‘The human cost’: Post Office Horizon fiasco throws scrutiny on litigators and shines light on litigation funding

The Post Office Horizon scandal saw over 700 subpostmasters convicted of fraud, theft, or false accounting. The victims were prosecuted for accounting shortfalls that were in fact the result of errors made by the Post Office’s Horizon accounting software.

At time of publication, fewer than 100 of those convictions have been overturned.

With the scandal back in the headlines after the airing of ITV’s four-part TV drama Mr Bates vs The Post Office, and with the House of Commons’ public inquiry still rumbling on, Legal Business turned to industry commentators to explore its implications for the UK market.

Aggressive litigation: a shifting line?

‘It’s struck up a debate among lawyers about approaches to litigation – about whether the line has moved in terms of what sort of aggressive strategy is acceptable.’

This comment from James Hartley, partner and national head of dispute resolution at Freeths, gets to the heart of the impact of the Horizon scandal for the UK legal profession. Leeds-based Hartley led the team acting for the claimants on Bates v Post Office, the 555-person group litigation claim that settled in December 2019 for £57.8m.

The Post Office fought the case long and hard. A mediation scheme had already been established nearly four years before Bates and the claimants were granted a group litigation order (GLO) in March 2017. But the Post Office nonetheless pursued an aggressive strategy that culminated in a request that Mr Justice Fraser recuse himself. The Court of Appeal refused the request. In its ruling it stated that the request ‘never had any substance’. Much criticism has consequently been levelled at Womble Bond Dickinson (WBD), which represented the Post Office in the group litigation and in many of its cases against postmasters.

‘On the one hand, a party cannot be criticised for issuing an application for recusal if there is some basis for it,’ says Hartley. ‘It’s a perfectly permissible procedural step. But on the other hand, if that is coupled with questionable disclosure, and if you then add in quite shocking information coming out of witness evidence, it leads to questions about whether the Post Office was advancing arguments that were incompatible with its evidence.

‘And it also raises important questions about whether and when highly aggressive litigation strategies are contrary to professional conduct rules which, among other things, require lawyers to maintain independence, to retain some accountability for strategy, and not to pursue unarguable points.’

Neil Purslow is UK chief investment officer and a founder of Therium, the litigation funder that backed the postmasters in their group litigation against the Post Office. He too was taken aback by the tenacity with which the Post Office fought the case. ‘You’d have been forgiven for thinking the Post Office would have settled this earlier on. It’s not like the case was raising this issue for the first time – there had already been a mediation scheme!’

Why the Post Office handled the case the way that it did remains an unanswered question. Hartley comments: ‘In the High Court litigation, a question can justifiably be posed as to whether, at some point from when the GLO was granted onwards, those advising Post Office could or should have said, “No, you’ve got to stop fighting this case, we’ve got to get to a settlement.” Indeed, whether there could or should have been such advice given (assuming it was not) much earlier than it appears to have been. There may have been such advice – we don’t yet know, and that’s one of the big issues for the public inquiry to uncover.’

Richard Moorhead, a professor of law and professional ethics at the University of Exeter who has closely followed the scandal, has one explanation for why the Post Office fought the case as it did. ‘Lawyers can often become attached to their strategy,’ he argues. ‘You can see how the lawyers got bewitched by the idea that they didn’t have to prove that Horizon worked. This led to a strategy where they didn’t disclose evidence. A clever strategy can create a risk that lawyers will actually mislead the courts.’

Among other issues, the inquiry will seek to uncover any wrongdoing by solicitors. WBD Bristol commercial litigation team lead Stephen Dilley testified before the committee in September 2023. In his testimony he denied allegations that he told defendant subpostmaster Lee Castleton before his trial that the Post Office would ‘ruin’ Castleton. He also denied that the Post Office was ‘making an example’ of Castleton, who represented himself and was ultimately made to pay both the £25,000 shortfall the Horizon system had incorrectly identified and £321,000 in costs.

Market commentators remain divided on just how endemic the problem is. The Solicitors Regulation Authority (SRA) is investigating, with, according to a statement, ‘live cases into a number of solicitors and law firms who were working on behalf of the Post Office/Royal Mail Group.’ For Hartley, ‘It’s not acceptable for us as lawyers to say, “We’re just following instructions.” We need to find a way to align acting in the client’s best interests, with preserving independence and assisting the court. The SRA has made it clear for a long time that a lawyer’s role includes taking some ownership of the strategic aspects of a case. There is nothing wrong with adopting a very robust and tenacious strategy in litigation, provided it’s done within the rules.’

Purslow, though, points to a broader problem: ‘The trouble is that this kind of aggressive approach to litigation is not uncommon, but the human cost usually doesn’t get brought to light.’

Moorhead agrees: ‘The Post Office case is lots of things coming together at once with really serious consequences, but none of the underlying problems are new or unique to this case.’ He also highlights the role of individual judges in a system in which courts are ‘often not quite as robust as they could be’ in enforcing fair play. ‘If Grabiner had been successful in his recusal application we wouldn’t be talking right now,’ he says. ‘If Fraser had responded differently to the Post Office’s tactics, we probably wouldn’t be talking either.’

The SRA investigations will determine whether any lawyers or firms breached rules or guidelines as they currently stand. But if the rules are insufficient to protect the interests of justice, further regulatory or even statutory action may be needed.

For defence lawyers, Hartley argues, the lesson is clear: ‘It should never get to that point. Lawyers should have a sufficiently close relationship with their clients to be able to plan ahead – to find a way to help their clients see that it’s in nobody’s interest, including the client’s, to go down a certain path, if for example that could result in reputational carnage.’

