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Now it is taking things very seriously. Looking at the numbers, it's not hard to see why. The financial implications of a claimant victory could stop the Post Office from trading as a going concern.
Of course, anything like that is a long way off. But the gizzard-twisting amounts of money already spent on legal fees makes you wonder if the taxpayer-owned Post Office really knows what it's doing.
The numbers
According to the 2018/9 annual report:
Up to the financial year ending March 2018, the Post Office spent £3m fighting the claimants.
During the financial year ending March 2019, the Post Office spent a whopping £20m.
In this last exciting twelve month period we:
- witnessed the first (Common Issues) trial, during which a Post Office director was found to have tried to mislead a judge under oath.
- witnessed the start of the Horizon trial, during which we discovered branch accounting data (the sanctity of which was the basis of any Subpostmaster prosecution) was manipulated regularly by Fujitsu engineers.
- witnessed a disruptive attempt by the Post Office to have the managing judge removed from the whole litigation on grounds of "apparent bias".
- received the first trial judgment, which found resoundingly in favour of the claimants.
The latter cost the Post Office £6m, as it was ordered to pay 90% of the claimants' legal fees. The remainder of the £20m was spent on its own legal expertise.
This £20m was taken out of the Post Office's operating profit as an exceptional item and helped bring down the Post Office's overall operating profit from £47m last year to £6m this year.
This serious (and some might argue, self-inflicted) dent on the bottom line appears to have brought about a slight change of tone at the Post Office. The annual report notes:
"The ongoing litigation involving Post Office and a group of postmasters... reflects the fact that there have been disagreements in the past on the management of contractual relationships. We are determined in future to have the very best working relationship fit for today’s business environment, and that we must always strive to do even better."Also, as a direct reflection of the impact of the litigation on the Post Office business, every member of the Post Office Executive also received a 20% cut to their Short Term Incentive Payments (STIP).
For anyone worried about how those poor execs might be affected by this, don't.
The outgoing Post Office Chief Executive Paula Vennells (who oversaw numerous Subpostmaster prosecutions and an expensive failed mediation scheme) saw her STIP drop £52,600 from £196,400 last year to £143,800.
Quite a hit, but by complete coincidence, the Post Office remuneration board increased her Long Term Incentive Payment (LTIP) last year by £50,600 from £194,400 to £245,00 and gave her a basic salary top up from £253,800 to £255,000, meaning the total net personal cost to Paula Vennells for her part in the Horizon scandal has been a whopping £800. And a CBE. And a gig at the Cabinet Office.
What's happening in 2019/2020?
Undaunted by its costly adventures in court so far, the Post Office has spent much of the 2019/20 financial year building bonfires with sacks full of used fivers and gleefully torching them. I've asked the Post Office for an estimate as to how much they've spent on legal fees already this year. I was told none would be forthcoming, so forgive the guesstimates.
Since 1 April this year, we've had the recusal hearing (failed), the court of appeal recusal application (failed), the remainder of the Horizon trial (outcome tbc) and the application to appeal the first trial judgment, first at the High Court (failed) and then the court of appeal (outcome tbc).
Based on what last year cost, I would be surprised if the Post Office hadn't already spent at least £5m on legal fees this financial year - so a possible total to date is £3m (to March 2018) + £14m (April 2018 to March 2019) + c. £5m (this financial year), plus another £6m in claimant costs = c. £28m!!!
The rest of the financial year is going to be more, rather than less expensive. Between now and the end of March we've got potential mediation and a third of likely five or six trials. It is no wonder "Litigation" has been added as an official "Risk" to the business as something which has "an adverse impact on financial performance and/or reputation."
The bigger picture
According to the annual report:
"The Company had net assets of £234 million at 31 March 2019 (2018: £195 million).
At 31 March 2019 £385 million of the Company’s working capital facility was undrawn (2018: £327 million).
The Company has also shown a [trading] profit for the year of £38 million (2018: £15 million).
We have the following funding agreed with BEIS:
- a working capital facility of £950 million to 31 March 2021;
- a further £50 million facility available to provide same day liquidity to 4 April 2020;
- NSP of £50 million for 2019/20 and 2020/21 respectively;
- and we also have investment funding of up to £210 million as required for the period from April 2018 to March 2020.
Investment funding of £168 million was received in 2018/19."
Let's imagine the claimant Subpostmasters get all their own way between now and the conclusion of the litigation. On the pavement outside the High Court's Rolls Building on 15 March this year, James Hartley, senior litigation partner at Freeths, told reporters that the Post Office could find itself liable for "hundreds of millions" of pounds in damages.
If you strip away the government support from the Post Office in the numbers above and compare the remaining figures with what it stands to lose, the whole edifice begins to look very shaky. The government has already stopped the Post Office from trying to use government grant cash to pay its litigation legal fees.
The government would be insane to pull the plug on the Post Office, but it would certainly become a big story if they had to even consider it. In the meantime what do you reckon the Post Office will be telling us it's spent on m'learned friends this time next year?
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