Abuse of Process Category 2 and why it was so important.

Friday’s announcement by the Post Office that they would contact 540 additional former subpostmasters and staff whom POL successfully prosecuted over the years and who may now see their convictions overturned is down to the fact that the Appeal Court decided on the 23rd of April that the convictions before them that day were an affront to the public conscience.  That means they should never have been prosecuted in the first place.

The consequences of that decision not only provide hope for these additional convicted people but also ensures that Malicious Prosecution Claims against POL cannot be challenged by them in court.   This adds millions to the eventual claims but it requires an explanation why that is so.

The application of the law is best left to the legal profession but they cannot proceed if they are not instructed to do so by their clients.   The clients rely on the advice of their legal teams to help them to decide whether or not to proceed and it is up to the legal teams to explain the consequences of their ultimate decision.   

Last year the CCRC decided to refer the convictions of 49 former subpostmasters back to the court of appeal which started a process of legal action leading to the decision handed down by the court a few weeks ago.   Each appellant was free to choose their own legal representative and three ladies, Seema Misra, Janet Skinner and Tracy Felstead chose to appoint Nick Gould from Aria Grace as their solicitor who in turn instructed barristers Flora Page and Paul Marshall to act for them.   It is worthy to point out that all three, Nick, Flora and Paul offered to assist the 3 ladies pro bono (free of charge) such was their concern about the obvious miscarriage of justice before them.

Once the CCRC had submitted their referral document to the CoA, POL stepped forward and provided their own rebuttal in which they accepted ground 1 abuse of process in all but 3 cases but they also objected to ground 2 in 42 of them.   By not challenging the CCRC referrals on ground 1 it was almost certain that those appellants would have their convictions overturned by the Appeal Court and that without any challenge to the lack of ground 2 those appellants would have their convictions overturned at the hearing of the court in November last year.

Therefore the most obvious consequence of challenging G2 was that there would be a significant delay in the Appeal Court deciding on the safety of the appellants convictions and this turned out to be the case with the decision only handed down some 4 months later.   There was also of course the risk that the court would not find for G2 and therefore the delay would have been pointless.    As Alan Bates of the JFSA pointed out to me quite rightly, I am not a claimant, I have no concept of the pain and suffering those affected by this scandal have gone through, and therefore can never be in a position to offer an opinion on what the appellants must do.    That put me in a difficult position last October when I was asked to sit in on a zoom call with Paul and Flora and the ladies to hear the discussion on whether or not to challenge Ground 2.

I apologise for telling this part of the story from my perspective, what the ladies thought at the time is far more important, but it is a firsthand account of what transpired that day.   I was invited to attend only because I had been providing support to Seema and her husband Davinder, trying hard not to make it sound like advice or an opinion.   I had some knowledge of the background to abuse of process and the two categories but I was certainly not fully aware of the consequences of having one and not both awarded.

During the meeting Paul and Flora explained everything very clearly.   The merits of fighting G2 and being successful and the consequences of the ladies losing their challenge.   I will lay these out below but the memory of my thoughts once the meeting had ended is(are?) very clear – I was confused as to whether or not Flora and Paul wanted Seema to fight the G2 case or not.   That indicates to me that they provided very unbiased advice and any suggestion that they encouraged the ladies to challenge G2 is disgraceful.

After the meeting, Seema, Davinder and I discussed the options and I must admit it was difficult not to suggest that they fought for G2 even though it meant a delay to the convictions being overturned for all not just Seema.   To wait for so long to have justice served and then being asked to wait for at least another 3 months reminded me of what Smuts Ngonyama once told me in South Africa and I wrote about in a blog post here some time ago.    How could I suggest that they should wait a little longer?  

It is testament to the hatred the ladies feel towards POL that all three independently decided to instruct Paul and Flora to proceed with challenging G2.   What happened next was not a consequence any of us had predicted, with so much bitterness among the other claimants directed at the 3 ladies and even I was contacted to try and persuade them to change their minds (which I did not attempt).   I truly hope that that bitterness can now be set aside and that the wonderful consequences of winning G2 for the original appellants as well as the 540 on Friday can be appreciated.

The difference between G1 and G2

I trust Flora will not mind if I publish an extract from the email she sent me after the meeting and I should point out that this was for my information only and I asked for it because I had not formed an opinion during the meeting and was still considering what had been said :

Things which are not pros or cons because they are not affected by category 2 abuse

– the convictions, which should be overturned anyway because of category 1 abuse

– the ability to claim against Fujitsu

– costs, because appellants will not face costs in the Court of Appeal

Pros which will come if we win on category 2 abuse

– There will be a public judgment saying not only that Seema’s conviction is overturned, but that she never should have been prosecuted, and that the Post Office’s behaviour was disgraceful 

 – This will strengthen her hand going into negotiations on a malicious prosecution claim

– The post office will not get to say that their conduct was merely mistaken or unfortunate (which they otherwise will do, both publicly and in the context of the inquiry and future malicious prosecution claims)

– They will also not get to defend a malicious prosecution claim on the basis that Seema failed to argue that the prosecution was improper when she had the chance In the Court of Appeal

– The hundreds of others who have been wrongly convicted will likely have their cases sped up, and will have a lot to thank her for!

Con which will come if we lose the category 2 abuse argument

– this will strengthen the Post Office’s hand in a malicious prosecution negotiation

Con which will happen anyway

– there will be delay while the Court of Appeal hears and decides argument. It isn’t clear how long the delay may be, but we should be given a better idea at the hearing in November. 

The pros for fighting for G2 put forward by Flora have now all come to pass.   Most significantly on Friday as clearly the process of clearing the names of hundreds of others has well and truly sped up.

But there is more to this.   We have to remember that POL defended against G2 being awarded vigorously and that requires a great deal of discussion and perhaps investigation as to why they did so.

It is worthwhile remembering that Seema, Tracy and Janet decided to proceed with the challenge to G2 based on the information provided to them, but it was the efforts and skill of Paul and Flora that produced the result.

