
misconceived, firstly because as a matter of law at the
time of contracting neither party foresaw Horizon would
not work properly and accurately insofar as any computer
system doesn't, and it is misconceived on the facts
because the vast majority of losses we say result from
errors in the branch.
We see the leads in these cases, by way of example,
you have to find evidence, there were errors and thefts
in fact by postmasters or temporary ones, and errors
made, and that is not necessarily unusual. So that is
how we say if you have -- the interpretation of this
cause at the breach trial, that is how it would work.
The next thing I am going to do is look at the same
thing but where the postmaster has declared the accounts
to be true.
MR JUSTICE FRASER: In your first example, how do you say
they dealt with that particular loss in their accounts?
Because you used the expression "agent-submitted
accounts".
MR CAVENDER: In my first example it is not covered by
submitted accounts, so it is settled centrally subject
to a dispute is the example I gave. So it is subject to
a dispute, so it's outside the submission.
MR JUSTICE FRASER: Settled centrally subject to a dispute
by phoning up.
MR CAVENDER: Indeed. The second one is where they don't do
that, and it is part of the declaration of the accounts.
MR JUSTICE FRASER: By defining it in those terms you are
I think implicitly, but I just want to be clear with
you, using "declaration of the accounts" to mean making
good for cash or making good for a cheque or settling
centrally without disputing.
MR CAVENDER: My Lord, no. What I am saying by "declaring"
is at rollover, at the end of the trading period, you
submit accounts saying that they represent a true and
fair view of the accounts, and you subsequently want to
re-open those and say no, no, in fact there is some loss
or deficiency there I'm not responsible for.
MR JUSTICE FRASER: But isn't that what they have done in
the first one as well, because otherwise they wouldn't
be able to go into their next trading period.
MR CAVENDER: No, because they have there -- the imprimatur
of the submission doesn't apply because they have
registered a dispute in relation to amount.
MR JUSTICE FRASER: But they still have to declare
an account, haven't they?
MR CAVENDER: They do, but the imprimatur of the law of
agency doesn't apply to that element you dispute.
MR JUSTICE FRASER: Because they disputed it prior to the
date of declaring the account, you mean?
MR CAVENDER: At the same time or the day after normally it
happened. Contemporaneously with. Because the law of
agency and the principles that apply don't apply to such
amount of the account that you dispute at the date you
submit it, obviously. So the amount in my first example
doesn't have -- they don't need to set aside the account
or say it is mistaken, because it is not part of the
account, it was always subject to dispute.
My second example is where the loss or deficiency
they want to dispute is subject to a declaration. And
there, in my submission, the subpostmaster needs to
adduce some evidence or argument that a particular loss
or deficiency, again through the prism of the
Horizon-generated loss, was a Horizon-generated loss in
order to justify correcting a mistake in their account.
They have to adduce some evidence to say -- they can't
just say generally, well, the whole 8,000, I'm not sure
I want to pay that anymore. They have to identify --
this isn't anything to do with the construction of the
clause, this is to do with agency law and what you need
to do to dispute an account. You need to show some
evidence or argument that the particular loss or
deficiency needs to be re-opened.
MR JUSTICE FRASER: Isn't that the same as your first
example, though?
MR CAVENDER: No, my Lord. My first example, I accept that
the burden is on the Post Office to show that there is
a deficiency which involves disproving any allegation
from the postmaster that the deficiency was in fact not
a true deficiency, it was a Horizon-generated loss.
MR JUSTICE FRASER: I thought you said in your first example
that Post Office would rely on the figures generated by
Horizon. Horizon is generally reliable. Therefore you
could exclude, by definition, a Horizon-generated
shortfall so-called, so the burden was on the
subpostmaster to show ...
MR CAVENDER: That's later on in the analysis. That's later
on.
MR JUSTICE FRASER: But that was your first example.
MR CAVENDER: Exactly.
MR JUSTICE FRASER: So in the first example the burden is on
the subpostmaster by the route that you have gone
through.
MR CAVENDER: Eventually. Eventually.
MR JUSTICE FRASER: In this one the burden is also on the
subpostmaster, isn't it? You are just saying it comes
at an earlier stage.
MR CAVENDER: My Lord, yes. In the second example it comes
at the beginning. In the first one it comes later if --
if -- Post Office is able to show that it is
a deficiency and not a Horizon-generated loss. In
the first example, when there is no accounting
imprimatur, I accept it is for Post Office to show it is
a deficiency, ie to show it is not a Horizon-generated
loss. I then go on to say in that example how
I anticipate Post Office will seek to do that.
MR JUSTICE FRASER: So what you are saying then, as far as
I understand it, is that for anything that has been
settled centrally and made subject to a dispute by
phoning the Helpline, you accept that the Post Office
would have to demonstrate that Horizon was not to blame.
But the way you anticipate doing that is a finding at
the second trial that the figures generated by Horizon
were generally reliable, is that correct?
MR CAVENDER: That is correct.
MR JUSTICE FRASER: For everything that has been settled
centrally but made subject to a dispute.
MR CAVENDER: My Lord, yes.
MR JUSTICE FRASER: If that is right, though, where does
your inference come in?
MR CAVENDER: It comes in in the second part you describe,
the inference based on Horizon being generally reliable.
MR JUSTICE FRASER: But that is what has been applied
up-to-date, isn't it, as I understand it? Post Office
has relied on that inference throughout since
2000-and-whenever onwards?
MR CAVENDER: My Lord, certainly as a matter on the ground,
but I am talking about analysis of this contractual
provision and what I am saying is that at this stage
Horizon is merely evidence and the reliability of
a system will, we say, produce an inference that
the likelihood is that these are not Horizon-generated
losses.
MR JUSTICE FRASER: I do know that and I am aware that that
has been the approach of the Post Office throughout.
That is part of the reason we are here. But if that is
applied where something is settled centrally and made
subject to a dispute, how is that different from your
second example which is that the subpostmaster needs to
adduce evidence of a loss or deficiency being
a Horizon-generated loss? The burden is on them in both
circumstances.
MR CAVENDER: My Lord, it is not. In the first example,
I have accepted, the burden is on Post Office to show
a deficiency, ie to disprove -- if someone is saying
"No, no, it's £1,000", they're saying, "No, this is a
Horizon-generated loss". And I say "No, it is not, it
is a deficiency --"
MR JUSTICE FRASER: Which you disprove by applying your
inference.
MR CAVENDER: No, they -- for all sorts of evidence. They
might put forward branch-specific evidence. Mrs Stubbs
might say it was a connection between this and that, you
might get evidence from postmasters that shows that the
inference is incorrect.
MR JUSTICE FRASER: Yes, but you don't get to that until you
have applied the inference. Because on your analysis,
as I understand it, the application of the inference
means -- let's use Mrs Stubbs just as a shorthand.
Mrs Stubbs undoubtedly raised a dispute in respect of
some items.
MR CAVENDER: Indeed.
MR JUSTICE FRASER: If you meet the burden which you seem to
accept on the face of it the Post Office has, and apply
the inference, it is then for Mrs Stubbs to show that
actually this was caused by a power outage or an
electrical connection or some other issue in order to
show it isn't caused by her carelessness, fault,
negligence or error, is that right?
MR CAVENDER: We're certainly able to do that, yes.
MR JUSTICE FRASER: But that is on your first example.
MR CAVENDER: Yes.
MR JUSTICE FRASER: Where there is a settlement -- something
has been settled centrally but made subject to
a dispute.
MR CAVENDER: The point about that is so there is no
accounting assumption.
MR JUSTICE FRASER: I understand that because you say now
that the accounting assumption does not apply to
circumstances or accounts where there is already an
extant dispute.
MR CAVENDER: Correct.
MR JUSTICE FRASER: But in your second case, where there has
been a declaration at rollover that does declare
an account, I think implicit within that is
a declaration without any prior notification to the
Helpline of the dispute.
MR CAVENDER: Or subsequent. Or subsequent. Because you
roll over and then you can do it the next day.
Contemporaneously with.
MR JUSTICE FRASER: Okay. Just so I am clear: without
a contemporaneous declaration of a dispute, the burden,
because of the nature of agency account, is also on
them.
MR CAVENDER: It is not a burden, my Lord, it is a different
thing. Under the law of agency they would need to
adduce some evidence or argument --
MR JUSTICE FRASER: Of a loss or deficiency being
a Horizon-generated loss, that is what I wrote down:
"Subpostmaster needs to adduce evidence of a loss or
deficiency being a Horizon-generated loss."
MR CAVENDER: In a world where that is what we are talking
about, that is the debate, yes, exactly so.
MR JUSTICE FRASER: So that takes me back to my first
question which is: apart from the declaration of
the account, how is the process any different in that
example to your first example?
MR CAVENDER: Because there is some initial requirement in
my second example upon the postmaster before the
Post Office has any burden to -- you can't just say "My
account is all mistaken, it is all wrong". You have to
identify a particular loss or discrepancy within that
that you say is mistaken and put forward some evidence
or argument -- I'm not saying the burden is on them.
And also remember, my Lord, when we are doing this, it
is my case that there is the implied term of necessary
co-operation --
MR JUSTICE FRASER: I am aware of that.
MR CAVENDER: So that fits in here. If, for instance, they
say it was this TC or it was that, you know, I need some
evidence of that. If it's that they need through that
term "necessary co-operation" to provide that,
Post Office would have to do that as part of this
process. Because that implied term applies throughout
this contract at all times.
So the Post Office would have to provide necessary
co-operation. On the flipside if in fact the
subpostmaster has been false accounting for six months
and not declaring its accounts and all the other things,
then as I will come on to later the duty, the standard
of duty on necessary co-operation wouldn't be as high.
That said, the worst false accounter ever, if there
was evidence of a Horizon-generated loss they would
still be able to forward it.
MR JUSTICE FRASER: By not declaring his or its or her
accounts, do you mean not declaring them or do you mean
declaring them inaccurately?
MR CAVENDER: Declaring them falsely. And once the
subpostmaster successfully opened the account by showing
a mistake or generally, then we go back to the first
example. Once they have got through that threshold it
is still then for the Post Office to show it is
a deficiency and all the other things in the first
example.
The reason I give you this is just to try and give
an example of downstream in the breach trial, with or
without the accountancy elements. When I come to agency
tomorrow you will understand how it fits in on my
construction of 12(12).
So you understand, I am not selling you a false
prospectus and saying this is clever construction. When
it comes to either the accounting imprimatur or
downstream on breach, on burden, there is some hidden
impossible burden. In my submission there is not. Not
that your Lordship has to decide that today, but you do
in my submission have to regard to obviously the results
of the competing constructions. So as part of that
I have made those submissions.
One of the main thrusts in this case, one of the
main points has been my learned friend's (inaudible) is
TCs. A TC is obviously, as you know, a transaction
correction and it is to correct errors often made by
postmasters. Not always of course, there are errors by
other people as well. The first thing your Lordship has
to know is the scale of this problem is generally very
small. Why do I say that? If we put up {G/54/1},
please, on screen. Do you remember this table? The
total volume on the right-hand side. And if you take
an average of those numbers at 140,000 TCs per annum,
you split that between the 11,000-odd branches, and that
gives you, on the maths, twelve-odd per branch per year,
which is about one per month per branch. So you should
first have a sense of scale about TCs across the
network.
MR JUSTICE FRASER: You are looking at the total volume?
MR CAVENDER: Indeed. If you split that between the
11,500-odd, it's about twelve per branch in rough terms,
which is about one per month per branch. So of course
while there will be clusters and certain people will
have more mistakes than others depending on the people
they employ, and we have heard some evidence of that,
this is not a massive problem in terms of the way my
learned friend would have it, the way he puts the points
as if they have hundreds of these each week.
When you look at paragraph 28 of
Angela Van Den Bogerd's statement at {C2/1/7}, please,
you will see there the numbers of transactions:
"Based on data over the last six weeks, there were
on average around 900 transactions per week in smaller
branches and 2,500 transactions per week in larger
branches."
So that is between 3,500 and 10,000 per month doing
the maths. So that is the number of transactions you
would do of it which you might get a few TC, one, two,
three. Of course it depends on each branch but you need
to put it in perspective. My learned friend suggests
almost there is an avalanche of TCs. That is not how it
goes. You get a TC to try and correct, you get evidence
of (inaudible), and you have obviously the opportunity
to dispute it, ask for more evidence, and we know the
procedure. But the impression given that you have piles
of these the whole time in my submission is the wrong
impression.
The TC of course doesn't have a separate life within
this accounting dispute because the TC at rollover, as
we know, has to become part of the amount subject to the
account which can be disputed or not. There could be
various reasons for TCs of course but ultimately it
comes through, contractually and in terms of the
procedure we have seen, into the submission of
the accounts which are subject to a dispute or they are
not.
That is what we say clause 12(12) does and how it is
to be interpreted. What do the claimants say? We deal
with this at page 153 of our closing. Of course
your Lordship has read this. But what they seek to do,
before we go to it, is they seek to ignore the words of
the clause --
MR JUSTICE FRASER: Are we in paragraph 423?
MR CAVENDER: 153 and following.
MR JUSTICE FRASER: No, which paragraph?
MR CAVENDER: Paragraph 153. Page 55 {A/8/59}.
MR JUSTICE FRASER: So claimants' closing ...
MR CAVENDER: Sorry, defendant's closing. Internal page 55.
"Four supposed restrictions on Post Office ability to
enforce a shortfall", do you see that?
Before we go into the detail of what they say, we
say they seek to ignore the words of the clause, they
seek to ignore the point that Horizon-generated losses,
to the extent they exist at all, are dealt with outside
of the clause. And then they say, in effect, that is an
impossible burden, and then use that as a way of trying
to construe the clause in the way they do. They do it
by seeking to impose restrictions on the ability of
Post Office to recover losses and we say none are
justified or explained.
The first they do is say that "losses" doesn't mean
losses, it means actual losses, namely an economic
approach to losses which focuses not on the branch but
on Post Office and the downstream transactions
Post Office does with its clients. So they try and
bring all of that as a matter of construction into the
meaning of the word "loss" rather than looking at what
happens in the branch.
As your Lordship will be aware, the transactions
downstream with clients have nothing at all to do with
the subpostmaster in terms of risk or anything of that
nature. They are interested in what goes on in the
branch and don't have a risk or loss possibilities based
on what happens on client side.
So that is the first thing they do.
The second thing they do is say that the losses must
be established as such after due enquiry. As a matter
of construction they say that and, as would appear to
your Lordship, that is not a question of construction of
12(12), it is seeking to imply a term into it. But they
say it is construction.
And the third thing they do, they say that the
relevant loss must not be caused or contributed to by
the defendant's breach of duty, otherwise again they say
it is not a loss.
We think they are not sensible points of
construction. We deal with those at paragraph 157 in
this where we deal with the first restriction {A/8/60}.
Second restriction at paragraph 161 {A/8/64} and the
third restriction at paragraph 163 {A/8/65}. I'm not
going to go through those now, your Lordship has
obviously read those points, but none have any merit at
all, they can't possibly be points of construction and
fulfil none of the criteria. It is all the faults and
problems that in Arnold that we were talking about,
ignoring the words, trying to stand back and put the
words in the contract you wish you had. So it fails all
the relevant tests and I say no more about it.
So that is 12(12), my Lord. Unless you have any
questions on that I will move on to 4.1.
MR JUSTICE FRASER: You say 4.1 I think should be construed
as having the same effect as 12(12), is that right? It
is different words but ...
MR CAVENDER: It is different words and it has -- in terms
of its overall -- if you explain to somebody like
a non-lawyer you would probably say that.
MR JUSTICE FRASER: Probably say what?
MR CAVENDER: That it broadly has the same effect. But it
has different words, and particularly what it does it
makes the liability for losses strict for both losses
caused by assistants and for losses caused by
subpostmasters. There is no negligence or error
carve-out in 4.1.
MR JUSTICE FRASER: So it is a strict liability clause.
MR CAVENDER: Indeed. Subject to the express words that
were in parenthesis which we'll see.
So if we go to 4.1 and remind ourselves what is
says. I think your Lordship has said before, and I have
agreed with you before because it seems to be the
position, that what 4.1 does is include both what was
previously in 12(12) and in 12(5).
MR JUSTICE FRASER: It does seem to roll them all up
together.
MR CAVENDER: It does indeed. But my submission is -- and
the net effect isn't very different from what my learned
friend says I don't think -- is that first you read the
clause as a whole, and if you split it into two and the
second half begins with "any deficiencies" four lines
from the bottom, for the purposes of the argument rather
than anything else. So the first part of the clause is
the whole clause down to "any deficiencies" and
thereafter is the second part of the clause.
MR JUSTICE FRASER: I am sorry, I seem to have -- the yellow
sticker I put on your helpful document pack has fallen
off and I'm worried I have the wrong one. (Pause)
That is the modified one. You don't have a ready
reference to hand, have you, by any chance?
MR GREEN: {E5/137/39} is clause 4.1.
MR JUSTICE FRASER: No, I am talking about the hard copy
files that Mr Cavender gave me. I can find the clause
of the NTC very easily.
MR CAVENDER: Your Lordship has maybe marked it.
MR JUSTICE FRASER: It is just my sticker had fallen off.
I will deal with it on the screen.
MR CAVENDER: So "Liability for Post Office Cash and Stock":
"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) ..."
1:
"... except for losses arising from the criminal act
of a third party (other than personnel) ..."
2 -- and I'm inserting 2 here:
"... which the operator could not have prevented or
mitigated by following Post Office Limited's security
procedures or ..."
3 I'm inserting here:
"... by taking reasonable care."
So there is an absolute strict liability subject to
three carve-outs. And that is in relation to "loss or
damage to any Post Office cash and stock (however this
occurs ...). So that is part 1 of the clause as I have
called it, or part A shall we say --
MR JUSTICE FRASER: That's cash and stock.
MR CAVENDER: Indeed. And then --
MR JUSTICE FRASER: And that is a mirror or an evolution or
a reflection of 12(4).
MR CAVENDER: But not only that. It is broader than that
but it certainly includes that, my Lord, yes.
Then the second part, or part B shall we call it of
the clause is:
"Any deficiencies {an important word} in stocks of
products and/or any resulting shortfall ..."
Another important word, 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."
Pausing there. In my submission the use of the word
"deficiencies" and "shortfall", "deficiencies" once and
"shortfall" twice in the second part of the clause,
indicates it is dealing with, including other things,
what you could call briefly our accounting losses. It
is going beyond cash and stock which is dealt with in
the first part.
Also in my submission, because you read the clause
as a whole, the postmaster would gain the benefit of the
three carve-outs not just in relation to cash and stock
but also in relation to any deficiencies. So you would
read it as one. And so the "except for" would apply not
just to cash and stock, it would also apply to
accounting losses.
Post Office say "deficiencies" here and "shortfall"
here has exactly the same meaning as in clause 12(12),
so exactly the same analysis applies here vis-a-vis the
suggested Horizon-generated losses. They are outside of
this clause for that same reason.
MR JUSTICE FRASER: So you say or the Post Office says they
are dealt with exactly the same in terms of imposing
liability on subpostmaster. It makes no difference
whether it is an SPM or an NTC, the scope of their
liability is the same?
MR CAVENDER: No, my Lord, because this is strict liability
for both. If you recall in the SPMC as regards the
subpostmaster as opposed to the assistant, as regards
the assistant it is strict, in relation to
the subpostmaster you have to show error or negligence.
Here that carve-out does not exist, and that is
the difference I identified right at the beginning.
MR JUSTICE FRASER: Sorry, what carve-out?
MR CAVENDER: If you look at 12(12) alongside this --
MR JUSTICE FRASER: No, let's look at 4.1 because I am just
trying to ...
The requirement to take reasonable care plainly
applies to cash and stock. Sorry, let me put it
slightly differently. A failure to take reasonable care
is expressly catered for in part A in relation to cash
and stock, agreed?
MR CAVENDER: Well, it occurs. Whether it occurs as
a result of negligence, personnel ...
MR JUSTICE FRASER: No, I am looking at 4.1, Mr Cavender.
MR CAVENDER: So am I. The "however this occurs" in my
submission is strict. So that means however it occurs.
And it then outlines what it means by that, whether it
occurs by negligence, personnel or otherwise. So it is
saying that. It is strict in relation to cash and
stock.
MR JUSTICE FRASER: It then says:
"... which the operator could not have prevented or
mitigated by following Post Office's security procedures
or by taking reasonable care."
So if they had taken reasonable care, how would they
still be liable?
MR CAVENDER: The criminal act of a third party or ...
because if you look, it says "except for" --
MR JUSTICE FRASER: So you are saying "or by taking
reasonable care" ...
MR CAVENDER: That only relates to acts resulting from
criminal acts. What it is talking about is robberies
and burglaries.
MR JUSTICE FRASER: All right. Then when you get on to
part B, is that strict liability as well?
MR CAVENDER: Yes. What I am saying is but that is -- you
read in the benefit of the three exceptions in relation
to cash and stock into that implicitly. So if you have
deficiencies that result from the criminal act of
a third party which couldn't have been prevented,
someone comes into the post office and starts entering
all sorts of different items into the computer, which
you couldn't have prevented or mitigated following
procedure measures or taking reasonable care, then that
would not be a deficiency for which you are responsible
under this clause.
MR JUSTICE FRASER: That is where I started to get a bit
puzzled. The bit that you are inviting me to read into
part B are the parentheses in lines 2 and 3 of part A, I
think.
MR CAVENDER: Correct.
MR JUSTICE FRASER: Is that right?
MR CAVENDER: Yes.
MR JUSTICE FRASER: But those parentheses are however the
loss occurs and whether it occurs as a result of
negligence by the operator or not.
So negligence in terms of cash and stock doesn't
matter in the parentheses, does it? So if you read that
across to the second part and say, well, you must read
part A into part B, you get strict liability for
deficiencies and resulting shortfalls in part B as well,
don't you?
MR CAVENDER: Yes, you do. That is what I say the
difference is. Because do you remember at the beginning
you said is there any difference, and I said yes --
MR JUSTICE FRASER: I know there is a difference on the
wording, I am talking about a difference on the meaning.
So you are saying 4.1 is a strict liability clause for
cash, stock, deficiencies in stock and resulting
shortfalls.
MR CAVENDER: Subject to the three carve-outs --
MR JUSTICE FRASER: Yes, but the three carve-outs are
whether it occurs as a result of negligence or not.
MR CAVENDER: Quite. But then it goes on, doesn't it, to
losses arising from the criminal act of a third party.
What I am trying to do is give them the benefit of those
carve-outs rather than saying it's --
MR JUSTICE FRASER: If you define the bit of the carve-out
you mean, I am not quibbling with that, I am just trying
to follow how part A flows into part B to restrict it.
Because on the face of what you told me about part A,
which is effectively strict liability.
MR CAVENDER: Indeed.
MR JUSTICE FRASER: And it's strict liability because of the
words "fully liable" and "however this occurs and
whether it occurs as a result of negligence or not".
MR CAVENDER: Exactly.
MR JUSTICE FRASER: So if I read "however this occurs and
whether it occurs as a result of negligence or not" into
part B, part B becomes strict liability as well.
MR CAVENDER: Indeed.
MR JUSTICE FRASER: Right. That therefore means on its
wording it is a strict liability clause for cash, stock,
deficiencies in stock and accounting shortfalls.
MR CAVENDER: Indeed.
MR JUSTICE FRASER: Is that right?
MR CAVENDER: Yes. Subject to, if they fit, the carve-outs
in stock and cash apply equally to shortfalls and
accounting losses in part B.
MR JUSTICE FRASER: Yes, but the shortfalls -- if we look at
negligence for the moment, negligence does not work to
the benefit of the subpostmaster on cash and stock, does
it, on part A?
MR CAVENDER: Correct.
MR JUSTICE FRASER: So is negligence necessary at all for
an accounting shortfall in part B?
MR CAVENDER: No.
MR JUSTICE FRASER: Right. Therefore -- that is what
I thought you were saying. So clause 4.1 of the NTC is
a strict liability clause.
MR CAVENDER: Correct.
MR JUSTICE FRASER: But clause 12(12) of the SPMC is not
a strict liability clause.
MR CAVENDER: My Lord, it isn't the same, no. That is why
I said at the beginning they are different. But if you
look at 12(12), it is responsible for all losses through
his error.
MR JUSTICE FRASER: Correct. Well, carelessness, negligence
et cetera.
MR CAVENDER: Or error. And that error is not qualified by
an error which is negligent.
MR JUSTICE FRASER: No, but all of those connote fault.
MR CAVENDER: True.
MR JUSTICE FRASER: Whereas strict liability does not
connote fault.
MR CAVENDER: That is true.
MR JUSTICE FRASER: So therefore is it correct to say the
liability under the NTC under 4.1 is broadly the same as
the liability under 12(12)? Because one of them is
fault and one of them is strict liability.
MR CAVENDER: My Lord, yes, there is that difference.
MR JUSTICE FRASER: That is quite an important difference.
MR CAVENDER: It is, quite. But in terms of the way it
works with 12(12) is all you have to show is an error.
Once you take out Horizon-generated losses -- and they
are taken out of both clauses so that we are absolutely
clear -- my position is deficiency has the same meaning,
so the same debate that I put forward on the SPMC
applies to 4.1. Postmasters can say, "Well, no, there
is not a deficiency, there is a Horizon-generated loss",
and Post Office would have to show that on the balance
of probabilities that wasn't right in relation to
the particular loss.
MR JUSTICE FRASER: So you are saying in practical terms
there may be no difference in how each clause is
applied. But in terms of construing them on their
express terms there is a difference, is that right?
MR CAVENDER: That is right.
MR JUSTICE FRASER: I know subjective intention makes no
difference to anything, but Mr Beal I think it was said
that it was intended to have the same effect.
MR CAVENDER: He said that in a sort of general sense, that
is true. My learned friend said, although I'm not sure
my Lord was particularly impressed by this submission,
that you would construe the NTC in light of the SPMC,
which in my submission must be wrong. Except in a case
where you are moving from the SPMC to the NTC, there
would arguably be part of the background factual
matrix --
MR JUSTICE FRASER: Depending on how that movement was
achieved.
MR CAVENDER: Exactly.
MR JUSTICE FRASER: But as I understand it, and tell me if
I am wrong in fact, anyone who was on board with
an SPMC, when the network transformation programme came
along if they wanted to stay being a subpostmaster they,
or most of them, qualified for compensation, gave up
their rights under the SPMC, and were re-engaged on
an NTC, is that correct?
MR CAVENDER: My Lord, I believe that is correct. (Pause)
Yes, it is right, but there are loads still on the
SPMC so that wasn't --
MR JUSTICE FRASER: Well, it wasn't universal. There are
still some -- you still have a number of people --
MR CAVENDER: 2,700 apparently still on the SPMC. So not
everyone was offered -- I think Mr Bates, we saw from
his correspondence he was I think offered NTC, dependent
upon all sorts of criteria.
MR JUSTICE FRASER: So there are still SPMC SPMs.
MR CAVENDER: Very many, yes.
MR JUSTICE FRASER: Some transferred on to the NTC. But
those who did transfer on to the NTC gave up their
rights, effectively, under the SPMC because as a process
of moving on to the NTC there was -- it is effectively
a watershed or a step in their contractual development.
