Overview Of Post Office Scandal Postmaster Bankruptcy Problem
An article published by the Daily Mail on 16 February 2023 cast further light on the issue of the Post Office Scandal Postmaster Bankruptcy problem. In the article ‘I lost my post office, house and marriage – now I’ve been shafted twice’: Postmaster who lost out in Horizon IT scandal now forced to hand back £322k compensation Tom Witherow highlighted the story of Francis Duff amongst others.
Here the Postmaster, Mr Duff, notwithstanding receipt of compensation now faces losing most of it to his Trustee in Bankruptcy.
What Was The Post Office Scandal?
This is the most lugubrious tale of more than 700 Postmasters who were prosecuted between 2000 and 2014 after a buggy accounting software system known as Horizon culminated in the criminal convictions of some of them. The fallout resulted in some going to prison, some marriages broke down and some have gone into Bankruptcy after being financially ruined. The Horizon data was an essential ingredient in the pathway toward the convictions of these Postmasters.
Part of the problem was that the Post Office knew there were reliability issues with the Horzion software and Lord Justice Holroyde in the matter of Hawkes & Ors v Post Office Ltd [2022] EWCA Crim 1197 (“Hawkes”) in which the convictions of five Postmasters were overturned on the basis prosecutions were “unfair and an affront to justice” (which the Post Office accepted), notwithstanding prior guilty pleas, said:
We also concluded that during the relevant period POL knew that there were serious issues about the reliability of Horizon, and had a clear duty to investigate all reasonable lines of enquiry, to consider disclosure and to make disclosure to the appellants of anything which might reasonably be considered to undermine its case. POL failed adequately to consider or to make relevant disclosure of problems with or concerns about Horizon, and instead asserted that Horizon was robust and reliable. We were also satisfied that POL had consistently failed to be open and honest about the issues affecting Horizon and had effectively steamrolled over any SPM who sought to challenge its accuracy.
A public enquiry was set up called the Post Office Horizon IT Inquiry and remains in process.
What Is The Post Office Scandal Postmaster Bankruptcy Problem?
The Post Office Bankruptcy problem is one of the consequences flowing from this Post Office Scandal. Bugs in the accounting system started suggesting shortfalls and some Postmasters sought to fill the void with their own funds. Unfortunately with substantial shortfalls suggested by the buggy IT system, it is reported in the BBC article on 22 March 2022 Post Office scandal: What the Horizon saga is all about, some Postmasters obtained credit to attempt to cure the problem:
Some sub-postmasters attempted to plug the gap with their own money, even remortgaging their homes, in an (often fruitless) attempt to correct an error.
In some instances that led to the Postmaster becoming insolvent and winding up in Bankruptcy. This happened to Francis Duff who said:
I lost my post office, house and marriage. Now I’ve been shafted twice. It brought everything back, all the bad memories.
Post Office Scandal Compensation
As a result of the Post Office Scandal compensation has been offered to victims in the Historical Shortfall Scheme which was launched on 1 May 2020.
In cases where victims have had their historical criminal convictions compensation overturned (83 as at 7 February 2023) due to reliance upon data from the Horizon system, the Post Office has to date paid out more than £17 million.
Compensation For Loss Of Earnings
Unfortunately, even though this scandal goes back quite a number of years the continuing problem for the Postmasters is it has still left some of them facing obstacles to getting fully compensated.
One such hurdle was highlighted by Dan Neidle of Tax Policy Associates in an article on 19 February 2023 titled The tax scandal within the Post Office scandal, and how to fix it. This points out that compensation payments for loss of earnings are taxable. Mr Neidle’s concern is:
I fear that the tax impact of the settlements on the victims has not been thought-through and, as a consequence, much of the compensation will disappear in tax.
What Is The Bankruptcy Effect?
The tax problem is not the only issue that arises from the nature of the compensation provided.
When someone is the subject of a Bankruptcy Order their assets and property vest in the Trustee in Bankruptcy pursuant to Section 306 of the Insolvency Act 1986.
Unlike instances of personal injury claims that involve the ‘pain and suffering’ of the person; compensation for loss of earnings by virtue of the case of Ord v. Upton [2000] Ch 352 referred to in the case of Hayes v Butters & Ors [2014] EWHC 4557 (Ch), do not remain with the person on their Bankruptcy. It forms part of their Bankruptcy Estate as defined in Section 283 of the Insolvency Act 1986.
As property within the Bankruptcy Estate such economic compensation for loss of earnings is an asset that has to be realised by the Trustee in Bankruptcy. It is part of the Function and Duties of the Trustee In Bankruptcy to get in, realise and distribute the Banrkupt’s Estate. Indeed those duties were expressed by His Honour Judge Paul Matthews in the case of Patley Wood Farm LLP & Ors v Kicks & Ors [2022] EWHC 2973 (Ch) that was referred to in our article Section 303 Trustee In Bankruptcy Application Succeeds. It strongly promoted the Trustee In Bankruptcy’s duty as follows:
It is their job to advance the interests of the creditors against the bankrupts.
In a case such as the Post Office Scandal it may appear disturbing that Bankruptcy rules operate such that the Trustee In Bankruptcy notwithstanding the duty to be not only reasonable and lawful but to act pursuant to the rule in Ex parte James ie. as right-thinking people would, might have to hoover up most of a Postmaster’s compensation to pay creditors of their Bankruptcy estate.
The Francis Duff case highlights that some of the Postmasters who wound up Bankrupt may not have ascertained sufficient compensation for their consequential losses to remedy the wrong(s) they suffered.
Furthermore, Postmasters who have already fully settled their compensation claims by consent may not now benefit from legal advice that can be so crucial in such matters.
It appears that compensation payments to date by the Post Office include both personal as well as loss of earnings-based damages. Even in cases where convictions have been overturned, the level of personal damages still appears lower than the damages categorised as ‘econnomic’ for loss of earnings. So it is perhaps worrying if such a Postmaster was the subject of a Bankruptcy Order at a relevant time that they may find themselves in effect losing much of their compensation because of how it has been categorised.
Oliver Elliot Observation
It is difficult to see why given the unique facts of this case each Postmaster’s claim for compensation would not merit being decided on its own facts and a bespoke solution offered to them.
The case of a Postmaster who borrowed money after IT bugs led to them being misinformed and perhaps misled as to the accounting position conceivably may warrant a different compensation package to someone who goes Bankrupt or who attempted to take their own life for example.
Each case is different and the devastation is going to be uniquely personal to each victim. For those reasons, the overall nature of the matter suggests there is a case for treating these claims as ones aligned simply with pain and suffering and with legislation introduced to remedy this arguable defect in the compensatory relief system.
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