1 THE POST OFFICE GROUP LITIGATION Appeal No.

A1/2019/1387
IN THE COURT OF APPEAL Claim Nos: HQ16X01238,
2 ON APPEAL FROM HQ17X02637 &
THE HIGH COURT OF JUSTICE HQ17X04248
3 QUEEN'S BENCH DIVISION

4 Royal Courts of Justice

Strand, London WC2A 2LL
5
Tuesday, 12th November 2019
6

7 Before:

8 LORD JUSTICE COULSON

9 ------------

10 BETWEEN:

11 ALAN BATES & OTHERS

Claimants/Respondents
12
- and -
13

14 POST OFFICE LIMITED

Defendant/Appellant
15
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16
(Computer-aided Transcript of the Stenograph Notes of
17 Marten Walsh Cherer Limited, 2nd Floor Quality House,
6-9 Quality Court, Chancery Lane, London WC2A 1HP.
18 Telephone Number 020 7067 2900. Fax Number 020 7831 6864
e-mail: [email protected])
19
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20
MS. HELEN DAVIES QC, MS. JOANNE BOX and MR. GIDEON COHEN
21 (instructed by Herbert Smith Freehills LLP) appeared for the
Defendant/Appellant.
22
MR. PATRICK GREEN QC, MR. HENRY WARWICK, MR. OGNJEN MILETIC and
23 MS. REANNE MACKENZIE (instructed by Freeths LLP) appeared for
the Claimants/Respondents.
24
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25 PROCEEDINGS
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1 HELEN DAVIES QC

2 LORD JUSTICE COULSON: Yes?

3 MS. DAVIES: My Lord, I appear in this matter with Mr. Cohen and

4 Ms. Box for the applicant, Post Office, and my learned friends

5 Mr. Green QC, Mr. Warwick, Mr. Miletic and Ms. MacKenzie are

6 here for the respondents. As your Lordship knows, this is my

7 application for permission to appeal from the order of

8 Fraser J dated 6th June 2019, giving effect to his judgment

9 dated 15th March 2019, which is known in this litigation as

10 the "Common Issues" judgment. In that judgment the learned

11 judge determined some 23 common issues, a number of which

12 contain numerous sub-issues in the form of the conclusion set

13 out at paragraph 1122. Those issues, as my Lord will have

14 seen, were in very large part issues of law relating to the

15 terms and contractual effect of two standard contracts in

16 place between Post Office and the sub-postmasters.

17 LORD JUSTICE COULSON: You can take it that I have read this

18 stuff, some of it twice, some of it three times.

19 MS. DAVIES: My Lord, I am grateful.

20 LORD JUSTICE COULSON: I made an order about the time balance

21 today. I cannot now remember what I ordered.

22 MS. DAVIES: My Lord, my understanding was I had until 12.30

23 effectively. My learned friend has two hours and then I have

24 a right of reply.

25 LORD JUSTICE COULSON: Okay, right. I am afraid I have a throat

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1 HELEN DAVIES QC

2 thing so I will not be talking very much, which is a good

3 thing. You have two hours and I would be grateful if you

4 would do it by reference to the grounds of appeal.

5 MS. DAVIES: My Lord, I was proposing do that, although, my Lord,

6 if I could say this in relation to it. In particular, bearing

7 in mind the time, there are a number of overlapping issues

8 covered in the grounds of appeal.

9 LORD JUSTICE COULSON: I know that, but you have to do it by

10 reference to the grounds of appeal, because that is what you

11 will get either permission or be refused permission on. There

12 has been too much in this case of, "Oh, well, that relates to

13 another issue", and too little, I think, focus on the

14 individual issues.

15 MS. DAVIES: My Lord, I totally understand that, but subject, of

16 course, to my Lord telling me I should do it differently, what

17 I was hoping to do, so that there was some coherence to the

18 submissions, in the same way my learned friend has done in his

19 note of objections, is to take together the grounds that

20 relate to a particular issue in the contracts. So, for

21 example, termination on notice, there are four grounds

22 relating to that and I was proposing to take them together,

23 rather than going through the grounds in the order in which

24 they appear in the document, otherwise we will be jumping

25 around between different points.

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1 HELEN DAVIES QC

2 LORD JUSTICE COULSON: Well, if it departs from the order in the

3 grounds of appeal, where it does jump around to an extent, but

4 if you are departing from that order, then you will need to

5 make that plain.

6 MS. DAVIES: I was planning to do that of course, my Lord. My

7 Lord, I was planning to start with grounds, in fact they are 2

8 and 3, because ground 1 is a summary of our position as set

9 out in the grounds of appeal. As my Lord has seen from

10 ground 2 ----

11 LORD JUSTICE COULSON: Ground 2 is the relational contract/duty of

12 good faith.

13 MS. DAVIES: Yes, my Lord.

14 LORD JUSTICE COULSON: And there are three grounds or sub-grounds

15 under that.

16 MS. DAVIES: There are, and ground 3 covers the implied incidents

17 of that, which the judge found, the 17 ----

18 LORD JUSTICE COULSON: That is obviously a separate point.

19 MS. DAVIES: Well, in part it is.

20 LORD JUSTICE COULSON: If there is a duty of good faith, then it

21 becomes a question of the detail.

22 MS. DAVIES: Precisely, my Lord, but the reason I was planning to

23 take those two first, as it were, is that the reason that the

24 learned Judge found that the 17 incidents were to be implied

25 was simply that it followed from his conclusion that the

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1 HELEN DAVIES QC

2 contracts were relational, that they were incidents of the

3 overarching obligation of good faith that he found.

4 As my Lord has seen, notwithstanding that the process of

5 implication of terms in a detailed written contract, such as

6 the two contracts in issue before the judge, is, as the

7 Supreme Court emphasised in the Marks & Spencer case, one

8 which is subject to strict constraints, the learned Judge

9 concluded that a large number of terms ----

10 LORD JUSTICE COULSON: But in this case both parties agreed there

11 had to be implied terms.

12 MS. DAVIES: Two implied terms.

13 LORD JUSTICE COULSON: Well, there was agreement about implied

14 terms, and then there was debate about what they should say.

15 MS. DAVIES: No, my Lord, there was agreement that two implied

16 terms were to be found in the contract, which are the terms

17 the learned judge ----

18 LORD JUSTICE COULSON: Yes, and then there was a debate about the

19 extent of other implied terms.

20 MS. DAVIES: My Lord, the Post Office's position was that was no

21 need for any ----

22 LORD JUSTICE COULSON: The Post Office's position I agree.

23 MS. DAVIES: The claimant's position was that the additional 21

24 terms listed in common issue 2 should be implied, of which the

25 judge found 20. However, the starting point is that the

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1 HELEN DAVIES QC

2 contract, it was agreed, included the two terms set out by the

3 learned judge in paragraph 698 of his judgment, and the reason

4 I just mention that is that my learned friend, in his note of

5 objections, seems to be suggesting that the learned judge did

6 not find those terms to be implied. I am referring to

7 paragraph 18 of his note of objections where he says, "The

8 Judge did not find Post Office's generalised terms to be

9 implied."

10 LORD JUSTICE COULSON: There is an awful lots of argument in this

11 case about what the judge found.

12 MS. DAVIES: My Lord, I was going to show my Lord, therefore, the

13 paragraph in the judgment.

14 LORD JUSTICE COULSON: Which ground of your appeal does this go

15 to?

16 MS. DAVIES: It underlies the point ----

17 LORD JUSTICE COULSON: If it does not go to a ground ----

18 MS. DAVIES: It goes to both grounds 2 and 3, because one of the

19 points we make in relation to ground 2 is it was not necessary

20 to superimpose further obligations in light of the express and

21 implied terms of the contract. So, it is part of the

22 background to which one needs to then approach the judge's

23 reasoning. Paragraph 698, if I could show my Lord that. 697

24 and 698 at page 357 is the paragraph of the judgment where the

25 learned judge is indicating that he is accepting these two

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1 HELEN DAVIES QC

2 implied terms which were agreed between the parties and

3 admitted by the claimants.

4 What the learned judge then went on to do, as my Lord

5 knows, is to supplement those two terms with a core implied

6 obligation of good faith and a further 20 specific terms, of

7 which 17 were found to be incidental to the implied obligation

8 of good faith, and a further three implied solely on the

9 grounds of necessity. Of the 17 terms which he found to be

10 incidental to the implied obligation of good faith, he also

11 found that 7 would, in any event, be implied on grounds of

12 necessity.

13 So far as the implied obligation of good faith is

14 concerned, this is ground 2, and the implication of 17 terms

15 as incidents thereof, which is part of ground 3, there are, as

16 my Lord noted a moment ago, three core elements to the present

17 application. The first arises out of the approach adopted by

18 the learned judge to the implication of a general obligation

19 of good faith, which, in our submission, was to conclude that

20 it automatically followed from his classification of both

21 contracts as relational contracts that an obligation of good

22 faith was to be implied. In effect, therefore, my Lord, the

23 learned judge was treating the implication of the obligation

24 of good faith as arising as a matter of law as a result of his

25 conclusion as to the classification of both contracts.

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1 HELEN DAVIES QC

2 It is unclear to me, from my learned friend's note,

3 whether he is disputing that is what the judge did, but if

4 I could show my Lord the paragraphs in the judgment, which we

5 submit make it clear that is what the judge did. If I could

6 start at paragraph 1122, which is the conclusion paragraph, at

7 page 458. In relation to common issue 1, "Yes, the

8 contractual relationship between the Post Office and SPMs was

9 a relational contract. This imposes an implied duty of good

10 faith on both parties."

11 LORD JUSTICE COULSON: That is answering -- where do I find the

12 question?

13 MS. DAVIES: The question of common issues are back at page 155 of

14 the judgment, and in particular page 156 they start, "Was the

15 contractual relationship between the Post Office and

16 sub-postmasters ----"

17 LORD JUSTICE COULSON: So, he was answering the question?

18 MS. DAVIES: He was answering the question, yes, but he is doing

19 it on the basis that it follows from the fact that the

20 contractual relationship ----

21 LORD JUSTICE COULSON: That is that paragraph, yes.

22 MS. DAVIES: Paragraph 692 on page 355. Here my Lord will see

23 that, having in the previous paragraph referred to the fact

24 that there are two types of implied terms, as explained by

25 Baroness Hale in the Geys v Société Générale case, the learned

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1 HELEN DAVIES QC

2 judge is dealing with my client's submission that "for any of

3 the terms alleged by the Claimants to be found to be implied,

4 they must fall into the first category." That is the category

5 necessary to give business efficacy, rather than implied as a

6 matter of law. But it is in particular the last two sentences

7 of this paragraph I draw my Lord's attention to, "However,

8 notwithstanding that, I do not consider that the law imposes

9 into these contracts implied terms as a necessary incident in

10 the same way as employment contracts. That statement must

11 however be subject to my conclusion on Common Issue 1."

12 So, he is indicating that his conclusion on common issue

13 1 qualifies his statement that the law imposes into these

14 contracts implied terms as necessary incidents of the

15 relationship.

16 Then paragraph 720. Having referred to the decision of

17 Elizabeth Laing J in the Acer Investment case, the last

18 sentence at the top of page 365, the judge states "This

19 reinforces -- if reinforcement were necessary -- that some

20 contracts will be categorised as relational contracts, and

21 this has the effect of implying a term of good faith."

22 Then the last reference, my Lord, at paragraph 705,

23 sub-paragraph 3 on page 359, where the learned judge has been

24 referring to the comments of Moore-Bick LJ in the

25 Mediterranean Shipping v Cottonex case, where he notes, "It

8
1 HELEN DAVIES QC

2 should be noted that Moore-Bick LJ did not say that there was

3 no such concept, but rather it was neither necessary nor

4 desirable to resort to it in that case. I consider this as

5 consistent with, and further support for, the concept of

6 relational contracts in English law, that is to say those that

7 have an implied duty of good faith."

8 We do submit, my Lord, in the context of Moore-Bick LJ's

9 comments, the leap that the judge then made to finding support

10 for his view from them is a leap that goes too far, but the

11 reason I am referring to it in this context is just underlying

12 the approach that the judge was in fact taking, which was not

13 to ask himself the question of whether adopting the approach

14 to implication of implied terms, in fact, set out by the

15 Supreme Court in the Marks & Spencer case, these were

16 contracts which as a matter of business necessity or an

17 obligation of good faith should be implied, or such an

18 obligation was so obvious to go without saying, rather he

19 started from the other end, and just asked the question

20 whether they were relational contracts, from which he treated

21 it as necessarily following that an obligation of good faith

22 was to be implied.

23 My submission in that respect, my Lord, is, in fact,

24 also underlined by the fact that 10 of the specific terms

25 which the judge implied as incidents of the general obligation

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1 HELEN DAVIES QC

2 of good faith, were terms which he did not conclude could also

3 be implied by applying the necessity test. So, the only basis

4 on which those terms can be implied on the judge's findings in

5 these contracts is because they are relational.