MR CAVENDER: Indeed.
MR JUSTICE FRASER: So Mr Green's suggestion that I construe
the 4.1 as being child of or evolutionary to the SPMC
might seem to be a bit ambitious.
MR CAVENDER: My Lord, yes.
MR JUSTICE FRASER: But for anyone like Mrs Dar or
Mrs Stockdale who contracted on the NTC, the terms of
the SPMC are not relevant at all.
MR CAVENDER: Indeed.
MR JUSTICE FRASER: Right. Now, just so that you know,
before I heard anything in this case at all in terms of
the trial, I looked at this clause of the NTC with some
care, and also the clauses it replaced. It seemed to me
to do two things, and I imagine you will agree this from
what you have just said but I need to check it with you
expressly, that it blended -- is it 12(5)?
MR CAVENDER: Yes.
MR JUSTICE FRASER: It blended 12(5) and 12(12) together,
I think you agreed it did.
MR CAVENDER: It did.
MR JUSTICE FRASER: And on its face it reads as a strict
liability clause.
MR CAVENDER: Indeed, except for losses arising from
criminal acts where they followed the procedure and have
taken reasonable care.
MR JUSTICE FRASER: All right.
MR CAVENDER: So that applies --
MR JUSTICE FRASER: What year did this start being used?
2011?
MR CAVENDER: 2012 I think. October 2012 I think was the
first one.
MR JUSTICE FRASER: Interesting.
MR CAVENDER: So if there was a theft or something then
of course there would be a benefit, and if that resulted
in an accounting loss then they would have the benefit
of that caveat to protect them. Or my example, if
someone came in and started entering transactions and
created losses on the system --
MR JUSTICE FRASER: So save for anything that occurred as
a result of a criminal act, an SPM under 4.1 of the NTC
would have wider liability than an SPM under clauses
12(5) and 12(12) of the SPMC.
MR CAVENDER: Indeed.
MR JUSTICE FRASER: Thank you very much.
MR CAVENDER: My Lord, that is construction of 4.1.
Perhaps we can start relational because it is
obviously everyone's favourite topic and it is a long
topic. Can you sit until twenty past, my Lord?
MR JUSTICE FRASER: Let's say quarter past.
MR CAVENDER: So we will have an introduction to my
favourite subject.
Before dealing with relational contract, though,
what we have to deal with is the implied terms that both
parties have agreed are parts of this contract and
therefore are good as express terms of necessary
co-operation, and that is necessary co-operation from
one to the other. So it's a mutual obligation relating
to performance of one to the other.
We set this out in paragraph 238 of our closing
{A/8/89}, particularly starting -- 238 is the
introduction, 242 is where we get into the meat of this.
{A/8/90}
If you recall, if we go to paragraph 165 of the
claimants' opening {A/1/65}. At paragraph 165 you will
see at the end of it:
"... albeit, the defendant's own implied terms of
wide application, namely implied duties to co-operate
and not to prevent performance of the contracts."
So although this is the beginning of their seeking
to reverse out of the fact they are agreed implied
terms, they are saying they are of wide application.
That is important because it is actually true, they are
of wide application. They are protean terms that apply
both ways, depending on the necessities of the contract.
Again the necessary is not absolutely necessary but
it is one step down from that, but it is not reasonable
or I would like, it is necessary, but it is not
absolutely sort of logically necessary. That is not the
test.
We say at 247 that these kind of terms are often
implied into commercial agreements {A/8/91}, and the
function is ensuring that the parties' legitimate
expectations are respected. And over at 248 {A/8/92} we
say:
"The necessary cooperation term is in many respects
similar to the Stirling v Maitland term. But it creates
a broader and more powerful obligation in that it may
require positive action to facilitate the other party's
performance, rather than merely not hindering it."
And we refer there to James McCabe v Scottish
Courage where Mr Justice Cooke in the middle of that
passage talks about the duty of co-operation to the
extent necessary to make the contract workable.
MR JUSTICE FRASER: He rolls the two together, really,
doesn't he.
MR CAVENDER: He does. But in terms of necessary he makes
it workable, that is the kind of test he is applying, in
accordance with obviously the terms of the contract.
And you will see at footnote 137, Ukraine v Law
Debenture Trust Corp, the Court of Appeal approved that.
As we say in 251 {A/8/93}, the Post Office
submission that sees challenge to that and the
importance of these is wrong headed. They are common
ground. They are as much part of the agreement as the
express terms. They have a proper construction and they
must be understood on that basis.
Pausing there, your Lordship will need to find as
part of your role in deciding whether there is a gap or
not, and if what it is into which to put other implied
terms, to decide what they mean and their reach, in the
broad sense of an assessment.
MR JUSTICE FRASER: Where is the best place to see them
written down just as a single reference? It doesn't
matter if you don't have ...
MR CAVENDER: I can explain what they are.
MR JUSTICE FRASER: I know what they are. I am just saying
in terms of the actual terms of them, because I know
they are admitted, where is the best place for me to go
and look at them?
MR CAVENDER: I will get a reference while I am speaking.
They are obviously pleaded in our defence but I can get
that.
In terms of their application, as we say, they are
obviously fact-sensitive in application which is one of
their great benefits. My learned friend has been very
critical throughout this that we haven't somehow been
able to answer all his questions about them, but that is
not surprising because they are sensitive to fact. And
whilst we have -- and I can give you the references --
tried to co-operate with meetings between leading
counsel, provide further information, a lot of letters
have been written to try and explain the position, and
we have in this document for instance provided examples.
So 252 {A/8/94}, how the agreed implied terms would
work in relation to various aspects. 253 as regards
training and support. 254 {A/8/95} as regards
accounting. 255 {A/8/96} as regards investigation of
shortfalls. So you can see it is accepted that these
implied terms have that reach.
We have given some examples of high watermark and
low watermark when we say they would or wouldn't react,
which is at this level of (inaudible) in group
litigation the best one can realistically hope for.
Furthermore, it is the most that the reasonable person
at the time of contracting with their then knowledge
would be able to agree a hearty "of course" to.
The other thing about them that makes them
particularly appropriate is they are mutual. All my
learned friend's obligations when we go to the 21, you
have seen them, provide onerous, unilateral obligations
on Post Office to do something. So for instance to
investigate shortfalls. And it asks -- and the
obligation is on Post Office whatever the circumstances,
whatever the subpostmaster has or hasn't done in
advance, and on shortfalls whether or not the postmaster
even disputes the shortfall, as we will see tomorrow
when we go through them.
They are completely inappropriate in a contract like
this, not least because they undermine and chip away at
the very foundation of the agency fiduciary
relationship. Indeed when you look at this debate
through the prism of the Yam Seng term of good faith
going from the Post Office to the postmaster, that is
cutting away and undermining the very fiduciary
relationship of agency that pre-exists. Not only is it
in conflict with it but it seeks to cut away and
undermine, hollow out, the obligations of the agent to
account, and to account as a fiduciary. All the
obligations we see is about 15 implied terms about
accounting, they all undermine, are in conflict with,
that fiduciary duty and that is important to note.
So if we for instance take shortfalls because that
is the most familiar area, 255, we say in (a) it's
highly fact-specific, of course it is, nonetheless we
provide examples.
And (c):
"In the first category -- cases where the agreed
implied terms who require Post Office to act -- the most
obvious example is where Post Office is aware of some
important fact about the branch's accounts that is not
known to the SPM. If Post Office is aware, for example,
that a transaction shown in the account is in fact
mistaken and can be corrected, it must inform the SPM of
this. This is done by means of proposing a transaction
correction to the branch ..."
Et cetera.
"In the second category -- cases where the agreed
implied terms would not require Post Office to act --
the most obvious example is where the SPM has made any
effective investigation impossible through false
accounting and/or his own refusal to cooperate. An SPM
may disguise the existence of a shortfall for months by
inflating his cash declarations to Post Office and
falsifying his accounts, making it at least extremely
difficult for anyone other than the SPM to identify even
the time at which the loss(es) underlying the shortfall
arose. In that kind of case, the SPM may then refuse to
attend an interview and/or refuse to provide any answers
to questions that Post Office has about the account. In
a case where the party seeking cooperation has acted
dishonestly and/or in such a way as to render the object
of the cooperation impossible or excessively difficult,
no cooperation may be necessary (or, which amounts to
much the same thing, it may be reasonable to take no
active steps in cooperation)."
All that shows you is that is reflective of the
mutuality of the obligation. In any case, and we will
go to Yam Seng tomorrow, what Mr Justice Leggatt was
very keen on in that case, in the application of that
case, the ratio of that case, was ensuring the implied
terms he implied under the banner of good faith both had
knowing or honesty in them. He wasn't willing to imply
what he called onerous terms of unilateral duties upon
the party in that case. He was only willing to do it if
it had knowing or dishonest in it. And we will come to
that tomorrow.
In some ways the necessary co-operation terms in
this respect are broader because they don't need that.
You don't need to show for necessary co-operation that
they were acting in bad faith or are dishonest or any of
those things. These are co-operation that is necessary
to perform the contract, whether it is in bad faith,
good faith, it doesn't matter. So in that respect these
terms are more appropriate to assist in the operation of
a commercial contract which is why -- and this isn't the
first case they have been agreed to be implied, they are
often implied.
To take my learned friend's point, that doesn't mean
the contract is bad or has been badly drafted. All it
does is reflect the fact that these kinds of contracts
are assisted by terms of this type. And what my learned
friend has to do is to mount an argument, which he
hasn't done, as to why in spite of these and their wide
reach all the implied terms should be implied.
Paragraph 105 of the Defence {B3/2/47} is the
reference to the defence where the two implied terms are
pleaded.
MR JUSTICE FRASER: Thank you very much.
So tomorrow. Do you want 10 o'clock?
MR CAVENDER: Yes, please. We have a lot to get through.
MR JUSTICE FRASER: You have to leave some time for my
questions at the end of tomorrow.
MR CAVENDER: Of course.
MR JUSTICE FRASER: And then I also have to give you a date
for the CMC that is going to happen in respect of trial
number three. So there will be a bit of discussion
about that at the end of tomorrow.
MR GREEN: My Lord, there was agreed by my learned friend
the possibility of my replying very briefly.
MR CAVENDER: When what is that agreed?
MR GREEN: When we discussed me going first -- I can take
you to the transcript -- and we have been taking notes
on that basis.
MR JUSTICE FRASER: I'm really not interested in going to
the transcript at the moment, we will address that point
tomorrow. It might be that you can just put points in
writing. As far as I was concerned it was two days
each, but I am not going to shut you out from putting in
any short points if there are any. I have also got
a couple of points I need to go through.
So 10.00 am tomorrow. Thank you all very much.
(4.20 pm)
(The court adjourned until 10.00 am on Thursday,
6 December 2018)
(10.30 am)
Closing submissions by MR CAVENDER
MR CAVENDER: Good morning, my Lord.
MR JUSTICE FRASER: Mr Cavender.
MR CAVENDER: The court obviously has the benefit of some
detailed written closing submissions from my side and
I'm obviously not, given the time available, going to be
able to go through all of those, but of course
everything we say in there and have said throughout the
case is maintained. What I am going to try and do is
bring the case to life in the important aspects to make
our position clear.
What I intend to do, by way of roadmap, is firstly
to do an introduction to outline the tools available
really for the job set for your Lordship, indicate the
findings we think you should make and some comments on
the approach of the claimants. That is a rather longer
section than I would like, but there are matters going
to the background of this trial and what it is and isn't
to determine that we need to go into.
Secondly, I am going into the law on interpretation
of contracts and on implied terms. Again, very
important because there seems to be a gulf between
the parties as to the application of those terms.
Thirdly, I am then going to go into construction to
construe the express terms of the contract, particularly
those relating to accounting, namely, clause 12 in
section 12 and clause 4.1.
I am then going to move to the agreed implied terms,
because they are agreed. My learned friend has not
sought to withdraw his admission of those. They
themselves have a construction and a meaning which the
court needs to determine. And only then go to the
question of relational contract and the implied terms
debate that goes with it.
I may or may not get on to agency today. I suspect
not but I might.
MR JUSTICE FRASER: So that is for today, yes.
MR CAVENDER: My Lord, yes.
MR JUSTICE FRASER: Agency is effectively going to be part
two with today being part one.
MR CAVENDER: Correct. But it depends --
MR JUSTICE FRASER: It depends how you get on.
MR CAVENDER: -- how much debate I have with my Lord whether
we go through it quicker or not, but we may or may not
get to agency.
So introduction then. Standing back, in my
submission it was recognised at the outset the depth and
the breadth of the attack on the contractual
relationship that is mounted by these claimants, and in
my submission and experience, is unprecedented. They
seek to replace the existing relationship of principal
and agent in the business context and replace it with
some kind of pick and mix employee-type, but not
employee, relationship, treating the SPMs as employees
when it suits them and not when it doesn't.
If you imagine a copy of the SPMC or the NTC that
contains all of the caveats to the express terms, the
constructions my learned friend puts forward, all the
implied terms, the strikings out based on whether
incorporation or UCTA, you would have a document so
covered in red that it wouldn't represent anything like
the bargain the parties struck at inception. That
should cause your Lordship serious concern, but that is
what the claimants' case is.
The weapons they use to do that are: recasting the
nature of the relationship entirely, ignoring agency,
ignoring the fiduciary duties. Blatantly ignoring the
words of the contracts, treating them as if they are not
there, and putting in their place words that they think
better fit. Ignoring the existence of the other implied
terms, the agreed implied terms. You didn't hear a word
from my learned friend on that, literally not a word.
They then seek to imply, without warrant or
authority, a further 21 implied terms they say on the
authority of Yam Seng, which would introduce completely
one-sided and unworkable obligations and obligations
that would be contrary to the express terms of the
contract and the express nature of the agency
relationship.
Then they seek to argue that the main operative
terms, that is all the operative terms, are not
incorporated into the contract. Insofar as they are
incorporated they then seek to strike them down under
UCTA, and so far as the termination provisions are
concerned, they say they don't represent the true
agreement, see Autoclenz.
My Lord, you should not approach this in a silo and
look at each of these points completely independently
when adjudicating upon them. It is the whole effect on
the contractual relationship that your Lordship is
concerned with. Of course there are different rules and
different approaches to the different points they make,
but the overall effect is one your Lordship should keep
in mind.
What it is, without sounding too pompous about it,
is the attacks we see in this case are an attack on the
freedom of contract in terms of a commercial
relationship and on the certainty of law. The attacks
go so deep and so far they do in fact attack those very
basic principles.
The determinations to be made at this trial relate
principally to interpretation and the implication of
terms. Your Lordship said in debate with my learned
friend yesterday, or perhaps the day before, quite
rightly, you can interpret a contract without evidence.
You can also imply terms without evidence and often you
do. Usually you do. You can sometimes have a little
bit of factual matrix to set the background that may or
may not be true and relevant.
But what has happened here is something quite
different. There has been an industrial scale
introduction of evidence.
As your Lordship will know, and I will go through
the law, facts relating to how the relationship
proceeded post-contract and questions of breach are
irrelevant to making determinations as to the meaning of
the words in the contract. Similarly, they are
irrelevant to the implication of terms. So too are the
subjective views of either side, including views on
policy documents, that wouldn't have been available to
the contracting parties.
This is not a case where there are allegations of
estoppel or waiver. We are not dealing with
rectification. We are dealing with interpretation and
implication.
So in my submission, approaching this the court
should recognise that such matters are irrelevant in
normal litigation, but in my submission, my Lord, this
is not normal litigation, it is group litigation. So
they are doubly irrelevant, the factual matters that
apply to these particular six. Because the outcome of
this trial affects 557 people, and therefore the
individual facts and experiences of this particular six,
randomly chosen, is even more irrelevant.
The six leads were never intended to be and are not
representative of the 557. They are just six random
leads, three chosen by each party, the only criteria
being that they cover the SPMC and the NTC periods.
Any judgment that is based closely on the
experiences of those six is going to be, in my
submission flawed, and of no use to the rest of the
group, which is the reason why so much money and time
has been spent on this case. It isn't for the six, it
is for the 557.
My learned friend tries to obscure this by inventing
what he calls generic evidence which he says has been
given in this trial. But there is no such thing as
generic evidence. What your Lordship has heard from the
six is their own experiences. That is the result of
your Lordship ordering that the Common Issues be
determined in the context of the six lead claims. But
what has happened in this court over the last four weeks
is much more akin to some sort of public inquiry into
the Post Office contracts which, in my submission, is
an inappropriate way to proceed.
The court will bear in mind, as we say at
paragraph 16 of our closing {A/8/10}, a significant
number of the 11,500 subpostmasters in the network are
in fact companies or multiples. The way my learned
friend has presented this case is as if all of them are
individuals in the position of someone like Mrs Stubbs.
They are not. So if your Lordship took the view and
interpreted the contract on the basis they were, in my
submission that would be wrong.
In my submission, given the avalanche of irrelevant
evidence and questioning by the claimants about such
post-contractual facts and breach, there is a real risk
of this court being led inadvertently into error by
implicitly taking that evidence into account when
deciding the questions of interpretation and implied
terms as they apply to the 557 claimants.
The claimants must anticipate that, otherwise their
approach would be pointless. Now that we have the
claimants written submissions, that flawed approach has
been made clear. They set out in the first 134 pages of
their narrative what can only be described as what they
say is post-contractual evidence, or what is
"post-contractual evidence", in inverted commas, and
then they get to the issues. A review of that evidence
shows it is often partial and sometimes inaccurate.
We have, and I will hand up in a moment, a table of
a number of those inaccuracies. I'm not going to go
through them all. But you should proceed with care with
that document because in some respects it is tricky.
The claimants expressly ask the court to make
findings on the meaning of the contract based on
post-contractual evidence, views of what witnesses are
said to retrospectively have expected. That, my Lord,
is the wrong test.
If you look at paragraph 22 of their closing
{A/6/11}, they say contractual liability for debts falls
to be considered against that background having set out
in the earlier parts a whole range of inadmissible
evidence. No legal justification is suggested for that
then or now.
If you remember my learned friend yesterday, twice
he said he was going to take your Lordship and explain
to you the basis of the admission of all this
post-contractual evidence. He has not done so. He was
obliged to do so to help the court, he was going to take
an expansive view of this issue-by-issue to outline what
evidence he says that he knows is contested is
admissible on each of these issues and what the legal
justification for it is.
He has nowhere done that. If you read their closing
submissions, there is just acres of evidence and then
incorporation by reference saying all admissible. It is
not.
At paragraph 86 {A/6/32} of his closing, he asked
the court to consider the robustness of Horizon and then
seeks to refer to evidence that suggests that Horizon
was not robust. This is the wrong question. The
contractual question is what parties at the time of
contracting would have reasonably expected in relation
to Horizon. And that was the question I was seeking to
elicit from the witnesses, not about implied terms, but
by way of contractual background for a reasonable person
in that position. This is to say nothing of the fact
that this is clearly a Horizon issue.
In relation to Horizon, while we are here, there is
no pleaded issue or case about the knowledge of
Post Office about problems with Horizon. There is
nothing in the opening of these claimants suggesting
that Post Office had a certain knowledge at a certain
level of seniority which was corporate knowledge about
Horizon and its operation or difficulties with it.
No questions were put to any witness, let alone
a senior witness, to try and elicit, over the period
when Horizon was in play, what the corporate knowledge
of the Post Office was about Horizon.
MR JUSTICE FRASER: By "corporate knowledge", do you mean at
board level?
MR CAVENDER: My Lord, yes. But there is no building of
a case.
MR JUSTICE FRASER: In terms of corporate knowledge at board
level, I don't think there were any directors, were
there? I might be wrong.
MR CAVENDER: No, my Lord. But there was
Angela Van Den Bogerd, the most senior witness. If you
look at her, it was never put -- investigated what her
knowledge was at different stages and what the view of
Post Office was. And also this would be almost a plea
of quasi-fraud, that you knew that this system had
serious problems -- my learned friend's case -- and you
hid that from somebody. If you are going to make that
case, (a) you have to plead it, and (b) you have to put
it. Neither was done.
MR JUSTICE FRASER: Let's put quasi-fraud to one side
because I'm not quite sure what that means.
Mr Green did put to Mrs Van Den Bogerd a series of
documents demonstrating what he said showed an awareness
within the Post Office of certain operating either
difficulties or features or whatever neutral term one
wants to put.
MR CAVENDER: Quite.
MR JUSTICE FRASER: At the end of which he asked her why he
had had to effectively ferret it out of her in
cross-examination. So he did put that case to her.
MR CAVENDER: He did, but what he didn't -- what it seems to
be, and your Lordship has asked for these documents to
be collated, which caused me some concern, which is why
I am making this submission, is that if there is a case
somewhere that on interpretation -- part of the factual
matrix, we say, is that the parties at the time,
reasonable parties in the position, would have expected
Horizon to be robust and all the things I put. That
case has not been impugned on this basis and nor could
it be, because the one thing you would get from all the
witnesses in Post Office side is a complete faith in
Horizon. That is one of my learned friend's complaints,
that he said almost they were blind to it. They had
blind faith in it, I think. He doesn't say that, but
that is the effect when he is dealing with the
complaints, that Post Office believed in their system.
So there is no factual basis for it either, in
truth, even though --
MR JUSTICE FRASER: As far as the exploration of the way in
which the six in fact operated when they were
subpostmasters, as a point of construction concerning
each of their individual contracts, then obviously the
orthodoxy is clear about the way in which that is done.
But so far as Common Issues 12 and 13 are concerned,
which are the agency accounting point, the court had to
have evidence as to how that was in fact (a) required to
be done or supposed to be done --
MR CAVENDER: My Lord, no, that is a question of
construction.
MR JUSTICE FRASER: I'm not sure it is, Mr Cavender. If you
turn up the Common Issues. I know there are various
versions of these floating around because I asked for
the pleading references to be extracted. I am actually
looking at the one produced --
MR CAVENDER: Which one, my Lord?
MR JUSTICE FRASER: I am looking at the one produced for the
beginning of the trial but I don't think it much matters
because the wording of the issues is the same in all of
them. If you look at number 13, and in fact can someone
give me the reference on the common screen so we can
call it up, the Common Issues on the common screen.
MR GREEN: {B1/1/1}. Common Issue 13 I think is on
{B1/1/3}.
MR JUSTICE FRASER: So {B1/1/3}.
It is of course correct that a court can and often
does construe contractual terms without evidence because
sometimes -- well, for all the reasons we don't need to
go through. But the wording of these Common Issues was
agreed by the parties.
MR CAVENDER: Indeed.
MR JUSTICE FRASER: Now, absent any evidence at all or any
agreement as to facts between the parties, which at one
early naive stage of the case I did invite your
predecessor and Mr Green to do and it only went a
particular distance, how without evidence of any
claimant would any judge know how or what any branch
trading statement account that was signed and/or
returned to Post Office, even mechanically, was
approached or expected to be approached by
a subpostmaster?
MR CAVENDER: My Lord, the fact of the document, obviously
you need to fit it into -- but in terms of the burden,
the obligation. Obviously 13 -- if you read from 12
first, 12 is the extent really -- the legal effect of
the agency is really what 12 is because the extent is
not in dispute, ie these people were annuals. My
learned friend accepted yesterday, very fairly, that
they are fiduciaries in relation to the stock and cash.
So it is really the legal effect. They're agents, a
certain law is imported in relation to that. And my
learned friend's point is to what extent does the full
effect of that apply to me? We say it applies to full
effect, but obviously if there is a disputed item when
you submit your account then that is outside it.
MR JUSTICE FRASER: That is something which may or may not
have become more important recently. But so far as
evidence being irrelevant of how a subpostmaster or
postmistress operates their branch, absent evidence from
a claimant along the lines of: these are the buttons,
this is what would happen, these are your choices, this
is in fact how you go about it. And countervailing
evidence from the Post Office along the lines of: well,
actually, what was supposed to happen was X, Y or Z, or
these were the choices. And as you put it to each of
the claimants: actually, that is not your choice. What
you are supposed to do is A, B, C, not X, Y, Z.
I am struggling to see how that evidence in law can
be irrelevant to Common Issue -- well, in particular 13,
but also partly 12.
MR CAVENDER: 12 is a question of law as I've just outlined.
13 --
MR JUSTICE FRASER: If you look at the Defence, paragraph
91(1) at {B3/2/41}, 91(1) describes the functions --
MR CAVENDER: Agent fiduciary.
MR JUSTICE FRASER: From line 3 onwards, evidence as to how
those functions were performed, surely that has to be
relevant.
MR CAVENDER: Relevant to what, my Lord?
MR JUSTICE FRASER: It is the Post Office's pleading. It is
relevant to what the subpostmasters were in fact doing.
MR CAVENDER: What they are doing is unpacking the fiduciary
duties and the nature of the accounting relationship,
ie they were agents and this is what they were doing.
The way --
MR JUSTICE FRASER: Exactly. That is exactly the point.
They were agents and this is what they were doing.
MR CAVENDER: Under the contract.
MR JUSTICE FRASER: Obviously. But the way in which they
were doing it, how can that be said to be irrelevant?
MR CAVENDER: Because the debate is ... well, it's not --
they are agents, contractual agents, they are
responsible for the cash and stock at the branch. They
are fiduciaries in relation to that. The law -- so it's
a question of construction of the contract. The law of
agency is then incorporated and that is the position.
Mr Green's case, as I understand it, is that for
some reason the full law of agency doesn't apply. There
are certain principles of law where an agent can
challenge an account or set it aside and we accept
those. In principle, on the facts, individual agents
can try and do that.
We also say in this relationship if there is -- and
in any relationship -- if an agent disputes an account
when making it, obviously he is not stating that part of
the account he disputes. That isn't peculiar to
Post Office or how they do it, that is just a simple
statement of law. That if you state an account but put
reservations in it or make it subject to dispute, you
are not -- the imprimatur of the legal principle doesn't
apply to that bit you are disputing. That is a question
of law.
How the mechanics of that happened here aren't
particularly relevant. We have heard about them.
I make no complaint about the bare fact that there is
some high level description of the system. But,
my Lord, what we have gone into in this case, because of
the evidence, is all the accounting evidence, their
particular experiences, their potential falsification of
accounts. And you will see in my submissions I have
steered well clear of that as well because it is unfair
to those witnesses to make findings about that, there
has not been full disclosure on these matters, and this
is not an appropriate trial to get into the detail of
how they accounted.
MR JUSTICE FRASER: On an individual basis.
MR CAVENDER: On -- certainly on an individual basis but
also, my Lord, there has been no -- Post Office has not
led any evidence on the accounting relationship more
generally and how it all fitted together. There is no
witness statement, there is -- no one gave that evidence
other than by reference to my learned friend, in a
rather scattergun way, without being rude to him, over
the period of the 20 years, various documents. And
there is a real risk of my Lord getting the wrong end of
the stick or not getting the full nature of the
evidence, because there hasn't been full disclosure on
that, there has not been evidence in relation to it, and
it is not an issue for this trial.
So in some ways I confess and avoid, in relation to
the second of the two issues, yes, you need an
understanding, a very Noddy understanding --
MR JUSTICE FRASER: A very ...?