The same goes for POL.  It was POL who made the decision to proceed with fighting G2 and it was their legal team that failed.   Why did POL decide to fight in the face of what was known to both parties at the time?   More importantly why did POL decide to fight in the face of what only they knew at the time?   It was only after the decision was made to challenge G2 that Paul and Flora, through discovery, found the now infamous Clarke Advices which nearly destroyed their careers as a result.   POL knew about these documents and had made a conscious and deliberate decision not to disclose the contents to Seema many years ago when they should have as suggested by their own council.   That is a matter for the courts and the legal professions’ regulatory bodies to investigate in due course but the fact of the matter is that POL knew if the Clarke Advices were made public then there would be no possible chance that the Appeal Court would not find for G2.

As far back as January 2019, before the Horizon trial started (but after the common issues trial had been decided in favour mostly of the JFSA), POL were preparing for the worst outcome and setting aside millions of pounds for an eventual settlement.   They entered into settlement negotiations with the JFSA before the decision of the Horizon trial was handed down and now the settlement agreement shows us that even then in late 2019 they were laying the groundwork to try and prevent massive claims for Malicious Prosecution.  Remembering of course that at that time the CCRC had not yet referred the cases back to the Appeal Court.

Clause 7.3.5 from that agreement now starts to make sense:

7.3.5 In the event the conviction is overturned ….. the Defendant will provide that convicted claimant with an apology which reflects the basis on which the conviction was overturned.

Compare that to the prescience of Flora Page when she stated:

The post office will not get to say that their conduct was merely mistaken or unfortunate (which they otherwise will do, both publicly and in the context of the inquiry and future malicious prosecution claims)

POL pretty much knew then that the convictions would be returned to the Appeal Court and that they knew they could not challenge most of them.   However they could challenge Malicious Prosecution claims.    This scandal is a set of extremely unusual legal issues that have never come before a court before but Malicious Prosecution has and these are extremely difficult claims to win.   A long time ago I researched this topic and at one point got in touch with a leading firm of solicitors just to find out what they thought.   They actually said that in the hypothetical circumstances I put forward they wouldn’t even consider taking on the claim because a) the ‘person’ had been found guilty by a jury and b) the prosecution presented a case based on what they believed to be true at the time.

Ground 2 removes these 2 burdens because it determines that the appellant should not have been prosecuted in the first place (I am straying into making legal opinion here and if I have got it wrong sorry and I stand to be corrected).   There is plenty of evidence, since the settlement agreement and even during the trials themselves, that POL were laying the groundwork to be able to show at a later stage (Malicious Prosecution claims) that they believed at the time that Horizon was robust and reliable.   The fact is that many people working in the network including POL employees and Subpostmasters alike, were persuaded that this was the case but only through disinformation spread by those in the know who knew that Horizon was far, very far, from being classed as robust.

So it seems that POL were never fighting to win, they were fighting to save money.  They weren’t/aren’t concerned about justice and proper compensation for the unfortunate hundreds whose lives they have ruined only about money and protecting the reputations and freedom of those complicit in the scandal.  

There are many questions to be asked and answered but a key one is “who are POL?”.  We use the collective to describe an organisation full of employees who knew for certain that they were in the wrong about Horizon from day one and the collective also describes the myriad of legal representatives they have instructed over the years who have followed their instructions apparently motivated by the bottomless pit of money POL were prepared to spend rather than moral and ethical responsibility to those who suffered most. Not to forget the Civil Servants who have been behind this all and approving it each step of the way.

What is worrying is that that collective, despite changes in the top management and removal of those that will be offered up as scapegoats in due course, is still operating as they have always done, motivated by money to defend the indefensible.

Just why did POL defend G2??

Tracy, Janet, Seema, Paul, Flora and Nick Gould all deserve enormous amounts of credit for seeing this through.   The stresses and strains over the last few months for all concerned have been incredible and the further vindication of their decision to challenge ground 2 on Friday is I hope some small reward for all they have done .  It would be particularly pleasant for them to receive some acknowledgement from the legal teams that were totally against the route they chose to take and now seem to be taking the spotlight for doing so themselves.

Why we need a full Judicial Inquiry

First of all I am confident that I will miss out some of the many valid reasons why we need a full judicial inquiry into the Post Office Scandal and I would appreciate these omissions being pointed out so they can be added to this list.  

Secondly, and this is purely my own opinion based on recent events and statements from officials, I think that the Government is intent on privatising the company.    I think that this will be done by way of an IPO, whether in private or public, and that steps to ensure this happen must be in place by 31st March next year.   I believe it will incorporate a form of mutualisation that will offer to subpostmasters an equity stake in the business.   The majority of shares though will be sold to institutional investors that would provide a) a substantial equity investment into the company and b) provide for independent scrutiny at board level by these same institutions.   I may of course be completely wrong but it seems to me if they were to do this then it would be a very good idea for the two reasons given above.

If I am right in my assumption then it would lend credence to the rationale for a review rather than an inquiry from the government especially when they are so keen to justify the review by reminding constantly that it is going to come to its conclusion this summer.   I doubt an IPO may be possible should a full judicial inquiry still be on the cards by next March.   Trouble is it probably will be as calls for it are not going away, only growing stronger.   Perhaps Boris is considering some sort of acceptable alternative?

A full judicial inquiry

In broad terms the main differences to a full judicial inquiry as opposed to the current review being undertaken by Sir Wyn Williams are:

  • An unlimited remit to discover the truth
  • Who knew what and when
  • Power to subpoena witnesses and cross examine them under oath
  • Full powers of disclosure including search and seize
  • Allocation of blame and perhaps instigation of criminal proceedings against suspects
  • Disassociation with Government and Civil Service

In addition a full judicial inquiry will see those parties such as Second Sight and JFSA who have refused to co-operate with Sir Wyn’s review become involved.

Unlimited Remit

Crucially, a Judicial Inquiry (JI),  will not be limited to looking at the Horizon Computer system.   There are many satellite systems involved and not all are computerised.  Probably most relevant is the paper based system used by POL to investigate discrepancies that result in transaction corrections which is run out of their financial services centre (FSC) in Chesterfield.    There are many reasons why the procedures in place at the FSC should be scrutinised not least of which is the steadfast refusal of POL over the years to allow access to investigators (often those appointed by defendants).    POL fought tooth and nail to limit the scope of the Group Litigation (GLO) to the Horizon system and we need to find out why.

