U.K. Post Office faces group litigation order over IT flaw

Hundreds of sub-postmasters are expected to join a group legal action against the United Kingdom’s Post Office after many of them were accused or convicted of theft, fraud, and false accounting, because the organisation’s IT system was faulty.

Some were sacked, lost their businesses and homes, were forced to repay shortfalls that did not exist, ended up bankrupt, or were sent to prison after missing cash was recorded at some branches, says the lawyer representing them.

On 26 January the High Court in London ruled that current and former sub-postmasters who ran some of the thousands of smaller post offices across the country could bring a group litigation order—the United Kingdom’s equivalent to a class action, and still relatively rare.

So far 198 have signed up to the legal action, but the law firm representing them—Freeths—believes that the final figure will be “considerably more—probably several hundred” before the cut-off date of 26 July. And if the case is successful, the final bill for compensation could reach “tens of millions of pounds.”

Claimants want the government-owned Post Office to accept responsibility for the errors, the way they were treated, and the organisation’s “refusal to properly investigate alleged shortfalls.”

Sub-postmasters run smaller post offices and are not directly employed by the Post Office. Under their contracts, however, they are responsible for deficits at their branches, meaning that the Post Office doesn’t suffer any financial loss.

Those affected have long blamed the Post Office’s Horizon computer system as the cause of the problems. Used for recording day-to-day financial transactions at post office branches, Horizon was brought in as a pilot scheme in 1995 and was rolled-out across the vast majority of post offices by 2000.

Complaints that the Horizon system was flawed date back over a decade, when some sub-postmasters found that money from bank machines, lottery terminals, and tax disc sales did not match their computer's figures. Training and support were also minimal, with sub-postmasters saying that they routinely received just one or two days’ instruction about how to familiarise themselves with the technology. The Post Office, which has remained in public ownership following the privatisation of Royal Mail in 2013, however, has always maintained there was no evidence of system-wide problems with the software.

The Post Office tried to look into the issue itself but failed to find any conclusive evidence. Consequently, it then asked forensic accountants Second Sight to investigate in 2012.

“Members feel that there has been a huge injustice and that they have been powerless to do anything about it. The Post Office denies any responsibility, refuses to apologise or remediate the problems, and successive governments have had a very ‘hands-off’ attitude about the whole case. The group litigation order is the only avenue left.”
Alan Bates, Chair, Justice for Sub-Postmasters Alliance

Following an interim review by Second Sight, the Post Office admitted in July 2013 that software defects (bugs) with Horizon had occurred, but that the system was effective. The review discovered problems had occurred in 2011 and 2012 when the Post Office discovered defects that had caused a shortfall of up to £9,000 (U.S.$11,200) at 76 Post Office branches. In those instances, the Post Office later made good those losses and the sub-postmasters were not held liable. At the time, the IT system was used by around 68,000 people in more than 11,500 branches, processing more than six million transactions every day.

Then-Post Office Chief Executive Paula Vennells welcomed “the broad thrust of the interim findings,” saying that the review “underlines our cause for confidence in the overall system” and “makes clear that the Horizon computer system and its supporting processes function effectively across our network.”

However, more than 150 sub-postmasters continued to raise issues with the system, which they claimed had, by error, put them in debt by tens of thousands of pounds and that in some cases they lost their contracts or went to prison.

On the release of the interim report, Jo Hamilton, who used to run a sub-post office from her village shop in South Warnborough, Hampshire, said that she had noticed errors with the Horizon system in 2005. Initially, she found that she was £2,000 (U.S.$2,480) short at the end of one week—the shortages then rose to £4,000 (U.S.$4,960) and then jumped to £9,000 (U.S.$11,200). By the time the figure reached £36,000 (U.S.$44,672), she lied to the Post Office, wrongly telling it that the books were balancing just so she could continue to open the office the next day. As result of the ballooning deficit, she pleaded guilty to false accounting.

Hamilton was originally charged with theft, but was told that if she repaid the money and pleaded guilty to 14 counts of false accounting, she would be less likely to go to prison. She also claims that she was informed that she was the only person who had had these problems. She pleaded guilty, and under the terms of her contract—which says that sub-postmasters are personally responsible for covering any losses—she remortgaged her house and paid her wages to the Post Office for the next ten months to pay off the debt.