MR CAVENDER: Noddy understanding, of how the system worked
here just to talk about burden of proof. But all you
need to know is there was a branch accounting statement,
it was done monthly or five-weekly, they were able to
dispute it. That is all you need to find. Then as
a matter of law you decide who the burden of proof is on
having regard to the clauses and having regard to the
nature of the relationship.
MR JUSTICE FRASER: So the choices that presented themselves
to a subpostmaster in terms of accept now, make good for
cash, make good by cheque or settling centrally, you are
saying (a) I don't need to know them, and (b) I think
you are saying they are irrelevant to deciding Common
Issue 13. Is that right?
MR CAVENDER: My Lord, it's the granular detail of the
things you talked about --
MR JUSTICE FRASER: That is what I am exploring.
MR CAVENDER: -- beneath the point you do have to determine
which we say, in answering the Common Issue, is the
normal rules of accounting apply, they are agents,
fiduciaries, subject to any amounts they put in dispute.
And they can do that in various ways. Your Lordship may
find it more helpful to put it in that general way
because putting a dispute obviously in Post Office
language is you ring up and you register a dispute.
Your Lordship may say, and this is why it is
important to know what one is doing here, that
maybe --that certainly would be sufficient. There may
be things short of that that would indicate a dispute if
you had raised some query or done something else in
individual cases. You might have written a letter.
I think in relation to one of the -- Mr Sabir hadn't
actually disputed, do you remember, he hadn't accounted
for the £5,000 and then disputed it. He said he had
been in -- some two years earlier there had been
a letter and this sort of thing. So that wasn't
accounting for it and then disputing it under the
system.
MR JUSTICE FRASER: So you do accept that I need to consider
how the process of accounting operated? Because if
I didn't I wouldn't necessarily, for example, be able to
decide what you have just submitted, whether that is
correct or not.
MR CAVENDER: My Lord, it is a question of degree,
I suppose. But what you don't need to do and what in my
submission you cannot do -- there has not been a full
disclosure of this -- is the full accounting in relation
to how it worked. You haven't -- for instance, there
has not been disclosure of all the details of, say, the
TCs my learned friend is very keen on. You haven't seen
any of the list of the TCs with supporting information
that is given to them. You haven't seen and there has
not been disclosure of all the accounting evidence you
need to go through to draw the inferences my learned
friend on a -- again without being rude -- smoke and
mirrors basis asks you to make.
So these sort of questions will need to be
determined on proper evidence at the breach trial. What
your Lordship is doing now is deciding what the rules
for that are going to be, obviously together with the
Horizon trial.
MR JUSTICE FRASER: That is correct. But by "the rules",
one has to consider, doesn't one, the way in which the
system that the Post Office set up to deal with TCs and
discrepancies and account for them or not account for
them and execute a branch trading statement was
established. Because otherwise all any judgment --
well, no judgment on a case of this nature would be
adequate if it simply said in two sentences: and each
subpostmaster or subpostmistress was required to account
to Post Office for the trading of the branch in
the preceding month. That is not what Common Issue 13
requires me to do.
MR CAVENDER: My Lord, that point you just made is not in
dispute that they had to account.
MR JUSTICE FRASER: I know it is not. But what I am saying
is when one looks at Common Issue 13 -- it would have
been possible in a different -- if the parties had
approached this differently, it would have been possible
at the very beginning for the Common Issues trial simply
to have established points of contractual construction
and just said to the court "Please decide what is the
proper legal construction of clause 12(12), what is the
proper legal construction of 4.1". The parties jointly
didn't do that. They drafted these very numerous, 23 of
them, issues. Some of them are pure points of law on
the wording but others of them aren't, it seems to me.
Have I got that wrong?
MR CAVENDER: My Lord, I think you have in a way, because
the burden is just an incidence of the relationship of
agency which is contractual. And Issue 13 is trying to
put meat on the bones of, well, in this relationship was
there something different or not? Clearly there wasn't.
They were agents, they were fiduciaries.
MR JUSTICE FRASER: I know that and I know that is
the Post Office's case. But the claimants' case is the
opposite to that.
MR CAVENDER: I'm not sure it is. My learned friend hasn't
got a case, and I think you put this to him yesterday,
that the postmasters were unable to dispute matters they
didn't want. When all was said and done throughout the
period, they could dispute shortfalls in TCs or TCs that
became shortfalls or free-standing shortfalls. They
could do so and in a variety of ways, but the best and
most obvious way, repeatedly in documents and in
evidence, was they could ring the Helpline.
So if that were otherwise, if somehow there was some
case being run here that they could not do so, so they
were forced to false account, they were forced to --
I could begin to see it. But that is not the case being
run.
MR JUSTICE FRASER: A different way of putting it is
this: the answer to Common Issue 13 is not agreed
between the parties.
MR CAVENDER: No.
MR JUSTICE FRASER: That therefore means in order to address
Common Issue 13 I have to address my mind, don't I, to
how a subpostmaster or subpostmistress came to account
to Post Office each month or each period?
MR CAVENDER: My Lord, no. In my submission that looks at
the wrong question. There is no claim here that
Post Office agreed at some time, or within the contract,
to disapply or limit in some way the agency principles.
That is not a claim being advanced, nor could it be. So
you are starting from the position you have an agency
relationship, a fiduciary relationship, in relation to
stock and cash and what goes on in the branch. And you
are told -- and you can have evidence if you like, it is
in the documents -- that they have to account monthly or
five-weekly in the later period.
In terms of mechanics how do they do it by way of
a branch trading statement? All 13 asks you to do is
really pulling out anything from 12 as a matter of law.
How is that done in terms of burden of proof? Well,
look at the answer to 12, they are agents, and if they
want to dispute account they have to do so. It doesn't
require you and entitle you, in my submission, to go
into in fact all the details of the relationship
et cetera, particularly in a case where it is no part of
the case that (a) the contract was varied in some way to
delimit the principles, or (b) for some reason they
could not dispute amounts in their accounts. So you
shouldn't keep them to the stated account because the
system put in place by -- was so impossible that it
would be wrong to do so. Again that case has not been
mounted.
My Lord, I will come to this in more detail when
I come to agency. But that at the moment has been a
helpful exchange to see what --
MR JUSTICE FRASER: It arose in the context of you
submitting that effectively, as I understood your
submission, the entirety of the different claimants'
evidence about how Horizon worked or was supposed to
work or did in fact work was, in law, irrelevant to any
of the Common Issues.
MR CAVENDER: My Lord, in terms of the detail of it all,
that must be right.
MR JUSTICE FRASER: I understand that is your submission.
All right.
MR CAVENDER: So I was dealing with, if I may return to the
script, the different ways in which the parties have
presented the case in terms of the evidence. If you
look at paragraphs 374 and 375 of the opening, they seek
to give lip service to the correct test.
MR JUSTICE FRASER: Do you mean opening or closing?
MR CAVENDER: Closing, my Lord, sorry. {A/6/186} They say
all the evidence relied upon set out in the first
91 pages of the written closing was what I am saying,
cannot fit within the rubric of what was reasonably
expected at the date of contracting.
What they do is say what their witnesses expected
with hindsight, and you have to be very careful, my
Lord, when reading their closings to bear that in mind.
If you look at, for instance, paragraph 458 on
suspension, they talk about "in light of the evidence".
{A/6/229}
Now, suspension is the contractual right. You don't
look at it in light of how it operates in fact, and the
facts. At this stage -- that comes to breach. At this
stage you are trying to discern what the contract means.
Another example is at paragraph 481 {A/6/240},
a criticism that:
"... Post Office's interpretation fails to accord
with the view of any of its witnesses ..."
It doesn't matter what witnesses think about various
points of interpretation.
So we say the approach taken by the claimants
throughout this trial is wholly inappropriate, and nor
is it justified by the notion they were trying to
demonstrate that in practice the relationship was
different to that agreed by the contracts. That point
is only limited to the Autoclenz point on termination.
We say even now, even when I am closing, no proper
basis for the inclusion of this evidence has been made.
In terms of admissibility, my learned friend
Mr Green said, well, I dealt with all this in October,
in the October strike-out hearing. But that of course
was an interlocutory based on a threshold test, whether
we had managed to persuade your Lordship that all of
this was irrelevant at an interlocutory stage. We
failed to do so and I say no more about it.
At this stage, as a matter of law, your Lordship has
it determine in fact whether this evidence is admissible
or not and you have been given no assistance at all by
the claimant on that. And if you recall submissions
made to you by Mr de Garr Robinson Queen's Counsel, they
put forward a very full, detailed analysis of all the
evidence and all the issues, which is what your Lordship
is going to have to do, in my submission, if you are
going to allow any of this evidence in to identify the
issue you are allowing it in on and the legal
justification for it, because in my submission there is
none.
The law in this subject has been established at the
highest level and is free from doubt and of course is
binding on this court. Put simply, the court can only
have regard to matters that were known to the parties,
both of them, and/or would have been known or available
to a reasonable person in their position at the date of
contracting. You simply cannot have regard to
post-contractual matters, what happened in fact, policy
documents, views of witnesses. All of this is
irrelevant.
MR JUSTICE FRASER: In construing the contract.
MR CAVENDER: In construing the contract and deciding the
implication of terms.
MR JUSTICE FRASER: Which is part of construing the
contract.
MR CAVENDER: My Lord, in my submission it is not.
MR JUSTICE FRASER: If you construe a contract you decide on
the meaning of express terms, you decide on whether
there are any implied terms or not, and if there is
a need for them, if there is a gap for them, and what
they are.
MR CAVENDER: If that is --
MR JUSTICE FRASER: That is what I am using as a shorthand.
I'm not departing from what I think one of the
authorities says is the cardinal rule that you do the
express terms first.
MR CAVENDER: It is not just that, my Lord. In M&S, and
I'll take you to it, they are radically different
processes --
MR JUSTICE FRASER: Yes, but they are all part of deciding
what the contract between the parties in fact means.
MR CAVENDER: Indeed. In that sentence I agree.
MR JUSTICE FRASER: And you don't take post-contractual
matters into account on either footing.
MR CAVENDER: Or hindsight or views from hindsight. You
have to ask the right question. The right question is
not: well, is it reasonable? You don't ask: well, what
term should be implied in light of what happened in
fact? That is the mistake made in Bou Simon by the
First Instance that the Court of Appeal identified. And
there is a real risk of doing that here --
MR JUSTICE FRASER: I don't think there is.
MR CAVENDER: It's an easy mistake to make as Bou Simon
shows. There is a lot of evidence here of that nature.
My learned friend has put his case both in
cross-examination and his closings on that basis. So
you have a yawning invitation to make a mistake and it
is my job to try and prevent that happening and I intend
to try and do that. But in doing that, you have to be
very careful what question you ask and what evidence you
have regard to when you ask it.
I will just divert a moment and put some skin on
those bones. When you are looking at implied terms
particularly, my learned friend is fascinated by doing
it in the guts of the dispute and the thing going wrong.
When you know a lot more detail -- and at that stage you
would be able to identify certain cardinal obligations
and things that have gone wrong and try and put them
right. "Tempting but wrong", in the words of M&S.
At the stage you're contracting you know very much
less. You have a very high level view of what you
expect. So the very notion of being able to imply
precise terms dealing with suggested infelicities or
difficulties down the line is itself wrong headed
because you wouldn't be able to do that.
That is a distinction between my learned friend's 21
terms, which I find rather surreal he didn't take you to
any of them but he didn't. The idea you would imply all
those at the date of inception of these contracts is
nonsensical and what is much more sensible is the
implication of a necessary co-operation term, because
that is generic and general. It is the kind of thing,
if asked, the notional person at the time of
contracting, "Do you think we should give necessary
co-operation both ways and not inhibit the other side?"
They would say "Of course".
That is why that is a much more secure building
block in a case like this, in a contract like this. My
learned friend makes a category error really in relation
to the way he presents his case.
The common reference we get from my learned friend
is reference to commercial reality, see paragraph 400 of
his closing {A/6/203}, or for commercial and practical
realities, paragraph 3(1).
This is directly contrary to Arnold v Britton in
terms of that is all we have regard to. Of course I'm
not saying you don't have regard to commercial
realities, but in relation to construction of terms you
look at the words. That is the prime -- that's what
Arnold v Britton tells us.
In relation to implied terms, Marks & Spencer, again
my learned friend doesn't really deal with, is: is it
necessary? And those two cases, both presided over by
Lord Neuberger, Arnold v Britton and M&S, are a return
to clarity and orthodoxy in this area.
There is no special or different rule when we come
to relational contract, to get that out of the way, as
was suggested to the court and recorded in the court's
judgment at paragraph 31 of judgment number 2
{B7/27/12}. I don't need to go to it. But that in my
submission is simply wrong. There is no special or
different rule to interpretation or the implication of
terms where there is an allegation of relational
contract.
If you recall, and I will go to it, Lord Justice
Beatson in Globe Motors, paragraph 68, says just that.
{A1.1/62/1}
Making good the point about retrospective evidence
of what happened, see paragraph 298.4 of the closing
{A/6/142}. Seeks to rely on retrospective evidence of
what happened, transposing to what reasonable parties at
the date of contracting would have known.
We will come to it in due course in more detail, but
we say relational contract is simply a way, it's a step
along the way to arguing for implied terms of a certain
type. It is not a warrant card to tear up the orthodoxy
on implied terms or Marks & Spencer, it is just a way of
looking at certain types of contract where the court
will have a look with more care at whether certain terms
are necessary to be implied. In the same way, my Lord,
as JVs, for very long time the same has happened. In
JVs, they are often informal and they're put together
and often one side or other suggests some form of good
faith term. I did so in Ross River and I was successful
in doing so, only because of the extreme facts in that
case. And we will go to that because it is referred to
in Yam Seng.
But that is not to say that every JV has a good
faith term implied into it, no more than every
relational contract, whatever that turns out to mean,
we're at an early stage in the jurisprudence on it, not
every relational contract either will have a good faith
term, whatever that might mean in that context, either.
But it is a helpful and a recognised, as my Lord
pointed out to my learned friend at Court of Appeal
level, a recognised label for a certain species of
contract where the court might look with particular care
at certain terms.
The claimants' approach generally seems to be to
give -- to encourage the court to give lip service to
the law on admissibility while ensuring the jury light
is burning bright throughout. Your Lordship said
earlier on in this litigation that this wasn't a jury
trial, it clearly is not, and your Lordship has said,
and no doubt you will, apply the law.
But it seems that the claimants hope, by partially
inaccurate description of the facts and the evidence,
and partial evidence, to gain some kind of sympathy. At
this stage it is probably as well to hand up my table of
obvious mistakes or errors in the closing.
(Handed)
What I have done is gone through the closing and
identified things that are inaccurate, at times
misleading. The first one by way of example,
paragraph 65 of the closings {A/6/21}, suggests
Mrs Van Den Bogerd accepted Post Office did not allow
more than one set of losses to be settled centrally at
one time. But what she really said, if you look at all
the references we put in the right-hand column, was that
you could only have one repayment plan at any one time.
My Lord, all we say is care needs to be taken when
dealing with the closing and we have identified these
particular points to take particular care about.
We also say it was somewhat cynical of the claimants
to take this approach because there has not been full
disclosure on either side dealing with the issues they
now seem to want to be dealt with. In particular, what
we call the breach allegations, we only have a few
documents that happen to be caught in the net of the
word searches. Your Lordship should not think that we
have full disclosure on all these issues. We do not.
And the real temptation here is to think you have and to
draw inferences from an incomplete documentary record,
incomplete evidence, which would in my submission be
obviously wrong.
So, for instance, your Lordship should not be fooled
into thinking there has been anything like proper
disclosure on allegations as to training or shortfalls
or investigations. Your Lordship did not order such
disclosure, there has not been such disclosure, and
Post Office has not led evidence on those issues. My
learned friend has put questions on those areas --
MR JUSTICE FRASER: You have led evidence on training.
MR CAVENDER: My Lord, only very, very high level. I think
it was a couple of paragraphs --
MR JUSTICE FRASER: Quite a lot of your evidence was high
level in some areas, and I'm not criticising, I'm
observing, but you did lead evidence on training.
MR CAVENDER: My Lord, only just high level evidence. If
you wanted evidence on training, we would have evidence
from trainers and the proper documentary record of the
plans et cetera. All we did was have a few slides, that
wasn't proper evidence.
The other thing about training of course is it is
wholly irrelevant. Why? Because my learned friend's
case is that all the contracts were made in advance of
even initial training, let alone subsequent training, so
the whole question is wholly irrelevant.
MR JUSTICE FRASER: The irrelevance point I understand, but
it is wrong to submit you didn't put in any evidence on
training --
MR CAVENDER: We didn't put any proper evidence on
training --
MR JUSTICE FRASER: Mr Cavender, there is no distinction
between putting in evidence and putting in proper
evidence. You might have a point that it could have
been more comprehensive --
MR CAVENDER: There has been no disclosure on training.
MR JUSTICE FRASER: There might not have been. But you did
put in evidence on training because some passages of
your witness statements expressly deal with training.
MR CAVENDER: My Lord, yes, there is a paragraph or two in
Mrs Van Den Bogerd's statement that on a very high level
says. But not evidence of training where your Lordship
can make any finding. Her evidence is about what could
have been known or anticipated at the date of inception,
that is what her evidence goes to if you look at it, not
the actual experience of training, how good or bad it
was, were shortfalls dealt with in sufficient detail,
which is the point my learned friend wants it for.
MR JUSTICE FRASER: By "date of inception", do you mean ...
MR CAVENDER: The contractual date.
MR JUSTICE FRASER: The contractual date.
MR CAVENDER: Indeed. That is why it is so general.
MR JUSTICE FRASER: I will just have to take a view about
that. But your case on the date the contract is
formed -- why don't you just tell me what that is now in
a couple of sentences, because obviously Mr Green's case
is that it pre-dates -- I won't go into calendar dates
in each case because I have it in my notes.
MR CAVENDER: He says it is when the thing was signed, the
first thing was signed, the contract or the conditions
of terms that -- and our case is the same. That is
exactly right.
MR JUSTICE FRASER: So that submission is that evidence of
training you have put in is evidence in respect of
knowledge that would have been in both parties' -- or in
this case effectively the subpostmasters' knowledge --
as at that date.
MR CAVENDER: Yes, that would be their expectation based on
what had been said to them in interview and things of
that kind. It is not findings on what the training was,
whether it was good, bad or indifferent, whether it be
the classroom training or subsequent training. When
I am talking about training that is what I am talking
about.
In my submission, the court should be focusing its
findings on the date of contracting, we just touched on;
what each lead claimant knew or could be taken to have
known at the date of contracting through his or her own
due diligence and through the interview process;
findings as to what a reasonable person in the position
of the claimant would have understood about
the relationship as at the date of contracting; and
points of credibility going to lead claimants where they
bear on any of those earlier points.
On credibility we have a problem here, because
of course someone in my position would like to rely on
the answers of these individuals and how they accounted,
some of which in my submission was dishonest or at least
not credible. The trouble with that submission is that
would require your Lordship to make findings as to that
which, given the nature of this trial, I am not in
a position to do, because not least there has not been
full disclosure of the accounting relationship, all the
TCs and all the detail, and so I don't do so. Because
I have the same approach to that evidence as I have to
all the evidence in this case.
MR JUSTICE FRASER: Yes, you say I don't need any of the
evidence.
MR CAVENDER: No, subject to just the obvious background
stuff: the subpostmaster was in charge of the branch,
they were there. Just that very basic background stuff.
All the evidence, proper evidence, doesn't really
assist.
MR JUSTICE FRASER: Whether it assists or not is rather
different from whether it is admissible.
MR CAVENDER: My Lord, yes.
MR JUSTICE FRASER: For example, Mr Abdulla -- and it may be
that towards the end of the case this became less of a
gulf between the parties than it was in the second week,
but you put to him a fairly detailed and rather
different account of how -- when I say "account", let me
use a different word. A rather different version of how
he said he in fact had mechanically to deal with matters
on a weekly basis in terms of accounting.
So on the basis of that way that the case was put by
the Post Office, there were issues of fact between the
parties as to what in fact a subpostmaster was
physically able to do when a transaction correction came
through, for example.
Now, it would be bold to submit that the whole of
that is irrelevant.
MR CAVENDER: When you say "that" ...
MR JUSTICE FRASER: Mr Green took me to it yesterday and
reminded me of it, the sequence of physical acts that
Mr Abdulla had available from which to choose which you
took him through quite carefully. And he was quite
clear with you as to what he said, that in respect of
your points: that is not what you do, that isn't how you
do it, these are your options.
Have those issues of fact been completely resolved?
I don't think they have.
MR CAVENDER: But they are not relevant to this trial.
What I am saying is someone in my position would
normally say, well, credibility, Mr Abdulla is a bad'un,
he lied about this, that and the other. Therefore when
he says he didn't receive his contract you shouldn't
believe him. That is what someone in my position would
normally say if this were a normal trial of all the
issues.
It is not a normal trial of all the issues. I was
cross-examining him on questions of breach -- I didn't
want to but I had to because the evidence was in -- in
order to try and counteract the impression given by
those witnesses that their account of what happened was
a complete account. Having done that, given that there
has not been full disclosure on the accounting
relationship on any of those breach matters, it would be
quite wrong and unfair for me to ask your Lordship to
make findings against him on the basis of that. And
I don't do so, because there has been not been full
disclosure or complete evidence on it.
MR JUSTICE FRASER: But so far as the issues of fact between
the Post Office and the claimants about what the options
are when someone is sitting at a terminal and deciding
what they should do with transaction number 59 --
MR CAVENDER: I am not sure there is any dispute about it.
MR JUSTICE FRASER: That's why I asked you, have those
issues gone away?
MR CAVENDER: I think it is very clear from all the
documents and what you could do. Are you talking about
TCs now? I think my learned friend explained that. My
learned friend gets kind of stuck on the word "accept"
and "settle centrally" and then "disputing", as if
somehow he wants to stop the clock.
MR JUSTICE FRASER: When you said "disputing", I think you
indicated just then -- for the transcript -- pressing
a button. I think the disputing is done by telephone.
MR CAVENDER: By phone. Indeed.
MR JUSTICE FRASER: But so far as the activity at the
terminal or in the branch is concerned that doesn't
involve phoning the Helpline, it did seem to me for the
first part of the case, and in fact this went into
a number of your witnesses and it may have all been
resolved, that there were specific issues of fact
between the parties in this litigation about what
an SPM's choices in fact were. Have they gone away?
MR CAVENDER: I think they have, yes. I don't think there
is any ... Yes, my learned junior is right. If we go to
Mr Abdulla, and we'll do it later, using the word
"accept" and "settle centrally", you saw there was
a confusion between us --
MR JUSTICE FRASER: You weren't confused, but he kept using
the expression "accept centrally".
MR CAVENDER: Exactly.
MR JUSTICE FRASER: That might be where Mr Draper is
steering you. But that was not the full essence of the
issues of fact as it appeared to me during the
cross-examination, but because of what Post Office's
case was or how it was being put to the SPMs about what
their choices were in the branch.
MR CAVENDER: My Lord, there is no debate I think as to what
buttons they could press.
MR JUSTICE FRASER: There isn't.
MR CAVENDER: No. But my learned friend's point is he wants
to stop the clock once you press "accept" and "settle
centrally", and he says that's it, you stop then. And
you say, well, within Horizon, narrowly construed, that
has a certain effect. And I'm saying no. As was known,
and as was in fact used, the system includes the
Helpline and the ability to phone.
MR JUSTICE FRASER: I do understand that.
MR CAVENDER: So that is the difference between the parties,
not what buttons you could press or not press.
MR JUSTICE FRASER: Well, if there is no dispute about what
buttons an SPM can press or can't press, has Mr Green
correctly analysed it or, if not, what has he got wrong
about "accept now" and then those three choices? And
I will tell you what my understanding is and then you
can correct me if I have got the wrong end of the stick.
If a transaction correction comes in, an SPM has
a choice of whether to press a button "accept now" or
effectively defer the question of accepting it for
a particular length of time but only to the end of the
branch trading period, is that correct?
MR CAVENDER: Those two are correct. And later on there was
a "seek evidence" button, if you remember.
MR JUSTICE FRASER: Just remind me when that was introduced.
MR CAVENDER: It was only for some ... and of course that
is, if you like, a subcategory of deferring, in a way,
because you are saying I want evidence before I consider
it.
MR JUSTICE FRASER: So you accept now or defer.
MR CAVENDER: So you press "accept" and then you get
a choice whether to settle centrally.
MR JUSTICE FRASER: As I understand what happens once
someone has pressed "accept now", there is make good by
cash, make good by cheque or settle centrally, is that
correct?
MR CAVENDER: Correct.
MR JUSTICE FRASER: Right. What I would like you both to
do, and when I say "both" I don't mean you and
Mr Draper, I just mean you and Mr Green, and on the
basis of what you have said I am sure this can be
accomplished without any difficulty, is simply to agree
a single sequence flowchart of this particular series of
choices.
MR CAVENDER: My Lord, yes.
MR JUSTICE FRASER: Because that will just be very useful
for me.
MR CAVENDER: Indeed.
MR JUSTICE FRASER: Those differences have gone away but
I accept -- I understand your submission: you are not,
because of the nature of the peculiar situation in which
the claimants find themselves, inviting me to make
adverse findings on their credibility.
MR CAVENDER: Correct.
MR JUSTICE FRASER: Is that right?
MR CAVENDER: It is.
MR JUSTICE FRASER: So when you put to at least some of
them, I think, that they weren't telling me the truth,
do you want me to ignore their answers?
MR CAVENDER: My Lord, it is really a matter for you at the
end of the day, what you think is proper. What I am
saying is that there has not been full disclosure on
those matters, that the reason that it was put was to
seek to undermine the impression they had given in their
witness statements that they were telling the full
story. So what we are left with, my Lord, in my
submission, is, you should treat their witness evidence
with caution, because you have seen that not in every
respect has their account of the way things worked out
been full or sometimes fair.
But the other point of course is that a lot of this
evidence is very, very old, and in terms of looking at
the documents, compared to their evidence anyway, one
would normally prefer the documents and the
probabilities. And it's only really in relation to
whether they received the contract or not, that is
really the crucial factual point you have to make in
relation to the six LCs.
MR JUSTICE FRASER: To some of them.
MR CAVENDER: Well, to some of them. Certainly the last two
signed it and there was no problem --
MR JUSTICE FRASER: That is why I said "some of them".
MR CAVENDER: Indeed. Mr Bates, although he has a special
case, Mrs Stubbs is special for a different reason, and
then we have Mr Abdulla and Mr Sabir who say, well, they
don't know or they don't think they got it, things of
that kind. I will come to that later.
MR JUSTICE FRASER: But Mrs Dar and Mrs Stockdale signed
one.
MR CAVENDER: Quite.
MR JUSTICE FRASER: And I would have thought across the
500-odd that it is highly unlikely that all of them fall
into exactly the same category.
MR CAVENDER: Quite. And that is why I said in my opening,
if you remember, that although hypothetical findings
aren't generally liked, here if you took a particular
view that a certain document was or wasn't obtained or
got at an early stage, and therefore you find a certain
result flows from that, it might be helpful to express
a view, well, if that document had been obtained or seen
or signed it would alter your view, because there might
be some of the 557, there most certainly would be, where
that would be useful.
