Wednesday 16 October 2019

Post Office director bonuses sort-of slashed over High Court litigation failures

A fun document.
A cloud hangs over this year's Post Office annual report. Just twelve months ago the Post Office casually suggested the group litigation brought by Alan Bates and other claimant Subpostmasters "lacks merit".

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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Claimant Subpostmasters consider mediation talks with Post Office

Claimant Subpostmasters suing the Post Office for hundreds of millions of pounds are now looking at mediation as a means to resolve this long-running and eye-wateringly expensive* litigation.

More than a year ago, the managing judge, Sir Peter Fraser, ordered that the parties should “consider" mediation. It has been bumbling around in the background as a possibility ever since.

This week, Freeths, the Subpostmasters' solicitors, issued claimants a circular stating:
"an independent and neutral expert is being appointed who has experience in helping to resolve very significant disputes. There will be a mediation meeting with the Mediator in November and we are obviously working very closely with your Steering Committee to plan for that and to decide whether it could offer you, the Claimants, a final resolution that would be in your best interests."
Many claimants will be wary of mediation. The Post Office set up a complaint and mediation scheme in 2013, but within eighteen month it collapsed in acrimony. James (now Lord) Arbuthnot described the scheme in parliament as a "sham", a sentiment echoed by the Justice for Subpostmasters' Alliance (JFSA).

As recently as August this year, Alan Bates, who is founder of the JFSA, member of Freeths' litigation steering committee and lead claimant, wrote to his members revealing the Post Office was pushing for mediation. At the time he wasn't convinced, stating:
"There could well be an optimum time when attending mediation might be in the Group’s best interests. But it certainly isn’t before the Horizon judgment is released... To start with, POL [Post Office Ltd] still refuses to accept it has done anything wrong, otherwise it wouldn’t have applied to the Court of Appeal to overturn the findings by the Court of the Common Issues judgment. To go to mediation immediately would mean we could find ourselves in the same position we were in at the end of the Initial Complaint Review and Mediation Scheme where, as a number of you will recall, POL turned up at mediation meetings, stated it had done nothing wrong and stated it was ‘all your fault’."
Mr Bates also noted:
"There would be substantial costs involved with attending mediation, so POL would need to demonstrate that it is serious about going into it in good faith and that it is not just a ploy to waste time and deplete our funding.  They would need to show they have the funding available to deliver financial redress to the Group and is prepared to redress the wrongs it has done to so many. And this case is not just a matter of money, many Claimants still want an apology for the grief that POL has visited upon them and their families."
Despite these misgivings, he recognised mediation might work:
"I am told that mediation (when done properly, unlike the ‘Mediation Scheme’) is a tried and tested method of resolving major disputes and it does have a good success rate in other cases. One advantage that mediation does have over the Court process, is that formal apologies, along with other requests, cannot be ordered by the Court, but they can be required by us as part of the mediation process.  Nevertheless, the current actions of POL in the court do not show it has any regrets yet over anything it has done, because it still refuses to see the error of its way despite the court clearly recognising the numerous failings by POL."
It seems that since then, Mr Bates may have been persuaded to think about giving it a go. By the time Freeths meet with their "Mediator" in November, the Horizon trial judgment should have been handed down, and there should be a decision from Lord Justice Coulson as to what (if anything) he will allow of the first trial judgment to be appealed. I suspect both these decisions will weigh heavily on how or if mediation might proceed.

In terms of where we stand right now, Freeths have pretty much the same red lines as Alan Bates, telling claimants:
"Progress will be made only if the Post Office demonstrate a significant change in mind set and approach. If mediation gives the Claimants an opportunity to achieve final closure on acceptable financial terms, then that is to be welcomed – if that does not happen, then the litigation obviously continues. Either way, we will not allow the litigation to be held up while mediation happens."
I'm not a massive fan of mediation, but that's because I'm a nosy journalist, not a claimant, and mediation is held in private. Also, big corporations often attempt to make any settlement conditional on all parties signing Non-Disclosure Agreements (NDAs), which means key parts of a story get smothered and no one is really held to account, a massive problem in this case already.

There is also one major fly in the ointment as Alan Bates himself noted back in August. What would mediation mean for those claimants whose situations are being considered by the Criminal Cases Review Commission?

During the last mediation process the Post Office did an extraordinary volte face. They first accepted people with criminal convictions onto the complaint scheme then refused to meet any who were recommended for mediation, without explanation or apology. You can imagine how crushing that must have been.

Presumably the issue of claimants with criminal convictions will be discussed and negotiated as part of the preliminaries to any formal mediation. They have to be better treated than last time.

Two months ago, Alan Bates wrote:
"Realistically, how can POL entertain any mediation whilst it still has an application in at the Court of Appeal denying there is any case for it to answer? Even it must see the nonsense of such a situation, why is it raising mediation now, is it just to pay out even more of the public purse to keep lawyers employed?  Hopefully POL is not misleading others with assurances that mediation might work, without having genuinely accepted that it has seriously wronged the Claimants and that the Court proceedings must come to an end."
I suspect his position hasn't changed much. The Post Office tell me mediation is an expected part of the litigation process and won't be commenting further.

* Close to £44m by my guess. The Post Office has admitted spending £23m on legal fees to end March 2019 (including paying out £6m worth of costs to the claimants). Assuming costs on both sides are roughly the same and guesstimating that both parties have spent another £5m each already this financial year (reasonable), that's c. £22m spent by the Post Office and c. £22m spent by the claimants, rebalanced because of the costs award to c. £28m spent by the Post Office and c. £16m spent by the claimants  = c. £44m.

If you can, please help keep this crowdfunded public-interest journalism project going by chucking a few quid in the tip jar below. Contributors who give £20 or more will start receiving regular "secret" emails which have all the info and gossip about this litigation as it makes its way through the courts. Click here to see how and where your money is being spent.

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