While the interim report may not have been very critical of the Post Office, the full report that Second Sight submitted flagged up wider governance failings (the report was confidential but it was leaked in 2014 and is available on the internet). The report suggested that while the financial discrepancies could have been caused by computer failures, cyber-criminals and human error, it also said that the Post Office had failed “in many cases” to investigate properly. In addition, it said some criminal cases it brought were “motivated primarily” by a desire to recoup money.

The report also claimed the Post Office failed to provide documents and terminated its contract with Second Sight the day before the firm was due to submit it. Critics accused the organisation of commissioning a report without ever having any intention of believing any negative findings, or doing much to rectify any problems that it uncovered.

Indeed, that was not the first time in this case that the Post Office had appeared to act correctly, though in reality chose to do very little. As a consequence of the interim report in 2013, the Post Office set up a remediation scheme to handle compensation claims. But in December 2014 Members of Parliament (MPs) rubbished the scheme and accused the Post Office of “mishandling” it after 140 sub-postmasters withdrew their support.

JAILED FOR IT FLAWS

In 2010 Rubina Nami was jailed for 12 months for false accounting of £43,000 (US$53,420). Four years earlier she had given up her civil service accounting job, and after borrowing money from friends and taking out a bank loan, she had taken over a shop and post office in Greenfields, Shrewsbury, running it with her husband Mohamed.
However, very early on she found that she was encountering problems with the Horizon system. Late 2006, the system showed a £26,000 (US$32,300) shortfall in cash. Nami said she pressed a button on the Horizon machine to state that the books were balanced: if users do not state that the books are balanced, the system bars them from opening the post office the next day. 
After contacting her line manager, an official visited and accounted for most of the shortfall. However, her £30,000 (US$37,270) annual salary was then docked to make up a shortfall of £8,000. (US$9,940). Problems persisted and the discrepancy mounted, but this time the Post Office would not send anybody to help. An auditor inspected the premises in September 2009, found the cash balance did not match the Horizon total, and closed the office.
Nami says she pleaded guilty to false accounting to try to get a lesser sentence. She received 12 months, but served two. The couple subsequently fell behind on mortgage payments and in February 2013 bailiffs seized their home and changed the locks. They slept in their van for six weeks before local council gave them a one-bed housing association flat.
Other cases are listed on the JFSA website at http://www.jfsa.org.uk
—Neil Hodge

The MP leading them, James Arbuthnot, sent a letter to CEO Vennells, accusing the organisation of rejecting 90 percent of applications for mediation. “The scheme was set up to help our constituents seek redress and to maintain the Post Office’s good reputation. It is doing neither,” he said.

Mike Wood MP said: “Either the Post Office is awash with criminals who open sub-Post Offices for personal gain, or something has gone terribly wrong. MPs are inclined to believe the latter and we are all shocked that the Post Office seems not to want to get to the bottom of all this.”

In response, a Post Office spokesperson said the letter from MPs was “regrettable and surprising.” On 9 April 2015, the Post Office unilaterally disbanded the scheme (the same day that it terminated its contract with Second Sight).

Alan Bates, chair of the Justice for Sub-Postmasters Alliance, which was set up in 2009 and represents those who have been falsely accused of theft or who have suffered financial losses due to the faults in the IT system, says that “the group has had no option but to go to court” due to the Post Office’s reluctance to admit any responsibility or liability for the faults with Horizon.

“Members feel that there has been a huge injustice and that they have been powerless to do anything about it. The Post Office denies any responsibility, refuses to apologise or remediate the problems, and successive governments have had a very ‘hands-off’ attitude about the whole case. The group litigation order is the only avenue left,” says Bates.

James Hartley, the litigation partner at Freeths who is leading the group action, says that “the granting of the group litigation order is fantastic news and will enable hundreds of sub-postmasters to get appropriate access to justice and seek the financial redress they deserve while holding the Post Office to account.”

According to Hartley, the vast majority of group litigation cases—over 90 percent—are settled before any hearing. Those that are not can take two, three, or more years to resolve. “The process is not quick, and the Post Office has not given any signal that it wants to settle early,” he says.

The escalation of legal action comes at a delicate time for the Post Office. Last year saw the first all-out strikes since the 1970s against redundancies, pension cuts, and closures of the larger outlets it directly manages.

Furthermore, most of the Post Office’s 11,600 branches are already run by the private sector and it wants to outsource dozens more as the government reduces subsidies to the lossmaking organisation.

In a short statement asking for the organisation’s views about the latest legal developments, a Post Office spokesperson said: “The Post Office continues to process around six million transactions for its customers every working day through its nationwide network of 11,600 branches. The Post Office does not comment on live litigation.”