We also know that in general terms nearly all of the discrepancies in branch accounts are classed as Payment and Receipt Mismatches (P&R) and there is clear evidence that these ‘mistakes’ are still happening regularly.  Hats off though to Nick Read who seems to be working on that particular problem as it relates to SPMR accounts but P&R mistakes also occur between POL and Third Parties and how these have been resolved over the years needs to be looked at too.

The GLO

Given the many millions of public money spent on defending the GLO, the inquiry needs to look at the strategy that POL and the Government adopted.   There are so any sub issues under this one heading.  The strange meeting between Tim Parker and Second Sight, the recusal application, the settlement offer, the non appearance of Gareth Jenkins of Fujitsu and of course most recently the publication of the Clarke Reviews.    The many legal firms that represented POL over the years cannot be allowed to hide behind client privelage and some should be pretty worried should a judicial review come about.

Fujitsu

I think it is self evident that Fujitsu played a major role in all of this and of course that needs to be investigated further but what I would particularly like to find out is why the Government and POL have not pursued them ‘yet’.  I appreciate it may be too early for this and that they fully intend to do so in the future but there was an opportunity in the GLO for POL to have them included as party to the action and in doing so make them responsible for some of the compensation and legal costs.

Who knew what and when

Undoubtedly the Civil Service is implicated in this scandal.   It is they who are in charge of the review and it is they who are leading the way in refusing a full judicial inquiry.   If Boris wants to set an example to them that they are not above the law then a full inquiry is what is needed.

Who in POL knew what was going on?  I think even Sir Wyn’s review will comment on that but what I want to see is a definitive statement by an independent body that states not just who knew when but more clearly who should have known and when.   Incompetence cannot be an excuse.

And again a closer examination of the morals and ethics of the legal teams advising POL needs to be scrutinised against their obligations to the Bar Standards Board.

Witnesses

The only witnesses now worth hearing are those who can be demanded to testify under oath.   Self incriminating evidence may be barred but arse saving evidence will, I am sure, become prevalent during such an inquiry.   It is remarkable also that so many people are now coming out of the woodwork to say that they knew Horizon was a ‘bag of shit’.   Wonder what took them so long?

Disclosure

Paul Marshall, the barrister looking after Seema, Janet and Tracy, alongside Nick Gould the solicitor from Aria Grace, should get the recognition they deserve for not just extracting the Clarke Advice at the very last moment in the legal process leading to the Appeal Court but for highlighting that the many of the legal teams advising POL are still untrustworthy and certain individuals can be extremely nasty and vindictive when their legal expertise is exposed as shoddy in the courts.

The exceptional performance by Freeths and Patrick Green in the GLO must be acknowledged and their in depth knowledge of the scandal must be utilised notwithstanding any NDA or settlement terms.

There is so much more to be disclosed.  I know that for a fact!

Allocation of Blame

The missing piece of the jigsaw now being highlighted in the media.   No one it seems is going to face punishment for their involvement in the scandal as things stand.   I have long called for the Police to recognise that senior management of POL are undoubtedly public officers and for them, where necessary to be investigated and prosecuted under the common law of misconduct in public office (and that needs to be done quite quickly as that law is about to be regularised and changed I believe)

Civil servants are of course public officers as well and it would be impossible to believe that individuals in Whitehall will not be investigated as well.

Fujitsu employees are being investigated already and the legal entity of Fujitsu should be investigated for corporate misfeasance.

Who should lead the Inquiry

There is only one man for the job.  To save time and probably millions of pounds, Sir Peter Fraser must be appointed.  Nuff Said!

I tried to tell her …. over 6 years ago

To: paula.vennells@postoffice.co.uk
Subject: Second Sight – Horizon Errors – Media Coverage
Date: Wed, 10 Dec 2014 00:04:28 +0000

Dear Paula

Yet again today Mark Davies, speaking on behalf of POL, relied on the defence that there are no systemic errors in Horizon and this is proved because we deal with so many customers per day in so many branches.   I think Mark and yourself might like to review the periodic Message to Branches that are sent out via Horizon.   There are a catalogue of systemic errors that arise from time to time and are fixed.   Some involving automatic transaction corrections.

Paula, as I keep saying, you are surrounded by people in your office that tell you all is well.  You have no personal knowledge of operating Horizon nor probably any in depth technical knowledge.  What if the people that are telling you all is well have the same attributes?

So forget systemic errors for the moment and consider ‘intermittent’ errors which by and large are caused by communication problems.

I know of more than one but one in particular:

It exists.   

It occurs at different times in different branches.

It is noticed.

They are reported to NBSC (I would really like to see the number of times this has been reported to NBSC)

It causes a financial loss to the SPMR.

They are not fixed BUT the wise SPMR knows how to get his money back so you don’t hear many complaints.   You would from the Audit team if they caught someone doing it though.

So why haven’t these intermittent errors been fixed.   To put it simply – because they are intermittent.  There is no known sequence of events that can cause this error to re-occur in any particular branch.  How can you fix something if you don’t know what caused it in the first place?   You have to throw the whole thing out and start all over – the only way.

On our ‘chat’ forums, there are documented reports over the years of the same error repeating itself randomly in a wide number of branches, including at Duns and my previous PO.  

I am pretty sure I can arrange for the error to be replicated though by asking a large sample of offices to repeat the process until the error occurs – and I am also sure that I can obtain transaction logs and associated CCTV coverage of the error manifesting itself.

I can show you it happening.  I can explain the financial consequences but neither I nor your best technical team will be closer to fixing the underlying problem.  You cannot make it go away.

I would also be happy to stand up in court and declare that Horizon has intermittent faults, probably caused through communication errors, provide clear and undeniable evidence as well as bring along a fair number of your most trusted SPMRs to bear witness that it has happened to them too.

I hope you get my point – I can show one error occurring that you can’t fix nor can you explain – if you could explain it then you could probably fix it – so how many other intermittent errors like this are in the system that cause unexplainable financial losses to SPMRs?

I am trying to help you but the hole you are digging for yourself is getting deeper by the day.  Please stop trying to defend the indefensible.   

