Royal Mail Group Plc, R (on the application of) v Postal Services Commission

A regulator empowered to impose a penalty of an amount that is reasonable may use estimates, assessments and assumptions when quantifying the consequences of a breach, particularly where the regulated activity involves very large volumes of individual transactions. A policy requiring decisions to be soundly based in fact does not necessarily require every component of the penalty to be supported by proved facts. The regulator may assess the burden imposed on service users, not merely competitors, where its statutory duties extend to users. The claimant bears the burden of showing that the penalty was unreasonable. On an application challenging the penalty, the court may substitute a lesser amount where the statutory conditions for substitution are met.

Royal Mail admitted serious and persistent breaches of licence conditions requiring effective mail-protection procedures. The Postal Services Commission imposed a penalty of £9.62 million under the Postal Services Act 2000. Royal Mail applied under section 36, challenging only the amount of the penalty.

The Commission had estimated the number and value of lost items and assessed the burden on postal users. It then applied mitigating and aggravating factors. Royal Mail argued that the penalty was outside the Commission’s powers because the 50 per cent estimate used as the starting point was not supported by sufficiently established facts. The central issue was whether the statutory scheme or the Commission’s published policy prevented the use of estimates and assumptions in determining a reasonable penalty.

1. The application was rejected. The penalty was within the Commission’s powers and Royal Mail had not shown that the amount was unreasonable.
2. Section 30 permitted the Commission to impose a penalty of such amount as was reasonable, subject to the statutory ceiling. Its duties under sections 3 and 5 were expressed in broad terms. The Commission’s policy did not restrict the assessment of a penalty to facts formally found after investigation.
3. The policy’s reference to decisions being soundly based in fact concerned the investigation and procedure. It did not prevent the Commission from making estimates, assessments or assumptions when quantifying the burden caused by non-compliance. In a business handling very large volumes of mail, estimation was inevitable.
4. The Commission was entitled to treat the burden on users of postal services as relevant. The policy’s reference to burden was not confined to burdens imposed on competitors. A narrower policy would itself have risked being outside the Commission’s statutory powers.
5. The Commission’s methodology was reasonable. It used Royal Mail’s loss figures, a notional value for undelivered items, compensation paid, and adjustments for mitigating and aggravating factors. Although the Commission could not justify precisely why 50 per cent was preferable to 40 or 60 per cent, it had to reach a figure if a penalty was to be imposed. The resulting judgment was not shown to be unreasonable.
6. The court also held that, if a penalty were outside the Commission’s powers, section 36 would permit substitution of a lesser amount which the court considered appropriate. The application was dismissed, with costs payable by Royal Mail.