MR JUSTICE FRASER: An example is the Mr Bates situation
because I think you asked him where he got his number
from in his witness statement, about there are lots of
people in that situation, and he said he got it from the
spreadsheet. Let's put that to one side.
Even if he were the only person, he said it wasn't
in the envelope. If it was in the envelope certain
consequences might flow. If it wasn't in the envelope
certain consequences might flow. You are not inviting
me to avoid making a finding as to whether it was in
the envelope.
MR CAVENDER: Quite.
MR JUSTICE FRASER: But I should go on and explain what
would happen if someone in his position had received it
in the envelope compared to if they hadn't.
MR CAVENDER: Precisely.
MR JUSTICE FRASER: Because it will help --
MR CAVENDER: Exactly.
MR JUSTICE FRASER: -- so far as some of the claims.
MR CAVENDER: My Lord has the point.
MR JUSTICE FRASER: So far as the claimants' evidence is
concerned, therefore, you say treat it all with caution
for all the reasons you have gone through, but you are
inviting me not to make any findings on their
credibility.
MR CAVENDER: Indeed.
MR JUSTICE FRASER: Any adverse findings on their
credibility, is that right?
MR CAVENDER: Yes, because to do so you would have to make
findings as to the accounting system, to the TCs, what
happened in fact, and you haven't had full evidence on
that by any means.
You can test it in this way: these are questions of
breach, this is a classic question of breach. This is
what they will be if there is a breach trial in October,
or whenever it is going to be, that will be exactly what
these witnesses will be putting forward. But then with
the benefit of the judgment here as to what the rules
are, and with Horizon and how good or bad that is. But
this will be the meat and drink of that breach trial.
Now, what has happened in this court in the last
four weeks is a fact. It has been recorded, it is in
the transcript. Those witnesses can of course be taken
back to that evidence during the breach trial and it
will be surprising if they were not. So it is not
wasted, it is in the can... It is still as a matter of
record it is there. But for you to make findings on it,
my Lord, we go further, for the same reason you
shouldn't make findings on the accounting processes
generally and all these other matters that have come in
by a side wind but there has not been full disclosure
on.
I am going to go through in a minute to remind you
of some of the disclosure orders you made and some of
the contests and how you resolved them and on what basis
you did so. That was on a much more orthodox basis, it
was before the IPOCs were drafted, which then broadened
out everything, and then the witness statements were
based on that. But before that, the disclosure was on
a much more orthodox, narrow basis.
MR JUSTICE FRASER: Mr Cavender, just to consider the
Mr Bates situation for a moment, Mr Bates gave evidence
which you tested quite strongly as to whether
a particular chunky document was in an envelope, and he
said it wasn't, and you put to him quite forcefully that
it was. It is accepted that I need to find whether it
was or not for the obvious contractual reasons. How
do I do that without making a finding about Mr Bates'
credibility?
MR CAVENDER: Well --
MR JUSTICE FRASER: I am slightly puzzled.
MR CAVENDER: Because you can make findings on the basis of
reliability generally. His memory. The documents
I showed him in that case, do you remember, the two- and
three-page documents in his evidence there about he
thought that was the standard terms, which in my
submission it clearly wasn't and he knew it wasn't.
Evidence that he was a details man and if a set of flags
came in he would notice two were missing, he would
certainly notice if there was a contract missing. So he
constructs an account really around that, and then he
does the same thing at the back end in relation to
the contract and the complaint. He over-reaches himself
by constructing a case that is obviously false because
he must have had the contract to write the letter. My
learned friend says, oh well, he just got the date
wrong. It's not quite as simple as that.
So Mr Bates, and the fact of course he is obviously
a campaigner, et cetera, and has convinced himself
no doubt that what he is saying is true. It doesn't
mean to say it is true.
MR JUSTICE FRASER: But those submissions you have just made
in the last half a page are classic features, aren't
they, that are taken into account when any judge is
deciding on the credibility of a witness.
MR CAVENDER: Indeed.
MR JUSTICE FRASER: I'm not saying there is not material
there. What I am saying is it seems to me that inherent
in resolving an issue of fact, which you correctly
identify is an issue I do have to resolve, I will be
considering Mr Bates' credibility, won't I?
MR CAVENDER: You will, but there might be certain features
of it. He is not a good example, in a way, because
although we made complaints about the way he accounted,
and he seemed to think it was getting him to seek to
pay, that was the dichotomy there. It was no, no, no,
we're not asking you to pay, we're asking you to
account. We'd like you to pay but we want you to
account properly. And whether you took a view on that
or not. To do that, you would need to understand much
more about his accounting, his records. In his case we
don't have them, but if it was another claimant we
would, and you would then be able to -- because
otherwise, my Lord, you would be making inferences and
findings based on partial evidence and partial
disclosure. That, in my submission, would be unfair.
And although every bone in my body says, oh yes, let's
make wonderful submissions on credibility because we
made some headway with some of these witnesses --
MR JUSTICE FRASER: You just made submissions on credibility
about Mr Bates --
MR CAVENDER: But my Lord, going beyond that, going to the
liability and breach issues. None of those submissions
touched on that.
MR JUSTICE FRASER: No, and I am entirely clear that nobody
wants me to go near breach.
MR CAVENDER: But you would have to in order to make
findings on credibility relating to breach --
MR JUSTICE FRASER: But I have to make findings of
credibility relating to their evidence about contract
formation, don't I?
MR CAVENDER: Exactly.
MR JUSTICE FRASER: For example Mrs Stockdale, there is
an issue of fact about what happened at her interview.
She says one thing. I can't remember the name of the
witness --
MR CAVENDER: Mr Trotter.
MR JUSTICE FRASER: Mr Trotter.
MR CAVENDER: Sorry, Mr Carpenter.
MR JUSTICE FRASER: Mr Carpenter. Now, to decide -- those
are issues of fact which I imagine both parties want me
to decide.
MR CAVENDER: In that case --
MR JUSTICE FRASER: Unless the interview record has been
miraculously de-encrypted, which I imagine it hasn't.
MR CAVENDER: We are still trying.
MR JUSTICE FRASER: So as at today I have two people's
account and I have to decide, haven't I?
MR CAVENDER: My Lord --
MR JUSTICE FRASER: Or do you say I don't?
MR CAVENDER: In many ways in relation to those cases, it is
the NTC cases, they have signed it and all the rest of
it, I don't know what is left -- what happened at the
interview in relation to those cases. In relation to
the cases of the SPMC, of Mr Sabir and Mr Abdulla, there
may be in those cases the interview -- because they say
they may not receive the contracts, it becomes more
germane than. But the NTC ones, it is of much less
relevance, I think, what happened at the interview.
MR GREEN: My Lord, I'm sorry to interrupt, but I have let
this run since page {Day14/38:14}, what my learned
friend is saying. He said someone in his position might
say Mr Abdulla lied. Well, that is exactly what he does
say at paragraph 592 of his closing submissions
{A/8/210}. So I don't understand --
MR JUSTICE FRASER: All right.
MR GREEN: -- where he is on it.
MR CAVENDER: But I don't ask for findings on it.
MR JUSTICE FRASER: Mr Green, as a rule, I am not saying you
can't make these points, but you might want to store
them up.
MR GREEN: I am grateful.
MR JUSTICE FRASER: All right.
MR CAVENDER: Because we say you can obviously make findings
on admissible pre-contract evidence, obviously. The
bright line I am making is issues of breach really.
MR JUSTICE FRASER: You are saying don't go near findings
that relate to breach, is that right?
MR CAVENDER: Indeed.
MR JUSTICE FRASER: Is that the best way of summarising it?
MR CAVENDER: It is, and we said that at the beginning. And
your Lordship said in judgment 2 you are not going to
make findings on breach, and I said good, obviously, but
also don't make findings of fact leading to those
questions of breach. Not obviously whether there is
a contract or not, you could -- if you took that too
far. But not in directly leading up to findings on
breach, or would do. Platforms of fact that would lead
to that.
MR JUSTICE FRASER: Understood.
MR CAVENDER: There is a number of reasons for that, and
maybe I should give you an example of why we are
concerned about this. It arose out of yesterday's
debate with my learned friend, in relation to the losses
and gains policy. Does your Lordship remember that?
MR JUSTICE FRASER: I do. Well, I remember the losses and
gains policy.
MR CAVENDER: The suggestion was by my learned friend,
effectively, that the old losses and gains policy, he
doesn't know when it ended, but it went on for ever was
kind of the point.
My learned friend has not built any evidential
foundation for that, as he hasn't in most of the
documents in this case where they have an earlier date.
There has been no attempt really to analyse or
forensically go through and say what date did they
no longer operate.
So let's take the losses and gains policy, one of
his favourites. Yesterday he took you to, can we put
this on screen, {F4/66/1}. And for your Lordship's note
this passage was Day 13, page 106, lines 14 to 24
{Day13/106:14-24}, when he said that the court should
infer the losses and gains policy was still in force in
2010.
This document, despite the date on the print-out
there, is a 2010 document, not 2018.
MR JUSTICE FRASER: Yes, because it just -- I think that was
explained that it is a field that refreshes itself
whenever it is opened.
MR CAVENDER: Exactly. This document wasn't put to any of
our witnesses, so it is without explanation as to what
it is. It only refers to parts of the L and G policy
and not parts that my learned friend likes about SPM
liability.
So if we go to page {F4/66/2} of this, you see it
is, looking at the top there, dealing with HOL back
office reports. That is its focus. And if you look to
page {F4/66/7}, you can see here it's dealing with
surprise stock levels and things of that kind, halfway
down, surprise stock checks. It is that part which
indeed is covered in the losses and gains policy that
seems to have a reflection in the later document, not
this thing about losses. The parts of the old losses
and gains policy that deals with shortfalls and reliefs
are specific to the SPMC and pre-date Horizon, let alone
HOL, which is what this is dealing with.
We have identified in correspondence with the
claimants various documents, after the losses and gains
policy, that replaced it. And they have different
names. Which is why my learned friend says at page 106,
lines 3 to 5 {Day13/106:3-5}:
"There is no other disclosed document which is
a losses and gains policy so-called anywhere."
That's a very careful statement. And he is right,
there is no document with that title, but there are
other documents that deal with issues of things of that
kind. One replacement document at {F3/212/1}, you will
notice again it's a document not put to any witness
despite the fact at the top you see it is a John Breeden
document.
MR JUSTICE FRASER: How do I see that?
MR CAVENDER: At the top, my Lord, "Contracts team".
MR JUSTICE FRASER: Yes. What the date of this document?
MR CAVENDER: First version is September 2013. This
particular version is 4 December 2014.
MR JUSTICE FRASER: And this is called a policy document,
yes?
MR CAVENDER: Yes, in service debt. And if we go through it
{F3/212/2}:
"The purpose of this policy is to clearly set out
the processes Post Office will follow to recover debt
incurred by Post Office ..."
Et cetera."
MR JUSTICE FRASER: Yes.
MR CAVENDER: So why I show you this is you would be left
with the impression, if I hadn't shown you this, that my
learned friend's point was right, there was a losses and
gains policy, and there is no evidence to show that this
didn't go on forever.
There is a risk of that throughout this case. The
way this case has been presented there has been no
attempt to build it properly from the bottom up. There
has been an approach of effectively a scattergun on
this.
And if you go on this same point to an earlier
document {F3/36/1} in 2004. This is a 2004 document and
you will see it's talking about the recovery of invoice
debts and the approach to be taken to that.
MR JUSTICE FRASER: How many documents are there after what
is in fact entitled the "Losses and Gains Policy" going
forward in the sequence?
MR CAVENDER: My Lord, I am giving you some -- again, we
have no evidence on this --
MR JUSTICE FRASER: This is a useful -- Mr Draper, do just
give me a second with Mr Cavender, if that is all right.
This is quite important because so far as the evidence
is concerned, and I have looked at this again carefully,
the evidence goes as follows: Mr Green put the 1998
losses and gains policy to Mrs Van Den Bogerd. She said
that wasn't the policy anymore. He said this is the
most recent document that we have that is called "Losses
and Gains Policy", and that was as far as the evidence
went. And her evidence to me was, well, that is not
what we do. Along those lines.
Now, that evidence falls to be looked at from a very
different perspective. If there are subsequent
documents dealing with policy that post-date the 1998
one --
MR CAVENDER: Which is what I am doing now.
MR JUSTICE FRASER: Which is what you are doing, compared to
if there aren't.
MR CAVENDER: The slight confusion is these documents aren't
called necessarily losses and gains, so it is that
rubric, but they deal with the subject matter.
MR JUSTICE FRASER: How many are there on your list?
MR CAVENDER: There are four. I have taken you to one, this
is the second, and there are two others. This is 2004.
MR JUSTICE FRASER: So {F4/66/1}, what was the date of that
document? That is the HOL document Mr Green showed me
yesterday. So you have given me {F3/212/1}.
MR CAVENDER: 2014.
MR JUSTICE FRASER: Although it originated
in September 2013. And {F3/36/1} is?
MR CAVENDER: 2004.
MR JUSTICE FRASER: And what is that called?
"Implementation of New Initiatives".
MR CAVENDER: For recovery of debt from postmasters. But it
deals with --
MR JUSTICE FRASER: It's just so I have a specific note.
MR CAVENDER: I'm not suggesting this is a replacement of
the losses -- because that is a big document, but it is
aspects of losses and gains --
MR JUSTICE FRASER: By "that is a big document", you are
talking about the 1998 document?
MR CAVENDER: Exactly.
MR JUSTICE FRASER: But the fact this says "New Initiatives"
does suggest the process for recovery of debt in 2004
was changed.
MR CAVENDER: Exactly.
MR JUSTICE FRASER: From the 1998 document.
MR CAVENDER: Exactly.
MR JUSTICE FRASER: And you don't object to me looking
at these, do you?
MR CAVENDER: I am not quite sure what the relevance of any
of this is.
MR JUSTICE FRASER: Maybe you are not. Maybe you are not.
MR CAVENDER: And I am not sure, what I'm saying is not
admissible --
MR JUSTICE FRASER: You are saying these documents are not
admissible?
MR CAVENDER: For what purpose? My learned friend hasn't
established a case for what their relevance is.
MR JUSTICE FRASER: Well, no, Mr Cavender, it really just
comes down to the correct way in which the evidence is
dealt with. He put a 1998 document to your witness and
her answer to that was effectively: that is an old
document, it doesn't contain what our policy is or our
recent or modern policy is.
MR CAVENDER: Correct.
MR JUSTICE FRASER: You didn't put an alternative document
to her in re-examination, though you would have been
entitled to do so but you didn't. That is fine.
Mr Green made his submission yesterday, which is along
the lines of: there is no more recent document. As
a matter of fact you are correcting that by giving me
these references.
MR CAVENDER: Indeed.
MR JUSTICE FRASER: So I imagine if, in the process of
writing my judgment, I take the view that I need to
consider or recite or in other words "look at" the way
Post Office dealt with losses and gains, you don't want
me to stop at 1998.
MR CAVENDER: No, of course, no. If we are doing the job,
we have to do the whole job. My question is whether the
job should be done at all. But, yes, if we are doing
the job, let's do the job.
MR JUSTICE FRASER: I know that. So we have 2004,
{F3/36/1}.
MR CAVENDER: Indeed. Then we go to {F3/45/1} which is
2006.
MR JUSTICE FRASER: I thought we were going in reverse
chronological order. Don't worry. If there are only
four, it doesn't matter. "Losses Policy - Overarching".
MR CAVENDER: Then {F3/210.1/1}, a 2014 document.
MR JUSTICE FRASER: That is 2014?
MR CAVENDER: My Lord, yes.
MR JUSTICE FRASER: Dispute process. {F3/210.1/1}. Okay.
MR CAVENDER: So the reason I do that is for that reason.
Also just to make sure your Lordship is aware that you
should be quite careful in the way the case is presented
with documents, not only the way the witnesses were
dealt with, going across 20 years with different
documents going to and fro with the same subjects and
putting something else in and back. Sometimes I don't
understand what my learned friend is saying, so the
witnesses should be excused for not understanding
either. But the point here is you should be very
careful about -- it seems my learned friend's request to
accept inferences, et cetera, for him to say yesterday:
well, 2010 losses and gains, it's (inaudible) document,
isn't it, is actually quite misleading in terms of what
in fact the documentary record shows.
A similar point can be made about the induction
document that Mr Bates refers to at {E1/12/1}. That is
a 1990s document. My learned friend is very keen on
citing it. Do you remember it has all the warm feelings
about the relationship? There is no evidence that
anyone but Mr Bates got this document.
MR JUSTICE FRASER: Anyone but Mr Bates?
MR CAVENDER: Correct.
MR JUSTICE FRASER: I know, but Mr Bates is one of the six
lead claimants.
MR CAVENDER: But my learned friend tries, when you look at
his submissions, to sort of broaden it out to say this
reflects ... and he cross-examined everyone about: well,
would you agree with that? Again Mr Bates can say that.
He got this. But the others can't. So you have to be
slightly careful with the dates of documents and almost
the assumption that this continued forever when there is
no evidential foundation for that.
Also the approach of the claimants on issues of
finding -- issues of fact is scattergun. So for
instance at paragraph 70.5 they seek a finding on the
issue of Mr Abdulla's accounting. They actually ask you
at paragraph 70.5 to do that, and at paragraphs 121 and
122 they seek findings on training despite the fact
their case is it is irrelevant. So we have a scattergun
approach; a lack of analysis as to what findings the
court can make or should make in support of the case
that is being run.
My Lord, is that a good time for a break?
MR JUSTICE FRASER: That is probably not a bad idea.
12.05 pm.
(11.55 am)
(A short break)
(12.05 pm)
MR CAVENDER: My Lord, carrying on with the introduction,
an important feature; you will notice the claimants have
sought to subtly move away from their admission that
the agreed implied terms are to be implied into the
agreements by seeking to suggest they are somehow
Post Office's terms now, and you will see that at
paragraph 322.3 of their closing where claimants refer
to the agreed implied terms as terms for which the
defendant contends. It is obviously too late for them
to do so, they have not sought permission to withdraw
any admission and the agreed implied terms are terms of
these contracts and those are, at this stage, no less
terms than the express terms of the contract. They have
meaning and effect, they have a construction, and my
learned friend did not say a single word on these. He
seeks to disown them. That, in my submission, was
a serious error because it is upon him the burden to
show, notwithstanding their existence, that there is
space and lacuna into which he can put his 21 further
implied terms. He has made no attempt to explain to
your Lordship the meaning and effect of those agreed
implied terms, the necessary co-operation term and the
Stirling v Maitland term. He would necessarily have had
to have done so to make the case he purports to make.
Because there is a space occupied by, firstly, the
express terms of the contract, the legal relationship of
agency and the fiduciary relationship that that involves
and the agreed implied terms. They have in effect, the
way they have presented this, tried to shift the burden
on to Post Office to show that further terms are not
necessary. And that, as we will see, is completely the
wrong approach.
So in summary on important points of this
introduction in terms of scope, the court should not
have regard to post-contractual evidence, evidence of
breach, for two distinct reasons: firstly, to do so
would involve a basic error of law, and, secondly, would
involve a serious procedural irregularity. It would do
the second because the orders of the court setting out
the issues for trial and the issues on which evidence
were to be admitted is set out in the Common Issues.
The Statements of Case have been ordered to be limited
to those issues, see paragraph 8, and the witness
statements were limited to those issues, see
paragraph 10. That is the trial Post Office has
attended and involved itself in. It has not engaged in
wide-ranging evidence on breach, which the claimants
have, and so not only would it be an error of law to
have regard to it, it would also be procedurally unfair
for that reason. Because in the absence of full
disclosure on matters such as the dispute, Horizon,
accounting, procedures, deficits, training and Helpline,
without full evidence and disclosure on all those
points, the court should not engage in inferential
findings or comments along the way. It shouldn't do so
as a matter of procedural fairness but also particularly
given there are two other trials that have been loaded
in the system effectively on Horizon and on breach,
where on those very matters there will be full
disclosure, there will be full evidence and there will
be determinations.
The other point I mentioned I think earlier was
whether you should also be careful because of the nature
of the way it has been set up -- we had a humorous
debate about whether it was odd or not, but whether you
should make comments as well about "be careful to",
because, otherwise, an independent observer might think,
wrongly obviously, that the comments you make are
a route along the way to reaching a particular view or
a finding, which you would then have to find in judgment
two or three -- sorry, in trial two or three. So again
there is that sensitivity, which your Lordship no doubt
will obviously have in mind.
In terms of the disclosure piece, let me give you
a little bit of detail just for your note essentially,
in terms of reminding your Lordship what happened. I am
sure you remember but just for your note --
MR JUSTICE FRASER: I'm not sure I do remember to be honest.
These are on the contested disclosure hearings?
MR CAVENDER: My Lord, yes. Just to get a view on whether
I am saying is right or wrong. Obviously I say it is
right. Firstly, stage one and stage two disclosure
ordered before the Individual Particulars of Claim and
was not scoped by reference to the broad allegations in
those pleadings. It was done by reference to the
general Particulars of Claim, which is much more
generic. For your Lordship's note, stage one disclosure
was ordered under paragraph 9, Schedule 1 of the second
CMC order on 2 February {B7/11/4} and {B7/11/7}.
MR JUSTICE FRASER: Can you just give me a date for that
order.
MR CAVENDER: That was 2 February, my Lord. Stage two
disclosure was ordered under paragraph 10, Schedule 2 to
the same order, see {B7/11/4} and {B7/11/11}.
The court determined the disputes over disclosure by
reference to the likely relevance of documents to the
Common Issues, not the broad allegations of breach that
the claimants decided to plead in their IPOCs.
Your Lordship will recall the court also had a view
giving early disclosure would properly be required
anyway in relation to Horizon and Post Office does not
resist that. Such approach was entirely for good reason
just by way of background. But the overwhelming focus
was on the documents that might be relevant to the
Common Issues. So to give two examples at the hearing
on 22 February the court rightly rejected a request for
broader disclosure in relation to Helpline on the basis
of the operation of the Helpline "does not arise in
the Common Issues at all" and that is {B8.4/4/46}
referring to paragraph 61 of the defence.
At the same hearing the court ordered only limited
disclosure in relation to certain policy and process
documents relating to shortfalls, pointing out the
requests seemed to be aimed at fundamentally Horizon
issues, see {B8.4/4/39}.
So the upshot of the approach taken to disclosure is
the Post Office has not conducted searches for documents
that would enable the parties and the court to properly
explore all the irrelevant post-contractual material and
breach that the claimants want to put in issue at this
trial nor has Post Office extracted documents from
custodians other than the 62 that were largely chosen by
the claimants.
So to give concrete examples, we do have records of
TCs that were issued to these six branches. We do not
have the underlying documents as to how that TC was
decided upon, the evidence underlying it, the
transaction data, internal communications relating to
the decision-making process; the kind of thing that
would go to whether the TC was rightly made, mistaken or
how the mistake came about.
We have no disclosure or evidence from the Helpline
operators; nothing with which to meet the suggestion
a particular operator said something wrong on
a particular date in 2002 or 2010.
We have no disclosure showing how enquiries and
disputes were then escalated and addressed by the
Helpline. Your Lordship will recall a reference to
classification of calls as "low priority". No evidence
as to what that means because it doesn't fall within the
Common Issues, and the relevant documents would not be
caught by the disclosure that was ordered.
MR JUSTICE FRASER: When you say "we have no disclosure",
what you really mean is the claimants have no
disclosure. Because they are all your documents, aren't
they?
MR CAVENDER: My Lord, yes, "there has been no disclosure"
is probably the correct way of putting it. By "we"
I mean the court and the parties really. We have --
MR JUSTICE FRASER: The court and the claimants, because
Post Office has got it. Because it is all Post Office
documents.
MR CAVENDER: We haven't searched for it --
MR JUSTICE FRASER: I am just being precise about it.
MR CAVENDER: Yes, my Lord, you are right. We have not
given disclosure covering investigations into
shortfalls, emails and other documents from within the
FSC for example, we heard something about. Any
documents of that kind that are in the bundles have been
caught incidentally through disclosure orders aimed at
something else by luck or because one of the selected
disclosure (inaudible) happened to have it within the
exchanges; potluck and not a proper approach on which to
examine what happened.
Your Lordship will recall my efforts to piece
together from a few documents here and there what
investigations had in fact been done into Mrs Stubbs'
problems, and you will recall there was quite a lot
done. She said: well, I thought you were doing nothing
and I put to her a whole slew of documents that happened
to be in the bundles by accident or mistake that showed
in fact we were going back to Fujitsu, we were asking
questions. If you are going to form a view, my Lord, on
any of that, you need the full documentary record, you
need evidence led on it and tested, not it be done in
this sort of casual half-hearted way.
MR JUSTICE FRASER: If the documents you were putting to
Mrs Stubbs were only there by accident or mistake, there
was nothing to stop you producing a document, was there,
which showed the conclusion or upshot of the
investigation which she had been promised? If such
a document existed.
MR CAVENDER: My Lord, that is true in relation to all of
the six, in relation to every TC and every dispute.
MR JUSTICE FRASER: No, no, I am asking a focused question
on the investigation in relation to Mrs Stubbs.
MR CAVENDER: My Lord, yes. But that hasn't been done.
That is not our understanding of what this trial was
about or the disclosure sought or the issues to be
determined. I am giving that example for saying where
I thought I ought to correct that impression with that
witness. I was able to by luck with a number of
documents. But it is not the full documentary record at
all, clearly not, and we didn't have evidence from the
people that were doing the investigations, et cetera, so
your Lordship could then opine and see whether it was
good, bad or indifferent. You are asked to do so on
a very casual basis on a partial -- not partial, without
the full documentary record at all. And it would be
wrong to do so, in my submission.
To complete the disclosure reference, also model C
disclosure was ordered on 22 February and the order at
{B7/12/1} that followed the same approach to that which
I have already outlined.
By way of example, as you have seen, many references
in the leading claimants' witness statements to
Post Office staff that were not witnesses. For example
Mr Abdulla at paragraph 93 refers to a TC signed off by
a Karen Cooper. {C1/4/18}. We have no disclosure
relating to that TC or evidence from Mrs Cooper.
Mrs Dar refers at paragraphs 114 and 115 of her witness
statement to communications with a Jamie Haugh
{C1/5/21}. He was not a disclosure custodian. He has
not given evidence. Mr Sabir at paragraph 73 of his
witness statement refers to intervention visits and
a verbal warning from a Ms Wrangham --
MR JUSTICE FRASER: There is a series of documents flashing
up on the common screen and then disappearing. Are
these the ones that you are --
MR CAVENDER: I think they are, yes. I don't intend to take
you to them. It is just for your note.
MR JUSTICE FRASER: It's just the top of my screen has been
cut off, so I can't actually tell whose statements they
are to be honest. {C1/5/21}.
MR CAVENDER: That is Mrs Dar.
MR JUSTICE FRASER: Which paragraph?
MR CAVENDER: Paragraphs 114 to 115.
MR JUSTICE FRASER: But you don't want me to look at them
now?
MR CAVENDER: No, I am making the general point, I am giving
some examples of the kind of evidence you would normally
expect to get if you were going to have a proper go at
making findings on this. So it is not just
a theoretical point, I am trying to ground it in
a granular basis.