Cheers, Tim

Paula Vennells <paula.vennells@postoffice.co.uk>Wed 10/12/2014 13:47To:

  •  You

Cc:

  •  Gavin Lambert;
  •  Angela Van-Den-Bogerd;
  •  Rod Ismay;
  •  Lesley J Sewell;
  •  Kevin Gilliland

Tim, hi.

If there is one thing you should know about me is that I do listen.

But please be careful that you don’t over generalise or conflate different points.

We are not defending the indefensible – all systems have issues from time to time.  And they need to be (and are) fixed when they occur.  We have records of when that has happened, of alerting users and then putting in place an appropriate fix.  We operate in a dynamic market and Horizon, like all epos systems is constantly updated.

To your challenges.  I listen and I’m therefore concerned at what you say. I’m copying three people who I expect to get to the bottom of it. And who I trust to do so: Gavin Lambert who works directly for me, Angela van den Bogerd, and Rod Ismay. I am also copying Lesley Sewell (CIO) and Kevin Gilliland. I want Lesley and Kevin to be in the loop – they are the directors responsible for ensuring our branches have the appropriate service.

Angela will be in touch with you directly.

In the meantime, I wish you a happy Christmas when it comes.

Paula

Ps. If the colleague you mentioned needs support, please let Kevin know.

What Sir Wyn should do now …

Dear Sir Wyn

I trust that you have now had a chance for a first read through of the historic Appeal Court decision published this morning.

To the end Post Office Ltd, through the machinations of its legal team, prolonged the suffering of the innocent without cause.   In October last year I was involved in the decision making process of whether or not to challenge ground 2 Abuse of Process and today I feel vindicated that I advised Seema Misra to proceed with it.   We knew that there could be a delay to the appeal court process as a result, and consequently I wrote to Nick Read and suggested that he would be wise to drop the arguments against G2 in order to speed up the quashing of the convictions.

His legal team can only have advised him not to and a question to be asked is why did they persevere?   It was only then that the Clarke Advice’s made the light of day and the impact of those on the Appeal Court’s decision cannot be questioned, nor on the image of POL as a trustworthy organisation.

That leads to the bigger questions surrounding the legal advice given to POL over the years by the various firms appointed by them.   The only winners to date in this whole saga are the lawyers involved and it is absurd not to suggest that they looked upon POL as a money tree which it undoubtedly was.  It is a key factor in understanding what went wrong and more importantly, from your inquiry’s point of view, how to ensure that it does not happen again.

A legal strategy of out funding the claimants is not unprecedented but when that funding is secured from public funds and those that benefit from that funding are those providing the advice to the company and the government, it is totally unacceptable.

Surely there must now be sufficient doubt in your mind as to the purpose of the limited remit of your inquiry, the limitations placed on it by virtue of being unable to hear evidence under oath and the intentions and involvement of those who provided it to you.

You have it in your power to resign now and issue a statement encouraging the Government to do the right thing and appoint a full Judicial Inquiry and I urge you to do so.  I should add that I fully understand and agree that you had nothing to do with the remit and that you are not involved in any way with the scandal.

Please Sir Wyn, do the right thing and stand up and be counted alongside the many of us who don’t just believe, but know, that the full scale of this scandal is yet to unfold.  Your actions now can expedite the inevitable full judicial inquiry that all of us deserve.

With the greatest respect,

Tim McCormack

NB I have no concerns if you wish to publish this email as part of your inquiry submissions.  I may also publish it on my blog.

POL Annual Accounts 19/20 (part 2)

So let’s look at costs over the years in POL Land. 

As previously mentioned if you take costs away from turnover you get profit.  Gross profit if you only include direct costs of sale and nett profit if you include everything.   Costs can be subdivided; cost of sales, fixed costs, variable costs and investment costs among others.  One binary way to look at total costs though is to divide the total cost into non-discretionary and discretionary items.

Non-discretionary costs are mainly of the fixed cost type such as rates and power:  even if you sold nothing one day those costs would still be payable, you have no choice in the matter.   The item I have particular interest in though is discretionary costs.  A good example is capital expenditure and in the case of an oil company it would be their choice in times of low oil prices to limit expenditure on exploration.  However there comes a time when even those costs (of exploration) become almost non-discretionary as the company needs to invest in the future and discover more oil resources.  The same applies to POL.  Yes they need to invest in the future but in times of need they too have the option to lower if not cease investment funding.  Which leads me to a most interesting document that was passed my way recently.

But first a summary of the effect on the accounts of investing funds into ‘assets’ of the business.  If you pay out £100m into asset investments in any one year the total is not reflected in the income statement i.e. a £100m cost against turnover.   The cost of the asset is depreciated over several years and only that portion of the amortisation of the investment for that year is included in the cost.  So if the £100m is amortised over 5 years in a straight line then only £20m will be charged as a cost in any one year of the following 5.  That is how it is handled now in POL but before Al took over things were slightly different and all the assets of POL had basically been amortised down to zero and depreciation policy for items such as software was to write off that amount in the year that the cost was incurred.    It is why we use the EBITDA value to truly reflect actual costs during the year and hence profit.   A few years ago the assets were ‘revalued’ and POL reported a one off paper profit of £230+ million.  That £230m or so is now being depreciated through the books.

As you know, POL are recipients of funding from the Government in several ways and up until recently that annual funding was delivered in a lump sum on the first day of the financial year.  Now that has changed and the Government through UKGI provide it on a quarterly basis and keep an eye on how it is being spent in quarterly meetings with POL.   UKGI don’t want to reveal what exactly is in the quarterly request for funding as is seen by heavily redacted documents requested on WhatDoTheyKnow (https://www.whatdotheyknow.com/request/quarterly_requests_from_post_off#incoming-1736889) but I have been very kindly provided with unredacted versions by my source within POL and they shed light – much light! – on the investment spending by POL and the discretionary portion of that.

For example in January 2019, with only 3 months to go before the start of the period that the current annual accounts are reporting on and more to the point at the start of the calendar year in which they incurred the majority of the costs of the Horizon trial and KNEW that they were likely to lose, the request for funding document contains some remarkable information.