6 We respectfully submit that the approach of elevating a

7 species of contract that can be described as a relational

8 contract to one in which an obligation of good faith in its

9 performance is to be implied, as a matter of law, is wrong in

10 principle.

11 LORD JUSTICE COULSON: Do you accept that there is no passage in

12 the judgment, therefore, where the judge says that the good

13 faith term in this case automatically followed from his

14 classification of the contracts as relational?

15 MS. DAVIES: He does not use the word "automatically", my Lord.

16 LORD JUSTICE COULSON: But that is the key word. That is the word

17 you have emphasised in bold, paragraph 10 of your skeleton.

18 MS. DAVIES: But, my Lord, he ----

19 LORD JUSTICE COULSON: That is the attack.

20 MS. DAVIES: He does ----

21 LORD JUSTICE COULSON: And you accept that he does not actually

22 say that. You construe that from the four paragraphs that you

23 have identified?

24 MS. DAVIES: My Lord, and also from the fact that he implied 10

25 terms as incidental to the good faith application ----

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1 HELEN DAVIES QC

2 LORD JUSTICE COULSON: That would be equally true if you had an

3 obligation of good faith, simpliciter.

4 MS. DAVIES: No, my Lord, because he, specifically in relation to

5 those 10 terms, found that they could not be implied as a

6 matter of necessity.

7 LORD JUSTICE COULSON: Yes, but they were implied as a result of

8 good faith, leaving aside any question of this being a

9 relational contract.

10 MS. DAVIES: But that shows you, my Lord ----

11 LORD JUSTICE COULSON: It shows you the importance of the good

12 faith finding, I agree completely, but at the moment I am

13 simply dealing with 2A.

14 MS. DAVIES: Yes, my Lord, I understand that. My Lord, in

15 relation to the last question you put to me, with respect, it

16 is not right to say leaving aside the relational contract,

17 because the 10 incidents of implied terms which were not

18 implied on necessity grounds can only come in because he did

19 not find that they met the necessity test, because of the

20 construction of these contracts as a relational contract, to

21 which, as per paragraph 122 ----

22 LORD JUSTICE COULSON: Are there any other points in the judgment

23 you want to show me on the "automatically following".

24 MS. DAVIES: My Lord, the only other point I would make about the

25 judgment is what my Lord does not see in the section on the

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1 HELEN DAVIES QC

2 implied obligation of good faith which is any reference to

3 M&S, or the approach as regards business necessity, and any

4 explanation by the judge in any of these passages that

5 applying the five criteria set out in M&S that he concludes

6 that each of them are met in relation to this term. All one

7 sees is the conclusions that I have shown my Lord where he

8 language such as, "The contract was a relational contract.

9 This imposes an implied duty of good faith."

10 LORD JUSTICE COULSON: Yes.

11 MS. DAVIES: It is only when he gets to the 21 specific terms that

12 the claimants were contending for that my Lord sees reference

13 to the M&S and necessity test.

14 My Lord, we do say that is what the judge has done, and

15 we submit, as I have said a moment ago, that that is, as a

16 matter of law, wrong in principle. It is not, in our

17 submission, justified by the analysis of Leggatt J, as he then

18 was, in the Yam Seng case, which is the principle authority

19 relied upon in the various authorities that the learned judge

20 himself relied upon for his conclusion that such an obligation

21 was to be implied into relational contracts. He set out the

22 authorities that he particularly was referring to in a number

23 of places, starting at paragraph 705.

24 LORD JUSTICE COULSON: Which ground are we under?

25 MS. DAVIES: We are still under ground 1, 1A.

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1 HELEN DAVIES QC

2 LORD JUSTICE COULSON: The "automatically following"?

3 MS. DAVIES: Yes, because I now need to explain to my Lord why we

4 say we have a reasonable prospect of showing that is wrong.

5 LORD JUSTICE COULSON: What is wrong?

6 MS. DAVIES: The conclusion that, as I matter of law ----

7 LORD JUSTICE COULSON: If I am against you on the first point,

8 that will not matter?

9 MS. DAVIES: That will not matter, no, my Lord.

10 LORD JUSTICE COULSON: So, we are looking at?

11 MS. DAVIES: I have just shown my Lord paragraph 705, starting at

12 page 358, where the judge set out various authorities, which

13 in his judgment made it clear that the concept of relational

14 contracts was an established one in English law. The

15 principal authority underlying most of those authorities is

16 Leggatt J's, as he then was, analysis in Yam Seng. I would

17 like, therefore, to start with Yam Seng, if I may, my Lord,

18 which is in the third bundle of authorities at tab 29.

19 LORD JUSTICE COULSON: Do we have time to look at authorities?

20 MS. DAVIES: I am hoping I only need to look at a few but Yam Seng

21 is very important in this context, and it is not set out ----

22 LORD JUSTICE COULSON: On the secondary line, if you are right

23 about (a), that that is what the judge did, then the secondary

24 point is he was wrong to do it?

25 MS. DAVIES: Yes, my Lord.

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2 LORD JUSTICE COULSON: Okay. Sorry, which bundle?

3 MS. DAVIES: The third bundle of authorities at tab 29.

4 LORD JUSTICE COULSON: Which one?

5 MS. DAVIES: Third bundle of authorities. At paragraphs 131 and

6 132, my Lord can see there that Leggatt J was drawing a clear

7 distinction between the implication of the duty of good faith

8 as an incident of certain categories of contract, such as

9 employment contracts or contracts between partners or others

10 whose relationship was categorised as a fiduciary, so that is

11 Geys category 2, and the category where a duty is to be

12 implied following established methodology of English law.

13 If my Lord then refers to paragraph 137, my Lord can see

14 that he is referring there to the traditional test for the

15 implication of a term to justify the requirement that the

16 parties are behaving honestly and to justify that the

17 obligation of good faith is so obvious that it goes without

18 saying and necessary for business efficacy.

19 If my Lord then goes to paragraph 142, which is the

20 paragraph where there is a reference by Leggatt J to

21 relational contracts, albeit even then only in passing, my

22 Lord sees at the start of paragraph 142 that he is explaining

23 that, "In some contractual contexts the relevant background

24 expectations may extend further to an expectation that the

25 parties will share information relevant to the performance of

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1 HELEN DAVIES QC

2 the contract such that a deliberate omission to disclose such

3 information may amount to bad faith." Then just above J:

4 "While it seems unlikely that any duty to disclose information

5 in performance of the contract would be implied where the

6 contract involves a simple exchange, many contracts do not fit

7 this model and involve a longer term relationship between the

8 parties which they make a substantial commitment. Such

9 'relational' contracts, as they are sometimes called, may

10 require a high degree of communication, cooperation and

11 predictable performance based on mutual trust and confidence

12 and involve expectations of loyalty which are not legislated

13 for in the express terms of the contract but are implicit in

14 the parties' understanding and necessary to give business

15 efficacy to the arrangements. Examples of such relational

16 contracts might include some joint venture agreements,

17 franchise agreements and long term distributorship

18 agreements." So, we submit it is plain that Leggatt J in

19 Yam Seng was not saying that there is a category of contract

20 which is to be classified as a relational contract, and it

21 follows from that classification that a good faith obligation

22 is to be implied. To the contrary, this analysis was based on

23 the application of the necessity of business efficacy test to

24 the particular contract in question, albeit I of course

25 acknowledge that, depending on the context, that might lead to

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2 the conclusion that an obligation of good faith is to be

3 implied.

4 The same approach, my Lord, was adopted by Beatson LJ in

5 the Globe Motors case, which the judge does set out extracts

6 from in paragraph 705 of his judgment, back at page 358. That

7 is the only one of the Court of Appeal cases referred to by

8 the judge in this paragraph, where the Court of Appeal has to

9 date considered the implication of the obligation of good

10 faith in any detail, albeit even then in obiter and in

11 passing, and it is to be noted, my Lord, that Beatson LJ did

12 not make any reference to the concept of a relational contract

13 at all. Rather, if my Lord looks at paragraphs 67 and 68, set

14 out by the judge, my Lord can see that Beatson LJ considered

15 Yam Seng, specifically quoted from the passage of Yam Seng

16 that I have just referred to, and Leggatt J's conclusions that

17 the matters in question were necessary to give business

18 efficacy to the arrangements. Also noted, my Lord, at the end

19 of paragraph 68; having referred to the Carewatch case as well

20 as Philips Electronique, the passage underlined, "The second

21 is that, as seen from the Carewatch Care Services case, an

22 implication of a duty of good faith will only be possible

23 where the language of the contract, viewed against its

24 context, permits it. It is thus not a reflection of a special

25 rule of interpretation for this category of contract", which,

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1 HELEN DAVIES QC

2 as we point out in footnote 5 on page 5 of our skeleton, is

3 language that reflects the comment of Lord Steyn in Total Gas

4 Marketing v Arco. We submit therefore that Beatson LJ in

5 Globe was endorsing and approach based on the application of

6 the necessity test.

7 If my Lord looks through the other passages cited by the

8 learned judge in paragraph 705 or elsewhere in this section of

9 his judgment, my Lord will see that none of them, in fact,

10 establish the principle which we submit the judge sought to

11 draw from them, namely that there is a class of contractual

12 relationship, namely a relational contract, into which an

13 obligation of good faith is implied as a matter of law.

14 My Lord there is just one further reference ----

15 LORD JUSTICE COULSON: Do you accept that he does not make that

16 conclusion at the end of paragraph 705?

17 MS. DAVIES: My Lord, after 075 he goes into further authorities

18 and the conclusions come later. In addition to the paragraphs

19 I have already shown my Lord, I should perhaps show my Lord

20 paragraph 738, the first sentence: "In all the circumstances

21 therefore, and in the context of the commercial relationship

22 between each SPM and the Post Office, I find that these were

23 relational contracts. I find that this means the contracts

24 included an implied obligation of good faith."

25 My Lord, in further support of the submission that if my

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2 Lord accepts that that is what the judge has done it is wrong

3 in principle, we rely on the judgment of the judgment of Mr.

4 Richard Salter QC, sitting as a deputy, which the learned

5 judge in fact misquoted in paragraph 718 of his judgment. He

6 referred to it, but in the relevant paragraph of Mr. Salter's

7 judgment, he in fact said, "It is clear that the mere fact

8 that a contract is a long-term or relational one is not of

9 itself sufficient to justify the implication of implied

10 obligation of good faith." The learned judge missed out the

11 key words in that passage "or relational one". That, in

12 itself, in our submission, raises an important issue as

13 regards the content of the law in this area. My Lord, if I am

14 right that the learned judge has approached this, as he said

15 in paragraph 738, that it means from the fact that they were

16 relational contracts that the contracts implied included an

17 implied obligation of good faith, there are two, therefore,

18 first instance judges plainly differing on the issue:

19 Mr. Salter saying it does not follow from that and the judge

20 saying it does, and that in itself is an indication that this

21 is an issue that is appropriate for consideration by this

22 court. Indeed, my Lord, the concept of a relational contract

23 is very different to the other categories of case in which

24 terms have been held to be implied as a matter of law, as

25 those other categories of case involve a readily identifiable

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2 class of contractual relationship, such as landlord on tenant

3 or employer and employee.

4 As I have already shown my Lord, Leggatt J himself in

5 the Yam Seng case, at paragraph 142, expressly acknowledged

6 that only some relational contracts involved expectations of

7 mutual trust and confidence implicit in the parties'

8 understanding, and, moreover, that only some joint venture

9 agreements, some franchise agreements and some distributorship

10 agreements could be described as relational contracts. It is,

11 in fact, clear that the question of classification of

12 contracts as relational ones, potentially being subject to

13 special rules, is, itself, a contentious itself, as Jackson LJ

14 noted Amey v Birmingham City Council, in the passage that the

15 judge quoted at paragraph 705, sub-paragraph 1, on page 358 of

16 the judgment, where he noted that the 25-year contract before

17 court there may be classified as a relational contract. "In

18 recent years there has been much academic literature on

19 relational contracts and on the question of whether they are

20 subject to special rules", referred in particular to a paper.

21 "For good reasons, none of that literature has been cited to

22 us and I do not venture into those contentious issues".

23 Of course, my Lord, if there is a category of contract

24 into which an implied obligation of good faith is to be

25 implied as a matter of law, it obviously becomes very

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2 important to be able to define what constitutes a relational

3 contract with clarity, otherwise there is a real risk of

4 inconsistency, incoherency and the court is intruding into

5 commercial parties' bargains where it is not necessary to do

6 so.

7 The learned judge sought to distil nine features of

8 relevance into the determination of whether a contract could

9 be described as relational, and my Lord I am here now moving

10 on to the second part of ground 2, at paragraph 725 of his

11 judgment.

12 LORD JUSTICE COULSON: This is now ground B.

13 MS. DAVIES: Yes.

14 LORD JUSTICE COULSON: That he was wrong to classify the contract

15 as relational and/or to imply a good faith term.

