Royal Mail Group Plc v The Postal Services Commission

A statutory regulator may impose a financial penalty for a licence breach even where the precise proportion of loss caused by the breach cannot be established. The requirement that its decision be soundly based in fact permits a reasoned estimate by an expert regulator, provided it considers the nature, seriousness and duration of the breach, other possible causes, the available evidence and statutory aims including continuing compliance and deterrence. A licence holder cannot rely on the regulator’s inability to identify an exact percentage where it has, or has the best opportunity to obtain, relevant information and has not produced evidence of substantial alternative causes. The resulting penalty must remain lawful, reasonable and proportionate.

Royal Mail Group Plc appealed against a decision of Mitting J declining to quash a £9.62 million penalty imposed by the Postal Services Commission for breaches of licence conditions concerning mail integrity procedures. The appeal to the Administrative Court had been brought under section 36(1) of the Postal Services Act 2000 and challenged the amount of the penalty, rather than the finding of breach. Royal Mail argued that attributing 50% of lost mail to the breaches was arbitrary and unsupported by evidence. The central issue was whether the penalty was lawful where the regulator could not establish the precise proportion of loss caused by the breach.

Appeal dismissed. Pill LJ gave the leading judgment, with which Sedley LJ and Rimer LJ agreed.

1. The Postal Services Act 2000 conferred a broad discretion on Postcomm. It had to further the interests of postal-service users, promote efficiency and economy, and impose penalties of reasonable amounts. The statutory scheme also required regard to continuing compliance and deterrence.
2. The policy requirement that a decision be soundly based in fact required Postcomm to use its best endeavours. It did not require mathematical precision where the evidence could not establish exactly how many losses resulted from the licence breaches. An expert regulator could make a reasoned assessment based on the nature, seriousness and duration of the breaches, their likely consequences, and the possibility of losses from other causes.
3. Postcomm had made substantial efforts to obtain benchmark evidence. Its limited reliance on comparative information was legitimate. In the circumstances, its assessment that 50% of the lost mail was attributable to the breaches was a lawful assessment rather than an arbitrary assumption.
4. Royal Mail could not rely on Postcomm’s inability to prove an exact percentage when Royal Mail had the relevant information, or the best opportunity to obtain it, and had not produced evidence that other causes accounted for a major part of the losses. The court acknowledged that no breach of the licence requirement to collect and analyse statistics had been alleged or found, but Postcomm was entitled to consider Royal Mail’s failure to propose an alternative methodology and the conduct of its personnel during the investigation.
5. The general review power requiring the penalty to be reasonable and proportionate could not itself validate an arbitrary assessment, although it demonstrated the breadth of Postcomm’s discretion. No error of law was established. The penalty was within Postcomm’s power under section 30 of the Postal Services Act 2000 and was reasonable and proportionate.

1. Court of Appeal (Civil Division)—dismissed Royal Mail’s appeal and upheld the £9.62 million penalty: [2008] EWCA Civ 33.
2. Administrative Court—Mitting J declined to quash the penalty imposed by Postcomm: [2007] EWHC 635 (Admin).