First that they were planning to set aside £49m for the costs of the GLO litigation.  No one considered at that time clearly that they could have settled in January for that amount and everybody bar the legal teams would have been far better off.   I may be wrong and forgive me for not checking but I don’t recall in the 18/19 POL accounts a contingency amount of £49m being mentioned.

They are asking POL for £29m being the remainder of the £168m funding they were due from UKGI and state clearly that none of it will be used to fund the litigation.     The document then lists where the £90m in total including the £29m UKGI funding will be spent and there are numerous projects in progress at that time but the most expensive seems to be “Simplifying the Retailer Proposition” at £49m.   There is no detail on any of the projects  to be able to say for sure what if any could be classed as discretionary although they do mention that in the following year spend on projects that are expected to benefit the company financially total £159m

The next bit needs a direct quote from the document:

14. It is also important to remember that we remain in control of our spend. Of the £327m forecast to be 
spent from now to March 2021, only £51m is committed contractually. We can turn the taps off as 
required
.

So there you have the discretionary element of the investment cost of running POL.  “Turning off the taps” as suggested would result in a £276m windfall to the bottom line (profit) spread over 2 and a but years through to 31/3/21 (next week as it happens)

We will have to wait and see in the annual accounts for 20/21 if any ‘taps’ were in fact turned off but the headroom they seem to have in discretionary investment spend is extraordinary.   Taking into account the number of doomed and failed projects they have invested in, if one were to get closer into the books and find out exactly what margins POL are receiving on the products that SPMRs sell on their behalf and compare them to what SPMRs actually receive I suggest even Nick Read would probably be shocked.

I once put together a business proposal to the Scottish Government and actually presented it to the Minister and followed it up with discussion with senior civil servants about the possibility of devolving postal services to Scotland and setting up a Scottish Post Office network which by my rather naive thumb sucking assumptions would be self funding.   I thought I might have been over optimistic but now I see this document I realise that my calculations were far too conservative.   If Marion or anybody else from the SNP are reading this, my suggestion is to revisit my original proposal.   Who knows (not that I am saying I am in favour one way or another and I am certainly apolitical in my views) but  in a couple of months Scotland could vote for independence and a Scottish Postal Network could well be on the cards.

That’s enough for part 2.  I still need to look at the Equity Injection and Director’s Clawback Provision.

POL Accounts 2019/20 (Part 1)

Post Office Annual Accounts 2019/2020

An opinion.

Since 2010 when the doomed Network Transformation project started I have taken more than a keen interest in Post Office Ltd’s annual accounts.  At first it was tracking the vast, £2 billion or so of public money that was being thrown at destroying the income and fixed assets of Subpostmasters in return for turning the Post Office Network into a profitable stand alone company with no need for financial assistance from the Government.   Once I had left the network, profiting on the way from some of that misspent £2 billion as compensation for loss of goodwill, my attention turned to the amount of money that was being utilised in fighting the Group Litigation Order.   I therefore have some experience in what to look for in their accounts and in many cases I have found the real secrets are exposed in what has not been stated and in comparing what was said the previous year to the current one.

Up until 2015 when Al Cameron took over the accounts were set up in quite a different way to the way they are now.  He made a few changes that I must admit I overlooked recently so as I set out a comparison in this report to what the accounts looked like in 2010/11 there will have to be some interpretation of my own that may or may not be entirely accurate and I am open to any comments on glaring errors on my part.

General Impression

This year’s report is the first real report overseen by Nick Read as publication has been delayed for a variety of reasons not least Covid.   While it covers the financial year 19/20 much has happened since the year end of March 2020 and it is clear that even Al Cameron has had difficulties in reporting on financial events that would normally be reported into the next financial year 20/21 whose year end is tomorrow against events that, due to the delay, now need to be reported for the year end 21/20.  More of that later.

 It seems to me that there is a sea change in the reporting of POL’s financial accounts.  They are now far more open than they have been in the past, perhaps due to Nick Read but also perhaps POL are now unburdened (for the time being) of scrutiny by the EU State Subsidy Commission albeit that the 19/20 accounts should actually fall under the EU rules for state aid.

Annual reports give POL the opportunity to highlight their current strategy and Nick Read has certainly changed that since his arrival.  He states:

“Genuine value, for a business such as the Post Office, and one with an overarching social and public purpose, should not solely be represented by its ability to generate profit, important though that is.”

“As an organisation, we must understand that commercial sustainability is not solely driven or best interpreted by the trading profit of Post Office Limited”

I couldn’t agree more.  His predecessor was driven by profit and incentivised to do so by huge unjustifiable incentive bonuses.   Vennells in my opinion destroyed the brand, destroyed the value of SPMRs personal investment into the business and actively promoted the culture of ‘Them and Us’ that still exists between POL and their SPMR network.  Resetting that relationship is top of Nick Read’s list of things to do and he needs to be successful at it quickly.

Annual Accounts start with a Chairman’s statement and I have only one thing to say about Mr Parker – why is he still there having overseen the national public disgrace of the Group Litigation which resulted in judicial remarks such as ‘POL is like a Victorian Workhouse’ and ‘akin to believing the world is flat in the 21st Century’.  Nothing more shameful for the man should be his involvement in overseeing the most unfair settlement of all time with the JFSA.   However he is entrenched in the establishment and no doubt will be rewarded with a peerage in due course.  That on its own could put paid to Nick’s project to reset the SPMR/POL relationship. I wonder if Boris had Parker in mind when he made his comments yesterday at PMQs?

Comparison

Billions of pounds spent of public money with more to come between 2010/11 and 19/20 so let’s have a look at headline figures and see if the investment was worthwhile.

Turnover

10/11 £971m

19/20 £951m

2011 was the year that the Postal Services Bill was enacted which paved the way for the separation of POL from RMG and it also marked the start of the NT project.   Great things were promised in parliament for POL including massive increases in Government business which was news to the various departments involved.  What Ed Davey, the minister in charge at the time, didn’t realise was that cut backs were forcing the various departments and government entities into streamlining their processes and I often found out long before POL did apparently by looking at the department annual reports and seeing their intention to reduce spending with POL in the next financial year.   This year sees the end of the POCA card but since 2011 the DVLA, NS&I and the DWP have all abandoned POL in favour of their own online offering.