16 MS. DAVIES: Yes, my Lord.

17 LORD JUSTICE COULSON: So two and in fact separate points?

18 MS. DAVIES: Yes, my Lord.

19 LORD JUSTICE COULSON: So, which are you dealing with?

20 MS. DAVIES: I am dealing with the first first.

21 LORD JUSTICE COULSON: Wrong to classify it as relational?

22 MS. DAVIES: Yes, my Lord. The learned judge sought to distil

23 nine features of relevance to the determination of that at

24 paragraph 725 of his judgment, although he then found at

25 paragraph 726 that only the first of those was determinative,

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2 which is no specific express term preventing a duty of good

3 faith being implied, and that his list was not exhaustive.

4 Many, in our submission, lack clarity. For example, at 2,

5 "The contract will be a long-term one with the mutual

6 intention of the parties being that there will be a long-term

7 relationship." How long is a long-term relationship for these

8 purposes? So far as his ----

9 LORD JUSTICE COULSON: Sorry, is that what you are asking me?

10 MS. DAVIES: My Lord, I am making the point that if this is to be

11 categorised as implied ----

12 LORD JUSTICE COULSON: This was the first and last night of the

13 show, you know that. You cannot start asking rhetorical

14 questions about paragraph 728 of the judgment.

15 MS. DAVIES: My Lord, I am simply raising the rhetorical question

16 to show that this list of criteria is not a clear and defined

17 list.

18 LORD JUSTICE COULSON: He says it is not exhaustive.

19 MS. DAVIES: But even within the factors of relevance, there is

20 scope for uncertainty. This brings me, in particular, to one

21 of the core reasons why we say the judge's approach to

22 implication of an obligation of good faith in this case ----

23 LORD JUSTICE COULSON: We are now going on to the second point?

24 MS. DAVIES: I am on both.

25 LORD JUSTICE COULSON: They are different.

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1 HELEN DAVIES QC

2 MS. DAVIES: Sorry, the second point in ----

3 LORD JUSTICE COULSON: The second point in 2(b).

4 MS. DAVIES: Yes, my Lord.

5 LORD JUSTICE COULSON: Because they are different. One is to do

6 with relational contracts and the second is to do with he was

7 wrong to imply a good faith term.

8 MS. DAVIES: If my Lord concludes that the judge has not

9 determined that the implied obligation of good faith followed

10 automatically from the categorisation of the contracts as

11 relational, my Lord must be concluding that the judge has

12 found it is implied as a matter of necessity.

13 LORD JUSTICE COULSON: Mmm-hmm.

14 MS. DAVIES: Those being the only two ways. As regards necessity,

15 again looking at what Leggatt J said in the Yam Seng judgment,

16 necessary to give business efficacy to the contract or so

17 obvious as goes without saying, the question of whether these

18 contracts are properly to be categorised as long-term

19 contracts will be relevant, because, my Lord, again, looking

20 at all the authorities, if you have short-term contracts ----

21 LORD JUSTICE COULSON: The judge dealt with all of this.

22 MS. DAVIES: My Lord, he did, but my ----

23 LORD JUSTICE COULSON: He grappled with all the detail in a

24 six-week trial.

25 MS. DAVIES: My Lord, my purpose today is to seek to persuade my

22
1 HELEN DAVIES QC

2 Lord that there are points of law on which we have a realistic

3 prospect of success.

4 LORD JUSTICE COULSON: I get that. You have made your submissions

5 about the relational contract; I understand that. We can move

6 on to good faith.

7 MS. DAVIES: Yes, my Lord, and this is ----

8 LORD JUSTICE COULSON: Which he found after a lengthy analysis.

9 MS. DAVIES: He did, my Lord, and what I am seeking to identify is

10 where the analysis, in our submission, went wrong, and we have

11 a reasonable prospect of persuading this court that it went

12 wrong. The first point we wish to make in that context is

13 that the learned judge did not take properly into account the

14 fact that these two contracts were expressly terminable on

15 relatively short notice. Not less than three months in the

16 case of the sub- postmaster's contract and not less than six

17 months after the first year in the case of the NTC. So, they

18 were nothing like the 25-year contract the Court of Appeal

19 were considering Amey or the five-year contracts in

20 D&G Cars ----

21 LORD JUSTICE COULSON: It depends on the terms. PFI contracts

22 have detail provisions as to termination. It was just a

23 25-year PFI contract. We do not know what the termination

24 provisions were.

25 MS. DAVIES: My Lord, one can look at the judgment and there is no

23
1 HELEN DAVIES QC

2 obvious reference to a termination on notice.

3 LORD JUSTICE COULSON: Let us just deal with these contracts.

4 That is what I think we are most interested in.

5 MS. DAVIES: My Lord, I am trying to address what we submit is an

6 important point of principle. The two cases which we say are

7 closer to these contracts where the fact that the contracts

8 were terminable on notice was found by the learned judges to

9 be a significant part of the reason why the contracts should

10 not be classified as relational or an implied obligation of

11 good faith are the Hamsard v Boots case and Acer Investment v

12 The Mansion Group. For commercial parties, my Lord, seeking

13 to distil the law, the fact that one has contracts of that

14 nature which are found not to be relational and then long-term

15 contracts of the other kind, which are the only kinds where

16 obligations of good faith have been found to exist, is an

17 important factor as regards certainty of the law.

18 I accept, of course, my Lord, that the judge found the

19 fact that both contracts permitted termination on notice was a

20 relevant consideration at paragraph 732, but he rejected that

21 as being a key point for two reasons. The first point is

22 effectively the point my Lord just put to me, that many

23 long-term contracts may have notice periods within them. That

24 of course may be so, my Lord, but it does not answer the

25 question whether a contract with such a notice period is

24
1 HELEN DAVIES QC

2 properly to be classified as long-term for the purposes of

3 classifying it as relational or implying an obligation of good

4 faith. In our submission, none of the authorities before the

5 judge provided support for the approach that it could be so

6 classified. To the contrary, the two authorities before the

7 judge where there were termination provisions on relatively

8 short notice, it was found that there was no implied

9 obligation of good faith. The second point he made was he

10 effectively found that the notice period was irrelevant,

11 because in his view the correctly ascertained objective

12 intention of the parties, when contracting, was that the post

13 of a sub-postmaster was intended to be a long-term one. He

14 does not say how he reached that conclusion, but, in our

15 submission, it cannot have been through a process of

16 interpretation of the contract given the express termination

17 on notice provisions they both contained. Nor was it a

18 conclusion that could be reached as part of the common issues

19 trial as regards the generality of contracts on the terms of

20 the sub-postmaster's contract or the NTC, given that the judge

21 only had evidence from six lead claimants before him. If one

22 is asking about subjective intentions, whether communicated or

23 not, they must be specific to the contracts in issue.

24 So it is unclear, in our submission, where this is

25 derived from, but the key point is, looking at the face on

25
1 HELEN DAVIES QC

2 these contracts, they both contain notice provisions allowing

3 for relatively short term notice, and that is a very important

4 factor which the judge did not give appropriate weight to, in

5 our submission, to indicating they are not long-term

6 relational contracts in which there is a necessary gap to be

7 filled by implying an obligation of good faith.

8 The second key point in this context, my Lord, and this

9 actually applies to both limbs of two, is that not only were

10 both contracts lengthy and detailed, but they included express

11 and other implied terms which filled any gap into which a good

12 faith term could, in our submission, be implied.

13 LORD JUSTICE COULSON: The judge disagreed with that. That is

14 your submission, but that is not a view that the judge ----

15 MS. DAVIES: My Lord, again for present purposes today I am

16 seeking to persuade my Lord that we have a realistic prospect

17 of persuading this court that he was wrong about that.

18 LORD JUSTICE COULSON: You have better points than that, I think.

19 MS. DAVIES: My Lord, when one adds those points together, that is

20 the basis on which, we submit, that ground 2(b) has a real

21 prospect of success.

22 LORD JUSTICE COULSON: So that last point is effectively the

23 express and implied terms fill the gap?

24 MS. DAVIES: Yes, my Lord.

25 Turning to the third point, the breadth of the implied

26
1 HELEN DAVIES QC

2 obligation of good faith, we, of course, accept that Leggatt J

3 in the Al Nehayan case in paragraph 175 in the passage that

4 the judge quoted at paragraph 706 ----

5 LORD JUSTICE COULSON: Formulated something expressly to be less

6 demanding?

7 MS. DAVIES: Precisely, my Lord. He referred to the obligations

8 including "an obligation to act reasonably and with fair

9 dealing having regard to the interests of the parties ... and

10 to the provisions, aims and purposes of the contract,

11 objectively ascertained." Also, importantly he noted "that

12 the obligation of fair dealing is not a demanding one and does

13 no more than require a party to refrain from conduct which in

14 the relevant context would be regarded as commercially

15 unacceptable by reasonable and honest people". We accept,

16 therefore, that a good faith obligation, if it is to be

17 implied, requires honest and co-operative behaviour. The

18 point we seek to raise under this limb is that, in our

19 submission, the learned judge plainly approached the implied

20 obligation on the basis that it constituted a much more

21 extensive obligation than Leggatt LJ had in mind.

22 There are three points we make in support of that, my

23 Lord.

24 LORD JUSTICE COULSON: Sorry, which paragraph is that? I thought

25 he expressly found the duty in the same terms as Leggatt LJ?

27
1 HELEN DAVIES QC

2 MS. DAVIES: My Lord, he referred to a duty in the same terms,

3 but, my Lord ----

4 LORD JUSTICE COULSON: Remind me of the paragraph.

5 MS. DAVIES: It is 738, my Lord. That is one of the paragraphs we

6 looked at this morning.

7 LORD JUSTICE COULSON: "Must refrain from conduct which in the

8 relevant context", which is the formulation from Sheikh Al

9 Nehayan.

10 MS. DAVIES: Yes, my Lord. However, there are three elements we

11 would emphasise to show my Lord that what he then implied in

12 this contract goes further than the Sheikh Al Nehayan.

13 LORD JUSTICE COULSON: So we take it in stages. You do not have a

14 complaint about 738. If he was right to find a good faith

15 duty, then you accept that 738 is in accordance with the

16 authorities.

17 MS. DAVIES: The sentence we just looked at. The next sentence,

18 my Lord, he found that "Transparency, co-operation, and trust

19 confidence are, in my view, implicit within the implied

20 obligation of good faith". Transparency is not part of

21 Leggatt LJ's, as he then was, formulation of the terms in

22 Sheikh Al Nehayan, and it is an important point because the

23 transparency obligation is the one ----

24 LORD JUSTICE COULSON: So you say the Post Office should not have

25 a transparency obligation.

28
1 HELEN DAVIES QC

2 MS. DAVIES: My Lord, as interpreted by the judge.

3 LORD JUSTICE COULSON: You say that the Post Office should not

4 have a transparency obligation. We are not in some dry Oxford

5 drawing room. We are looking at real contracts.

6 MS. DAVIES: Yes, my Lord, I understand ----

7 LORD JUSTICE COULSON: And you join issue with the last sentence

8 of paragraph 738, because you say that goes beyond and is part

9 of your case that this is a broad and onerous obligation?

10 MS. DAVIES: As then applied by the judge to the incidents,

11 because he ----

12 LORD JUSTICE COULSON: So transparency gives rise to broad and

13 onerous obligations?

14 MS. DAVIES: It does, as applied by the judge, my Lord, as I shall

15 seek to show my Lord shortly.

16 LORD JUSTICE COULSON: That is the last sentence of 738.

17 MS. DAVIES: My Lord, he also, at paragraph 740, found that the

18 obligation of good faith so far as co-operation is concerned

19 is wider than simply necessary co-operation. So it is wider

20 than the implied term that we had accepted. He does not

21 explain precisely in this paragraph, or elsewhere, exactly

22 what he means by a wider duty of co-operation than

23 co-operation that is necessary, as we accepted. But one can

24 then see that from the instance that he then implied: how

25 these two aspects of his approach to what the implied

29
1 HELEN DAVIES QC

2 obligation of good faith meant fed into some quite broad

3 implied terms as incidents of the obligation.

4 My Lord, if I could take you to those, for which

5 purposes we need to go back to 2 at page 156 ----

6 LORD JUSTICE COULSON: We are now going?

7 MS. DAVIES: To the specific incidents that the learned judge

8 found to be implied because of his conclusion that the

9 contracts were subject to an implied obligation of good faith.

10 LORD JUSTICE COULSON: Are we moving to those or are we still on

11 2(c)?

12 MS. DAVIES: My Lord, the submissions we make in relation to these

13 support the points we make in relation to 2(c), because, in

14 our submission, when one looks at the context ----

15 LORD JUSTICE COULSON: So, what is the answer to my question?

16 MS. DAVIES: I am still on 2(c) but I am also on 3.

17 LORD JUSTICE COULSON: I have to be wary, both in this application

18 and any future application, of island-hopping. No judge will

19 ever no more about these contracts than Fraser J, so I have to

20 be careful to ensure that the points can be, at least to an

21 extent, isolated. I appreciate there may be overlap, but that

22 runs against you in one sense, because the more overlap there

23 is, the more difficult it is to say, well, in the round there

24 is a realistic prospect of success. So, in looking at the

25 implied terms under 2, these were the proposed implied terms,

30
1 HELEN DAVIES QC

2 and you say this is relevant to?

