Bates & Ors v Post Office Ltd ((No.3) "Common Issues")

This judgment holds that the contracts between sub-postmasters and Post Office Ltd were relational contracts. They carried an implied duty of good faith requiring transparency, co‑operation and fair dealing when exercising contractual powers. The Sub‑Postmasters Contract (SPMC) imposed fault‑based liability for losses; the Network Transformation Contract (NTC) as drafted attempted a broader, no‑fault liability but those no‑fault provisions fail the Unfair Contract Terms Act 1977 reasonableness test. Branch trading statements produced by the Horizon system routinely included items disputed by sub‑postmasters. Where a sub‑postmaster reported an apparent shortfall and contacted the Post Office Helpline the court will not treat the trading statement as a settled account binding the sub‑postmaster unless the Post Office proves the loss and its cause. The Post Office’s dealings with the National Federation of Subpostmasters were not independent and the federation’s funding arrangements constrained its position.

This is the Common Issues judgment in the group litigation about the Post Office's Horizon accounting system. It determines a set of contractual and preliminary legal questions affecting many claimants. The court first sets out the factual matrix including how Horizon and Branch Trading Statements worked, the role of the Helpline, and how the Post Office pursued apparent shortfalls. It examines contract formation under the Sub‑Postmaster Contract (SPMC) and the Network Transformation Contract (NTC), the differing contractual clauses on loss, suspension and termination, and the parties' case on whether the relationships were "relational contracts" requiring duties of good faith. The judgment resolves which implied contractual terms arise, the legal effect of Horizon and Branch Trading Statements, and whether particular express clauses are onerous or unreasonable under the Unfair Contract Terms Act 1977. It also summarises the Post Office's commercial relationship with the NFSP and records which contractual provisions survive. The judgment decides the Common Issues so that later trials (notably the Horizon Issues trial) can address breach, causation and remedies.

1. Dispositive outcome: the Court answers the agreed Common Issues for the purposes of the common issues trial and gives binding findings of law and fact needed to progress the group litigation (see operative answers under "Answers to the Common Issues").
2. Relational contracts and good faith: the Court finds that contracts between Post Office Ltd and sub‑postmasters are relational contracts. Such contracts give rise to an implied obligation of good faith (encompassing fair dealing, transparency and reasonable co‑operation) which constrains how the Post Office may exercise contractual powers such as suspension, termination and variation of terms (see Parts J and I for analysis and list of incident terms).
3. Contract formation: procedures changed over time. Many earlier appointments under the SPMC were made without the incoming sub‑postmaster receiving or signing the full SPMC; later appointments under the NTC were required to be sent and signed in advance. The court records specific findings about the six Lead Claimants as to when and on what terms each contracted (Part G).
4. Horizon, Branch Trading Statements and the Helpline: Horizon was the Post Office's branch accounting system. The court finds as fact that Branch Trading Statements (the end‑of‑period report generated under Horizon) could and did include items disputed by sub‑postmasters. The only way for a sub‑postmaster to register a dispute in practice was to contact the Post Office Helpline. "Settle centrally" (a Horizon option) did not mean that the claim was not treated as a debt; it moved the item into Post Office accounting processes and, unless Post Office suspended recovery, the Post Office treated it as owing and pursued recovery (see Part L and Appendices 3–4 which set out the practical flow‑charts agreed during trial).
5. Agency and accounts: sub‑postmasters are contractually required to account in the form prescribed by the Post Office (SPMC clause 12(4); NTC clause 3.6). Because Horizon required acceptance/rollover steps that incorporated disputed items, the Court will not treat a Branch Trading Statement for a period in which a sub‑postmaster has reported a dispute to the Helpline as a settled account binding the sub‑postmaster unless the Post Office proves the existence and cause of the loss (Parts L and H explain legal consequences).
6. Construction of loss clauses: SPMC clause 12(12) is construed to make a sub‑postmaster liable only for losses caused by his/her negligence, carelessness or error (and likewise for assistants). The NTC wording (Part 2, para.4.1) seeks to impose broader "fully liable" no‑fault responsibility for losses; the Court construes that clause according to its language but holds that, if incorporated and relied upon, it fails the UCTA reasonableness test (Parts H and P).
7. Implied terms: a number of terms are implied either as incidents of relational contracts (good faith, fair dealing, co‑operation, duties in exercise of discretion, duties not to suspend/terminate capriciously, etc.) or as necessary for business efficacy (for example an implied term that Post Office provide adequate training and adequate assistance where it imposes new systems; and that the Post Office will take reasonable care in performing functions which affect accounts) (Part I).
8. Onerous / unusual terms and UCTA: certain express terms (principally those in the NTC that impose open‑ended financial liability, the Post Office's ability to withhold remuneration during suspension and to require the suspended operator to bear ongoing costs, and the clauses excluding compensation on termination) are found to be onerous and unusual and, where applicable, to fail the UCTA reasonableness test. Those clauses are therefore unenforceable to the extent indicated (Parts O and P).
9. NFSP relationship: the court finds that the National Federation of Subpostmasters was not independent of Post Office Ltd. The Grant Framework Agreement between them contained detailed confidentiality and clawback provisions that constrained NFSP activity and funding and affected the true independence of NFSP (Part F).
10. Consequences and next steps: the judgment resolves many legal and factual issues necessary to progress the group litigation. It does not decide guilt or innocence, causation of losses or quantification of compensatory damages. Those matters remain for subsequent trials (notably the Horizon Issues trial to examine system functioning and causation, listed in the court’s case management).

Orders: the court gives detailed factual findings about the six Lead Claimants and concludes the Common Issues as set out in the operative answers. No finding on breach, causation or damages is made; those matters are reserved for later trials.