Costs

10/11 £1100m !!

19/20 £912m

A reduction after 10 years of £188m.   This is where it gets a bit messy in trying to compare the two sets of accounts in different formats but let’s look at key areas of cost saving before I come back to investigate the current costs of running POL.

Obviously number one on everybody’s list to look at is and should be the reduction in SPMR remuneration.   In 2011 they were £475m and in 2020 £384m a reduction of £91m which would actually have been a bigger reduction had it not been for the outcry over remuneration for banking products and the effect of POL subsequently increasing it.

But subpostmasters were not the only ones to suffer.  In the last 10 years nearly all the crown offices have been shut and POL had reduced their head office staff numbers as well.  In 2011 people costs were £256m and now in 2020 they are £172m a reduction of £84m.

So a combined saving in costs from remuneration of £175m which almost accounts for the entire cost reduction over the 10 years while turnover remains relatively static.

The product mix sold by POL over these 10 years has changed a lot and it would be too complicated for me to try to interpolate this into attributable costs but you would have to consider that if turnover remains much the same and the fixed costs of remuneration have decreased by so much then surely the profit of the company would be fairly substantial now.   I will come back to costs when I write more on this tomorrow (its currently 3.30am)

Profit

Turnover less Costs equals Profit.  I don’t think POL have ever offered Gross Profit v Nett Profit figures so what the accounts reveal is basically Nett Profit and it is here where Al Cameron’s revaluation of assets a few years ago needs to be taken into account.  As Al says the key indicator for POL is the EBITDA bottom line which is the earnings before income tax (they don’t pay any) depreciation and amortisation.  So I will try and use that figure.

2011 EBITDA was a loss of £29m and in 2020 it was £136m! A difference of £165m and clearly attributable to the substantial £175m reduction in remuneration costs.

You can look at this in many ways but one way which irks me is to think that Vennells takes charge, screws her staff and SPMRs by reducing their income or making them redundant and as a result walks away with £6m or so for her efforts, a CBE (has she not returned it yet?) and a couple of nice little earners on various boards.

I need some sleep….

Coming up in the next instalment – a more detailed look at costs as recently revealed in a confidential document, investment funding and contingent liabilities and also a note about the £125m Equity injection announced by POL but not the Government!

Is this not a logical conclusion?

Maybe I am just not articulate enough to describe this properly but Post Office Ltd seem incapable of looking at the same facts as I do and coming to the same conclusion.

FACTS

Fact A) Paula Vennells has always admitted (as has the rest of the world) that all software systems have bugs in them from time to time

Fact B) There is a file known to both POL and Fujitsu called the Known Errors Log (last I heard it had over 80,000 entries)

Fact C) There is no record at ALL of any investigation by POL or Fujitsu into transactional records of those prosecuted by them to see if ANY Horizon error may have caused the shortfalls

Fact D) The only errors that POL are prepared to discuss are the ones that the experts and Fraser J agreed on in the GLO

CONCLUSION

If you are going to accuse somebody of a criminal offence by default then you have to prove that all other possible explanations for the act have been completely ruled out starting with the computer system that your CEO says may contain bugs.   There is a Known Errors Log.  There can be NO UNKNOWN Errors log.  One microsecond before Anne Ireland pressed the return key at Dalmellington Post Office there was NO Dalmellington Bug.  If she had not noticed it and reported it to POL there would have been NO Dalmellington Bug.

I am so frustrated that I cannot articulate the logic of this to POL.

What’s in a Memoview?

What’s in a Memoview?

For those that don’t know a Memoview is a brief message sent out to all Post Office branches to inform them of important and urgent information.  It is not used often because to do so it costs POL money that is charged to them by Fujitsu which is extraordinary in itself as Memoviews often contain warnings of Fujitsu errors.

Over the last few days POL have seen fit to warn their 11,500 strong branch network of an ongoing issue with Horizon by means of said Memoviews.   The messages themselves contain little detail of the actual error and I am not going to investigate to find out what has actually happened but it is the content of the messages that interests me and rings alarm bells in my head.   It seems POL have learned no lessons of the past and are putting the findings of the Bates litigation to one side.

Describing ‘POL’ in a generic sense is never accurate.  It can be used to infer the Board, the Legal teams and even the branch network.  In this case though my use of the term refers to those people within the organisation that decided to inform the network of this recent error by Memoview and chose and authorised the form of words that appeared in it.   This form of words is consistent with how ‘POL’ have used Memoviews over the years and for me at least it confirms that some of those who are responsible for the Post Office Scandal are still in office.

Last year in the House of Lords, Lord Callanan stated, “There is no question but that the Post Office management at the time behaved disgracefully but none of them is now in post.” Clearly that is wrong and as an aside there is so much else wrong with that statement but that is for another day.

Two Memoviews were issued (there may be more by the time I publish this):

MV1

‘’We are aware of an issue which may result in a mismatch on receipts and payments when you attempt to produce a stock unit or office rollover at this current time. We are working with our suppliers to resolve this as a high priority and will provide you with further information as soon as this is available. We are sorry for this inconvenience this will cause you and your customers.‘’

MV2

“The issue has been investigated and whilst we believe it has been resolved we are still investigating the impact on any branch that completed any of these transactions on Friday 12 February so would ask you to not complete a stock unit or branch rollover at this time.”

It is hard to know where to start in dissecting what is contained, and what is missing in these messages but first a general impression.

It goes back to the long term consequences of the Network Transformation program which turned out to be a complete mess.   A multi billion pound project that in turn offered huge bonuses to those involved to reach the targets of converting offices to the new contracts.  That in turn led to many (I would hate to put a number on it) barely literate people being appointed as subpostmasters.   That is not to say literacy is a key requirement to be a successful small businessman or even a big businessman as Trump so adequately demonstrates but it serves to underscore the general contempt held by many POL staff of their Subpostmaster colleagues.  It is probably the main reason that these Memoviews contain so little useful information i.e. they (the SPMRs) wouldn’t understand if we (POL) told them exactly what happened.