3 MS. DAVIES: 2(c) and 3 because the fact that he regarded some of

4 what we submit are broad terms as incidental to the duty of

5 good faith he had implied, shows you the approach he was

6 taking to the duty of good faith that he had implied, but for

7 completeness we have also, in ground 3, sought to challenge

8 the implication of these terms as incidents on the basis that

9 they are not properly so-called incidents of a duty of good

10 faith, as recognised by the court in Sheikh Al Nehayan.

11 The ones I wanted to particularly refer my Lord to just

12 for illustration purposes, because of course time will not

13 permit me to go through them all, take the first two that he

14 implied as incidental to the obligation of good faith, (c) and

15 (d), "Properly and accurately to effect, record, maintain, and

16 keep records of all transactions effected using Horizon", and,

17 "Properly and accurately to produce all relevant records

18 and/or to explain all relevant transactions and/or any

19 alleged or apparent shortfalls attributed to Claimants."

20 Those are both obligations that are expressed in absolute

21 terms, applying for example to all records and all

22 transactions. They are unbounded in time, and, in our

23 submission, could readily be broken by conduct that a

24 reasonable or honest commercial party would not regard as

25 commercially unacceptable.

31
1 HELEN DAVIES QC

2 LORD JUSTICE COULSON: That then becomes a question of if you are

3 wrong on the principle, what the working out of that principle

4 is in practice. A common theme, throughout this, is the

5 complaint that the Post Office knows what it does not like,

6 but has not put forward practical, helpful provisions showing

7 what it says is the right reflection of its obligations to the

8 SPMs.

9 MS. DAVIES: My Lord, with respect, we submit we did put

10 forward ----

11 LORD JUSTICE COULSON: That was not the judge's view, as you know,

12 and this comes out, I think, most strongly in relation to

13 these incidents.

14 MS. DAVIES: Indeed, my Lord, but the reason it was not the

15 judge's view is because he took the view that the concept of

16 good faith was more onerous that the necessary co-operation

17 term, and I just showed my Lord that in paragraph ----

18 LORD JUSTICE COULSON: Necessary co-operation is meaningless.

19 What you need to do is translate that to real life, which

20 these terms do on the face of them.

21 MS. DAVIES: My Lord, these terms do not translate necessary

22 co-operation in real life. Necessary co-operation does not

23 involve an absolute obligation to keep all records for all

24 transactions for unbounded periods of time, and it certainly

25 is, as I submitted a moment ago ----

32
1 HELEN DAVIES QC

2 LORD JUSTICE COULSON: So, there might be a tweak which would have

3 been open to the Post Office to argue? You might not like the

4 "all time" for example, I do not know.

5 MS. DAVIES: My Lord, these points were made to the learned judge.

6 LORD JUSTICE COULSON: Fine, and he has considered them.

7 MS. DAVIES: He has, but for present purposes again I repeat I am

8 trying to show my Lord not that I am right, because obviously

9 that is not for today, but that there is a reasonable prospect

10 of persuading this court that even if this court assumes that

11 there is an implied obligation of good faith, the terms that

12 the judge implied, as incidents of that, went too far.

13 LORD JUSTICE COULSON: Okay, well we have looked at (a) and (b).

14 MS. DAVIES: Whilst we are looking at (a) and (b), my Lord, he

15 also implied those on necessity grounds, and we would say they

16 are also not necessary for reasons of business efficacy

17 because the necessary co-operation obligation means that

18 Post Office will have to provide any reasonable co-operation

19 that is necessary for the sub-postmasters to fulfil their

20 obligations, and it is not necessary to superimpose on top of

21 that an absolute obligation in the nature of these two

22 subparagraphs.

23 LORD JUSTICE COULSON: What in relation to (a) and (b)?

24 MS. DAVIES: No, my Lord, we were looking at (c) and (d).

25 LORD JUSTICE COULSON: Okay. I was looking at (a) and (b).

33
1 HELEN DAVIES QC

2 MS. DAVIES: I apologise, my Lord.

3 LORD JUSTICE COULSON: I looked at (c) and (d) because you

4 referred to them, but (a) and (b) are perhaps more cut to the

5 heart of the case, certainly (b).

6 MS. DAVIES: The learned judge did not conclude that (a) and (b)

7 were to be implied as a result of the good faith implication.

8 He found they were only to be implied on necessity terms, and

9 again, my Lord, as regards both of those, we submit that any

10 gap in the contract that was necessary to be filled was to be

11 filled by the two implied terms which we had already accepted.

12 So, we would have to provide, through necessary co-operation,

13 reasonable training.

14 LORD JUSTICE COULSON: And a system that was fit for purpose?

15 MS. DAVIES: My Lord, so far as fit for purpose, including any or

16 adequate error repellency ----

17 LORD JUSTICE COULSON: Including a system that was fit for

18 purpose. That was not accepted by the Post Office, and as

19 I understand it still is not.

20 MS. DAVIES: My Lord, the precise form of what we accepted is

21 actually in a document that my learned friend put in the

22 bundles. Could my Lord bear with me for one second. I do not

23 want to misstate. Obviously my Lord appreciates that I did

24 not appear below, and I do not want to misstate what was

25 accepted. I am grateful to my learned friend. I have several

34
1 HELEN DAVIES QC

2 bundles entitled "Additional Submissions" but I am looking at

3 one that is in Additional Submissions bundle, file 1 of 1.

4 LORD JUSTICE COULSON: Yes, page?

5 MS. DAVIES: Page 258. So, in relation to 641A, which is the term

6 my Lord was asking me about, Post Office accepted that the

7 common terms, which were both the Stirling v Maitland term and

8 the necessary co-operation term could address that subject

9 matter in the sense that the system made available by Post

10 Office may be capable of constituting a breach by the term if

11 it inhibited or prevented the other party from complying with

12 his obligations under or by virtue of the contract.

13 Alternatively, constituted a failure by Post Office to provide

14 the other party with such reasonable co-operation as was

15 necessary to the performance of the other party's obligations

16 under or by virtue of the contract. Whether in any particular

17 case there was a breach would depend on the circumstances."

18 LORD JUSTICE COULSON: So, I did not get a yes or no answer out of

19 you, and I do not get a yes or no answer out of that. The

20 Post Office have never accepted that they had an obligation to

21 provide a system that was fit for purpose?

22 MS. DAVIES: In an absolute sense, no, my Lord.

23 LORD JUSTICE COULSON: That is helpful, thank you.

24 MS. DAVIES: My Lord, if I could then turn on to sub-paragraph

25 (f), which is an obligation on Post Office itself to seek to

35
1 HELEN DAVIES QC

2 identify the cause of any shortfall which, as it is expressed

3 by the learned judge, applies whether or not the shortfall is

4 disputed by the sub-postmaster in question, so on its face

5 would appear to require Post Office to initiate investigations

6 into the many thousands, if not hundreds of thousands, of

7 shortfalls that occur each month mostly for very small amounts

8 and most of which are undisputed. And similar points in terms

9 of the implied terms that the judge found as regards

10 shortfalls apply in relation to sub-paragraphs (h), (m) and

11 (l), all of which apply to both disputed and undisputed

12 shortfalls.

13 Then (i) is an absolute obligation to make

14 communications to any sub-postmaster, regardless of whether or

15 not the sub-postmaster was experiencing any issues with

16 Horizon or shortfalls and regardless of whether the issues the

17 other sub-postmasters might be experiencing might have no

18 relevance at all to any other sub-postmasters. So, again, in

19 our submission, a broad obligation and the same point can be

20 made as regards (k).

21 When one takes those points in the round, my Lord, not

22 only do they, in our submission, support the point that the

23 judge approached the obligation of good faith as being more

24 broad and more onerous than the authorities suggest it should

25 be, but also in support of the third ground so far as it

36
1 HELEN DAVIES QC

2 relates to these terms, these terms were not incidental to the

3 obligation of good faith. My Lord will of course have in mind

4 that in Yam Seng and Al Nehayan, Leggatt J (as he was),

5 Leggatt LJ (as he was in the second), was at great pains to

6 confine the obligation that he was implying to a specific

7 obligation which was necessary to give effect to the implied

8 obligation of good faith. He cut it down to that which was

9 being contended for by the claimants in both cases, and that

10 is where we say the learned judge has gone wrong in relation

11 to this case.

12 If I can then move on, my Lord, to (o), but my Lord not

13 at this common issues, because the learned judge amended it.

14 If my Lord could look at paragraph 748 at page 371. (o)

15 related to the circumstances in which Post Office is entitled

16 to terminate the contracts of sub-postmasters on notice, and

17 the learned judge held that was subject to three implied

18 limitations, the ones set out in 747, (i) and (ii), but then

19 subject to the (iii) was refined in the way he sets out in

20 paragraph 748 so "in circumstances where the Defendant was

21 itself in material breach of duty in respect of the matters

22 which the Defendant considered gave it the right to

23 [terminate]."

24 My Lord, there are various of the grounds set out in the

25 grounds of appeal which relate to this finding of the judge.

37
1 HELEN DAVIES QC

2 So, it comes in at grounds 3, because this is

3 sub-paragraph (o) of the common issues, 4, because he also

4 reached this conclusion on the grounds of necessity, and then

5 6 and 7, where he also dealt with the right of the Post Office

6 to terminate on notice. This is therefore one area where

7 I wanted to take those four points in a group, if I may, my

8 Lord.

9 This point, my Lord, is a point of some considerable

10 importance, because it now appears, from the way that the

11 claimants are now seeking to cast their case, that their

12 position, as regards the damages which they are entitled to

13 seek for wrongful termination, is to be approached on the

14 assumption that -- sorry, I will start again.

15 We very recently received some particulars of claim from

16 the claimants setting out the damages claims which they seek

17 to make. This case otherwise has been not subject to detailed

18 quantification and remains not subject to detailed

19 quantification but they have served some particulars with a

20 view to enabling the parties to identify issues of principle

21 relating to quantum that might be determined in another trial.

22 It is apparent from that, in our submission, that the

23 claimants are seeking to rely on the learned judge's findings

24 as to the implied limitations on the Post Office right to

25 terminate to advance very significant monetary claims.

38
1 HELEN DAVIES QC

2 Mr. Abdulla, one of the lead claimants, now seeks to claim

3 loss of remuneration for a period through to 2043, on the

4 basis that on the judge's findings as to the implied

5 limitations on Post Office's right to terminate it is to be

6 assumed that absent Post Office's alleged breach he would have

7 remained in place as a sub-postmaster until that date.

8 This aspect of the learned judge's findings, it would

9 appear, is now being relied upon by the claimants to advance

10 very significant monetary claims.

11 LORD JUSTICE COULSON: This is the finding, the narrowing it, as

12 he calls it, at 748?

13 MS. DAVIES: The entirety of the finding that the contractual

14 rights to terminate on notice are subject to the implied

15 limitations that he sets out in paragraphs 747 and 748, as

16 well as the implied limitations that he sets out, if my Lord

17 looks at paragraphs 888-908, as regards the notice period.

18 LORD JUSTICE COULSON: This to do with suspension.

19 MS. DAVIES: No, this is termination, my Lord.

20 LORD JUSTICE COULSON: No, this, what you are showing me ----

21 MS. DAVIES: My Lord, paragraph 747 is suspension----

22 LORD JUSTICE COULSON: 747, "Not to suspend Claimants".

23 MS. DAVIES: My Lord, but 748, the implied term at (o) is dealing

24 with termination. He says that -- my Lord so ----

25 LORD JUSTICE COULSON: I think I will be assisted by this when we

39
1 HELEN DAVIES QC

2 get to grounds 6 and 7, because there is a whole load of

3 subclauses in there.

4 MS. DAVIES: My Lord, this is still part of ground -- so far as it

5 is (o), if my Lord can turn back to the common issues at (o).

6 LORD JUSTICE COULSON: I am really interested -- you have been

7 going half of your time and you have not finished 2, because

8 you keep jumping to other grounds. I appreciate that various

9 points bleed into one another.

10 MS. DAVIES: My Lord, if I could stand back from it. The learned

11 judge found there were two limitations on Post Office's right

12 to terminate. The first was 2(o), which my Lord sees at

13 paragraph 157, as modified by paragraph 248. That relates to

14 the Post Office's right to terminate on notice at all.

15 LORD JUSTICE COULSON: Yes.

16 MS. DAVIES: The second set of limitations are the ones at

17 paragraph 888 and following, where he found that even assuming

18 Post Office is entitled to terminate at all, the decision as

19 to which period of notice to serve for the purposes of

20 termination was also limited by the obligation of good faith.

21 So, there are two aspects to the judge's limitations on the

22 Post Office's right to terminate on notice.

23 LORD JUSTICE COULSON: The second aspect, the notice period, is 6

24 and 7.

