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High Court rules on key contractual issues in Post Office Group Litigation

Contract Document Print publication

19/03/2019

On 15 March 2019, the High Court handed down its first judgment on substantive issues in the high-profile Post Office Group Litigation [1], as Commercial Dispute Resolution specialists Gwendoline Davies and Nick McQueen explain.

The judgment, which stretches to 315 pages, is notable because it covers many different key contractual issues, including contractual formation, express and implied terms, ‘relational’ contracts, agency, suspension and termination, onerous or unusual terms, unfair contract terms, and the proper construction of clauses concerning liability for alleged losses.

The litigation, which the judge described as “bitterly contested”, concerns long-running issues between the defendant Post Office and approximately 550 claimant sub-postmasters and others, and has generated a great amount of public interest.

Background

All of the claimants were responsible for running branch Post Offices. They were required to use a computerised electronic point of sale and accounting system called Horizon, which was adopted by the Post Office for all of its branches. According to the claimants, the Horizon system contained, or must have contained, a large number of software coding errors, bugs and defects, and as a result of this threw up apparent shortfalls and discrepancies in the accounting of different branches. Alleged shortfalls in the claimants’ financial accounting with the Post Office are said to have been caused by these problems with the way the Horizon system operated, the training that was provided to use it, and also a general failure of the Horizon helpline. The evidence of the claimants in all six lead cases in the litigation is that they did their best to investigate the shortfalls but could not do so because of the way that Horizon operated, and because of the way that the Post Office behaved.

At least one common theme among the different claimants is the approach taken by the Post Office in relation to the accounting shortfalls. The Post Office’s stance was and is that the claimants were responsible for these shortfalls, and that they represented actual amounts of money missing from the claimants’ accounting. The Post Office pursued the shortfalls as accounting discrepancies for which those claimants were contractually and legally responsible. Some claimants paid the amounts out of their own resources, even though they did not believe or accept that there was anything deficient in their accounting. Some were suspended, some had their contracts terminated. Some were convicted in the criminal courts of false accounting, fraud, theft or other offences, and some were imprisoned. A Criminal Cases Review Commission review is currently underway.

There are claims for malicious prosecution, of a “cover up” over the shortcomings in Horizon, claims for damages for financial loss, personal injury, deceit, duress, unconscionable dealing, harassment and unjust enrichment.

Key findings

Here are some of the Court’s key findings:

  • The contractual relationship between the Post Office and the sub-postmasters was a relational contract that imposed an implied duty of good faith on both parties.
  • Certain terms were implied into the parties’ contracts, some because of their relational nature – for example, to co-operate in seeking to identify the possible or likely causes of any apparent or alleged shortfalls and/or whether or not there was indeed any shortfall at all.
  • Certain onerous and unusual terms in the earlier version of the contract used by the Post Office were not incorporated due to lack of notice.
  • Various contractual terms dealing with liability for losses (imposing a very wide liability requiring no fault on the sub-postmaster’s part), remuneration of suspended/reinstated sub-postmasters, and no compensation for loss of office, failed the reasonableness requirement under the Unfair Contract Terms Act 1977 (even if they were incorporated into the contract).
  • The Post Office was required to act in accordance with the implied duty of good faith in exercising its power to terminate the contracts.
  • The Post Office was entitled to terminate a sub-postmaster’s appointment summarily in circumstances where the breach or breaches on the sub-postmaster’s part was or were repudiatory in nature.
  • Sub-postmasters had a responsibility to train their assistants, but they could not be expected, nor were they contractually required, to train them to a level above that which they had themselves received and achieved.
  • The Post Office was not entitled to rely upon ‘Branch Trading Statements’ for any period in respect of which a sub-postmaster notified a dispute to the Horizon helpline, as a settled account between agent and principal. (Sub-postmasters were under an express contractual duty to account to the Post Office in the manner required or prescribed by it, i.e. using the Horizon system. This required a Branch Trading Statement, which required a sub-postmaster to “accept now” in respect of items that were disputed or not agreed.)
  • Sub-postmasters did not bear the burden of proving that any Branch Trading Statement account they signed and/or returned to the Post Office was incorrect.

The future

It is important to note that this so-called “Common Issues” trial was just the first of many trials in this litigation. The next trial takes place in March and April 2019 to determine the issues concerning the operation of the Horizon system, when each side will call an expert witness to give opinion evidence in IT matters. The judge has said that he intends to hold substantive trials in tranches every single judicial term from November 2019 onwards into the future, so that the litigation is resolved as swiftly as possible in accordance with the overriding objective, in the interests of all parties, the interests of justice, and the wider public interest.

The judge was at pains to stress that he would not be making any findings concerning breach, causation or loss in this first substantive judgment, as these will be for later rounds of the litigation.

We understand that the Post Office may appeal certain aspects of this ruling. We will continue to monitor and report on developments and will produce in due course a series of separate briefings which focus in more detail on some of the key findings. In the meantime, should you have any queries, please do not hesitate to contact Gwendoline or Nick, who will be very happy to help.

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[1] Alan Bates and Others v Post Office Limited [2019] EWHC 606 (QB)

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