Mr Sabir refers at paragraph 73 of his witness
statement to intervention visits and verbal warning from
Ms Wrangham. That is {C1/3/13}. She was not
a disclosure custodian either and she has not given
evidence.
Your Lordship will also know a point I put to
various witnesses is we hadn't had disclosure from the
claimants' retail businesses; in terms of the accounts,
what the money is that was, whether there was
a possibility there was cross-over, things of that kind,
which of course will be relevant to whether a mistake
has been made and things of that kind. It just hasn't
been done. Because that goes to breach.
You will recall that the direction for evidence was
expressly limited to disclosure in respect of each lead
claimant in relation to the Common Issues, see
paragraph 10 of the first CMC order {B7/7/5}. That
is what Post Office has done, and that is why there is
no substance to my learned friend's reference to
"generic evidence"; there is no such beast, there is
just evidence given by the lead claimants.
My Lord, that is the introduction phase of the
submissions. I'm now going to move on, with
your Lordship's leave, to the question of the law on
interpretation of contracts.
I would not normally feel the need in a case like
this to go through the basic authorities on
admissibility and interpretation but, given the approach
of the claimants, I think it is important that at least
your Lordship is told and go through them, if briefly,
to see what the rules are. Particularly alarming, my
learned friend makes no reference to Arnold v Britton,
the leading authority on construction, in their summary
of the law on construction at paragraph 381 of their
closing. In fact it is not referred to in their closing
at all. That must be almost unprecedented in a trial on
contractual construction in recent years and it rings
alarm bells that they can make submissions without
reference to it.
As I said earlier, my Lord, the law on this subject
is clear, free from doubt and obviously binding on this
court. The key principles are on admissibility of
matrix. You look at what the parties to the contract
knew or what reasonable people in the position of the
contracting parties will have known. On interpretation,
unsurprisingly the words of the contractual provision
are the main tool, but the words of the relevant clause
need to be construed in the light of the contract
as a whole and any admissible matrix. Business
common sense has a role to play but that role is not to
rewrite the contract, especially not with the benefit of
hindsight.
On the first of those, what you don't include --
MR JUSTICE FRASER: This is matrix?
MR CAVENDER: Of matrix, my Lord, yes. If you go to what
the claimants say. At 393.8 they rely on possible
errors in Horizon. That is --
MR JUSTICE FRASER: We are in their closing, are we?
MR CAVENDER: 393.8, my Lord. {A/6/200}.
MR JUSTICE FRASER: Yes. 393.8.
MR CAVENDER: My Lord, yes. We say that is obviously not
relevant to construction. It is doubly irrelevant
because of course it ignores the differential between
this trial and the Horizon issues trial. At
paragraph 397, while you are there, they ask
your Lordship to have regard to internal Post Office
documents in relation to TCs. No suggestion any of
these were seen by the claimants at any relevant time.
MR JUSTICE FRASER: 397, did you say?
MR CAVENDER: My Lord, yes, 397.5. They ask your Lordship
to have regard to the payments mismatch error. Again,
no suggestion that is a matrix to anyone's contract.
And paragraph 398 you will see relies on further
inadmissible evidence.
The one excuse, one sees the admission of all this,
is at paragraph 400, which is a classic from my learned
friend's style which is to say that the reference to
"the commercial reality which the evidence speaks to".
I'm not quite sure what that means but I do know it is
an invitation, at the very least, to make the error of
law that Lord Neuberger warned against in paragraph 19
of Arnold v Britton, which I am taking you to in
a moment.
On business common sense, my learned friend's case
appears to be, at 381.2:
"The approach of the court should start and finish
with common sense."
Clearly that is not the right approach, and
of course it is not the approach your Lordship will
doubtless take. We can see the invitations you are
being made constantly is to fall into error. So Arnold
v Britton is in the authorities opening bundle at tab 4.
{A1.1/58/1}. If we go to the headnote -- your Lordship
I am sure is aware of the broad facts of this. It
related to payment obligations under some leases for
chalets. If we go to the middle of the headnote, three
lines down from D:
"Clause 3 of the group of leases including
clause 3.2 are lessees covenant to pay a proportionate
part ... (Reading to the words) ... to pay a variable
sum, being a fair proportion to the cost of providing
the services which are the specified sum, being no more
than a cap on their maximum sum payable."
If we go down:
"The judge accepted the construction contended for
tenants though dismissed claim ... (Reading to the
words) ... whereas the construction contended for by the
tenants would involve rewriting the bargain which the
parties had made."
Then:
"Dismissing the tenants appeal, the Court of Appeal
affirmed the High Court's reasoning and held
additionally the words 'a proportionate part' were not
inconsistent with a fixed charge."
It goes to the House of Lords, Lord Carnwath
dissenting:
"The interpretation of contractual provision
including ones of service charges involved in
identifying ... (Reading to the words) ... The
commercial common sense was relevant only to the extent
of how matters would or could have been perceived by the
parties by reasonable people in the position of the
parties at the date on which the contract had been
made."
So that was the background, and you can see the
merits of the point; that it appeared to be an
unreasonable result, it appeared not to be -- to be
a service charge that was meant to be for provision of
maintenance but what in fact provided was a much larger
sum, and of course the opponents were shouting: it was
unfair, the words can't mean that.
In terms of the decision, if we go to paragraph 14
and following where the principles applied to those
facts are outlined. We are in the decision here of
Lord Neuberger. At paragraph 15, having dealt with
Rainy Sky in 14, just above H talking about Chartbrook:
"... and it does so by focusing on the meaning of
the relevant words in this case clause 3.2 of each of
the 25 leases in their documentary, factual and
commercial contexts."
That is setting up the test. Then over the page at
paragraph 16 the learned judge then outlines and
emphasises seven factors:
"First, the reliance placed in some cases on
commercial common sense and the surrounding
circumstances should not be invoked to undervalue the
importance of the language of the provision which is to
be construed."
Three or four lines down:
"The parties have control over the language they use
in the contract ..."
And again:
"Save perhaps in a very unusual case, the parties
must have specifically focused on the issue covered by
the provision when agreeing the wording of that
provision.
"Secondly, when it comes to construing the centrally
relevant words, and I accept the less clear they are, or
to put it another way, the worse their drafting ... can
properly depart from the natural meaning."
Paragraph 19, and this is the crucial point:
"The third point I should mention is commercial
common sense is not to be invoked retrospectively."
That exactly in my submission is what my learned
friend is asking you to do:
"The mere fact that a contractual arrangement, if
interpreted according to its natural language, has
worked out badly or even disastrously for one of
the parties is not a reason for departing from the
natural language. Commercial common sense is only
relevant to the extent of how matters would or could
have been perceived by the parties or by reasonable
people in the position of the parties at the date when
the contract was made."
I emphasise those words. At 20:
"Fourthly, while commercial common sense is a very
important factor to take into account when interpreting
a contract, a court should be very slow to reject the
natural meaning of the provision as correct simply
because it appears to have been a very imprudent term
for one of the parties to have agreed, even ignoring the
benefit of wisdom of hindsight."
That is expressly rejecting my learned friend's case
that I outlined earlier; that it begins and ends with
commercial common sense. It does not. At 21:
"The fifth point concerns the facts known to the
parties ... (Reading to the words) ... which existed at
the time the contract was made and which were known or
reasonably available to both parties."
Then:
"Sixthly, in some cases an event subsequently
occurs which is plainly not intended or contemplated ...
it only based on what the parties had in mind when
entering the contract."
Going back to the knowledge point, and the seventh
doesn't really apply. It is about service charges and
restrictions in that particular case.
MR JUSTICE FRASER: The seventh ... everyone runs out of
steam when they get to seven because it is really quite
case-specific.
MR CAVENDER: Quite, and I follow that well-trodden path.
But then I get more steam when I go to 24:
"When one turns to clause 3.2 ... the natural
meanings of the words, at least until one considers the
commercial consequences, seems clear."
So you start with the natural words. What you don't
do is start with the commercial consequences and say:
well, this can't have been intended, which is my learned
friend's approach. You start with the words. Over the
page at 28, at the bottom of paragraph 28,
Lord Neuberger says:
"As already explained, the mere fact that a court
may be pretty confident that the subsequent effect or
consequences of a particular interpretation was not
intended by the parties does not justify rejecting that
interpretation."
That is important. Over the page at the top:
"However, as explained in paragraphs 24 and 25 above
this argument would, in my view, involve the court
inventing a lack of clarity in the clause as an excuse
for departing from its natural meaning in the light of
subsequent developments."
So what he is saying there is you can't invent some
difficulty and say: well, it's not clear and then say:
therefore, I can wade in and change it. That is not
an approach that Supreme Court would find attractive.
At 32 it shows the judge is not immune to the
merits:
"Despite the unattractive consequences, particularly
for the lessee holding a chalet under one of the ...
leases, I am unconvinced by this argument ..."
Namely, how could they have intended it on
a commercial basis set out 30 and 31:
"... involved departing from the natural meaning of
clause 3(2) in each of those leases and it involves
inserting words which are not there."
Then Lord Hodge at paragraph 66. He agrees with
Lord Neuberger and then he says, quite interestingly, at
paragraph 77 about this process which is particularly
relevant I think here, talks about the unitary exercise
involves an iterative process. There is no debate about
that.
MR JUSTICE FRASER: Where are we --
MR CAVENDER: 77, my Lord, opposite C. Four lines down he
says this:
"But there must be a basis in the words used and the
factual matrix for identifying a rival meaning. The
role of the construct 'the reasonable person' is to
ascertain objectively with the benefit of the relevant
background knowledge the meaning of the words which the
parties used. The construct is not there to rewrite the
parties' agreement because it was unwise to gamble on
future economic circumstances in a long-term contract or
because subsequent events have shown that the natural
meaning of the words has produced a bad bargain for one
side. The question for the court is not whether
a reasonable and properly-informed tenant would enter
into such an undertaking. That would involve the
possibility of rewriting the parties' bargain in
the name of commercial good sense."
That is what my learned friend asks you to do:
"In my view Mr Moorhead's formulation at paragraph
67 above on which his case depends asks the court to
rewrite the parties' leases on this illegitimate basis."
As we will see when we come to 12(12) and 4.1 my
learned friend asks you to do the same.
MR JUSTICE FRASER: Are we moving on from Arnold v Britton
now?
MR CAVENDER: I have a few more comments on it, my Lord.
MR JUSTICE FRASER: I just have one question on it, but
I will leave it until you have finished.
MR CAVENDER: A couple of points to note. The parties to
this are people taking leases of chalets in Wales, not
huge companies or commercial people, they are ordinary
people. So if there is an ordinary people test my
learned friend is applying, you don't see it in Arnold.
It is a strong case, in my submission, where the
words of the clause were clear and didn't permit of any
alternative construction, and Lord Neuberger's speech
provides a very clear and authoritative statement on the
principles of construction, when we come to my learned
friend's construction of 12(12), where he seeks to
import a whole range of words into 12(12), about the
meaning of loss and what Post Office have to do in order
to qualify as loss, it is not construction, it is
a series of further implied terms in reality, as we will
see, but it is a million miles from the process of
construction that Arnold v Britton instructs
your Lordship to do.
My Lord, I was going to finish there. So your
question?
MR JUSTICE FRASER: If you go back to paragraph 17 between
letters C and D {A1.1/58/10}, and this is a different
feature of the instant proceedings, where Lord Neuberger
says:
"Unlike commercial commonsense and the surrounding
circumstances the parties have control over the language
they use in a contract."
In this case, if one takes "the parties" to mean
a particular subpostmaster or subpostmistress and the
Post Office, the subpostmaster or subpostmistress
doesn't have any control over the language, do they?
MR CAVENDER: My Lord, I think that is to mis-state the
point. What Lord Neuberger is here saying is -- he is
talking about freedom of contract generally. He is
taking the general principle. Applied to the particular
facts of Arnold of course these were leases for chalets,
which were standard form. So the same point put to
my Lord would also be available on the facts of this
case. In our case actually the postmasters are in
a better position because they do have a trade union
type organisation negotiating for them. So in fact in
this case the parties are in a better position vis-a-vis
that point than the unfortunate chalet owners in that
case.
MR JUSTICE FRASER: So you are saying that actually he
didn't really mean that, are you?
MR CAVENDER: No, he did mean it, my Lord. But he was
obviously aware that -- what he was doing was reflecting
the position of freedom of contract. Obviously the
reality is, depending on the relationship, you have more
or less freedom. In this particular case, in Arnold,
they have no freedom at all. They were standard form
leases, as you can see. But the point I am putting,
my Lord, is in the present case these claimants are in
a better position.
MR JUSTICE FRASER: And if I were to be persuaded by
Mr Green that actually the National Federation
of Subpostmasters is no such thing, so far as an
independent ...
MR CAVENDER: Sorry, my Lord?
MR JUSTICE FRASER: I am just waiting for the boisterousness
of your juniors temporarily to subside.
MR CAVENDER: So am I, my Lord.
MR JUSTICE FRASER: They are an energetic pair. If I were
to be persuaded by Mr Green that I shouldn't pay too
much attention to the involvement of the NFSP, what
would you have to say about the inability, as
I understand it on the evidence, of an intending
subpostmaster or subpostmistress to have any effect over
the language? Are you saying their freedom is whether
to be a subpostmaster or subpostmistress or not?
MR CAVENDER: Exactly. Really, in effect. As it was in
Arnold to have the chalet or not. It's exactly the
same. But whatever view you take of the NFSP, and
obviously there is not full disclosure on this, but it
is quite clear they do act on behalf of postmasters and
don't always agree with Post Office. They are -- true
it is their independence is subject to the fact they are
funded under the plan and we all know what that is, but
to say they have no say and they have less say than the
lessees in Arnold would be wrong. At least they have
someone who is in position to negotiate for them, who
can take legal advice, we heard, on the document on
their behalf, to report to them. These are all
functions the lessee in Arnold did not have.
So what Arnold v Britton says is a strict approach
to the notion of business common sense. It doesn't
provide a warrant to read over the actual words and,
just because the construction is tough, doesn't mean to
say the court should roll up its sleeves and rewrite the
agreement.
So Wood v Capita was the next I was going to refer
you to. {A1.1/67/1}. This involved, if you recall,
interpretation of an indemnity in a contract of purchase
of shares. A company was involved in the issuance of
brokerage in classic cars and there was an indemnity.
If you look at the headnote you can see what happened
there in line four. The indemnity was:
"... to indemnify the Borough against inter alia all
fines, compensation or remedial actions or payments
imposed on the company arising out of claims or
complaints registered with inter alia the FSA."
What then happened:
"The purchasing company carried out a review and
ruled in many cases the company's telephone operator had
misled customers ... (Reading to the words) ... The
seller defended the claim on the ground that the
compensation scheme fell outside the scope of the terms
of the indemnity clause properly understood. The judge
construed 'indemnity' as requiring the seller to
indemnify the buyer even though there had been no claim
or complaint."
That was the point, my Lord; whether it was a claim
or complaint under the scheme set up. So because there
was no claim or complaint, that therefore the scheme set
up wasn't within the four corners and the sums paid
under it didn't attract the indemnity:
"The Court of Appeal construed the indemnity clause
as being confined to losses arising out of customers'
claims or complaints and accordingly allowed the
seller's appeal ... (Reading to the words) ... That that
was not a literalist exercise focused solely on the
parsing of the wording of a particular clause but
required consideration of the contract as a whole ...
more or less weight was given to elements in the wider
context ..."
And reference there to the unitary exercise. So
that was the context of what was done. We pick up
Lord Hodge at page 12, having outlined above page 12
between 8 and 12 some background cases.
MR JUSTICE FRASER: Sorry, which paragraph?
MR CAVENDER: Paragraph 12 is the place I want to take you
to.
MR JUSTICE FRASER: Yes.
MR CAVENDER: It talks about the unitary exercise:
"... involves an iterative process ... (Reading to
the words) ... commercial consequences are
investigated."
And Arnold is cited there. He says:
"To my mind, once one has read the language in
dispute ... does not matter whether the more detailed
analysis commences with the factual background ... or
close examination. Textualism and contextualism are not
conflicting paradigms in ... (Reading to the words)
... which the parties have chosen in their agreement."
At 15:
"The recent history of the common law of contractual
interpretation is one of continuity ..."
(Interruption due to alarm)
MR JUSTICE FRASER: I can safely say that is not a drill.
So if there is a further announcement, it might be
an evacuation. But, until we get that, it is perfectly
in order to continue.
MR CAVENDER: I am obliged. So paragraph 15 then:
"The recent history of the common law of contractual
interpretation is one of continuity rather than
change ... (Reading to the words) ... particularly in
regard to contractual interpretation."
What happened here of course you can see in practice
was a narrow view was taken --
(Interruption due to alarm)
MR JUSTICE FRASER: It just goes to show one can't always
predict what the next announcement is going to be.
MR CAVENDER: So what you can see in this case is that
a narrow view was taken of the words.
MR JUSTICE FRASER: In Woods.
MR CAVENDER: In Woods, yes. Again. It is another standard
case where, although you might think that the indemnity
in terms of spirit, and the first instance judge thought
this, was to cover claims more generally in that area,
the court looked at the words of contract and applied
it.
MR JUSTICE FRASER: But, Mr Cavender, one interesting
passage in Woods is at paragraph 14 which basically says
there is no difference between Rainy Sky and Arnold.
MR CAVENDER: My Lord, with the greatest respect I think
that is just a kind way of saying --
MR JUSTICE FRASER: That Rainy Sky is wrong.
MR CAVENDER: Quite. People understood it incorrectly.
People understood it to mean a much more liberal
approach than -- as a much more liberal approach than
the words of Rainy Sky deserved, and certainly in Arnold
that was the case and Wood v Capita was -- effectively
Lord Hodge was saying, well, that is how you look at
those two lines of authority.
MR JUSTICE FRASER: But whether Rainy Sky and Arnold say the
same thing or not, if one reads Arnold and Woods
together, they are the bedrock on how one should
approach it.
MR CAVENDER: Indeed. That is a very fair way of putting
it.
(Interruption due to alarm)
MR JUSTICE FRASER: I'm very happy to continue, Mr Cavender.
MR CAVENDER: I am loving this, my Lord.
MR JUSTICE FRASER: I will see what happens when the
associate comes back. We don't have that long before we
need to stop anyway.
MR CAVENDER: I will move on now from contractual
interpretation to the law on implied terms.
MR JUSTICE FRASER: Yes.
MR CAVENDER: Here of course we are dealing with M&S. I'm
sure your Lordship is --
MR JUSTICE FRASER: Tab 5.
MR CAVENDER: Tab 5 of the opening authorities, my Lord.
{A1.1/61/1}. Our written submissions on this are
between paragraph 79 and 92 of our written closing.
Looking at the headnote, if you recall, this is
a case where there was a termination of a lease based on
the terms and, as a result of the date at which that
was done, there was in effect overpayment of rent
because the lease was terminated, you see on line 3, on
24 January 2012. But because of the way the rent
quarters fell, rent was paid to 24 March 2012. So what
was said was: look, that can't have been intended.
Please can I have the extra rent back? And you can see
the commercial sense in that.
You can see the judge allowed the claim, the
Court of Appeal allowed the landlord's appeal and the
Supreme Court dismissed the appeal. It said:
"A term would be implied into a detailed commercial
contract only if it were necessary to give the contract
business efficacy or so obvious that it went without
saying."
MR JUSTICE FRASER: Given it is 12.50 pm and you are about
to take me to M&S, I think we will stop now. I will
actually go and re-read, not only the full authority,
but those paragraphs again and that will probably save
the constant interruption, which I don't think is really
fair to you to be honest. Unless you would rather
I didn't do that?
MR CAVENDER: I am happy for that.
MR JUSTICE FRASER: It seems a sensible, pragmatic solution.
We will resume at 2 o'clock. There is a chance that at
2 o'clock this building might be evacuated and we can't
get back in. If that is the case and we are not allowed
in, I will present myself in the roadway outside the
front of the Rolls Building and will just address with
both of you two the practicalities based on any
knowledge I will have gleaned by then about whether
there is a proper alarm or not. That has happened only
once before. I think it is unlikely. But just in case.
Other than that, we will start again at 2 o'clock.
(12.50 pm)
(The short adjournment)
(2.00 pm)
MR CAVENDER: Good afternoon, my Lord. We were about to
look at M&S, I think your Lordship took the opportunity
over the break to re-read it for which I am much
obliged. {A1.1/61/1}
You had obviously read the facts and about the rent
period, I think I mentioned that before the alarm became
intolerable.
The points I would like to pick up at paragraph 19
and following, if we may {A1.1/61/12}. I just say in
passing that we deal with this at paragraphs 79 to 92 of
our written closing. {A/8/34}
So 19 {A1.1/61/12} is where the Philips Electronique
case is mentioned by Lord Neuberger:
"... which distilled the essence of ... almost be
misleading."
And then refers to what Lord Bingham
Master of the Rolls, as he then was, says below letter B
which we draw your Lordship's attention to in particular
because we say that is what might happen if we're not
careful {A1.1/61/13}:
"The question of whether a term should be implied,
and, if so, what ...(Reading to the words)... which will
reflect the merits of the situation as they then appear.
Tempting but wrong."
My Lord, we say that is an approach you should have
very close regard to in this case to make sure you don't
fall into that trap.
Then at 21 Lord Neuberger says:
"In my judgment, judicial observations so far
considered represent a clear, consistent and principled
approach."
Then he outlines in a number of paragraphs, six
paragraphs, numbered principles. 21:
"First, in Equitable Life Lord Steyn rightly
observed the implication of a term was not critically
dependent on proof of an actual intention of parties."
He then goes on three lines down:
"... one is not strictly concerned with the
hypothetical answer of the actual parties but that of
a notional reasonable person in the position of the
parties at the time they were contracting."
That's the important point I make there. Because
a lot of the stuff we say my learned friend prays in aid
is not at the time of contracting, with hindsight, in
the jaws of the dispute or alleged dispute on his
version of the facts later on saying, well, given these
facts, it would be a jolly good idea to imply these
terms. That is with the greatest of respect the wrong
approach.
"Secondly, the term should not be implied into a
detailed contract merely because it appears fair or
because one considers the parties would have agreed it
if it had been suggested to them."
Another problem with my learned friend, when he
cross-examines witnesses whether a thing could be
reasonable or fair to put it in, that is the mistake he
is making there too:
"Thirdly, it is questionable whether Lord Simons'
first requirement ... (Reading to the words) ... it is
vital ..."
And I emphasise that word:
"... to formulate the question to be posed by him
with the utmost care ... Sixthly, necessity for business
efficacy involves a value judgment."
Pausing there. My learned friend relies on that
throughout his submissions and he mischaracterises it.
MR JUSTICE FRASER: What does value judgment mean?
MR CAVENDER: I can tell you what it doesn't mean.
MR JUSTICE FRASER: You can tell me what it doesn't mean?
MR CAVENDER: Yes. It doesn't mean an entry into all the
facts that under the hindsight principle wouldn't be
allowed in. And I can tell you what it does include,
which is an objective evaluation as at the date of
contract based on the facts known to the parties at that
time.
MR JUSTICE FRASER: Objective evaluation of what, though?
MR CAVENDER: Of the situation in which the parties are
embarking on the commercial endeavour and what is
necessary by reference to that endeavour, if anything.
MR JUSTICE FRASER: Because it is a phrase -- I'm not being
difficult. "Value judgment" is a phrase lots of people
use, and I am never sure necessarily everyone is using
it in the same way.
MR CAVENDER: All it is saying I think is that it involves
a judgment by the court as to what the necessity, really
the degree of necessity, I suppose --
MR JUSTICE FRASER: Degree of necessity.
MR CAVENDER: Yes. I think that is clear from the bit that
follows {A1.1/61/14}:
"It is rightly common ground ..."
So if you ask that question and pause and then read
this bit:
"It is rightly common ground on this appeal that the
test is not one of 'absolute necessity' ...(Reading to
the words)... the contract would lack commercial or
practical coherence."
Again any suggestion that is the watering down, as
my learned friend kind of flirts with, of the business
necessity test is in my submission wrong. What it is
really saying about coherence is it doesn't make sense.
That is another way of putting the point.
MR JUSTICE FRASER: But that is rather different to business
necessity, isn't it? Or isn't it?
MR CAVENDER: I think it is an aspect of it. I will go to
a case in a moment, the Ukraine case, where the Court of
Appeal considered this word. But sticking with this
case for the moment, 23:
"First, the notion that ..."
That paragraph. If you go down to the words:
"The first proviso emphasises that the question
whether a term is implied is to be judged at the date
the contract is made ...(Reading to the words)... For
the same reason it would be wrong to treat Lord Steyn's
statement in Equitable Life that a term will be implied
if it 'essential to give effect to the reasonable
expectations of the parties' as diluting the test of
necessity."
That is really important:
"That is clear from what Lord Steyn said earlier on
the same page, namely, 'the legal test of implication
of ... a term is ... strict necessity' which he
described as a stringent test."
Then over the page to 28 {A1.1/61/15}:
"In most, possibly all, disputes about whether
a term should be implied into a contract, it is only
after the process of construing the express words
...(Reading to the words)... difficult to see how one
can set about deciding whether a term should be implied
and, if so, what term."
Reading on:
"Further, given that it is a cardinal rule that no
term can be implied into a contract if it contradicts an
express term, it would seem logically to follow that
until the express terms of the contract have been
construed it is at least normally not sensibly possible
to decide whether a further term should be applied."
Pausing there. We say that is obviously right. We
say in due course that the implied terms that my learned
friend advances do conflict with the express terms. And
furthermore we say under that principle you should also
have regard to the agreed implied terms, because they
are every bit part of the contract as the express terms,
before deciding what, if any, implied terms that are
disputed you are going to imply.
29 {A1.1/61/16}. Any notion my learned friend again
flirted with the construction of the contract or
interpretation of the contract and the implication of
terms are anywhere close together, they are distinct and
different processes. What we learn at 29 is the process
is very different:
"In any event, the process of implication involves
a rather different exercise from that of
construction ... (Reading to the words) ... The
implication of contract terms ..."
And these are the words I emphasise:
"... involves a different and altogether more
ambitious undertaking: the interpolation of terms to
deal with matters which ex hypothesi the parties
themselves have made no provision it is because the
implication of terms. It is because the implication of
terms is so potentially intrusive that the law imposes
strict constraints on the exercise of this extraordinary
power."
In their words I particularly emphasise.
So you can see the discussion that goes on in terms
of the application of those principles to this case that
you have read. And you can see the background this:
every commercial reason why you might say that rent that
effectively is being paid into the yonder, simply
because of the timing of the termination, would on one
view seem to be uncommercial. And you will see that
recorded at paragraph 37 {A1.1/61/18} where
Lord Neuberger says:
"There is considerable force in the points discussed
at paragraphs 33 to 35 above ...(Reading to the
words)... however, it is necessary to consider
countervailing arguments."
And he goes on. 38 very detailed, 39 express
provisions. And we know the result.
My Lord, in my submission that is obviously binding
Supreme Court authority, absolutely clear, returning to
the orthodoxy, back to the old days of Liverpool v
Irwin, that kind of approach.
The fact is that that approach also applies to
relational contracts, when we come to that later. This
is implied terms of all sorts, it is not delimited or
restricted in any way.