25 MS. DAVIES: It is 6 and 7.

40
1 HELEN DAVIES QC

2 LORD JUSTICE COULSON: So, this aspect, the implied term, is 3.

3 MS. DAVIES: And 4, because he reached the same conclusion on

4 necessity grounds.

5 LORD JUSTICE COULSON: So, it is 3 and 4?

6 MS. DAVIES: 3 and 4. Our position, my Lord, is that he was wrong

7 to conclude that a termination upon notice provision was to be

8 limited in the way he found at the amended (o), whether or not

9 the contracts would be regarded as contracts, including

10 implied obligation, of good faith.

11 Dealing with the position as regards the implied

12 obligation of good faith, we refer in particular to the

13 decision of the Court of Appeal in Ilkerler. My Lord, this is

14 just one other authority which I very quickly would like to go

15 to.

16 LORD JUSTICE COULSON: This is the one that was not referred to in

17 the final submissions, but was referred to in the application

18 for permission to appeal?

19 MS. DAVIES: That is right, my Lord, yes. It is in bundle 5 of

20 the authorities at tab 45.

21 LORD JUSTICE COULSON: You were not there, so therefore that is

22 not a matter which relates to you in any way, Ms. Davies.

23 MS. DAVIES: It is just a very short passage.

24 LORD JUSTICE COULSON: You say well this is the law, so this is

25 the law. Tab?

41
1 HELEN DAVIES QC

2 MS. DAVIES: It is tab 45.

3 LORD JUSTICE COULSON: It must be the law, because it is

4 Longmore LJ.

5 MS. DAVIES: It is Longmore LJ. My Lord, this was a contract that

6 entitled the parties to terminate by either party giving to

7 the other at least six months prior written notice and my Lord

8 can see from paragraph 5 there was an allegation that Perkins

9 were in breach of an implied term of good faith or fair

10 dealing by giving the notice when they did. Then at 26, the

11 claimants sought to imply terms into the contract limiting the

12 ability to give notice in the sense that at (2) ----

13 LORD JUSTICE COULSON: The point is at paragraph 29, is it not?

14 MS. DAVIES: Precisely, the point is at paragraph 29.

15 LORD JUSTICE COULSON: I understand the point.

16 MS. DAVIES: The point is that the good faith term recognised by

17 Leggatt J in Yam Seng was in performance of the contract and

18 it is not therefore to be extended to termination. The same

19 point, my Lord, was recognised by Mr. Salter QC in the Monde

20 judgment, which was before the learned judge, which is in this

21 same bundle of authorities at tab 48.

22 LORD JUSTICE COULSON: I have looked at that too.

23 MS. DAVIES: I am grateful, my Lord. My Lord, in fact, in the

24 Monde judgment, Mr. Salter QC also dealt with the necessity

25 test and made the particular point that the contractual right

42
1 HELEN DAVIES QC

2 to terminate is an absolute right, which is not subject to the

3 implied limitation expressed by Lord Sumption in BT v

4 Telefónica. That is at paragraph 272. In so far as the

5 learned judge is also approaching this on necessity on the

6 that it is a contractual discretion, and Lord Sumption says in

7 BT v Telefónica contractual discretions are subject to implied

8 limitations, we submit he was wrong to do so.

9 LORD JUSTICE COULSON: So you can irrationally terminate the

10 contract.

11 MS. DAVIES: Because termination provisions are inserted for both

12 parties to be able to terminate a contract in their own

13 interests should they wish to do so. That is what Mr. Salter,

14 looking at all the authorities in Monde, concluded.

15 LORD JUSTICE COULSON: Yes, in that case, but that would be the

16 effect of it in relation to (o), on this point, on the implied

17 term/good faith point. I accept that the period of notice is

18 another point.

19 MS. DAVIES: Yes, my Lord. Of course the learned judge went

20 further, he did not only say irrationally arbitrarily, he also

21 said for reasonable and proper cause, which is a difficult

22 concept to apply, we submit, in circumstances of a termination

23 on notice provision, which are common terms inserted for

24 parties to be able to look to their own interests to decide to

25 bring a contract to an end.

43
1 HELEN DAVIES QC

2 My Lord, if I can then briefly deal with period of

3 notice, which is grounds 6 and 7, because it is the same

4 clauses in the contract, and it is precisely the same error

5 that we submit the judge fell into because he again approached

6 this on the basis that it was a contractual discretion on the

7 part of Post Office in terms of the period of notice because

8 of the use of the words "not less than" in both clauses, but

9 again these clauses, we submit, are not to be categorised in

10 this way.

11 LORD JUSTICE COULSON: The first part of that point is a point on

12 the interpretation of "not less than".

13 MS. DAVIES: My Lord, indeed.

14 LORD JUSTICE COULSON: That is the first point of construction, as

15 opposed to the points of construction on the judge's judgment.

16 That is actually the first point of construction on the

17 contract, I think we have identified, the "not less than",

18 whether that confers a discretion or whether, as you say, that

19 simply means that if I have given you more than three months'

20 notice, I can terminate.

21 MS. DAVIES: Yes, my Lord.

22 LORD JUSTICE COULSON: I understand. The second point, then, is

23 effectively then the good faith point.

24 MS. DAVIES: Yes, my Lord.

25 LORD JUSTICE COULSON: I understand.

44
1 HELEN DAVIES QC

2 MS. DAVIES: But the same analysis as per all the authorities that

3 Mr. Salter referred to in Monde, in our submission, shows why

4 the judge was wrong in relation to that, which is just why

5 I was going to take those two together.

6 LORD JUSTICE COULSON: No, I understand that.

7 MS. DAVIES: My Lord, can I then move on to the aspect of the

8 judge's judgment in relation to powers and discretions

9 conferred on Post Office more generally.

10 LORD JUSTICE COULSON: Have we dealt with 3?

11 MS. DAVIES: It is still within 3 because if my Lord turns

12 back ----

13 LORD JUSTICE COULSON: Discretions and powers is 5.

14 MS. DAVIES: It is because there was a separate common issue in

15 relation to it, but the judge found, if my Lord looks at

16 page 157 ----

17 LORD JUSTICE COULSON: What am I making my notes under, ground 5?

18 MS. DAVIES: It is also under ground 3, because some of the terms

19 that the judge implied feed into ground 5, because he is

20 making the same findings but under different heads.

21 LORD JUSTICE COULSON: So, this is just further complaints about

22 the implied terms?

23 MS. DAVIES: Because, my Lord, the implied terms that the judge

24 has found at (q), (r), and (s) are general findings "to

25 exercise any contractual, or other power, honestly and in good

45
1 HELEN DAVIES QC

2 faith for the purpose for which it was conferred"; "Not to

3 exercise any such discretion arbitrarily, capriciously or

4 unreasonably"; and (s), "To exercise any such discretion", and

5 so on. Then at 3, "If the terms alleged above at (q), (r) and

6 (s) ... are to be implied", then to what terms do they apply?

7 He again makes the same findings effectively. That is why the

8 two are interlinked.

9 The problem, we submit, with what the judge has done

10 here is the case law makes it clear that one has to look

11 specifically at the provisions in the contract to determine

12 whether they do confer a contractual discretion or a

13 contractual power or an absolute right, and it is only by

14 reference to that that one can then decide whether they are

15 limited in the way that the judge finds they are limited. He

16 effectively has just glossed over that, because, wrongly in

17 our submission, he has not sought specifically to identify

18 which terms he is submitting, of the contract, his findings

19 are discretions, which are powers and which are absolute

20 rights.

21 LORD JUSTICE COULSON: That is something that has not been done,

22 you say, on your case?

23 MS. DAVIES: Yes, my Lord. No, my Lord, it has not been done.

24 Yes, your Lordship is right it has not been done.

25 LORD JUSTICE COULSON: That would be an odd ground of appeal.

46
1 HELEN DAVIES QC

2 MS. DAVIES: My Lord, he has made a declaration that the contract

3 contains these implied terms and also answered common issue 3

4 in the way it is set out.

5 LORD JUSTICE COULSON: This is a bit more slicing that you say the

6 judge should have done that he has not, that 1122 paragraphs

7 are not enough, and that there should be a further analysis

8 whereby you take some of the discretions and powers and you

9 attach to them some of the implied terms and you see where you

10 get to.

11 MS. DAVIES: I understand that, my Lord, but part ----

12 LORD JUSTICE COULSON: The judge worked damned hard for these

13 parties. I am not sure he gets very much credit.

14 MS. DAVIES: My Lord, it is always a problem when one is making an

15 application like this in limited time constraints, one has to

16 focus on what one's ----

17 LORD JUSTICE COULSON: It is it a problem when on this point you

18 are saying he has not done something.

19 MS. DAVIES: Because, my Lord, the answers he has given to the

20 questions do not actually provide, in law, in our submission,

21 a proper answer to the question. That is what we are saying.

22 LORD JUSTICE COULSON: All right. I have understood that point.

23 Certainly my understanding was that that arose under 5.

24 MS. DAVIES: Well, the reason it also arises under 2 ----

25 LORD JUSTICE COULSON: It may also arise somewhere else, but it

47
1 HELEN DAVIES QC

2 seems to me it arises under 5.

3 MS. DAVIES: Then, my Lord, the other area where he has implied

4 limitations on what we submit are rights of Post Office is in

5 relation to the suspension provisions, which is sub-paragraph

6 (m). So, this is the last point that forms part of grounds 3

7 and 4, but it is also dealt with in grounds 11-13, because he

8 dealt with it both in the context of implying a term here, and

9 also separately in relation to 11-13.

10 LORD JUSTICE COULSON: Yes.

11 MS. DAVIES: The short point here, my Lord, is that the contract

12 sets out, in detailed terms, the relevant provisions entitling

13 Post Office to suspend a sub-postermaster, which the learned

14 judge quoted at paragraphs 866 and 867 of his judgment on

15 page 393. My Lord can see that they were limited rights in

16 quite specific circumstances, and as the judge noted, at

17 paragraph 873 on page 395, all of those circumstances were

18 ones which had the ability to harm Post Office's legitimate

19 business interests. We submit that the judge's conclusion

20 that these conferred a discretion on Post Office which had to

21 be exercised in good faith and could not be exercised without

22 reasonable or proper cause, or if Post Office was in material

23 breach in respect of the matters that Post Office considered

24 gave it the right to suspend, was wrong as regards those

25 provisions, just as it was wrong for the termination

48
1 HELEN DAVIES QC

2 provisions. They created, in our submission, rights not

3 discretions, and, moreover, the clauses on their terms made it

4 clear that Post Office can exercise the rights that are

5 conferred to it in its interests alone. That is in fact

6 essential for Post Office in the specific circumstances

7 specified given that sub-postmasters hold their stock and

8 cash.

9 My Lord, I have now dealt with everything I wish to say

10 orally to supplement the written submissions in relation to

11 grounds 2 and 3, as well as 6, 7 and 11 and 13.

12 LORD JUSTICE COULSON: Everything in relation to 2 and 3?

13 MS. DAVIES: 2 and 3 and interrelated grounds 5, 6 and 7.

14 LORD JUSTICE COULSON: And 4?

15 MS. DAVIES: No, I am just finishing 4 now.

16 LORD JUSTICE COULSON: You are coming back to 4, because that is

17 necessity. Then, 5, 6 and 7.

18 MS. DAVIES: Yes.

19 LORD JUSTICE COULSON: Then you said something in the teens.

20 MS. DAVIES: 11 and 13, which is also relating to suspension,

21 which I have just addressed.

22 LORD JUSTICE COULSON: I understand that. If you have left that,

23 it may be that you accept this, but there was a point which

24 arose, this is back to the duty of good faith, and which

25 I thought arose out of your 2(c), where you complain that the

49
1 HELEN DAVIES QC

2 judge found that he was wrong to apply a broad and onerous

3 good faith term going well beyond a requirement for honesty,

4 and I had understood from the submissions that the Post Office

5 was suggesting that good faith equals honesty.

6 MS. DAVIES: Honest co-operation, my Lord, as we have said in our

7 skeleton.

8 LORD JUSTICE COULSON: Is that different to honesty? I mean, cut

9 to the chase, Chitty appears in one bit of one sentence to

10 equate good faith and honesty.

11 MS. DAVIES: Yes.

12 LORD JUSTICE COULSON: I find that surprising. I wondered if you

13 said, no, there is authority for that, you cannot find that in

14 the footnotes in Chitty, at least I could not, but I wondered

15 what you said about that. Because the judge said he thought

16 that was wrong. Do you accept that?

17 MS. DAVIES: My Lord, I accept that the duty of good faith goes,

18 as far as Leggatt LJ said in Al Nehayan, which does appear on

19 its face to go further than just honesty.

20 LORD JUSTICE COULSON: That is what I thought, but since that

21 point had at one point on the papers loomed quite large,

22 I thought I would ask you.

23 MS. DAVIES: That is why I accept honest co-operation, because if

24 one looks at what Leggatt LJ was saying in the Al Nehayan

25 case, we submit that is a more appropriate formulation of a

50
1 HELEN DAVIES QC

2 description of what he is describing: it not being a demanding

3 test that prohibits conduct that would be regarded as

4 commercially unreasonable by honest people.