Vice versa, the messages, in my opinion, only strengthen my belief that there remain some key individuals in POL that have absolutely no idea what they are doing and they have been there for a long time.

“We are aware of an issue” – what issue?  As an SPMR where do I look to see if I have been affected by it?

“May result” – so it affects some branches and not others how do I know if I am one?

“Receipts and Payments” – what the hell does that mean?  I am a new subpostmaster I know nothing about Receipts and Payments where do I find that on Horizon?  The answer is you don’t and POL don’t train you about these things and the possibility that they could go wrong.  Key findings from the Horizon litigation showed that the majority of errors over the years were Receipt and Payment mismatches where the nett result was a single sided transaction in an alleged robust double entry accounting system.

The error it seems appears only when the branch or stock unit is rolled over.  Interesting little bit of detail as a similar error several years ago took three years to resolve itself and the ‘fix’ that Fujitsu originally introduced did not work.

“We are working with our suppliers” – so you don’t know how to fix it yet or how bad it actually is.  Having read this far the only consequence to me as an SPMR is to lift the phone and call the Help Desk to find out exactly what is going on and the missing detail of the error that should have been provided in the first place.   If I were carrying out an inquiry into this error after the event one of the first things I would do would be to find out how many SPMRs actually did call in to the Help Desk.  This would give a fairly accurate measure of the ‘complacency’ in the network towards Horizon and the Help Desk.  

“Provide you with further information”?  What idiot wrote that?  Further information suggests that the preceding contents of the Memo actually contained information.  I like the description from Wiki “Information can be thought of as the resolution of uncertainty”.  The memoview only promotes uncertainty.

“We are sorry for the inconvenience” – that sums up a lot.  “Sorry” cuts no mustard with a franchise holder faced with additional unpaid work due to the incompetence of the franchisee.  A SPMR still operates under a contract that offers no meaningful compensation for mistakes by POL and/or Fujitsu.  They have no Service Level Agreement for the systems provided by the Franchisor they need to generate income and while I am at it the same franchise contracts offer no demographic protection for their business.  POL can open another branch next door to them if they see fit but that is another story.

Then what is missing?  The key bit of ‘information’ missing is what do I look for and what do I do if I have rolled over in the meantime?  They probably can’t get through to the help desk as thousands are calling in about the Memoview as mentioned above.   Perhaps POL have no idea what to do?

I need to go and get to work now but the first sentence of MV2 mortifies me in so many ways.

“The issue HAS BEEN investigated … we are STILL investigating”  Speaks for itself

“We believe it has been resolved” … more than £100m was spent by POL because they failed to understand the meaning of that phrase.  Does it really need to be spelled out to them?   How will SPMRs ever believe that it has been resolved if POL don’t provide the level of detail that is required to prove that is the case?   This from the company that ‘believed’ Horizon was reliable and robust?  Thank God they aren’t in charge of an airline.

Tim and the Convenience Store

Tim owned the only convenience store in the village.  It served the local community well in times of adverse weather and even more so when the pandemic hit and lockdown took effect.   Sadly in normal times the local community didn’t use the store as much and it was losing money.   When Tim approached the banks for assistance they turned him down and so in desperation he turned to the local council.    The council recognised the importance of his shop to the local community and in an unusual move decided to offer Tim a loan to help him out.

In order not to create a precedent and to be fair to other shop owners the loan came with certain conditions that would normally be applied to a commercial loan from a High St bank.   First the loan could only be used to purchase stock for resale and second, the outstanding balance at any time would be secured against the value of ALL the stock in the shop.    This security would be classed as senior debt and be repayable BEFORE any other of Tim’s debts be paid off if Tim were ever to go bankrupt.   The total balance on the loan could not exceed £25,000 and interest would be charged monthly on the highest utilisation of the loan during the month.  Therefore it was in Tim’s interest to reduce the loan as much as possible using the proceeds of the sale of the goods in the shop as and when he could.  In addition the council insisted that Tim could not sign a cheque for more than £15,000 without their authorisation.  To ensure that the Council could be kept advised of Tim’s accounts they insisted that Tim use an EPOS system to which they had access to.

Now Tim still had some money that he had invested in the stock in his shop so when he was offered the loan, while it was a saviour, he didn’t need to borrow the full amount.   At normal levels the stock level required in the shop was £25,000 but over the first few months of the loan Tim only ever needed to borrow a maximum of £5,000.   The council were happy as the risk involved was very low given the low utilisation of the loan.

Then Tim had a big problem.   A former employee who he had accused of theft and who had been later convicted after a brief investigation by the local police discovered that the software Tim used to operate his EPOS system was faulty and that it was extremely likely that it was the software glitch that had caused the losses Tim had accused the employee of stealing.    The employee sued Tim and took him to court.   It was soon clear to Tim’s legal team that he was going to lose the case so he offered to settle with the claimant.  The claimant was seeking a large amount which together with legal costs would far exceed the value of Tim’s assets.  So Tim told the claimant that all he could afford to pay was £15,000 and he explained that he could not sign a cheque for any greater amount because of the restriction placed on him by the council.   He told the claimant that if they insisted on any more then he would need to declare bankruptcy and in that event then the council would claim the value of the stock first to repay the debt and that the claimant would end up receiving far less than the £15,000 he was offering.

Understandably, but with much reservations, the claimant accepted the offer on the table.

In order to pay the debt, Tim approached a ‘family friend’ for a short term loan to cover the £15,000 which he said he would be able to repay once he had sold off the stock in his shop.  In due course Tim repaid this short term loan but in doing so he relied on increasing the utilisation of the loan from the council to the maximum amount.   So once the claimant and the ‘family friend’ had been paid, Tim’s outstanding balance to the council was hovering at £25,000.

The council soon realised that the loan to Tim was suddenly being fully utilised after months where it was at a relative low level.   They investigated the situation and discovered that Tim had been sued but the details of the settlement remained confidential.   However they were not stupid and put it to Tim that what he had done was effectively to use the council loan to pay off a legal settlement and they pointed out that this was against the covenants of the loan they had provided to him.   They therefore instructed their solicitors to sue Tim for the recovery of the outstanding balance on the loan.   Tim went bankrupt as the bailiffs came and seized the stock in the shop.

