The Post Office: Reviewing the contractual Horizon

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The Post Office: Reviewing the contractual Horizon

MPs have recently been putting questions to a number of witnesses about what can be done to deliver full, fair and fast compensation to the sub-postmasters and sub-postmistresses (SPMs) who were involved in the so-called Horizon scandal. The witnesses include Alan Bates, who many people will know was the person who brought a legal action against the Post Office on behalf of over 500 SPMs. Other witnesses include Nick Read the Chief Executive of the Post Office and Paul Patterson, the Chief Executive of Fujitsu Services Limited.

Speaking to the BBC recently, Sally Stringer who was one of the SPMs who paid money back to the Post Office said that she was angry that Fujitsu is still winning government contracts and the BBC reported that there is a “growing chorus” calling for action over Fujitsu’s role. When put to Mr Patterson that there might be a “moral obligation” for Fujitsu to contribute to compensation found to be payable to SPMs who were wrongly prosecuted, he conceded that there was.

Whilst Fujitsu’s concession is not surprising in light of the recent public backlash at the treatment of the SPMs, in legal terms, it is quite extraordinary to see an acceptance of liability, for what is expected to be a significant sum, upon moral grounds in a commercial context. It remains to be seen what price Fujitsu are prepared to place upon its moral obligation, but I examine below some of the legal limitations that may be in play, from a contractual perspective, which may give rise to the need to rely upon public and commercial pressure to increase the level of Fujitsu’s contribution.

Limitation clauses

It is common practice in commercial contracts to include clauses which exclude or limit the liability of one or other of the parties in prescribed circumstances. There are statutory and other controls which limit the ability to restrict liability in certain situations, but limitation clauses are often used by businesses to reduce the risk of a claim and/or achieve greater certainty as to the level of exposure in the event of a claim.  

Common examples pursuant to which parties seek to limit liability within a contract, in the event of a breach of its terms, are as follows:-

  • The inclusion of a cap on the amount of compensation recoverable, for example, by reference to the contract value;
  • The exclusion of liability in respect of breaches that arise out of specific circumstances, for example, where outside of a party’s control;
  • The exclusion of the ability to recover compensation for prescribed types of loss, for example, loss of profit; and
  • The inclusion of a requirement to bring any claims within a specified period of time, after which time such claims become time-barred.

Limitation Act

The Limitation Act 1980 provides that a claim in respect of a breach of contract should be brought within six years of the date of breach. Whilst there are some exceptions to this rule, generally speaking the Limitation Act operates as an absolute defence to claims brought over 6 years after the date of the breach of contract giving rise to the claim. Given the length of time over which the Horizon scandal took place, it is likely that The Post Office will now be precluded from pursuing a number of claims that it might otherwise have had against Fujitsu for breach of any terms of its contract.

Calculation of damages for breach of contract

The general rule in assessing the amount of compensation, known as “damages”, arising out of a breach of contract is to, so far as possible, place the wronged party in the same position that they would have been in if the contract has been properly performed. This assessment is centred on compensation of the wronged, not punishment of the wrongdoer. Further, a loss will only be recoverable if it was in the contemplation of the parties at the time the contract was entered into.

In circumstances where it seems likely that The Post Office will bow to public pressure and stray from the usual legal framework in its approach to compensating SPMs, whether with or without a proper analysis of an individual SPM’s claim, any sums paid over and above those due pursuant to conventional legal principles risk being irrecoverable from Fujitsu.

Further, Fujitsu may seek to argue that it was not reasonably within its contemplation that any malfunctioning software would lead to the wrongful conviction and incarceration of SPMs, the loss of lives and the loss of livelihoods that we now know followed. It could be said that responsibility for The Post Office’s, at best, over-zealous pursuit of SPMs rest with it, particularly in circumstances where The Post Office appears to have been overpaid, as opposed to underpaid, as a consequence of the mis-recorded shortfalls on Horizon.

In this vein, it is also worth noting that a wronged party has a duty to mitigate its losses in the event of a breach of contract; a claim for damages does not amount to a blank cheque.

Talk to us

JMW’s Commercial Litigation team has a wealth of experience of advising clients in relation to contractual matters. For more information call 0345 872 6666.

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