5 LORD JUSTICE COULSON: That is helpful. That is just for my note.

6 You can tell Chitty that you and I agree that that sentence

7 overstates it.

8 MS. DAVIES: I am not sure that the learned authors of Chitty

9 would take much notice of my view, my Lord, but they may well

10 take notice of yours.

11 LORD JUSTICE COULSON: I should not think they will take much

12 notice of mine given they are not practitioners so they do not

13 have any risk of appearing in front of me. I find that those

14 authors do not tend to be overly bothered what I think.

15 MS. DAVIES: What it does show, my Lord, is that this is an area,

16 the whole question of the implied obligation of good faith and

17 its extent, which is very much developing and very new. It

18 has not actually been looked at in any detail by the Court of

19 Appeal yet. We have obiter comments from Beatson LJ in the

20 Globe Motors case and otherwise we have a series of first

21 instance judgments. What this does show therefore, my Lord,

22 we do pray in aid to say that is a reason why this case is

23 appropriate for further consideration by the Court of Appeal.

24 LORD JUSTICE COULSON: There are potentially two answers to that.

25 One is arguably some of the recent stuff is overcomplicating

51
1 HELEN DAVIES QC

2 concepts and principles that you and I have been applying for,

3 in my case doubtless a lot longer than you, but a long time,

4 and secondly, if one has to identify a case in which some of

5 these interesting issues would be debated, then it might be

6 open to debate as to whether this is the right case.

7 MS. DAVIES: My Lord, in relation to the second point, we would

8 submit it plainly is, not least because of the extent of the

9 obligations that the learned judge regarded as incidental to

10 the obligation of good faith.

11 LORD JUSTICE COULSON: You have made that submission as part of

12 that, I think, so I understand what you say.

13 MS. DAVIES: My Lord, necessity ----

14 LORD JUSTICE COULSON: You want to say something else about 4?

15 MS. DAVIES: I only want to say that I have dealt with most of the

16 terms in relation to necessity. The ones I have not done are

17 (m), (a), (b) and (t), which we have covered extensively in

18 our skeleton and I was not proposing ----

19 LORD JUSTICE COULSON: Which one, sorry?

20 MS. DAVIES: Relating to (m), which we addressed at

21 paragraphs 48-55 of our skeleton, and, (a), (b) and (t) which

22 we addressed at 69-74 and the argument is not going to be

23 improved by me repeating it, so the argument is there.

24 LORD JUSTICE COULSON: I am bound to say that I think some of

25 these I would have found to have been necessary in a

52
1 HELEN DAVIES QC

2 heartbeat, but there it is.

3 MS. DAVIES: My Lord, again, we are seeking to show my Lord there

4 is a reasonable prospect of success.

5 LORD JUSTICE COULSON: I understand that. So, that is ----

6 MS. DAVIES: Can I then move on to ground 8, briefly, which is

7 termination for cause.

8 LORD JUSTICE COULSON: The judge says "material", effectively, in

9 these circumstances must mean "repudiatory".

10 MS. DAVIES: He does, and he takes that view as being an

11 uncontroversial and conventional approach, consistent with the

12 views expressed in Lewison, that is what he says at paragraph

13 907, but, in our submission, it is not uncontroversial or

14 conventional at all, and inconsistent with the views expressed

15 in Lewison. If I could just briefly show my Lord part of the

16 passage from Lewison to which the judge was referring, which

17 is in the fifth bundle of authorities at tab 60, because that

18 conveniently draws together the relevant authorities.

19 LORD JUSTICE COULSON: Page?

20 MS. DAVIES: Page 835. Sorry, 836, referring to Dalkia Utilities

21 Services at page 836, "The right to terminate arose on a

22 material breach. It was common ground that the word

23 'material' meant that the breach in question did not have to

24 be repudiatory ... (reads to the words) ... opinion that is

25 the better view." Then Glolite, Neuberger J, at first

53
1 HELEN DAVIES QC

2 instance said that a material breach must depend on all the

3 facts. Then Gallagher International Christopher Clarke J (as

4 he then was) made it clear that "in order for a breach to be

5 material it does not have to be repudiatory". The same

6 conclusion was reached by the Court of Appeal in the Mid-Essex

7 case which we also have in the authorities bundle. If I give

8 my Lord the reference. It is paragraph 126.

9 Therefore, in our submission, it is not, in fact,

10 conventional or uncontroversial to conclude that "material"

11 means "repudiatory" and the learned judge does not identify

12 particular features of this contract, in our submission, which

13 support the interpretation which he reached. So, we submit

14 that this is another point on which we have a reasonable

15 prospect of success.

16 LORD JUSTICE COULSON: It just occurs to me to ask, since you have

17 cited Sir Kim Lewison's book on this point, I understand the

18 point that you make about it, I notice that it does not appear

19 that his book is being cited by anybody in relation to

20 relational contracts.

21 MS. DAVIES: No, my Lord, it has not been cited by either party.

22 LORD JUSTICE COULSON: Is that because it is not something into

23 which he delves?

24 MS. DAVIES: That is precisely -- he does not, in the published

25 work ----

54
1 HELEN DAVIES QC

2 LORD JUSTICE COULSON: That may tell its own story.

3 MS. DAVIES: Indeed. It is fair to say, my Lord, that is a

4 supplement to Lewison, which is not in the bundles, in which

5 he does refer to this decision, so, therefore, there is now,

6 in the supplement to Lewison ----

7 LORD JUSTICE COULSON: But he just refers to Post Office as a

8 decision, but it is not a sort of separate heading or

9 whatever?

10 MS. DAVIES: No, my Lord.

11 LORD JUSTICE COULSON: Thank you.

12 MS. DAVIES: Grounds 9 and 10, true agreement as to termination on

13 notice.

14 LORD JUSTICE COULSON: This is only relevant if the good faith

15 goes?

16 MS. DAVIES: Yes, my Lord. In relation to termination, my Lord.

17 If the termination provisions are subject to the implied

18 limitations that the judge found at (o), then this does not

19 become relevant. As my Lord will have seen, this was not the

20 case where the judge found that the agreements were

21 susceptible to rectification, but he sought to rely instead on

22 a principle to be derived from the decision of the Supreme

23 Court in the Autoclenz v Belcher case which was a case

24 concerning the question of whether car washers whose contracts

25 stated they were sub-contractors were employees. As we

55
1 HELEN DAVIES QC

2 explain in our skeleton at paragraphs 94-96 ----

3 LORD JUSTICE COULSON: Sorry to interrupt you, this is 925, is it?

4 Have I remembered that rightly?

5 MS. DAVIES: Of the judgment?

6 LORD JUSTICE COULSON: Of the judgment.

7 MS. DAVIES: Yes, 925 and 926. My Lord, the learned judge sets

8 out the relevant key passages from Lord Clarke's judgment in

9 Autoclenz at 915. And there are, in our submission, real

10 issues as to the extent to which the principles established in

11 this case apply outside the specific context of employment,

12 but even assuming that they do, the key principle, which my

13 Lord can see from the passage that the learned judge quoted at

14 945, is that what matters, ultimately, is what was agreed,

15 either as set out in the written terms or if alleged those

16 terms are not accurate, what has proved to be their actual

17 agreement at the time the contract was concluded. It is not a

18 matter of guessing at private intentions or expectations, it

19 is about determining what the parties agreed.

20 In our submission, the problem with what the judge has

21 done in this case is he did not focus on what has been agreed,

22 rather he focused on expectations, because if my Lord looks at

23 paragraph 924, he said, "It would never have been in the

24 reasonable contemplation of the parties at the time of

25 contracting that the Post Office could, or would, give

56
1 HELEN DAVIES QC

2 notice", and so on and so forth.

3 LORD JUSTICE COULSON: That is 924?

4 MS. DAVIES: 924. Because he does not make a finding at all as to

5 the actual terms agreed, that is why he ended up with what, in

6 our submission, are non-committal findings in paragraph 925 as

7 to the parties' true agreement in particular as to the length

8 of the required notice and the factors that are relevant to

9 the determination of that. He is not saying, do not worry

10 what the contract says, in fact parties said it was 12 months

11 or something, he is talking about reasonable expectations and

12 a range of factors.

13 LORD JUSTICE COULSON: Just on the inter-leafing, if, for example,

14 I found that you had a realistic prospect of success on 6 and

15 7, the "not less than 3 months, 6 months" point ----

16 MS. DAVIES: Yes, my Lord.

17 LORD JUSTICE COULSON: ---- then. Is this right, unless you could

18 show you had a realistic prospect of success on 9, you would

19 not get anywhere with your 6 and 7, because 9 takes it away?

20 Sorry, not 9, his findings that you have just shown me would

21 take it away?

22 MS. DAVIES: Yes, my Lord, I accept that.

23 LORD JUSTICE COULSON: So I have understood it.

24 MS. DAVIES: It is in the alternative. Common issue 16 was period

25 of notice, and I accept this is an alternative.

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1 HELEN DAVIES QC

2 LORD JUSTICE COULSON: I am just piloting a way through it. So

3 this is not irrelevant to you even if I was against you on a

4 number of the earlier issues.

5 MS. DAVIES: Yes.

6 LORD JUSTICE COULSON: Just by way of example, how these things

7 inter-leaf, one with another, if you were right about there

8 was a realistic prospect of success on 6 and 7, then I would

9 have to consider 9, because otherwise success for you on 6 and

10 7 would not actually go anywhere.

11 MS. DAVIES: Yes, my Lord.

12 LORD JUSTICE COULSON: It would not lead to a modification of the

13 judge's judgment.

14 MS. DAVIES: I accept that, yes.

15 LORD JUSTICE COULSON: That is all right. I understand 9. 10 is

16 a slightly vague ground of appeal, "It is not clear whether".

17 MS. DAVIES: I understand that, my Lord.

18 LORD JUSTICE COULSON: Are you asking me to in some way read the

19 judge's mind here? What do you want me to do on 10?

20 MS. DAVIES: It comes out of the way that the judge says in 925,

21 "I would have followed the approach argued in the alternative

22 by the Claimants." If you then turn back to paragraph 910,

23 what it is that the claimants argued, they argued that "the

24 Post Office would not terminate without substantial cause or

25 reason, established after a fair investigation and

58
1 HELEN DAVIES QC

2 consideration; if the Post Office itself was in material

3 breach of contract; vindictively, capriciously or arbitrarily;

4 or in response to reasonable correspondence."

5 LORD JUSTICE COULSON: Which is the bit you say links back to that

6 in the judgment?

7 MS. DAVIES: In paragraph 925. Then, when he deals with true

8 agreement, at 17 and 18, he simply says these do not arise in

9 paragraph 1222, because of the debate we have just been

10 having. Our concern, my Lord, was if this was coming to the

11 Court of Appeal, and given that on one interpretation of this

12 he is finding that the incidents in paragraph 910 are part of

13 what he is finding, this should be looked at. Of course if my

14 learned friend is going to make it clear that he is not going

15 to suggest that, then this point can fall away, but I do not

16 detect that from his note of objections. The same points

17 apply in relation to it; the various terms that were being

18 argued for by the claimants. In fact, the learned judge does

19 not anywhere identify whether they were agreed, let alone

20 expected.

21 My Lord, it has been pointed out to me that we need to

22 have a break for the shorthand writer. I do not know what the

23 shorthand writer feels, whether it would be more convenient

24 for me to continue and finish and then have it, or to have it

25 now.

59
1 HELEN DAVIES QC

2 LORD JUSTICE COULSON: It is up to you. We will have five minutes

3 now, and I shall take my Lemsip with me.

4 (A Short Break)

5 MS. DAVIES: My Lord, grounds 14 and 15 relate to the learned

6 judge's findings that certain terms in the contracts were

7 onerous and unusual. We have dealt with those fully in

8 paragraphs 107-119 of our skeleton. In view of the time,

9 I therefore was not proposing to add orally to what we have

10 said in the skeleton, which then brings me to grounds 16-20

11 relating to UCTA, where I do need to show my Lord some

12 authority as well.

13 LORD JUSTICE COULSON: Yes. 14 and 15 are UCTA as well, are they

14 not.

15 MS. DAVIES: No, they are not UCTA, they are the non-incorporation

16 of terms on the basis that they were onerous and unusual.

17 LORD JUSTICE COULSON: All right.

18 MS. DAVIES: There is some overlap ----

19 LORD JUSTICE COULSON: I was going to say.

20 MS. DAVIES: ---- because some of the terms that the judge also

21 found to be unreasonable under UCTA overlap with the ones that

22 he found to be onerous and unusual.

23 LORD JUSTICE COULSON: Okay.

24 MS. DAVIES: In relation to UCTA, there are three separate points

25 of principle that I wish to address orally as briefly as

60
1 HELEN DAVIES QC

2 I can, each of which we submit are independent justification

3 for the appeal.