The value judgment. My learned friend refers
for instance on Day 12, pages 60 to 61 {Day12/60:1} and
Day 12, page 127 {Day12/127:1}, to the practical
realities of the relationship. I'm not saying you can't
have regard to the relevant factors, but it is very
clear that you can't have hindsight and you must have
the right question to the reasonable person at the date
of contracting. Those are crucial. Because that is
reflective of the requirement for necessity.
If we go to Ukraine on the meaning of the word
"coherence" et cetera. That is volume V2, tab 42.
{A1.1/73/1}. A decision of the Court of Appeal.
MR JUSTICE FRASER: V2?
MR CAVENDER: Yes, my Lord, as my learned friend has called
it. It's a decision of the Court of Appeal. I'm not
going to the facts, it doesn't particularly matter. The
argument on this point is at --
MR JUSTICE FRASER: It's invasion and defaulting on bonds,
isn't it?
MR CAVENDER: Exactly. The argument put forward as relevant
for this point is at {A1.1/73/55}.
MR JUSTICE FRASER: Paragraph 200?
MR CAVENDER: Yes, 200, my Lord. What happens at 200 is the
Court of Appeal set out the contentions the barrister
there, Mr Thanki, at (v) and (vi):
"... based on a misunderstanding of ... the business
efficacy test ...
"... if the test were whether the contract could be
effective without it, the implied term against
preventing performance would never arise."
Those were the kind of points being made.
And then the judgment of the court is at 210 on this
point {A1.1/73/63} given by Lady Justice Gloster:
"Secondly, we agree with the judge that the
suggested implied terms are unnecessary the Agreements
work perfectly well without the suggested terms; they do
not 'lack commercial or practical coherence' without the
inclusion of such terms. Nor do we consider that the
judge's conclusion represents a misunderstanding of the
business efficacy test as explained by Lord Neuberger in
Marks and Spencer plc at 21, as quoted above, as Mr
Thanki submitted. The question is not whether the
implied terms create a commercially coherent result but
rather whether the terms are so necessary or obvious
that, without such terms, the contract would lack
commercial or practical coherence. Despite the attempts
by Ukraine to re-characterise the arrangement as a
bilateral loan, or a tri-partite agreement, the court
must look at the terms of the actual contracts entered
into."
And you can see they are given:
"Given this reality, the suggested terms are not
necessary for business efficacy."
The next authority I want to show you on the same
point is Bou Simon, the opening authorities tab 9,
please. Another decision of the Court of Appeal on
implied terms. I'm not sure the facts are beyond those
in the headnote, particularly to take you to
{A1.1/75/1}.
If we go to paragraph 13 -- at paragraph 12 it
starts with "Discussion and Conclusion", does my Lord
have that? {A1.1/75/12}
MR JUSTICE FRASER: Yes.
MR CAVENDER: "It seems to me that the judge succumbed to
the temptation described by Bingham MR in the Philips
case ... (Reading to the words) ... the parties would
have it if it had been suggested to them."
And obviously reference there to Lord Neuberger.
"Furthermore, in my view, the judge began the task
of determining whether a term should be implied from the
wrong starting point ... (Reading to the words)
... Until one has determined what the parties have
expressly agreed, it is difficult to determine ... what
the term should be."
Then missing out the bits of the quote:
"It seems to me that in doing so, he construed the
agreement in order to fit the implied term rather than
begin with the express terms themselves."
We can then jump to paragraphs 18 and 19
{A1.1/75/14}:
"In my view, therefore, the reasonable reader ...
(Reading to the words) ... On the contrary, there was no
lacuna of the kind BGC contends for ..."
MR JUSTICE FRASER: "At all".
MR CAVENDER: Indeed, "at all", my Lord, yes.
Then paragraph 21 {A1.1/75/15}:
"Furthermore, it seems to me that there is no lack
of commercial or practical coherence ... (Reading to the
words) ... there is nothing uncommercial or absurd about
a limited recourse loan."
Pausing there. You can see what was being said
here, that under the terms of the agreement itself this
was the result and that can't have been intended.
"The agreement was drafted on the basis that
Mr Bou Simon would become a partner ... (Reading to the
words) ... It was not subject to decision by the judge
below and is not before the court on this appeal."
And then 22 the Lord Justice further criticises the
judge:
"The judge failed to exercise the utmost care in
formulating the question which one ought to pose to the
officious bystander ... (Reading to the words) ... As
Lord Neuberger pointed out, a term which is not
necessary to give business efficacy to a contract is
very unlikely to be so obvious that it goes without
saying."
So, my Lord, you will see the relevance of this to
our case. The claimants have all sorts of
non-contractual claims against the Post Office,
including in deceit you will recall from the pleading.
The contracts do not need to be rewritten to seek to
deal with all eventualities, even those not anticipated
by reasonable parties at the date of contracting, even
those which would be unlawful for other reasons, eg
fraud or restitution. Your Lordship will recall the
alleged implied term not to conceal various things,
a term that seems to be invented merely to provide
a contractual basis for a claim that can only properly
be advanced in deceit.
So the takeaway points from this passage on implied
terms: the judgment must be done at the time of making
the contract; you can't rely on hindsight; the term must
be necessary, not merely reasonable.
Pausing there, that produces a real problem for
these claimants because we know, and the court can't
close its eyes to the fact, that these six are part of
a body of 557. They are also part of another body of
11,500, all of whom operate on one or other of these
contracts perfectly well and have no necessity, whether
absolute or otherwise, for the rewriting and the
implication of the 21 terms that my learned friend
implies here.
That is not just a jury point. It is very unusual
for someone in my position to be able to say that, to
say, look, here's the contract, and look, there is
a test bed over there, there is a culture plate, the
test, in which you can see what is happening.
I can say that, and I can say it to the sound of
trumpets because there are many -- I see your Lordship
is not impressed by it but --
MR JUSTICE FRASER: It is a jury point really if one is
approaching it as a matter of law.
MR CAVENDER: Is that right?
MR JUSTICE FRASER: Well, if the test is business necessity,
and you have very carefully taken me through the proper
sequence of considering that, what difference does it
make that you say there are lots of SPMs for whom it
works perfectly well?
MR CAVENDER: Because the threshold, as we have seen, for
implying a term, is necessity. I can point unusually in
this kind of case to many thousands of other people who
operate on these contracts perfectly well, without the
term. It's powerful evidence and it requires answering
I'm not saying it is a slam dunk but it is relevant.
And my learned friend has to grapple with that and
explain why, despite that fact, it is necessary. Not
just reasonable or he would like it for these six or
these 557, but why it is necessary and why otherwise the
contract lacks practical coherence. Because those
11,000-odd other people don't think so and they operate
every day on the ... they don't think there is any
problem at all.
So that was the second point: you can't have
hindsight, must be necessary, not merely reasonable.
There must be a gap or hole in the contract, a lacuna,
necessary to fill in order to give it practical
coherence, or I prefer business necessity.
So although it is not absolute logical necessity,
I accept that, it is nonetheless a very high hurdle to
overcome.
MR JUSTICE FRASER: It is business necessity, isn't it?
MR CAVENDER: Indeed. We have looked at the cases where it
has come up and it is a harsh test. The idea of
interpolation of terms into agreements is an ambitious
undertaking. To imply 21 terms into a contract is a
particularly ambitious undertaking.
You would also, my Lord, even if you embarked on
this course at all, you would have to re-address the
test after you implied each term. Because you would
have to ask yourself, having implied one of the terms,
does that then obviate the necessity to imply any more?
And normally in a case it doesn't matter because there
is one term or two terms, but when we have 21 that is
a real point. You have to reassess the test after each
term. Because it may be said that or your Lordship may
form the view the implication of one of them is
sufficient and there are other areas where you are not
satisfied it is necessary to imply a term.
So the task my learned friend has given you,
without, with great respect, any real assistance, is
quite a special one. It is particularly special when he
has not actually shown you any one of the 21 terms.
I will take you to them under the implied term
section but let's have a look now just to remind
your Lordship. I'm not going to go through them but
just to remind you in terms of getting you warmed up and
thinking about what you are being asked to do and the
scope of it.
MR JUSTICE FRASER: So we are putting the authorities away.
MR CAVENDER: We are putting -- after this I am going to
construction, but before I do that I want to --
MR JUSTICE FRASER: Just in terms of my clearing my desk.
MR CAVENDER: Indeed, my Lord, yes, we have. As I say, I'm
only dipping my toe in this now just to remind you
within that debate what are being asked to do.
So it's bundle B, {B3/1/35}.
MR JUSTICE FRASER: Common Issue 2?
MR CAVENDER: My Lord, yes. It's implied terms. It's
paragraph 63 of the pleading I want to go to.
MR JUSTICE FRASER: We are going to the pleading?
MR CAVENDER: Yes, {B3/1/35}. What we have in 63 is the
so-called Yam Seng term with --
MR JUSTICE FRASER: It is not "so-called". It is the
Yam Seng term, isn't it?
MR CAVENDER: Well, not the term that was implied in that
contract in fact.
MR JUSTICE FRASER: No, but 63 seeks -- we can go round and
round in circles on semantics and it is very tedious.
Relational contracts are effectively a tag which was
first expounded in Yam Seng. So that is what 63 is.
And that, as I understand your submissions on approach,
is a question I should come to at the end having done
express terms and implied terms.
MR CAVENDER: Express terms and agreed implied terms.
MR JUSTICE FRASER: Well, you say agreed. Whether agreed or
not, you say express terms, the agreed implied terms and
other implied terms after that because of the necessity.
MR CAVENDER: Indeed.
MR JUSTICE FRASER: And once I have done those two
categories, then I can go on to consider the case that
is advanced on relational contracts.
MR CAVENDER: My Lord, yes.
MR JUSTICE FRASER: Because it has to be considered at some
point. Mr Green said he wasn't much bothered whether it
was second or third but he agreed express terms had to
be done first. You say it should be done after implied
terms.
MR CAVENDER: Yes, as part of really. Because my learned
friend, the way he puts the case is his term in 63,
largely the Yam Seng term is like an authority or
warrant card he uses for justifying, implying the 21.
He also does so separately --
MR JUSTICE FRASER: He does it separately as well. That is
why I was anxious -- "anxious" might be the wrong
word -- careful to explore the sequential order that
each of you seeks to have me adopt. Because Mr Green
has relational contracts as a separate tag, but he also
uses it as a springboard for his other implied terms.
And it can't be a springboard if you are going to do the
implied terms before you do Yam Seng. So do you say it
can be done contemporaneously?
MR CAVENDER: It doesn't matter whether you do it at the
same time or not because Yam Seng is a step along the
way to implying a term, so it is part of the implied
terms debate. As my Lord says, it is simply -- or we
say, I'm not sure if he accepts it or not -- it's
a staging post along the way, a recognised type of
contract, which may require the court to look
particularly carefully at certain possible implied
terms.
MR JUSTICE FRASER: Or at the nature of the relationship.
MR CAVENDER: Yes.
MR JUSTICE FRASER: Which within it would include, if one
found a relational contract, the potential for implying
terms as a function of it being a particular species of
contract.
MR CAVENDER: We say that is the wrong way of looking at
it --
MR JUSTICE FRASER: Okay, it may or may not be semantics.
But I think in opening your position was somewhat more
robustly against it as a concept at all.
MR CAVENDER: My Lord, no, no. It is obviously a concept,
it has been recognised. The debate we had, and I don't
want to have it again because it's out of order, but if
you look at what Lord Justice Beatson says in Globe, it
is quite clear he is saying that a relational contract
is a thing. Whether or not in a particular relational
contract you imply the Yam Seng duty will depend on the
terms of the contract. Once you take that on board, it
is very clear in my submission that he would not advance
or accept the position that the finding of a relational
contract in and of itself means you then imply the
Yam Seng term.
They are separate stages and in my submission -- and
I will make it good -- that is the position, and it's
for good reason because even my learned friend accepted
you can imagine a relational contract, ie one that
fulfils some of the criteria, having sufficient express
terms not to require the Yam Seng term. Point one.
Point two, the danger with rolling it up in the way that
attracts my Lord is the danger of not applying --
MR JUSTICE FRASER: Why do you say the way that I am
attracted to?
MR CAVENDER: Because when you put it to me, you seem to be
attracted at the moment to the idea that as part of the
finding of a relational contract --
MR JUSTICE FRASER: No, I am just fairly clear as to what a
relational -- what the consequences of finding
a relational contract are.
MR CAVENDER: Yes, my Lord, and I'm not agreeing with you.
MR JUSTICE FRASER: I think you are. But if and insofar as
you are not, this arose in opening and it may just be
a miscommunication issue, the expression "relational
contract" has certain characteristics or it is used to
describe a contract with certain characteristics. The
way in which parties' obligations are defined between
the two of them in a contract situation, insofar as they
are not expressly agreed, express terms, they are
implied.
So if one says, well, a relational contract means
a duty of good faith, that duty of good faith can only
go into a contract by means of an implication if it is
not dealt with expressly. That is all it comes down to.
MR CAVENDER: My point in response, my Lord, is I can
imagine a world, Lord Justice Beatson can too, where you
have a relational contract, you say it is long-term,
there's lots of communication, all the incidents that
one gets. It's quite an early stage of the
jurisprudence on what a relational contract is, but it
has those. But nonetheless there is no necessity to
imply a term of good faith.
MR JUSTICE FRASER: That might simply be a way of saying it
isn't a relational contract. If one defines relational
contract --
MR CAVENDER: That is the point.
MR JUSTICE FRASER: That is the point.
MR CAVENDER: Yes.
MR JUSTICE FRASER: And I understand the Post Office's
position is effectively, whether it is a relational
contract or not, there is no duty of good faith --
MR CAVENDER: Correct.
MR JUSTICE FRASER: -- in this contract.
MR CAVENDER: Correct. But I say, and this is important in
terms of the development of jurisprudence, it is
important as a question of developing that jurisprudence
to isolate the elements that make it potentially
a relational contract, what that then makes you as
a judge look at to see the kinds of terms you might
imply, decide whether in fact you are going to imply
them, and then apply the Marks & Spencer test to that.
If you do it all in one, and you can do, there is a real
risk in missing the stages, particularly the application
of the Marks & Spencer test in that, which clearly has
to be done.
MR JUSTICE FRASER: There is no doubt the Marks & Spencer
test clearly has to be applied to see what implied terms
exist.
MR CAVENDER: My Lord, yes.
MR JUSTICE FRASER: There may also be no difference in
result depending on the stage at which one does it.
MR CAVENDER: Quite.
MR JUSTICE FRASER: But I understood the Post Office case
from opening, and it seems I have misunderstood it, was
effectively challenging the concept of relational
contracts at all.
MR CAVENDER: My Lord, no.
MR JUSTICE FRASER: I explored it in quite a lot of detail
on the first day and I think invited you to go back and
re-read some of it because it didn't seem to me
necessarily to make -- to be entirely easy to follow.
As I understand it now, you accept as a legal
species there is a type of contract that can be
described as a relational contract.
MR CAVENDER: Indeed.
MR JUSTICE FRASER: But, and if I am wrong tell me, you
don't accept that simply because something is as, so
described, a relational contract, it necessarily
includes a duty of good faith.
MR CAVENDER: Correct.
MR JUSTICE FRASER: Right.
MR CAVENDER: You have to decide that separately and you
have to decide what type of implied term, because good
faith is obviously a full church, you are minded to
imply and then apply the M&S test to that.
MR JUSTICE FRASER: Therefore if there are two types of
relational contract, one that has a duty of good faith
and one that doesn't, what terms should one use to
describe a relational contract that does not have any
such duty?
MR CAVENDER: It is a relational contract. It is --
MR JUSTICE FRASER: It has the same name as the one that has
a duty of good faith?
MR CAVENDER: What about a joint venture agreement? You
have a joint venture --
MR JUSTICE FRASER: Not all joint ventures are relational
contracts though.
MR CAVENDER: I know, but some have the term of good faith
implied, see Ross River, and some do not. What it is is
a helpful road along the way for the court to identify,
very usefully, that it is a species of contract where
you have ongoing co-operation and long-term. And
your Lordship has put your finger on this, I know it is
not in the authorities, but you are quite right when you
say the long-term element is crucial. Why? Because you
are locked in. You are locked in for a period of time
and one knows from life that events change in, say,
a five-year term or 25 years in the case you brought our
attention to.
In a short-term contract or one with a notice period
that is short your response to that as contracting party
is you can terminate and leave. In a long-term contract
you cannot do that. And in a relational contract that
makes it even worse because you are thrown together.
It's not just the bilateral sale of goods or something,
it is an ongoing relationship. And those are the two
elements that require an answer from the court to have
particular regard to whether, in those circumstances, it
is necessary to imply a term.
MR JUSTICE FRASER: It is very clear to understand,
therefore, that the Post Office case is that a contract
can be a "relational contract" but not necessarily
include a duty of good faith.
MR CAVENDER: Correct.
MR JUSTICE FRASER: All right.
MR CAVENDER: We will go to Globe and see --
MR JUSTICE FRASER: No, no, that is fine.
Right. So we went to the pleadings so you could
show me the implied terms.
MR CAVENDER: Not to go through them, just to see the order
of magnitude having just looked at the test of what you
are being asked to do. So you have the headline term of
Yam Seng, and then cast your eye down in 64 {B3/1/35}
the range of the 21 terms that you are being asked to
imply here.
So we have at 64.1 training, 64.1A reasonably fit
for purpose system. Then 64.2 through to 64.12 is all
about accounting and what you can and can't do. 64.13
is suspension, 64.14 is termination, 64.15 to 18 is good
faith and other things.
So the scope of what you are being asked to do and
say that each and every one of these is necessary to
give coherence to the contracts, and you are asked to do
that without any submissions, detailed submissions on
which ones of these and on what basis. So very globally
in closing by my learned friend. He touches on it and
he tries to parse them up and no real work is done to
try and justify them. And this is being done when you
have already got the agreed implied terms, necessary
co-operation, which my learned friend says, we will come
to it in a moment, is a wide term, filling the space,
along with the fiduciary relationship, the agency, as
well as the express terms. So that is the task on which
your Lordship is asked to embark. I will return to
implied terms in due course.
As you have not seen them before --
MR JUSTICE FRASER: I have seen them before.
MR CAVENDER: But not in terms of submissions and ...
MR JUSTICE FRASER: No.
MR CAVENDER: So now we are getting to the construction
point, express terms, clause 12(12).
MR JUSTICE FRASER: Can I just check before you do as
a global headline point, because obviously the first
four lead claimants are on the SPMC, the fifth and sixth
are on the NTC. Is there scope for, given the different
knowledge of the parties or the hypothetical reasonable
person, so far as the NTC formation is concerned,
because it is so much later in time, the different
implied terms in the NTC than in the SPMC? Or do you
say the answer will inevitably be the same for both
contracts?
MR CAVENDER: My Lord, I think it would be really.
MR JUSTICE FRASER: It would inevitably be the same.
MR CAVENDER: Yes, because I don't think there has been any
attempt by either side to put forward factual matrix
that would differ.
MR JUSTICE FRASER: The factual matrix is going to be
different, isn't it?
MR CAVENDER: But not appreciably. We say the main factual
matrix in closing is that the SPMs have control of the
branch, they know what is going on, they are doing the
transactions --
MR JUSTICE FRASER: But that is after they formed the
contract, you're saying then.
MR CAVENDER: No, no. They know that is going to happen.
MR JUSTICE FRASER: That is correct. But if one looks at
the two NTC claims, Mrs Dar and Mrs Stockdale, they are
forming their contracts, what, 12 years, 14 years, 16
years after some of the other lead claimants.
MR CAVENDER: Indeed.
MR JUSTICE FRASER: And the question which has to be posed,
which is -- I don't have the exact terms written down in
front of me, about the state of knowledge of the
reasonable person, might be different in 2012 than it
was in 2000.
MR CAVENDER: Theoretically of course that must be right and
no one has identified any material difference that is
relevant to construction.
MR JUSTICE FRASER: And you might well be right about that,
but it just seems to me a potential wrinkle which is why
I wanted to ask you about it.
The Justice for Subpostmasters had in fact been
created pre-2012, I think, the Parliamentary inquiry
et cetera, et cetera, that had all happened
pre-claimants five and six. Well, not all of it but
some of it had. So there is a possibility for
a different factual matrix for claimants 5 and 6 than 1
to 4. But if your case is in practical terms it is
going to be the same, then that is your case.
MR CAVENDER: My Lord, it is. Because remember it has to be
known to both parties if you are going to have it in as
a matrix. We are talking about construction here.
MR JUSTICE FRASER: All right. It has to be an objective
evaluation, remember.
MR CAVENDER: Indeed.
MR JUSTICE FRASER: All right.
MR CAVENDER: So we say the point of departure for
construction is the fact that this is a contract of
agency.
MR JUSTICE FRASER: Yes.
MR CAVENDER: An express appointment both under the SPMC and
the NTC. The appointment of an agent is an important
feature when considering the issues of construction and
implied terms, we will come to later. That agency
necessarily brings with it fiduciary obligations owed by
the subpostmaster as agent to their principal, the
Post Office, which I think was accepted by my learned
friend yesterday, and necessarily so.
So in short, the relation of agency is a fiduciary
one and the contractual provisions we are debating sit
atop that. That is important. Your Lordship will have
seen the claimants seem to be moving away from the
admission they were agents, see paragraph 339.1 of the
written closings {A/6/161}, and they make the striking
submission that the subpostmasters' express agency
special agreement to be a fiduciary gave rise to what
they call a "relatively hollow" agency relationship.
I'm not sure what that means. They were agents and they
had all the obligations of an agent and a fiduciary
relating to the cash and stock and the running of the
branch and I'm not sure that can be sensibly contested.
So going to the clause itself, my Lord, can we turn
up the clause in whichever version you have.
MR JUSTICE FRASER: "The clause" being 12(12)? {D2.1/3/53}
MR CAVENDER: 12(12), yes. A couple of things before we
come to the actual words. Because of the way it has
been debated in court you can sort of approach it almost
from the wrong angle.
Firstly, this clause is obviously dealing with
losses, but it is not solely dealing with
Horizon-generated losses and trying to get them in or
out of the wording. That is the first point. I am
assuming for the purposes of this argument that
Horizon-generated losses or bugs are in fact a thing.
I'm assuming that.
The second point to make is that this clause was
introduced before Horizon but its application in
post-Horizon times has been the main focus of the
debate, and understandably. Within that there has been
particular focus on whether there is contractual
allocation of burden within the clause and, if so, what
allocation. That again has been the main focus.
But before we get to burden of proof, leave that to
one side, the court first has to determine the meaning
of the clause. Because once it does that it may find
that issues of burden satisfy or answer themselves.
So in my submission there are two stages. One is
what is the meaning of the clause? And keeping one eye
to how Horizon-generated losses fit into that. And
secondly, what is the burden of proof in the clause, if
any?
MR JUSTICE FRASER: If I keep one eye on how
Horizon-generated losses fit in I am applying hindsight,
am I not? Don't I look at the words as though Horizon
hadn't even been invented?
MR CAVENDER: My Lord, yes. But it is more for the purposes
of the argument because my learned friend effectively,
as I understand his argument, says, look,
Horizon-generated losses are a thing, they are included
within losses and 12(12), and postmasters had the burden
of disproving all of that and isn't that a terrible
thing. So that is the argument that is put.
So what I say is that isn't right. Let's look at
the meaning of the clause first and then look at burden
second, and then what we will do, third, is to run
through how in fact my construction would work as
a matter of practice at the breach trial, and that is
where the inference point arises. Not as a matter of
construction, not as a prior point. The reason I do
that is to persuade my Lord I'm not trying to sell you a
false prospectus and give you a construction that won't
work in fact. So I am working it through and saying
this is my meaning, this is the burden of proof, this is
how it would work in fact in relation to Horizon
relating to the submission of an account. This is how
it would work in fact.
Not that you have to find that in this trial, just
to give you comfort that my construction is correct.
So meaning. Again, with the Horizon-generated
losses on my shoulder I say Horizon-generated losses do
not come within 12(12) due to the meaning of the clause
and that is for two distinct reasons. One, because of
the word "deficiency". You will see the word there, it
starts with losses and errors, and it says finally
deficiencies due to such losses must be made good
without delay.
Deficiency, the Post Office meaning on that is
simple. Deficiencies often in this litigation have been
referred to as shortfalls, they are the same thing.
A deficiency focuses on what has gone on at the branch
and a deficiency is reflective of the fact there is
a loss. A deficiency is a difference between what is
shown in terms of cash and stock counting at the branch,
what I refer to as the "as is" position, comparing that
and what the position should be as shown by the
transactions entered into on Horizon in the branch, what
I call the "should be" position. A deficiency is
a difference between those two things.
Therefore, it does not include any sums entered on
to the Horizon system by way of a bug or something of
that kind. They are not a deficiency.
MR JUSTICE FRASER: That is a circular argument. But let's
say for the sake of argument that it is correct. If
that is correct and what are described as
Horizon-generated losses don't fall under 12(12), under
which clause would Post Office seek to recover losses of
other types? I'm not pegging it to Horizon, to do it
neutrally. Losses of other types would be recovered
under which clause in section 12(12) or any other
section?
MR CAVENDER: They would come under 12(12).
MR JUSTICE FRASER: They would come under 12(12).
MR CAVENDER: Yes, other types. I defined deficiency and
explained it is a comparison between two things. So if
for instance you compared the "as is" position with what
you had entered into Horizon, you had made a mistake of
£100, and so you have £100 less than you should, that is
a loss, it is a deficiency, and under 12(12) you would
be responsible for it.
MR JUSTICE FRASER: But I thought you started this passage
by saying you were going to assume, for the purposes of
argument, that Horizon-generated loss was a thing.
MR CAVENDER: Yes.
MR JUSTICE FRASER: Right.
MR CAVENDER: And what I have done is identify by reason of
the meaning of the clause, not a gateway or anything
else. In terms of the meaning of the clause,
deficiency, because it compares two things the "as is"
position, ie the cash and stock in the branch, and the
transactions done on Horizon by the postmaster at the
branch, ie the stamps and stock that should be there, if
there's a difference between those two then there is
a deficiency. If there is a difference between those
two because there is a bug in Horizon, that is not
a deficiency.
MR JUSTICE FRASER: All right. So on your analysis of
Horizon-generated losses being a thing, how would that
be recovered within section 12(12)?
MR CAVENDER: It wouldn't.
MR JUSTICE FRASER: Mr Cavender, it might be me being a bit
dense but I have difficulties in following.
If you are going to accept for the sake of argument
that Horizon-generated losses do exist --
MR CAVENDER: That is a loss that is generated wholly by
a bug, nothing to do with the subpostmaster or any error
by him.
MR JUSTICE FRASER: But then you are not accepting for
purposes of argument any counterfactual scenario
relating to what this case is in fact about. Because
you are defining Horizon-generated loss as something
that would never, effectively, hit the radar of recovery
from the SPMs at all. And this whole case is about, and
I appreciate it is not going to be -- you can shake your
head but it is. Their case is that there were such
things.
MR CAVENDER: Yes.
MR JUSTICE FRASER: And that they were recovered from them
under clause 12(12).
MR CAVENDER: Correct.
MR JUSTICE FRASER: Incorrectly.