This of course did not go down well with the local community who rightly or wrongly directed their criticism of the loss of their local shop against the councillors who had decided to recall the council loan to Tim.   These councillors realised they were not going to be re-elected in the next election if they held firm so they decided to settle Tim’s bankruptcy and provided Tim with enough cash to allow him to re-open his shop.

The former employee was not too happy either.  He had been forced to repay to Tim the £5,000 that Tim said he had stolen at the time of his conviction and after legal fees the claimant had received much less than that £5,000 out of the £15,000 Tim had paid in settlement of his claim.   He asked the council to launch an inquiry into what had transpired in the hope that eventually he would receive a fair settlement but despite the leader of the council promising such an inquiry nothing materialised and after a brief review which declared the council was not to blame the matter was declared closed.

Tim, the council and Tim’s customers were happy with the outcome but they overlooked one small item.   The former employee appealed his conviction and it was overturned.   In the court of appeal it was revealed that Tim and the council members had been fully aware of the problem with the software before Tim had accused the employee of theft but had failed to check if it had caused the loss the employee was accused of stealing.  They had not revealed that in court.

The former employee sued Tim for Malicious Prosecution and the jury awarded the claimant £1 million pounds in exemplary and aggravated damages.  

Tim went bust after all.

The Council continued to deny that they knew anything about the software problem.

The software company that wrote the EPOS system continued to make £10 million pounds per annum profit from it.

Dear Reader, I have one question for you which I do not know the answer to.

Do you think that Tim’s use of the loan from the council to pay off the legal settlement was legal?   Remember that Tim used the loan only to purchase Stock as requested by the council.  What he didn’t do was use the proceeds from the sale of that stock to reduce the balance.

I would be glad to hear your consideration on this matter.

Unconditional Support?

Unconditional Support

This post is being written in order to provide a reference and explanation on Unconditional Support that may be required for future posts.   On its own it may be of interest to the Financial Community and particularly those involved in approving Credit Risk to Government Owned Arm’s Length Bodies (ALB).

I once worked for a company in South Africa that manufactured closures (bottle tops) for the bottling industry.   I recall one day the MD running into my office in a panic and telling me not to process any more orders for Pepsi as they were going bust.   Pepsi as you know is a huge global company and I couldn’t believe that they could go bust so quickly without reading about them being in financial difficulties in the press first.    This wasn’t global Pepsi though this was Pepsi South Africa Ltd which if memory serves me right was a privately owned franchise of Pepsi in South Africa.  Pepsi Inc didn’t own the South African company and they refused to provide the necessary financial support to prevent the local franchise from going bust – which it did.

Credit Risk

When financial institutions lend to their counterparties the first step is to assess the credit risk of that counterparty.  That is the risk that that counterparty will default on repayments.  Every counterparty is assigned a risk rating based on many factors including of course the rating the counterparty is considered to have by the three leading credit risk rating agencies, Moody’s, Standard and Poors and Fitch.   On a scale of one to ten, where ten is the least risk, then a counterparty with a ten rating can expect to be granted facilities of a larger amount and at a lower interest rate than the others because the risk of the counterparty defaulting on its obligations to the lender is extremely low.

Each of the three rating companies above tend to specialize in particular fields and Fitch ratings are generally accepted to be the specialists for Governments and their publicly owned entities known as Sovereign Ratings.   The following shows the tablature for the ratings that each of the companies use:

As you can see, for Fitch, the least risk is classed as AAA and at the moment only 11 countries in the world have such a high rating.  Sadly the UK is not included in those 11 and sits at the very bottom of the High Grade risk at AA-.  However banks will still be happy to lend to the UK and purchase their bonds because not only is it high grade but it will attract higher interest rates because it has been downgraded substantially from AAA.  Generally speaking, the risk rating of the ultimate parent of the counterparty is the overriding factor taken into account when deciding how much and at what interest rate the financial institution will lend to the counterparty in question.  There are of course many exceptions to this but in a global economy it would be almost financial suicide for a parent company not to provide financial guarantees to any borrowing undertaken by one of its subsidiaries.  For the most part these guarantees are sought and provided in legally binding documentation before the lending is approved.  This is known as guaranteed support.

Unconditional Support

There are however instances, particularly with Government owned entities, where legally binding documented guarantees are not sought by the financial institution.   This is because it is accepted and understood that the Government in question would not under any circumstances allow their wholly owned entity to fail, such as Post Office Ltd.   If Post Office Ltd were to approach a bank for a loan they would most likely be offered a significant discount on the interest rate payable and a hefty increase in the amount they could borrow based on their ownership by the Government.  Nowhere of course would there be any documentation saying that the Government would not allow POL to fail but you can just imagine the public outcry if it were to do so and POL went under.

Conditional Support

Well the UK Government it seems, has withdrawn unconditional support for POL.   They have ALLEGEDLY refused to provide them with the necessary funds to pay off the settlement and legal fees to the claimants and I can only presume they will extend this to the future compensation payments coming up from the overturned convictions as well as the ever growing Historical Shortfall Scheme.   This move is extremely significant because in the first instance, POL can no longer rely on any FI providing discount in lending terms to them based on Government ownership.  Given POL’s accounts, historical losses and future prospects on the High St, and having worked in Credit Risk myself I would say POL ‘should’ be classed as Speculative risk.  I say ‘should’ because of course I am not naive enough not to consider a quick unofficial phone call from a senior civil servant to the banks’ CEOs could swing things in POL’s favour.

Secondly though, quick words in ears do not and cannot carry favour with ratings agencies.  If that were ever found out not to be the case then that agency would lose its credibility overnight.   So should Fitch for instance ever be asked to provide a Risk Rating for POL in the future then they will need to take into account the publicly stated withdrawn support for POL from the UK Government and that wouldn’t look good for other UK Government owned entities.

Finally I would draw readers attention to the statement by POL’s legal team to the GLO Court and Justice Fraser that an unfavourable outcome (that being the payment of a large settlement and legal fees) would result in an existential risk to Post Office Ltd.  In their own words it can be inferred that the Government had told them they, the government, were prepared to let POL go under.   A very significant withdrawal of unconditional support!