4 The first point is ground 16, which is that the judge

5 erred in law in holding that the SPMC and NTC were Post

6 Office's "written standard terms of business" for the purposes

7 of section 3 of UCTA. My Lord, we have quoted the relevant

8 section of UCTA in paragraph -- it is in paragraph 106 of the

9 judgment, and it is also in our skeleton. It applies as

10 between contracting parties where one of them deals on the

11 other's written standard terms of business. We submit there

12 are two components to that: the terms have to be in standard

13 form, we do not dispute that these terms were in standard

14 form; and, secondly, they have to be the standard terms of the

15 relevant contracting party's business, and that is the

16 question that is the key one for present purposes.

17 The learned judge treated that as applying to any

18 standard form contract entered into by a contracting party for

19 any purpose connected to its business. We submit that is

20 contrary to the decision of this court in the Commerzbank

21 case, which is in the first authorities bundle at tab 16. If

22 I can just take my Lord to that, in the judgment of Mummery LJ

23 at paragraphs 102-104, he refers to an article of Professor

24 Mark Freedland in The Personal Contract of Employment and also

25 to a decision of Morland J in Brigden, and then notes that the

61
1 HELEN DAVIES QC

2 professor had rightly commented "that such contracts do not

3 readily fit naturally into the categories of consumer

4 contracts or standard form contracts, as it involves treating

5 workers as users or recipients of goods or services when in

6 truth they are provider of their services. It is artificial

7 and unconvincing to read section 3 as extending to payment

8 provisions in respect of personal services rendered by the

9 employee to the employer. I do not think that there is a real

10 prospect of a trial judge coming to a contrary conclusion ...

11 "103. For similar reasons I have reached the same

12 conclusion on the issue whether Mr. Keen contracted on the

13 Bank's 'written standard terms of business' in relation to the

14 provision in the discretionary bonus scheme requiring him to

15 be in the employment of the Bank at the date of payment of the

16 bonus.

17 "104. As Morland J pointed out in Brigden the relevant

18 business in that case, as in this case, is the business of

19 banking. The terms as to the payment of discretionary bonuses

20 were not the standard terms of the business of banking. They

21 were the terms of the remuneration of certain employees of the

22 Bank, such as Mr. Keen, who were employed in part of the

23 Bank's business." Moses LJ at paragraph 115, which to lend

24 emphasis to his reasons, as he said in the last sentence, "A

25 bank's business is not entering into contracts of employment

62
1 HELEN DAVIES QC

2 with its employees."

3 In our submission, the same applied here. The Post

4 Office's business is selling post office products and services

5 to the public. Contracting with its sub-postmasters furthers

6 that end but is not itself Post Office's business. So, the

7 fact that Post Office chose to conduct its business at post

8 office branches through agents, rather than via employees,

9 does not mean, in our submission, that its contracts with its

10 agents are any more part of its business than its contracts

11 with its employees would have been. Both are contract which

12 facilitate the conduct of the business, rather than themselves

13 representing the conduct of that business.

14 LORD JUSTICE COULSON: That was all stuff that the judge

15 considered.

16 MS. DAVIES: He did, my Lord. He addressed ----

17 LORD JUSTICE COULSON: He came to an answer you do not like, but

18 again ----

19 MS. DAVIES: My Lord, he came to an answer which we submit we have

20 a reasonable prospect of persuading this court is wrong. My

21 Lord, he dealt with at paragraph 1074-1075. The first point

22 he made is he said that Commerzbank and Brigden were different

23 because they were dealing with employment contracts. We

24 submit that the ratio is not limited in that way. The reason

25 they would have applied in the same way, if instead of the

63
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2 employment contract the courts in those cases had been dealing

3 with the bank's contract with agents to provide services,

4 those contracts would not have constituted the standard terms

5 of the business of banking, to use Moses LJ's phraseology, any

6 more than the employment contracts did. It is also to be

7 noted, my Lord, that in paragraph 102 of his judgment,

8 Mummery LJ in the section that I referred my Lord to a moment

9 ago referred to if you treat these contracts as standard form

10 contracts within the scope of the Act, as treating workers as

11 users or recipients of goods or services when in truth they

12 are providers of services. So precisely the same analysis

13 applies in relation to sub-postmasters. They are providing

14 services to post office. They are not the recipients of goods

15 or services.

16 The second point the judge made was that the running of

17 branches and, therefore, by extension the appointment of

18 sub-postmasters was within Post Office's business. My Lord,

19 with respect to the learned judge, that is not the test

20 established by the Court of Appeal in Commerzbank. If it was

21 the Court of Appeal would have said that employing bankers was

22 within the bank's business.

23 The third point he made was he stressed that these terms

24 were standard and cited authorities on what constituted

25 standard. As I made clear, my Lord, we do not dispute that

64
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2 these terms are standard. The question is whether they are

3 the standard terms of Post Office's business within the

4 meaning of section 3.

5 Therefore, we do submit that ground 16 has a reasonable

6 prospect of success.

7 I then turn to ground 17, which we have dealt with in

8 paragraphs 126-129 of our skeleton. That addresses the next

9 question which arises under section 3(2)(b)(i) of UCTA, which

10 is whether by the relevant terms Post Office claims to be

11 entitled to render a contractual performance substantially

12 different from that which was reasonably to be expected of it.

13 LORD JUSTICE COULSON: All of this, of course, again is in the

14 alternative? Some of it in the further alternative, is it

15 not? Because if it is good faith, and the terms are as the

16 judge has them ----

17 MS. DAVIES: That applies in one case for these terms that we are

18 seeking to challenge; the termination provisions. In the

19 termination provisions he only finds they are unreasonable if

20 he is wrong about good faith, but a number of the other

21 clauses -- it is a freestanding point.

22 LORD JUSTICE COULSON: So there is an overlap, but I am wrong to

23 say it is in the alternative, because you say UCTA arises in

24 some respects?

25 MS. DAVIES: Yes, my Lord.

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2 LORD JUSTICE COULSON: In any event?

3 MS. DAVIES: Yes, my Lord.

4 As regards the meaning of section 3(2)(b)(i), in so far

5 as it refers to reasonable expectations, my Lord we have

6 quoted at paragraph 128 of our skeleton ----

7 LORD JUSTICE COULSON: This is the substantially different point?

8 MS. DAVIES: Yes, my Lord. From the judgment of Stanley Burton LJ

9 in Axa Sun Life, where he made it clear, "Quite how that

10 'paragraph' should operate is not entirely clear, as is

11 demonstrated by the somewhat tentative discussion in Chitty on

12 Contracts ... I have no doubt that it is principally aimed at

13 the small print that entitles a party to a contract to provide

14 something other than that defined by the principal terms of

15 the contract, we where a holiday company reserves the right to

16 substitute a hotel or resort for that specified in the main

17 part of the contract. In most cases, as Chitty suggests, the

18 performance reasonably expected of a party is that which is

19 defined by the written contract between the parties. But this

20 'paragraph' of section 3 refers not to the performance

21 specified in the contract but to the performance 'which was

22 reasonably expected' of that party. It seems to me that in

23 appropriate circumstances a pre-contractual representation or

24 promise may affect the performance that is reasonably expected

25 of a party." So he is identifying two things from which

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2 reasonable expectation might be determined, neither of which

3 were in fact the things that the judge looked at in this case

4 to determine reasonable expectation. He did not look at the

5 other terms of the contract and he did not identify

6 pre-contractual representations.

7 This, my Lord, is another point which we submit is of

8 some importance, generally, as regards section 3 of UCTA.

9 What are the reasonable expectations to be grounded in if it

10 is neither the terms of the contract nor pre-contractual

11 representations?

12 The final point in relation to the application of

13 section 3 is the point that is covered by ground 17.

14 LORD JUSTICE COULSON: I thought we were in 17?

15 MS. DAVIES: Sorry, ground 18. Sorry, 17.

16 LORD JUSTICE COULSON: I thought we were in 17.

17 MS. DAVIES: The second half of 17. I have dealt with the first

18 part of 17, "substantially different" from that which was

19 expected" and now I am dealing with the second part of 17, "or

20 in respect of the whole or part of any of its contractual

21 obligation to render no performance at all." There are two

22 aspects. It either has to be substantially different from

23 that which was reasonably expected of it, or in respect of

24 thew whole or part of any part of its contractual obligation

25 to render no performance at all. It is all governed by Post

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1 HELEN DAVIES QC

2 Office rendering a contractual performance that is either

3 substantially different or no performance at all.

4 We submit that none of the five categories of term in

5 issue under this head were concerned with the contractual

6 performance of Post Office within the meaning of these

7 provisions.

8 LORD JUSTICE COULSON: When you say the five provisions, those are

9 the ones listed at 18.

10 MS. DAVIES: Yes, my Lord. The learned judge rightly identified

11 the decision of Court of Appeal in Paragon Finance v Nash as

12 relevant to this issue, and he quotes from it extensively at

13 paragraphs 1079-1080 of his judgment. That was a case, my

14 Lord, that concerned a contractual power to vary mortgage

15 interest rates. Dyson LJ, as he then, was at paragraph 73

16 identified that "The first question is whether the fixing of

17 rates of interest under a discretion given by the contract was

18 'contractual performance' within the meaning of section

19 3(2(b)." At 75, he noted, halfway through the paragraph:

20 "Here, there is no relevant obligation on the Claimant, and

21 therefore nothing that can qualify as 'contractual

22 performance' for the purposes of section 3(2)(b)(i). Even if

23 that is wrong, by fixing the rate of interest at a particular

24 level the Claimant is not altering the performance of any

25 obligation assumed by it under the contract. Rather, it is

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2 altering the performance required of the appellants."

3 Then, at 76, he note that there is no authority in which

4 the application of section 3(2)(b)(i) to a situation similar

5 to that which exists has been considered. He referred to a

6 passage in Chitty offering the view that "... it seems

7 unlikely that a contract term entitling one party to terminate

8 the contract in the event of a material breach by the other

9 ... would fall within paragraph (b), or, if it did so, would

10 be adjudged not to satisfy the requirement of reasonableness.

11 Nor, it is submitted, would that provision extend to a

12 contract term which entitled one party, not to alter the

13 performance expected of himself, but to alter the performance

14 required of the other party ..." Then at 77 my Lord sees he

15 accurately states the law. The reason I specifically draw

16 attention to that, my Lord, is that two of the categories of

17 clause which the learned judge found fell within section 3 one

18 of them was a clause entitling Post Office to terminate on

19 material breach, which is the clause we looked at under ground

20 8, and another was a clause entitling Post Office to change

21 sub-postmasters' conditions of service.

22 LORD JUSTICE COULSON: Sorry, what was the second one.

23 MS. DAVIES: A clause entitling Post Office to change

24 sub-postmasters' conditions of service.

25 LORD JUSTICE COULSON: What do you get from that?

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1 HELEN DAVIES QC

2 MS. DAVIES: The passage on Chitty, which Dyson LJ approved in

3 Paragon, indicates, in our submission, that neither those

4 types of clause constitute performance by Post Office. The

5 Chitty passage deals expressly with those types of clause.

6 A third category of clause that the learned judge found

7 fell within section 3 was the right to terminate on notice if

8 he was wrong about the implied obligation of good faith. My

9 Lord, at paragraph 133 of our skeleton, we also refer to some

10 additional authority, particularly Hadley Design and Morland J

11 in Brigden. We have given the references there, which show a

12 clause entitling one party to terminate a contract on notice

13 is not a clause within section 3(2)(b). What it is is a

14 clause by which the temporal scope of the contract is

15 determined, not a clause entitling one party to render

16 different performance from that reasonably expected of it, or

17 indeed no performance at all.

18 My Lord, those were the additional points that I wished

19 to make orally in addition to UCTA.

20 My Lord, at ground 18 we do also seek to challenge the

21 learned judge's conclusion that the relevant terms of the

22 contract failed to satisfy the test of reasonableness. We set

23 out again, my Lord, in paragraphs 136-139 of our skeleton the

24 various challenges we seek to make in relation to that.

25 Again, I was not proposing, in the limited time left

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2 available, to go through that.

3 LORD JUSTICE COULSON: Yes.

4 MS. DAVIES: My Lord, that then takes me briefly to grounds 21-24,

5 which relate to the extent to which the common law principles

6 of agency apply to these contracts, in particular as regards

7 accounts rendered by agents. As my Lord knows, the

8 sub-postmasters were expressly appointed as the agent of Post

9 Office under both contracts. As the judge expressly accepted

10 at paragraph 796 and 800 of the judgment, that appointment

11 would ordinarily bring with it various common law legal

12 principles, unless those principles had been modified or

13 excluded by the parties' agreement. The two particular common

14 law principles of relevance here were the principle and

15 accounts stated by an agent is presumed binding against him

16 unless the agent can show it is in fact incorrect, and the

17 principle that if the agent deliberately renders a false

18 account, presumptions of fact should be made against him. The

19 statements of account that sub-postmasters were required under

20 their contracts to render to Post Office are called branch

21 trading statements. The judge's conclusion at paragraph 1022,

22 sub-paragraph (12).