MR CAVENDER: That is what they say.
MR JUSTICE FRASER: Yes. So if for the purposes of argument
you are going to accept there is such a thing as a
Horizon-generated --
MR CAVENDER: Correct.
MR JUSTICE FRASER: It is not enormously helpful to say you
accept it for purposes of argument but then define it in
such a narrow way that it simply would never occur in
terms of recovery from an SPM.
MR CAVENDER: My Lord, it is, because that analysis involves
a misunderstanding and it is this --
MR JUSTICE FRASER: Well, I am misunderstanding whatever it
is you are saying.
MR CAVENDER: Clause 12(12) is about recovering loss for
which the postmaster is responsible.
MR JUSTICE FRASER: Understood.
MR CAVENDER: This is my second point, the second reason why
they are not responsible for Horizon-generated losses.
The first one is deficiency, they are not a deficiency.
The second is when you look at the terms of
clause 12(12), and let's look at it together now:
"... is responsible for all losses caused through
his own negligence, carelessness or error, and also for
losses of all kinds caused by his assistants."
Pausing there. A horizon-generated loss in the way
we have been describing is not caused by a subpostmaster
or by an assistant. So for the second distinct reason
it is not recoverable under clause 12(12). It has been
done so, then Post Office were not entitled to do that.
That, in my submission, is the proper construction
of 12(12) in terms of its meaning, deficiency on the one
hand and cause on the other, both independently working,
in terms of the words used, to make clear that assuming
that Horizon-generated losses are a thing, and I accept
that for the purpose of argument, they wouldn't get in.
So that is my gateway point that my Lord and I debated
in opening. They wouldn't get through the gateway.
I use that word in order to try and explain and make it
simpler. But I think actually it is probably simpler to
look at the meaning of the words.
MR JUSTICE FRASER: Yes.
MR CAVENDER: So therefore, to the extent that
Horizon-generated losses are a beast that exist at all,
and I accept for the purposes of argument they might be,
they do not fall within clause 12(12) and cannot be
recovered under it.
We then come to the separate question in light of
that of burden of proof.
MR JUSTICE FRASER: Yes.
MR CAVENDER: Post Office have the persuasive burden,
sometimes called the legal burden, I'm happy with either
term if you look at Phipson, of showing a deficiency.
This will include in cases where it is relevant or
suggested that the deficiency was not, in fact, a
Horizon-generated loss.
MR JUSTICE FRASER: Yes.
MR CAVENDER: When you get to discussing burden within
clause 12(12), Horizon-generated losses have already
been dealt with outside it. They can't come within it
for the two reasons I have said: they are not
a deficiency and have not been caused by
the subpostmaster or an assistant. So you don't need to
strangulate or alter the construction of 12(12) as
regards burden to get them out. They are already out.
So 12(12) is dealing with all other losses, apart
from Horizon-generated losses, at this stage of the
argument.
MR JUSTICE FRASER: I don't think it is, though, is it,
because 12(12) is only dealing with losses caused by the
negligence, carelessness or error of the postmasters.
Isn't it?
MR CAVENDER: The error, yes.
MR JUSTICE FRASER: So it is not dealing with all losses
except Horizon, although you are defining
Horizon-generated losses in a particular way to construe
it that way. There is at least on the words the
possibility of losses not caused by negligence --
MR CAVENDER: Carelessness or error?
MR JUSTICE FRASER: Or carelessness or error.
MR CAVENDER: It is possible, my Lord. But when it comes to
burden -- you are quite right, and this is where our
pleading comes in --
MR JUSTICE FRASER: What, your Generic Defence?
MR CAVENDER: Yes, the practicalities. At this stage you
say, well, you are in charge of the branch. If you do
things as you should do then you shouldn't suffer losses
unless you have made an error. It is possible you might
be robbed, there might be other things. But on balance
then that won't happen.
So when you look at our paragraph 93 of the Defence
in that light you can fully understand it.
So if we look at paragraph 93. {B3/2/42}
MR JUSTICE FRASER: I have it open.
MR CAVENDER: The famous paragraph my learned friend calls
it. "Infamous" may be a better word. But what that is
doing, my Lord, and bear in mind in 93 the first two
words of the second sentence:
"More generally ..."
So this is a generic pleading --
MR JUSTICE FRASER: But if you are using "shortfalls" as
being synonymous with "deficiencies", what is said at
93(1), the second line of 93(1), is contrary to what you
have just said to me in the last five minutes.
MR CAVENDER: Which part, my Lord?
MR JUSTICE FRASER: You said that you have the persuasive or
legal burden of showing a deficiency. 93(1) says, if
you read the introductory words of 93:
"... as regards shortfalls disclosed in
a subpostmaster's accounts ...
"(1) Where a subpostmaster asserts that he or she is
not responsible or liable for a shortfall, the legal
and/or evidential burden of proof is on him or her ..."
And I understood you a few minutes ago to accept
that the Post Office had the legal or evidential burden
of showing that there was a deficiency.
MR CAVENDER: My Lord, you have to read the whole of 93 and
94. 94 actually is the construction of section 12(12).
And read for me, my learned friend didn't, 94(2)
{B3/2/43}:
"On the true construction of section 12(12),
subpostmasters are responsible for all losses (as
defined in paragraph 41 above) ..."
Let's look at what that means because that imports
some definitions that are rather important in this
connection. It's page 15 of the pleading.
MR JUSTICE FRASER: I don't know why that is any more
helpful than the expression of legal or evidential
burden in 93(1).
MR CAVENDER: Because what it does --
MR JUSTICE FRASER: Go to 41.
MR CAVENDER: I'm not sure you have been there yet.
MR JUSTICE FRASER: I have that open as well. It's on
page 15, internal numbering. {B3/2/15}
MR CAVENDER: Exactly. So what you have is definitions
which are incorporated into 94 and 94(2) in particular.
You have a discrepancy which refers to the difference
between the actual cash and stock in the branch and the
cash and stock as shown on Horizon as derived from
transactions input by branch staff. That is exactly the
same as what I said to my Lord a moment ago in terms of
the difference between the "as is" and the "should be".
If you then go to subparagraph (3), a loss refers to
an event that causes a negative discrepancy. A
discrepancy is positive or negative and it's saying
a loss is a negative discrepancy.
Subparagraph (4), a shortfall refers to a negative
net discrepancy at the end of a trading period. All so
far consistent.
And then we have at (6) {B3/2/16} something called
a Horizon-generated shortfall, it refers to a shortfall
attributable to errors and/or bugs in Horizon.
You will see nothing in this pleading expressly or
implicitly that suggests that postmasters are liable for
Horizon-generated shortfalls.
MR JUSTICE FRASER: No, that is not the point. The point
was who has the legal and evidential burden of proof.
I know that Post Office's case is that they have never
chased any subpostmasters for Horizon-generated
shortfalls because they accept on one way of looking at
the case, and as they define Horizon-generated
shortfalls, that that is not something that could be
caused by the subpostmasters. But the reason for that
is because of how Horizon-generated shortfalls are
defined. What I am asking you about is the legal and
evidential burden.
MR CAVENDER: Quite. Let's go to that. This is talking
about generally. If you look at 93:
"More generally, as regards shortfalls disclosed in
a subpostmaster's accounts, Post Office notes the
following principles ..."
This is talking about downstream at a breach trial.
It is not saying as a matter of construction of 12(12),
what it is saying is once you decide what it means, this
clause, and we will come to this when I say its
implication. You will then have a debate about whether
clause 12(12) itself allocates the burden. And my
submission is it doesn't.
MR JUSTICE FRASER: Understood.
MR CAVENDER: But what you then do downstream is say in
a particular case Mr Abdulla with his problems, or
Mr Sabir, they say they didn't get the scratch cards or
didn't get whatever it was, and within that evidentially
there will be burdens of proof according to procedural
law or the law of evidence. All 93 is doing is saying
in that context later what Post Office is going to say.
It is not saying that what I have just said is wrong.
MR JUSTICE FRASER: All right.
MR CAVENDER: So 93(1) assumes a shortfall, and what it is
saying is in the absence of evidence that a shortfall
arose and was responsible, it is appropriate to assume
it is for them to explain. And that is doing no more
than stating the obvious because you have
Horizon-generated shortfalls out of the picture, you
have a difference between the cash and stock at branch
and what the transaction you have entered on to Horizon
show. And you then say -- we say, well, this doesn't
happen by osmosis, this happens due to normally an error
or negligence on behalf of the postmaster. You as
a matter of practice have more knowledge about that. So
when the court is allocating -- is deciding burden of
proof at the breach trial, you will have regard to those
factors.
MR JUSTICE FRASER: Mr Green, I am sure the sotto voce
chirping stage left is not going to be useful. If
Mr Cavender wants you to help him explain it, I am sure
he will invite you. But for the moment these are the
Post Office's submissions, and they didn't interrupt you
on Monday or Tuesday.
Mr Cavender.
MR CAVENDER: My Lord, some of the confusion that has been
brought in here I think in this aspect of the case is
people not being absolutely clear as to the burden of
proof at what stage. So I say what you must first do is
decide what the words mean. You decide then whether
contractually there is any allocation of burden
expressly or implicitly within the clause.
MR JUSTICE FRASER: Yes.
MR CAVENDER: Whatever the answer to those questions, you
then say at the breach trial, in light of those
findings, depending on the allegations of breach,
remember, and what particular product it is and how it
was said the problem is caused, Mr Abdulla says he
didn't receive the scratch cards or someone says they
didn't receive the lottery tokens, whatever it is,
inherent within that there will be evidentially they
would have to prove certain things. They didn't receive
a certain amount of cash, they received another amount.
So it is in that connection that 93 is particularly
relevant.
But of course that is not for this trial. That is
not for your Lordship to determine. And you couldn't,
absent the facts of the relevant -- the breach facts in
a given trial, how you finally allocate the evidential
burden, if you like, based on the allegations. All
your Lordship can do sensibly, in my submission, is see
whether there is an express or implicit burden within
the clause.
MR JUSTICE FRASER: Yes.
MR CAVENDER: So my submission on that is that the clause
itself does not expressly allocate the burden. It
doesn't say as some clauses do in some contracts: you
can do this, that or the other if you want this
further -- the seller, if he delivers late, to justify
the reason why, otherwise he has to do this that or the
other.
That kind of language that expressly says it is for
one party or the other to do something or provide
a certificate or a record or something to enjoy some
kind of contractual right. So it is not express in that
sense.
The next level is: is it implicit in some way? Are
there words there we can implicitly see that there is
an allocation of burden there? In my submission, no to
that as well.
But insofar as you want to go down that particular
route, let's have a look to see if that is right or
wrong. As a matter of construction of clause 12(12),
the first thing the subpostmaster has to do is show that
the loss was not one caused by his assistant. Why?
Because losses caused by his assistant, there is strict
liability. The own negligence, carelessness or error
only applies to the subpostmaster. That is what the
words say. And it is obviously right that they say that
because, as we know, subpostmasters are not obliged to
employ assistants, they employ them or not at their own
will, they choose them, they train them, they supervise
them. Whether they do so is a matter entirely for them
so it is not surprising that the clause reflects that
differential.
So the first stage is, looking at burden of proof,
it is for the postmaster to show, in relation to
a particular loss for which claim is made, that it was
not caused by his assistant. If he can do that, we then
get into: was it caused by your error or carelessness?
In my submission at that stage, implicitly it is for him
to show that. If he is going to escape liability and
say, firstly, "I can fulfil the burden that it wasn't my
assistant", and he says "Well, it wasn't due to my error
or negligence", which at this stage remember are not
Horizon-generated losses, these are losses based on the
difference between the "as is" and the "should be", it
is for him to show that.
Otherwise, it would be -- for Post Office to recover
under this clause would require it to prove precisely
the cause of a given loss by something done by its agent
in branch about which the Post Office will never have
any knowledge but the postmaster potentially will. At
least he is in a much better position to know in
the ordinary course of events.
That approach, in my submission, is also in keeping
with clause 17, relief, where {D2.1/3/54}:
"A subpostmaster may exceptionally not be required
to make good the full amount of certain losses at his
office. If he feels entitled to relief in making good a
loss he should apply to the retail network manager."
Again, in my submission, that clause can only be
interpreted that it is the burden on the postmaster who
wants to achieve relief under that clause to put forward
facts and matters that could relieve it.
(inaudible) contractual scheme to implicitly place
the -- well, place the burden on the postmaster for the
second line of clause 12(12) to show it wasn't caused by
his assistant, place the burden on Post Office to show
that the loss which at this stage must have been caused
by the postmaster was by his error or carelessness. And
then in relation to clause 17, it is for the postmaster
to prove facts for him to obtain relief.
That would not, in my submission, be implicitly
a sensible construction of this clause as regards burden
assuming for a moment that it does implicitly contain
such a provision.
My learned friend says this is a new construction.
It is not. I have just shown my Lord where in
the pleading these terms have originated. It is fair to
observe that in the way this case has been pleaded out,
my learned friends haven't pleaded a proper construction
of 12(12). So we never got into the detailed pleading
to make this point even more obvious. It is true the
pleadings never got to that stage, but that is not
something the Post Office in my submission should be
criticised for simply because the claimants didn't
ever -- and you can see it in the pleading -- plead
a proper meaning of 12(12).
You will never see any reference in our pleadings to
saying that postmasters are responsible for
Horizon-generated losses. They are not, it has never
been our case that they were. It has been my learned
friend's straw man to suggest that somehow we were
saying that in order to effect the proper construction
of 12(12) for all losses. Despite the fact it is
fiduciary, despite the fact it is an agent, he is saying
despite all that, because of the existence of the
Horizon-generated problem, to use that as a stalking
horse to say it is all so difficult, enormous
difficulty, therefore you should construe 12(12) about
all losses in the way he suggests.
What my argument does is say no, no, no (a) that is
not the right reading, and (b) your Trojan horse of
Horizon-generated losses is outside 12(12).
My Lord, is that a convenient moment for a break?
MR JUSTICE FRASER: I think it is. Ten minutes. We are
only able to go to 4.15 pm but we can start at 10
tomorrow and go until 5 o'clock to make up some time
from this morning.
(3.11 pm)
(A short break)
(3.22 pm)
MR CAVENDER: My Lord, moving on with the analysis, what I
am now going to do is give two examples of putting in
practice my favoured construction in two separate
situations. One is where there is a loss but it is not
covered by agent-submitted accounts, let's say it has
been settled centrally subject to dispute. And then
I am going to an example where the lost amount is
subject to the postmaster's declaration of accounts.
So what I am doing now is adding the third feature
here, the agency relationship, and the submission of
accounts, and how that impacts on this analysis in terms
of the breach trial we are talking about here. So we're
moving off construction and we are testing my
construction in those circumstances to see whether it is
good, bad or indifferent.
The first example is where the loss is not covered
by agent-submitted accounts. I accept the burden is on
Post Office there to show there is a deficiency/loss
with the meaning of the clause, ie gets into the clause.
So this includes where, if the postmaster puts it in
issue to say it is a Horizon-generated loss, to show on
balance that it is not.
Post Office would ordinarily discharge that
burden -- this is your inference point -- by reference
to the figures produced by Horizon and relying on that
as evidence and saying because Horizon is a good system,
look at your second judgment your Lordship is going to
bring. This is, remember, looking at the breach trial,
so on that basis.
MR JUSTICE FRASER: So it's going to be the -- when you say
"second judgment"?
MR CAVENDER: The second trial, my Lord.
MR JUSTICE FRASER: The Horizon trial.
MR CAVENDER: Indeed. As a result of that we will say, if
we did well there, it's a hypothesis, it's a generally
reliable system. In the balance of probabilities the
loss is not a Horizon-generated loss and therefore that
possibility on balance should be excluded.
The loss deficiency then gets through into the
clause and is dealt with by the mechanics of the clause
as previously described. At this stage of the analysis
the loss or deficiency is not by definition
a Horizon-generated loss, and the subpostmaster is
liable for it unless he can show it was not caused by
an assistant and it was not caused by his error.
If the Post Office is able to demonstrate that, as
regards the point in issue, Horizon was reliable, the
loss wouldn't even get into 12(12) and the
subpostmaster, as I say, wouldn't be liable for it.
So discussing that, standing back, at this stage,
once Horizon-generated losses are put to one side, if
there is a loss Post Office say the overwhelming
likelihood is that that resulted from an error on the
part of the postmaster or his assistant. It seems to be
on one view a high submission, but it merely reflects
a simple fact that a proper executed transaction doesn't
result in deficiency. That is not to say that the
circumstances might -- things can go wrong, and
of course the subpostmaster can adduce evidence to show
in his case things did go wrong.
The claimants' attempt to make this a point of
construction about Horizon issues and unfairness is
misconceived, firstly because as a matter of law at the
time of contracting neither party foresaw Horizon would
not work properly and accurately insofar as any computer
system doesn't, and it is misconceived on the facts
because the vast majority of losses we say result from
errors in the branch.
We see the leads in these cases, by way of example,
you have to find evidence, there were errors and thefts
in fact by postmasters or temporary ones, and errors
made, and that is not necessarily unusual. So that is
how we say if you have -- the interpretation of this
cause at the breach trial, that is how it would work.
The next thing I am going to do is look at the same
thing but where the postmaster has declared the accounts
to be true.
MR JUSTICE FRASER: In your first example, how do you say
they dealt with that particular loss in their accounts?
Because you used the expression "agent-submitted
accounts".
MR CAVENDER: In my first example it is not covered by
submitted accounts, so it is settled centrally subject
to a dispute is the example I gave. So it is subject to
a dispute, so it's outside the submission.
MR JUSTICE FRASER: Settled centrally subject to a dispute
by phoning up.
MR CAVENDER: Indeed. The second one is where they don't do
that, and it is part of the declaration of the accounts.
MR JUSTICE FRASER: By defining it in those terms you are
I think implicitly, but I just want to be clear with
you, using "declaration of the accounts" to mean making
good for cash or making good for a cheque or settling
centrally without disputing.
MR CAVENDER: My Lord, no. What I am saying by "declaring"
is at rollover, at the end of the trading period, you
submit accounts saying that they represent a true and
fair view of the accounts, and you subsequently want to
re-open those and say no, no, in fact there is some loss
or deficiency there I'm not responsible for.
MR JUSTICE FRASER: But isn't that what they have done in
the first one as well, because otherwise they wouldn't
be able to go into their next trading period.
MR CAVENDER: No, because they have there -- the imprimatur
of the submission doesn't apply because they have
registered a dispute in relation to amount.
MR JUSTICE FRASER: But they still have to declare
an account, haven't they?
MR CAVENDER: They do, but the imprimatur of the law of
agency doesn't apply to that element you dispute.
MR JUSTICE FRASER: Because they disputed it prior to the
date of declaring the account, you mean?
MR CAVENDER: At the same time or the day after normally it
happened. Contemporaneously with. Because the law of
agency and the principles that apply don't apply to such
amount of the account that you dispute at the date you
submit it, obviously. So the amount in my first example
doesn't have -- they don't need to set aside the account
or say it is mistaken, because it is not part of the
account, it was always subject to dispute.
My second example is where the loss or deficiency
they want to dispute is subject to a declaration. And
there, in my submission, the subpostmaster needs to
adduce some evidence or argument that a particular loss
or deficiency, again through the prism of the
Horizon-generated loss, was a Horizon-generated loss in
order to justify correcting a mistake in their account.
They have to adduce some evidence to say -- they can't
just say generally, well, the whole 8,000, I'm not sure
I want to pay that anymore. They have to identify --
this isn't anything to do with the construction of the
clause, this is to do with agency law and what you need
to do to dispute an account. You need to show some
evidence or argument that the particular loss or
deficiency needs to be re-opened.
MR JUSTICE FRASER: Isn't that the same as your first
example, though?
MR CAVENDER: No, my Lord. My first example, I accept that
the burden is on the Post Office to show that there is
a deficiency which involves disproving any allegation
from the postmaster that the deficiency was in fact not
a true deficiency, it was a Horizon-generated loss.
MR JUSTICE FRASER: I thought you said in your first example
that Post Office would rely on the figures generated by
Horizon. Horizon is generally reliable. Therefore you
could exclude, by definition, a Horizon-generated
shortfall so-called, so the burden was on the
subpostmaster to show ...
MR CAVENDER: That's later on in the analysis. That's later
on.
MR JUSTICE FRASER: But that was your first example.
MR CAVENDER: Exactly.
MR JUSTICE FRASER: So in the first example the burden is on
the subpostmaster by the route that you have gone
through.
MR CAVENDER: Eventually. Eventually.
MR JUSTICE FRASER: In this one the burden is also on the
subpostmaster, isn't it? You are just saying it comes
at an earlier stage.
MR CAVENDER: My Lord, yes. In the second example it comes
at the beginning. In the first one it comes later if --
if -- Post Office is able to show that it is
a deficiency and not a Horizon-generated loss. In
the first example, when there is no accounting
imprimatur, I accept it is for Post Office to show it is
a deficiency, ie to show it is not a Horizon-generated
loss. I then go on to say in that example how
I anticipate Post Office will seek to do that.
MR JUSTICE FRASER: So what you are saying then, as far as
I understand it, is that for anything that has been
settled centrally and made subject to a dispute by
phoning the Helpline, you accept that the Post Office
would have to demonstrate that Horizon was not to blame.
But the way you anticipate doing that is a finding at
the second trial that the figures generated by Horizon
were generally reliable, is that correct?
MR CAVENDER: That is correct.
MR JUSTICE FRASER: For everything that has been settled
centrally but made subject to a dispute.
MR CAVENDER: My Lord, yes.
MR JUSTICE FRASER: If that is right, though, where does
your inference come in?
MR CAVENDER: It comes in in the second part you describe,
the inference based on Horizon being generally reliable.
MR JUSTICE FRASER: But that is what has been applied
up-to-date, isn't it, as I understand it? Post Office
has relied on that inference throughout since
2000-and-whenever onwards?
MR CAVENDER: My Lord, certainly as a matter on the ground,
but I am talking about analysis of this contractual
provision and what I am saying is that at this stage
Horizon is merely evidence and the reliability of
a system will, we say, produce an inference that
the likelihood is that these are not Horizon-generated
losses.
MR JUSTICE FRASER: I do know that and I am aware that that
has been the approach of the Post Office throughout.
That is part of the reason we are here. But if that is
applied where something is settled centrally and made
subject to a dispute, how is that different from your
second example which is that the subpostmaster needs to
adduce evidence of a loss or deficiency being
a Horizon-generated loss? The burden is on them in both
circumstances.
MR CAVENDER: My Lord, it is not. In the first example,
I have accepted, the burden is on Post Office to show
a deficiency, ie to disprove -- if someone is saying
"No, no, it's £1,000", they're saying, "No, this is a
Horizon-generated loss". And I say "No, it is not, it
is a deficiency --"
MR JUSTICE FRASER: Which you disprove by applying your
inference.
MR CAVENDER: No, they -- for all sorts of evidence. They
might put forward branch-specific evidence. Mrs Stubbs
might say it was a connection between this and that, you
might get evidence from postmasters that shows that the
inference is incorrect.
MR JUSTICE FRASER: Yes, but you don't get to that until you
have applied the inference. Because on your analysis,
as I understand it, the application of the inference
means -- let's use Mrs Stubbs just as a shorthand.
Mrs Stubbs undoubtedly raised a dispute in respect of
some items.
MR CAVENDER: Indeed.
MR JUSTICE FRASER: If you meet the burden which you seem to
accept on the face of it the Post Office has, and apply
the inference, it is then for Mrs Stubbs to show that
actually this was caused by a power outage or an
electrical connection or some other issue in order to
show it isn't caused by her carelessness, fault,
negligence or error, is that right?
MR CAVENDER: We're certainly able to do that, yes.
MR JUSTICE FRASER: But that is on your first example.
MR CAVENDER: Yes.
MR JUSTICE FRASER: Where there is a settlement -- something
has been settled centrally but made subject to
a dispute.
MR CAVENDER: The point about that is so there is no
accounting assumption.
MR JUSTICE FRASER: I understand that because you say now
that the accounting assumption does not apply to
circumstances or accounts where there is already an
extant dispute.
MR CAVENDER: Correct.
MR JUSTICE FRASER: But in your second case, where there has
been a declaration at rollover that does declare
an account, I think implicit within that is
a declaration without any prior notification to the
Helpline of the dispute.
MR CAVENDER: Or subsequent. Or subsequent. Because you
roll over and then you can do it the next day.
Contemporaneously with.
MR JUSTICE FRASER: Okay. Just so I am clear: without
a contemporaneous declaration of a dispute, the burden,
because of the nature of agency account, is also on
them.
MR CAVENDER: It is not a burden, my Lord, it is a different
thing. Under the law of agency they would need to
adduce some evidence or argument --
MR JUSTICE FRASER: Of a loss or deficiency being
a Horizon-generated loss, that is what I wrote down:
"Subpostmaster needs to adduce evidence of a loss or
deficiency being a Horizon-generated loss."
MR CAVENDER: In a world where that is what we are talking
about, that is the debate, yes, exactly so.
MR JUSTICE FRASER: So that takes me back to my first
question which is: apart from the declaration of
the account, how is the process any different in that
example to your first example?
MR CAVENDER: Because there is some initial requirement in
my second example upon the postmaster before the
Post Office has any burden to -- you can't just say "My
account is all mistaken, it is all wrong". You have to
identify a particular loss or discrepancy within that
that you say is mistaken and put forward some evidence
or argument -- I'm not saying the burden is on them.
And also remember, my Lord, when we are doing this, it
is my case that there is the implied term of necessary
co-operation --
MR JUSTICE FRASER: I am aware of that.
MR CAVENDER: So that fits in here. If, for instance, they
say it was this TC or it was that, you know, I need some
evidence of that. If it's that they need through that
term "necessary co-operation" to provide that,
Post Office would have to do that as part of this
process. Because that implied term applies throughout
this contract at all times.
So the Post Office would have to provide necessary
co-operation. On the flipside if in fact the
subpostmaster has been false accounting for six months
and not declaring its accounts and all the other things,
then as I will come on to later the duty, the standard
of duty on necessary co-operation wouldn't be as high.
That said, the worst false accounter ever, if there
was evidence of a Horizon-generated loss they would
still be able to forward it.
MR JUSTICE FRASER: By not declaring his or its or her
accounts, do you mean not declaring them or do you mean
declaring them inaccurately?
MR CAVENDER: Declaring them falsely. And once the
subpostmaster successfully opened the account by showing
a mistake or generally, then we go back to the first
example. Once they have got through that threshold it
is still then for the Post Office to show it is
a deficiency and all the other things in the first
example.
The reason I give you this is just to try and give
an example of downstream in the breach trial, with or
without the accountancy elements. When I come to agency
tomorrow you will understand how it fits in on my
construction of 12(12).
So you understand, I am not selling you a false
prospectus and saying this is clever construction. When
it comes to either the accounting imprimatur or
downstream on breach, on burden, there is some hidden
impossible burden. In my submission there is not. Not
that your Lordship has to decide that today, but you do
in my submission have to regard to obviously the results
of the competing constructions. So as part of that
I have made those submissions.