Of course, the risk of reputational harm may not be high enough to deter this sort of aggressive litigation. In this context, the rule of litigation funding in enabling individuals to bring cases is key.

Litigation funding: evening the odds

Hartley is clear about the importance of funding: ‘If we had not got funding for this case, I don’t believe the scandal would have ever been uncovered.’

Unsurprisingly, funders agree. ‘The TV show is great and it’s a decent advert for funding,’ says Adrian Chopin, co-founder and managing director of Bench Walk Advisors’ London office. ‘It’s the classic David and Goliath situation that has been at the heart of funding since the earliest days, allowing ordinary people to get access to justice.’

The debate around litigation funding in the UK is at this point well-worn. Critics argue that funders harm claimants by taking an often high proportion of their compensation as profit. They also argue that the need to make a profit creates incentives for funders to bring cases that should not properly be brought. Defenders of funding, meanwhile, argue that funders have little incentive to bring frivolous claims because their returns rest on victory, and that, for claimants, even reduced compensation is better than none at all. In Chopin’s words: ‘It’s an odd criticism when the alternative for the claimants is to receive 100% of nothing.’

Around £46m of the £57.8m payment in Bates went to the claimants’ funders and legal advisers. Hartley remains strong in his support for Therium: ‘The access to justice point on the funding is massive. Therium deserve a lot of credit, which it hasn’t yet got. To criticise the funders for taking some money out of the damages is unfair.’

Purslow links the low payout for the claimants to the Post Office’s fierce defence strategy: ‘One of the reasons the costs were so high and the compensation was so low is because of the Post Office’s flat earth mentality towards facing up to its own wrongdoing.’

For funders, claimants, and claimant firms, the Supreme Court’s decision in PACCAR last July raises further concerns for access to justice, as it found that litigation funding agreements (LFAs) that allow funders to recover a percentage of damages constituted damages-based agreements (DBAs), and were therefore unenforceable. Chopin comments: ‘The disappointment you saw on the faces of the claimants in the TV series when they realised that they would receive less than half of their damages, this ties into PACCAR: we’ll see a lot more of that disappointment if funders have to stick to multiples-based pricing. In many cases, a percentages-based agreement is the fairest option for claimants.’

The government is currently considering an amendment to the digital markets bill that would allow the use of DBAs in the Competition Appeals Tribunal (CAT) only, with justice secretary Alex Chalk telling the Financial Times in January that he aimed to reverse ‘the damaging effects’ of the judgment ‘at the first legislative opportunity’. Allowing DBAs would help funders, claimants, and firms structure agreements to limit the proportion of compensation that funders could take. But restricting the change to the CAT would exclude group litigation of the sort pursued by Bates and the postmasters. ‘It’s bad for the UK legal system,’ says Purslow. ‘People will look at the Post Office situation and worry about how much litigation will cost them.’

‘There’s no policy justification for a two-tier approach whereby you have one set of rules for certain kinds of litigation and another set that applies to other kinds of litigation. The reason that is being done is not because of the policy. It’s because of the limits on what you can put in this particular bill.’

When the CAT was introduced, it was often billed as a trial regime for opt-out group litigation in the UK, to be extended if successful. But legislative priorities have shifted, and even the most optimistic funders and claimant firms are doubtful that the government will take on the burden of extending the regime any time soon. ‘It would be better to fix the problem everywhere and have PACCAR consigned to the dustbin,’ says Chopin. ‘That said, if we’re only going to have a partial fix, it should be for opt-out claims in the CAT; in other forums we at least have another option for claimants, which is to have their lawyers act on a DBA with funding provided directly to the lawyers.’

‘The story is going to get worse’: An uncertain future

Both the parliamentary inquiry and the SRA’s investigations into the scandal continue. Meanwhile, Fujitsu, the company that provided the faulty Horizon system to the Post Office, continues to win government contracts worth billions, with no discernible hit to its stock price as a result of the fiasco. In January, Bates announced that he would reject the government’s most recent compensation offer.

‘The story is going to get worse,’ says Moorhead. ‘In the next six to nine months we’re going to hear some things that are going to really curl the toes of the British public and the courts. There is going to be an unholy row about what happened. And it’ll touch so many lawyers that it won’t be able to be written off as a couple of bad apples.’

Still, while many look on the scandal as a sorry episode, corporate defence litigators have little to say about making concrete changes to their strategies. It may well be that Purslow is right: that, ‘because our system is adversarial, law firms sometimes see themselves as doing a good job when they fight a case as hard as they can.’

Hartley is not optimistic about the chances of a shift in litigators’ attitudes: ‘What Post Office will say is, “We have to rely on our internal lawyers.” And the lawyers will blame someone else, they’ll say, “I had to assume that the data I was given on Horizon is reliable.” Responsibility becomes interlinked. That’s part of the problem. That’s why it comes back to this point that is so central, which is getting a relationship very clear very early on, with clear lines of accountability.’ How such accountability could be established remains unclear.

Perhaps corporates’ behaviour will not change until and unless they can be convinced that aggressive strategy carries risks – not just to reputation but, through adverse court rulings, to bottom line. Funding remains crucial here. Funders and claimants would welcome even a partial overturning of PACCAR. But no CAT case has yet gone all the way to trial, and the tribunal continues to adjust the limits of what sort of case can be formulated as a competition case.

In the meantime, the inequality of arms between claimants and defendants will persist.

alexander.ryan@legalease.co.uk