One of the main thrusts in this case, one of the
main points has been my learned friend's (inaudible) is
TCs. A TC is obviously, as you know, a transaction
correction and it is to correct errors often made by
postmasters. Not always of course, there are errors by
other people as well. The first thing your Lordship has
to know is the scale of this problem is generally very
small. Why do I say that? If we put up {G/54/1},
please, on screen. Do you remember this table? The
total volume on the right-hand side. And if you take
an average of those numbers at 140,000 TCs per annum,
you split that between the 11,000-odd branches, and that
gives you, on the maths, twelve-odd per branch per year,
which is about one per month per branch. So you should
first have a sense of scale about TCs across the
network.
MR JUSTICE FRASER: You are looking at the total volume?
MR CAVENDER: Indeed. If you split that between the
11,500-odd, it's about twelve per branch in rough terms,
which is about one per month per branch. So of course
while there will be clusters and certain people will
have more mistakes than others depending on the people
they employ, and we have heard some evidence of that,
this is not a massive problem in terms of the way my
learned friend would have it, the way he puts the points
as if they have hundreds of these each week.
When you look at paragraph 28 of
Angela Van Den Bogerd's statement at {C2/1/7}, please,
you will see there the numbers of transactions:
"Based on data over the last six weeks, there were
on average around 900 transactions per week in smaller
branches and 2,500 transactions per week in larger
branches."
So that is between 3,500 and 10,000 per month doing
the maths. So that is the number of transactions you
would do of it which you might get a few TC, one, two,
three. Of course it depends on each branch but you need
to put it in perspective. My learned friend suggests
almost there is an avalanche of TCs. That is not how it
goes. You get a TC to try and correct, you get evidence
of (inaudible), and you have obviously the opportunity
to dispute it, ask for more evidence, and we know the
procedure. But the impression given that you have piles
of these the whole time in my submission is the wrong
impression.
The TC of course doesn't have a separate life within
this accounting dispute because the TC at rollover, as
we know, has to become part of the amount subject to the
account which can be disputed or not. There could be
various reasons for TCs of course but ultimately it
comes through, contractually and in terms of the
procedure we have seen, into the submission of
the accounts which are subject to a dispute or they are
not.
That is what we say clause 12(12) does and how it is
to be interpreted. What do the claimants say? We deal
with this at page 153 of our closing. Of course
your Lordship has read this. But what they seek to do,
before we go to it, is they seek to ignore the words of
the clause --
MR JUSTICE FRASER: Are we in paragraph 423?
MR CAVENDER: 153 and following.
MR JUSTICE FRASER: No, which paragraph?
MR CAVENDER: Paragraph 153. Page 55 {A/8/59}.
MR JUSTICE FRASER: So claimants' closing ...
MR CAVENDER: Sorry, defendant's closing. Internal page 55.
"Four supposed restrictions on Post Office ability to
enforce a shortfall", do you see that?
Before we go into the detail of what they say, we
say they seek to ignore the words of the clause, they
seek to ignore the point that Horizon-generated losses,
to the extent they exist at all, are dealt with outside
of the clause. And then they say, in effect, that is an
impossible burden, and then use that as a way of trying
to construe the clause in the way they do. They do it
by seeking to impose restrictions on the ability of
Post Office to recover losses and we say none are
justified or explained.
The first they do is say that "losses" doesn't mean
losses, it means actual losses, namely an economic
approach to losses which focuses not on the branch but
on Post Office and the downstream transactions
Post Office does with its clients. So they try and
bring all of that as a matter of construction into the
meaning of the word "loss" rather than looking at what
happens in the branch.
As your Lordship will be aware, the transactions
downstream with clients have nothing at all to do with
the subpostmaster in terms of risk or anything of that
nature. They are interested in what goes on in the
branch and don't have a risk or loss possibilities based
on what happens on client side.
So that is the first thing they do.
The second thing they do is say that the losses must
be established as such after due enquiry. As a matter
of construction they say that and, as would appear to
your Lordship, that is not a question of construction of
12(12), it is seeking to imply a term into it. But they
say it is construction.
And the third thing they do, they say that the
relevant loss must not be caused or contributed to by
the defendant's breach of duty, otherwise again they say
it is not a loss.
We think they are not sensible points of
construction. We deal with those at paragraph 157 in
this where we deal with the first restriction {A/8/60}.
Second restriction at paragraph 161 {A/8/64} and the
third restriction at paragraph 163 {A/8/65}. I'm not
going to go through those now, your Lordship has
obviously read those points, but none have any merit at
all, they can't possibly be points of construction and
fulfil none of the criteria. It is all the faults and
problems that in Arnold that we were talking about,
ignoring the words, trying to stand back and put the
words in the contract you wish you had. So it fails all
the relevant tests and I say no more about it.
So that is 12(12), my Lord. Unless you have any
questions on that I will move on to 4.1.
MR JUSTICE FRASER: You say 4.1 I think should be construed
as having the same effect as 12(12), is that right? It
is different words but ...
MR CAVENDER: It is different words and it has -- in terms
of its overall -- if you explain to somebody like
a non-lawyer you would probably say that.
MR JUSTICE FRASER: Probably say what?
MR CAVENDER: That it broadly has the same effect. But it
has different words, and particularly what it does it
makes the liability for losses strict for both losses
caused by assistants and for losses caused by
subpostmasters. There is no negligence or error
carve-out in 4.1.
MR JUSTICE FRASER: So it is a strict liability clause.
MR CAVENDER: Indeed. Subject to the express words that
were in parenthesis which we'll see.
So if we go to 4.1 and remind ourselves what is
says. I think your Lordship has said before, and I have
agreed with you before because it seems to be the
position, that what 4.1 does is include both what was
previously in 12(12) and in 12(5).
MR JUSTICE FRASER: It does seem to roll them all up
together.
MR CAVENDER: It does indeed. But my submission is -- and
the net effect isn't very different from what my learned
friend says I don't think -- is that first you read the
clause as a whole, and if you split it into two and the
second half begins with "any deficiencies" four lines
from the bottom, for the purposes of the argument rather
than anything else. So the first part of the clause is
the whole clause down to "any deficiencies" and
thereafter is the second part of the clause.
MR JUSTICE FRASER: I am sorry, I seem to have -- the yellow
sticker I put on your helpful document pack has fallen
off and I'm worried I have the wrong one. (Pause)
That is the modified one. You don't have a ready
reference to hand, have you, by any chance?
MR GREEN: {E5/137/39} is clause 4.1.
MR JUSTICE FRASER: No, I am talking about the hard copy
files that Mr Cavender gave me. I can find the clause
of the NTC very easily.
MR CAVENDER: Your Lordship has maybe marked it.
MR JUSTICE FRASER: It is just my sticker had fallen off.
I will deal with it on the screen.
MR CAVENDER: So "Liability for Post Office Cash and Stock":
"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) ..."
1:
"... except for losses arising from the criminal act
of a third party (other than personnel) ..."
2 -- and I'm inserting 2 here:
"... which the operator could not have prevented or
mitigated by following Post Office Limited's security
procedures or ..."
3 I'm inserting here:
"... by taking reasonable care."
So there is an absolute strict liability subject to
three carve-outs. And that is in relation to "loss or
damage to any Post Office cash and stock (however this
occurs ...). So that is part 1 of the clause as I have
called it, or part A shall we say --
MR JUSTICE FRASER: That's cash and stock.
MR CAVENDER: Indeed. And then --
MR JUSTICE FRASER: And that is a mirror or an evolution or
a reflection of 12(4).
MR CAVENDER: But not only that. It is broader than that
but it certainly includes that, my Lord, yes.
Then the second part, or part B shall we call it of
the clause is:
"Any deficiencies {an important word} in stocks of
products and/or any resulting shortfall ..."
Another important word, 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."
Pausing there. In my submission the use of the word
"deficiencies" and "shortfall", "deficiencies" once and
"shortfall" twice in the second part of the clause,
indicates it is dealing with, including other things,
what you could call briefly our accounting losses. It
is going beyond cash and stock which is dealt with in
the first part.
Also in my submission, because you read the clause
as a whole, the postmaster would gain the benefit of the
three carve-outs not just in relation to cash and stock
but also in relation to any deficiencies. So you would
read it as one. And so the "except for" would apply not
just to cash and stock, it would also apply to
accounting losses.
Post Office say "deficiencies" here and "shortfall"
here has exactly the same meaning as in clause 12(12),
so exactly the same analysis applies here vis-a-vis the
suggested Horizon-generated losses. They are outside of
this clause for that same reason.
MR JUSTICE FRASER: So you say or the Post Office says they
are dealt with exactly the same in terms of imposing
liability on subpostmaster. It makes no difference
whether it is an SPM or an NTC, the scope of their
liability is the same?
MR CAVENDER: No, my Lord, because this is strict liability
for both. If you recall in the SPMC as regards the
subpostmaster as opposed to the assistant, as regards
the assistant it is strict, in relation to
the subpostmaster you have to show error or negligence.
Here that carve-out does not exist, and that is
the difference I identified right at the beginning.
MR JUSTICE FRASER: Sorry, what carve-out?
MR CAVENDER: If you look at 12(12) alongside this --
MR JUSTICE FRASER: No, let's look at 4.1 because I am just
trying to ...
The requirement to take reasonable care plainly
applies to cash and stock. Sorry, let me put it
slightly differently. A failure to take reasonable care
is expressly catered for in part A in relation to cash
and stock, agreed?
MR CAVENDER: Well, it occurs. Whether it occurs as
a result of negligence, personnel ...
MR JUSTICE FRASER: No, I am looking at 4.1, Mr Cavender.
MR CAVENDER: So am I. The "however this occurs" in my
submission is strict. So that means however it occurs.
And it then outlines what it means by that, whether it
occurs by negligence, personnel or otherwise. So it is
saying that. It is strict in relation to cash and
stock.
MR JUSTICE FRASER: It then says:
"... which the operator could not have prevented or
mitigated by following Post Office's security procedures
or by taking reasonable care."
So if they had taken reasonable care, how would they
still be liable?
MR CAVENDER: The criminal act of a third party or ...
because if you look, it says "except for" --
MR JUSTICE FRASER: So you are saying "or by taking
reasonable care" ...
MR CAVENDER: That only relates to acts resulting from
criminal acts. What it is talking about is robberies
and burglaries.
MR JUSTICE FRASER: All right. Then when you get on to
part B, is that strict liability as well?
MR CAVENDER: Yes. What I am saying is but that is -- you
read in the benefit of the three exceptions in relation
to cash and stock into that implicitly. So if you have
deficiencies that result from the criminal act of
a third party which couldn't have been prevented,
someone comes into the post office and starts entering
all sorts of different items into the computer, which
you couldn't have prevented or mitigated following
procedure measures or taking reasonable care, then that
would not be a deficiency for which you are responsible
under this clause.
MR JUSTICE FRASER: That is where I started to get a bit
puzzled. The bit that you are inviting me to read into
part B are the parentheses in lines 2 and 3 of part A, I
think.
MR CAVENDER: Correct.
MR JUSTICE FRASER: Is that right?
MR CAVENDER: Yes.
MR JUSTICE FRASER: But those parentheses are however the
loss occurs and whether it occurs as a result of
negligence by the operator or not.
So negligence in terms of cash and stock doesn't
matter in the parentheses, does it? So if you read that
across to the second part and say, well, you must read
part A into part B, you get strict liability for
deficiencies and resulting shortfalls in part B as well,
don't you?
MR CAVENDER: Yes, you do. That is what I say the
difference is. Because do you remember at the beginning
you said is there any difference, and I said yes --
MR JUSTICE FRASER: I know there is a difference on the
wording, I am talking about a difference on the meaning.
So you are saying 4.1 is a strict liability clause for
cash, stock, deficiencies in stock and resulting
shortfalls.
MR CAVENDER: Subject to the three carve-outs --
MR JUSTICE FRASER: Yes, but the three carve-outs are
whether it occurs as a result of negligence or not.
MR CAVENDER: Quite. But then it goes on, doesn't it, to
losses arising from the criminal act of a third party.
What I am trying to do is give them the benefit of those
carve-outs rather than saying it's --
MR JUSTICE FRASER: If you define the bit of the carve-out
you mean, I am not quibbling with that, I am just trying
to follow how part A flows into part B to restrict it.
Because on the face of what you told me about part A,
which is effectively strict liability.
MR CAVENDER: Indeed.
MR JUSTICE FRASER: And it's strict liability because of the
words "fully liable" and "however this occurs and
whether it occurs as a result of negligence or not".
MR CAVENDER: Exactly.
MR JUSTICE FRASER: So if I read "however this occurs and
whether it occurs as a result of negligence or not" into
part B, part B becomes strict liability as well.
MR CAVENDER: Indeed.
MR JUSTICE FRASER: Right. That therefore means on its
wording it is a strict liability clause for cash, stock,
deficiencies in stock and accounting shortfalls.
MR CAVENDER: Indeed.
MR JUSTICE FRASER: Is that right?
MR CAVENDER: Yes. Subject to, if they fit, the carve-outs
in stock and cash apply equally to shortfalls and
accounting losses in part B.
MR JUSTICE FRASER: Yes, but the shortfalls -- if we look at
negligence for the moment, negligence does not work to
the benefit of the subpostmaster on cash and stock, does
it, on part A?
MR CAVENDER: Correct.
MR JUSTICE FRASER: So is negligence necessary at all for
an accounting shortfall in part B?
MR CAVENDER: No.
MR JUSTICE FRASER: Right. Therefore -- that is what
I thought you were saying. So clause 4.1 of the NTC is
a strict liability clause.
MR CAVENDER: Correct.
MR JUSTICE FRASER: But clause 12(12) of the SPMC is not
a strict liability clause.
MR CAVENDER: My Lord, it isn't the same, no. That is why
I said at the beginning they are different. But if you
look at 12(12), it is responsible for all losses through
his error.
MR JUSTICE FRASER: Correct. Well, carelessness, negligence
et cetera.
MR CAVENDER: Or error. And that error is not qualified by
an error which is negligent.
MR JUSTICE FRASER: No, but all of those connote fault.
MR CAVENDER: True.
MR JUSTICE FRASER: Whereas strict liability does not
connote fault.
MR CAVENDER: That is true.
MR JUSTICE FRASER: So therefore is it correct to say the
liability under the NTC under 4.1 is broadly the same as
the liability under 12(12)? Because one of them is
fault and one of them is strict liability.
MR CAVENDER: My Lord, yes, there is that difference.
MR JUSTICE FRASER: That is quite an important difference.
MR CAVENDER: It is, quite. But in terms of the way it
works with 12(12) is all you have to show is an error.
Once you take out Horizon-generated losses -- and they
are taken out of both clauses so that we are absolutely
clear -- my position is deficiency has the same meaning,
so the same debate that I put forward on the SPMC
applies to 4.1. Postmasters can say, "Well, no, there
is not a deficiency, there is a Horizon-generated loss",
and Post Office would have to show that on the balance
of probabilities that wasn't right in relation to
the particular loss.
MR JUSTICE FRASER: So you are saying in practical terms
there may be no difference in how each clause is
applied. But in terms of construing them on their
express terms there is a difference, is that right?
MR CAVENDER: That is right.
MR JUSTICE FRASER: I know subjective intention makes no
difference to anything, but Mr Beal I think it was said
that it was intended to have the same effect.
MR CAVENDER: He said that in a sort of general sense, that
is true. My learned friend said, although I'm not sure
my Lord was particularly impressed by this submission,
that you would construe the NTC in light of the SPMC,
which in my submission must be wrong. Except in a case
where you are moving from the SPMC to the NTC, there
would arguably be part of the background factual
matrix --
MR JUSTICE FRASER: Depending on how that movement was
achieved.
MR CAVENDER: Exactly.
MR JUSTICE FRASER: But as I understand it, and tell me if
I am wrong in fact, anyone who was on board with
an SPMC, when the network transformation programme came
along if they wanted to stay being a subpostmaster they,
or most of them, qualified for compensation, gave up
their rights under the SPMC, and were re-engaged on
an NTC, is that correct?
MR CAVENDER: My Lord, I believe that is correct. (Pause)
Yes, it is right, but there are loads still on the
SPMC so that wasn't --
MR JUSTICE FRASER: Well, it wasn't universal. There are
still some -- you still have a number of people --
MR CAVENDER: 2,700 apparently still on the SPMC. So not
everyone was offered -- I think Mr Bates, we saw from
his correspondence he was I think offered NTC, dependent
upon all sorts of criteria.
MR JUSTICE FRASER: So there are still SPMC SPMs.
MR CAVENDER: Very many, yes.
MR JUSTICE FRASER: Some transferred on to the NTC. But
those who did transfer on to the NTC gave up their
rights, effectively, under the SPMC because as a process
of moving on to the NTC there was -- it is effectively
a watershed or a step in their contractual development.
MR CAVENDER: Indeed.
MR JUSTICE FRASER: So Mr Green's suggestion that I construe
the 4.1 as being child of or evolutionary to the SPMC
might seem to be a bit ambitious.
MR CAVENDER: My Lord, yes.
MR JUSTICE FRASER: But for anyone like Mrs Dar or
Mrs Stockdale who contracted on the NTC, the terms of
the SPMC are not relevant at all.
MR CAVENDER: Indeed.
MR JUSTICE FRASER: Right. Now, just so that you know,
before I heard anything in this case at all in terms of
the trial, I looked at this clause of the NTC with some
care, and also the clauses it replaced. It seemed to me
to do two things, and I imagine you will agree this from
what you have just said but I need to check it with you
expressly, that it blended -- is it 12(5)?
MR CAVENDER: Yes.
MR JUSTICE FRASER: It blended 12(5) and 12(12) together,
I think you agreed it did.
MR CAVENDER: It did.
MR JUSTICE FRASER: And on its face it reads as a strict
liability clause.
MR CAVENDER: Indeed, except for losses arising from
criminal acts where they followed the procedure and have
taken reasonable care.
MR JUSTICE FRASER: All right.
MR CAVENDER: So that applies --
MR JUSTICE FRASER: What year did this start being used?
2011?
MR CAVENDER: 2012 I think. October 2012 I think was the
first one.
MR JUSTICE FRASER: Interesting.
MR CAVENDER: So if there was a theft or something then
of course there would be a benefit, and if that resulted
in an accounting loss then they would have the benefit
of that caveat to protect them. Or my example, if
someone came in and started entering transactions and
created losses on the system --
MR JUSTICE FRASER: So save for anything that occurred as
a result of a criminal act, an SPM under 4.1 of the NTC
would have wider liability than an SPM under clauses
12(5) and 12(12) of the SPMC.
MR CAVENDER: Indeed.
MR JUSTICE FRASER: Thank you very much.
MR CAVENDER: My Lord, that is construction of 4.1.
Perhaps we can start relational because it is
obviously everyone's favourite topic and it is a long
topic. Can you sit until twenty past, my Lord?
MR JUSTICE FRASER: Let's say quarter past.
MR CAVENDER: So we will have an introduction to my
favourite subject.
Before dealing with relational contract, though,
what we have to deal with is the implied terms that both
parties have agreed are parts of this contract and
therefore are good as express terms of necessary
co-operation, and that is necessary co-operation from
one to the other. So it's a mutual obligation relating
to performance of one to the other.
We set this out in paragraph 238 of our closing
{A/8/89}, particularly starting -- 238 is the
introduction, 242 is where we get into the meat of this.
{A/8/90}
If you recall, if we go to paragraph 165 of the
claimants' opening {A/1/65}. At paragraph 165 you will
see at the end of it:
"... albeit, the defendant's own implied terms of
wide application, namely implied duties to co-operate
and not to prevent performance of the contracts."
So although this is the beginning of their seeking
to reverse out of the fact they are agreed implied
terms, they are saying they are of wide application.
That is important because it is actually true, they are
of wide application. They are protean terms that apply
both ways, depending on the necessities of the contract.
Again the necessary is not absolutely necessary but
it is one step down from that, but it is not reasonable
or I would like, it is necessary, but it is not
absolutely sort of logically necessary. That is not the
test.
We say at 247 that these kind of terms are often
implied into commercial agreements {A/8/91}, and the
function is ensuring that the parties' legitimate
expectations are respected. And over at 248 {A/8/92} we
say:
"The necessary cooperation term is in many respects
similar to the Stirling v Maitland term. But it creates
a broader and more powerful obligation in that it may
require positive action to facilitate the other party's
performance, rather than merely not hindering it."
And we refer there to James McCabe v Scottish
Courage where Mr Justice Cooke in the middle of that
passage talks about the duty of co-operation to the
extent necessary to make the contract workable.
MR JUSTICE FRASER: He rolls the two together, really,
doesn't he.
MR CAVENDER: He does. But in terms of necessary he makes
it workable, that is the kind of test he is applying, in
accordance with obviously the terms of the contract.
And you will see at footnote 137, Ukraine v Law
Debenture Trust Corp, the Court of Appeal approved that.
As we say in 251 {A/8/93}, the Post Office
submission that sees challenge to that and the
importance of these is wrong headed. They are common
ground. They are as much part of the agreement as the
express terms. They have a proper construction and they
must be understood on that basis.
Pausing there, your Lordship will need to find as
part of your role in deciding whether there is a gap or
not, and if what it is into which to put other implied
terms, to decide what they mean and their reach, in the
broad sense of an assessment.
MR JUSTICE FRASER: Where is the best place to see them
written down just as a single reference? It doesn't
matter if you don't have ...
MR CAVENDER: I can explain what they are.
MR JUSTICE FRASER: I know what they are. I am just saying
in terms of the actual terms of them, because I know
they are admitted, where is the best place for me to go
and look at them?
MR CAVENDER: I will get a reference while I am speaking.
They are obviously pleaded in our defence but I can get
that.
In terms of their application, as we say, they are
obviously fact-sensitive in application which is one of
their great benefits. My learned friend has been very
critical throughout this that we haven't somehow been
able to answer all his questions about them, but that is
not surprising because they are sensitive to fact. And
whilst we have -- and I can give you the references --
tried to co-operate with meetings between leading
counsel, provide further information, a lot of letters
have been written to try and explain the position, and
we have in this document for instance provided examples.
So 252 {A/8/94}, how the agreed implied terms would
work in relation to various aspects. 253 as regards
training and support. 254 {A/8/95} as regards
accounting. 255 {A/8/96} as regards investigation of
shortfalls. So you can see it is accepted that these
implied terms have that reach.
We have given some examples of high watermark and
low watermark when we say they would or wouldn't react,
which is at this level of (inaudible) in group
litigation the best one can realistically hope for.
Furthermore, it is the most that the reasonable person
at the time of contracting with their then knowledge
would be able to agree a hearty "of course" to.
The other thing about them that makes them
particularly appropriate is they are mutual. All my
learned friend's obligations when we go to the 21, you
have seen them, provide onerous, unilateral obligations
on Post Office to do something. So for instance to
investigate shortfalls. And it asks -- and the
obligation is on Post Office whatever the circumstances,
whatever the subpostmaster has or hasn't done in
advance, and on shortfalls whether or not the postmaster
even disputes the shortfall, as we will see tomorrow
when we go through them.
They are completely inappropriate in a contract like
this, not least because they undermine and chip away at
the very foundation of the agency fiduciary
relationship. Indeed when you look at this debate
through the prism of the Yam Seng term of good faith
going from the Post Office to the postmaster, that is
cutting away and undermining the very fiduciary
relationship of agency that pre-exists. Not only is it
in conflict with it but it seeks to cut away and
undermine, hollow out, the obligations of the agent to
account, and to account as a fiduciary. All the
obligations we see is about 15 implied terms about
accounting, they all undermine, are in conflict with,
that fiduciary duty and that is important to note.
So if we for instance take shortfalls because that
is the most familiar area, 255, we say in (a) it's
highly fact-specific, of course it is, nonetheless we
provide examples.
And (c):
"In the first category -- cases where the agreed
implied terms who require Post Office to act -- the most
obvious example is where Post Office is aware of some
important fact about the branch's accounts that is not
known to the SPM. If Post Office is aware, for example,
that a transaction shown in the account is in fact
mistaken and can be corrected, it must inform the SPM of
this. This is done by means of proposing a transaction
correction to the branch ..."
Et cetera.
"In the second category -- cases where the agreed
implied terms would not require Post Office to act --
the most obvious example is where the SPM has made any
effective investigation impossible through false
accounting and/or his own refusal to cooperate. An SPM
may disguise the existence of a shortfall for months by
inflating his cash declarations to Post Office and
falsifying his accounts, making it at least extremely
difficult for anyone other than the SPM to identify even
the time at which the loss(es) underlying the shortfall
arose. In that kind of case, the SPM may then refuse to
attend an interview and/or refuse to provide any answers
to questions that Post Office has about the account. In
a case where the party seeking cooperation has acted
dishonestly and/or in such a way as to render the object
of the cooperation impossible or excessively difficult,
no cooperation may be necessary (or, which amounts to
much the same thing, it may be reasonable to take no
active steps in cooperation)."
All that shows you is that is reflective of the
mutuality of the obligation. In any case, and we will
go to Yam Seng tomorrow, what Mr Justice Leggatt was
very keen on in that case, in the application of that
case, the ratio of that case, was ensuring the implied
terms he implied under the banner of good faith both had
knowing or honesty in them. He wasn't willing to imply
what he called onerous terms of unilateral duties upon
the party in that case. He was only willing to do it if
it had knowing or dishonest in it. And we will come to
that tomorrow.
In some ways the necessary co-operation terms in
this respect are broader because they don't need that.
You don't need to show for necessary co-operation that
they were acting in bad faith or are dishonest or any of
those things. These are co-operation that is necessary
to perform the contract, whether it is in bad faith,
good faith, it doesn't matter. So in that respect these
terms are more appropriate to assist in the operation of
a commercial contract which is why -- and this isn't the
first case they have been agreed to be implied, they are
often implied.
To take my learned friend's point, that doesn't mean
the contract is bad or has been badly drafted. All it
does is reflect the fact that these kinds of contracts
are assisted by terms of this type. And what my learned
friend has to do is to mount an argument, which he
hasn't done, as to why in spite of these and their wide
reach all the implied terms should be implied.
Paragraph 105 of the Defence {B3/2/47} is the
reference to the defence where the two implied terms are
pleaded.
MR JUSTICE FRASER: Thank you very much.
So tomorrow. Do you want 10 o'clock?
MR CAVENDER: Yes, please. We have a lot to get through.
MR JUSTICE FRASER: You have to leave some time for my
questions at the end of tomorrow.
MR CAVENDER: Of course.
MR JUSTICE FRASER: And then I also have to give you a date
for the CMC that is going to happen in respect of trial
number three. So there will be a bit of discussion
about that at the end of tomorrow.
MR GREEN: My Lord, there was agreed by my learned friend
the possibility of my replying very briefly.
MR CAVENDER: When what is that agreed?
MR GREEN: When we discussed me going first -- I can take
you to the transcript -- and we have been taking notes
on that basis.
MR JUSTICE FRASER: I'm really not interested in going to
the transcript at the moment, we will address that point
tomorrow. It might be that you can just put points in
writing. As far as I was concerned it was two days
each, but I am not going to shut you out from putting in
any short points if there are any. I have also got
a couple of points I need to go through.
So 10.00 am tomorrow. Thank you all very much.
(4.20 pm)
(The court adjourned until 10.00 am on Thursday,
6 December 2018)