23 LORD JUSTICE COULSON: His conclusions of what?

24 MS. DAVIES: His conclusions at 1022, sub-paragraph (12).

25 LORD JUSTICE COULSON: 1022?

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1 HELEN DAVIES QC

2 MS. DAVIES: Sorry, 1,022, page 459. He there reaches a

3 conclusion which is a broad statement that neither of the

4 common law principles apply to the branch trading statement.

5 LORD JUSTICE COULSON: 1022?

6 MS. DAVIES: Sub-paragraph (12). Page 459. I am sorry, my Lord,

7 1122.

8 LORD JUSTICE COULSON: Which sub-number?

9 MS. DAVIES: Sub-paragraph (12). He is reaching seemingly a broad

10 conclusion that "The common law principles at Common Issue

11 12(b) and (c)", which are the two I have just identified, "do

12 not apply to the Branch Trading Statement." My Lord sees that

13 in the last sentence. Although, as we point out in our ----

14 LORD JUSTICE COULSON: So, in the grounds of appeal, the reference

15 to 1122(10) is erroneous?

16 MS. DAVIES: Yes, my Lord, it is. It should be (12).

17 LORD JUSTICE COULSON: That is a relief, because I could not

18 understand that.

19 MS. DAVIES: My Lord, I apologise.

20 LORD JUSTICE COULSON: No, it is a big judgment, so misreferences

21 are to be expected. Then the reference to 819 is a

22 description of the branch trading statement, and saying it is

23 not subject to the same common law principles.

24 MS. DAVIES: Yes.

25 LORD JUSTICE COULSON: Could you just give them to me again?

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2 MS. DAVIES: They are set out in the common issues. My Lord sees

3 how he did it. In common issue 12(b) and (c), at page 164,

4 "Where an agent renders an account to his or her principal, he

5 is bound by that account unless and to the extent that he

6 discharges the burden of demonstrating that there are mistakes

7 in the account that he should be permitted to correct", and

8 "Where an agent deliberately renders a false account to his or

9 her principal, in relation to the matters covered by the

10 account the Court should make all presumptions of fact against

11 that Subpostmaster as are consistent with the other facts as

12 proven or admitted."

13 LORD JUSTICE COULSON: Right. Yes.

14 MS. DAVIES: Now, in other places in his reasoning, my Lord --

15 I certainly do not want to misstate the judgment -- if one

16 looks, for example, at paragraph 810 on page 383, last

17 sentence, the judge said that in his judgment "The Branch

18 Trading Statement did not have the status of an agreed account

19 between agent and principal if it included disputed items."

20 He makes similar findings in paragraph 820 on page 386.

21 My Lord, we accept that in so far as items had been

22 disputed by sub-postmasters, the common law principles did not

23 apply to them. The debate that was before the judge, and we

24 accepted that before the judge, was whether the common law

25 principles applied to items in the accounts rendered by the

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2 agent to Post Office which had not been disputed.

3 LORD JUSTICE COULSON: That had not been?

4 MS. DAVIES: Disputed.

5 LORD JUSTICE COULSON: At the time?

6 MS. DAVIES: At the time. In short, my Lord, we submit that there

7 was no express language ----

8 LORD JUSTICE COULSON: This was sticking the SPMs with,

9 effectively, liability for things they had not worked out what

10 they say were the errors in the Horizon system.

11 MS. DAVIES: It is not sticking them in liability, my Lord,

12 because the principle that an account is stated by an agent is

13 presumed binding is subject to the proviso that the agent can

14 show it is in fact correct. However, it is a question of

15 where you start in the analysis. It says presumption is

16 incorrect unless they show it is incorrect. What the judge

17 has found is that statements that were not disputed by

18 sub-postmasters ----

19 LORD JUSTICE COULSON: At the time.

20 MS. DAVIES: ---- at the time, are not subject to that common law

21 principle, in circumstances where, in our submission, there

22 are no modifications or exclusions of that principle to be

23 found in the two contracts. That is essentially the point in

24 relation to that.

25 My Lord, I notice the time, so ----

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2 LORD JUSTICE COULSON: You can have another five minutes because

3 we gave the shorthand writer five minutes.

4 MS. DAVIES: My Lord, I am grateful.

5 My Lord, the central reasoning of the judge, and this is

6 picked up by my learned friend is his note, is that the

7 contracts, both the SPMC and the NTC had dictated the means by

8 which sub-postmasters should submit accounts to the Post

9 Office. It had determined that they had to be on the basis of

10 the branch trading statement. He seems to have concluded from

11 that that that in some way excluded or modified the common law

12 obligation, but we submit that the error of principle that he

13 made in relation to that was to confuse the means by which an

14 account had to be submitted, which is the branch trading

15 statement, and the consequences of submitting a branch trading

16 statement as to which the contract was silent. That is an

17 important distinction both in logic and in principle. That is

18 essentially the point we make in relation to that.

19 My Lord, the last grounds of our appeal are grounds

20 25-26 which relates to the proper construction of section 12

21 clause 12 of the sub-postmaster's contract, which we have

22 quoted at paragraph 185 of our skeleton. Our submission is

23 that the judge erred in two ways in relation to the

24 construction of that clause, in relation to which we have a

25 reasonable prospect of success. We have set that out fully,

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2 my Lord, in paragraphs 158-169 of our skeleton, which I know

3 my Lord has looked at carefully.

4 LORD JUSTICE COULSON: Yes.

5 MS. DAVIES: Again, my Lord, unless there are specific queries

6 that my Lord wishes to raise in relation to it?

7 LORD JUSTICE COULSON: No. The judge's reasoning is clear, and

8 those are short points.

9 MS. DAVIES: They are short points.

10 LORD JUSTICE COULSON: It is a question of whether there is a

11 realistic prospect of arguing on those two points,

12 effectively, conclusions different to that which the judge

13 reached?

14 MS. DAVIES: Yes, my Lord.

15 LORD JUSTICE COULSON: All right. Is that it?

16 MS. DAVIES: That is it, my Lord.

17 LORD JUSTICE COULSON: Thank you very much. Mr. Green?

18

19

20

21

22

23

24

25

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2 MR. GREEN: May it please your Lordship. We respectfully submit

3 that not only does the judge deserve credit for the effort put

4 into the judgment, but he also deserves credit for getting it

5 right. There is no fair reading, in our submission, of the

6 judgment read correctly, and I will identify the respects in

7 which I say your Lordship has been invited to read it

8 incorrectly in due course, but there is no available fair

9 reading of the judgment on which the criticisms made are in

10 fact justified. It was a thoughtful, thorough and careful

11 judgment, the length of which your Lordship has already

12 referred to, in which the judge identified the correct

13 principles and applied them to the factual findings that he

14 made, and reached not only available conclusions but we say

15 correct ones. None of that part will surprise your Lordship

16 of our submissions, because I am sure everyone says that in

17 these circumstances. However, I can demonstrate immediately

18 to your Lordship why that is right.

19 I will begin, if I may, with ground 1, relational

20 contract, or their paragraph 2 in the grounds of appeal.

21 LORD JUSTICE COULSON: Before we carry on, because you were

22 there -- the judgment set outs the trial length and so on --

23 give me a feel for, because I do not have a feel for, what the

24 bundles were? I mean 15, 50, 500?

25 MR. GREEN: They were all electronic, but I think.

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2 LORD JUSTICE COULSON: It was an electronic bundle.

3 MR. GREEN: A huge electronic bundle. Personally, I think I had

4 60, but some of those had duplications in them because they

5 were referable to particular witnesses.

6 LORD JUSTICE COULSON: As far as witnesses are concerned, how

7 many, just roughly?

8 MR. GREEN: Twenty.

9 LORD JUSTICE COULSON: Twenty live or 20 ----

10 MR. GREEN: I think we had about 20 live. I think it was 6 and

11 14.

12 LORD JUSTICE COULSON: Okay. I have no feel for the overall shape

13 of it. It was an electronic bundle. I wondered if it was an

14 electronic bundle.

15 MR. GREEN: I am most grateful, my Lord.

16 LORD JUSTICE COULSON: We are going to ground 2.

17 MR. GREEN: Yes, the relational contract, if I can start there.

18 There are three points, effectively, that I make under

19 paragraph 2. The first is automatically implying it, and

20 I can show your Lordship that is completely wrong. That is

21 not what he did. He did not automatically imply good faith

22 term from classifying the contract as relational in error,

23 because that is the gravamen of what they say. The short

24 point on that for your Lordship -- I will say what the points

25 are first and then develop them if I may -- is what the judge

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2 actually did was he decided, and we see this from paragraph

3 711, and I will show your Lordship carefully in a moment, to

4 use the term "relational contract" to include only those

5 contracts where a good faith term would be implied. My Lord,

6 I completely accept some judges talk about contracts that have

7 relational features, but are not those in which good faith

8 term is implied. Chitty talks about relational features, but

9 you have to look at the terms to see whether it permits it,

10 and so forth.

11 What the judge did here was he clearly and demonstrably

12 applied the correct principles to see whether a good faith

13 term should be implied or not, and he made clear that he was

14 confining his term, relational contract, to those contracts

15 which not only had relational features in a general discursive

16 sense, but met the test for the implication of the good faith

17 term. So he took what we call the narrow view of the term

18 "relational contract", which, if I may respectfully submit, my

19 Lord, is actually of much more use to practitioners and the

20 courts, because it uses a definition which answers the

21 question, rather than just inviting you into territory in

22 which other questions may be asked. So we say there is

23 definitely no error of principle, and we respectfully commend

24 to this court the fact that actually this approach may be of

25 more use in the future. That is the answer on automatic.

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2 Secondly, he was not wrong to classify them as

3 relational. There are two reasons for that in particular.

4 The first reason is that he made very detailed and extensive

5 findings of fact to discern what the intentions of reasonable

6 persons in the position of the parties would have been. From

7 those facts he then proceeded to discern the relevant features

8 of the relationship to test those against the terms of the

9 contract themselves, viewed in their proper commercial

10 context. In doing so, the test of necessity was baked into

11 his analysis from the outset, and I can demonstrate that too.

12 So, not only did he correctly reach his conclusions on the

13 basis of his findings of fact, which cannot sensibly be

14 impugned, but he did so on the correct principles, and applied

15 the test of necessity, as your Lordship will see in a minute.

16 That is a hopeless ground, in our respectful submission.

17 Third, as to the content of the good faith term, he gave

18 expression to the aspects or facets of the good faith term to

19 which your Lordship took my learned friend to identify

20 specific incidents of the good faith term. My Lord, this is

21 not just a matter of me adopting, respectfully, your

22 Lordship's question to my learned friend about "In the real

23 world what did these terms mean?" It went slightly further

24 than that, because the issue as it was presented to the judge

25 was very much as your Lordship guessed, because if we look in

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2 the additional bundle -- I think your Lordship should have

3 seven tabs in the second additional bundle.

4 LORD JUSTICE COULSON: Right, the second additional?

5 MR. GREEN: Yes, it is just behind the document that my learned

6 friend took you to. The document my learned friend took you

7 to was in tab 3.

8 LORD JUSTICE COULSON: The response, yes.

9 MR. GREEN: I will give your Lordship some references for this, if

10 I may, but there was a huge dispute between the parties about

11 the utility of the parties' respective positions in relation

12 to the incidence of the implied terms or whether they were

13 freestanding implied terms.

14 LORD JUSTICE COULSON: I picked that up from the papers.

15 MR. GREEN: Your Lordship identified that. There are two points

16 to make. The first is in our opening submissions, which are

17 also in this bundle -- I will just give your Lordship the page

18 references if I may -- we identified the difficulty of the

19 general woolly uncertainty as to the actual concrete impact of

20 these implied terms, or Post Office's admitted implied terms,

21 on page 3 of our opening submissions, which are in tab 1 of

22 this bundle, under a heading "Freestanding" heading there.

23 That refers forward to page 65 in the same document where we

24 set out extensively for the judge the history of the two

25 requests for further information, one order that they answer

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2 on this point, because Post Office's position, my Lord, was

3 that the terms we were talking about were already in some way

4 governed by the ones they had admitted, but they would not say

5 how. So it was against that background that the document you

6 did not see, which is at tab 4, it got to a point where

7 I actually typed this myself and sent it across, the document

8 at tab 4, to see if we could not narrow the issues and get

9 some clarity as to what the actual concrete terms were, the

10 document in tab 4, and suggested sensible examples of what

11 might be admitted. Then your Lordship's question to my

12 learned friend, "What was Post Office's actual position in

13 terms of a yes/no answer", is actually found at tab 7 of this

14 same bundle on page 278. The answer is at 2, "None of them

15 were implied terms or incidents of any implied terms". Then

16 there is a reference to the suggestions of a general

17 unidentified obligation to co-operate, and so forth. So, it

18 is not surprising that the judge, in resolving group

19 litigation -- this is not a unitary claim -- had to work out,

20 in order to help resolve the group litigation, what the

21 practical incidents of the high level terms that were in issue

22 would be. It would make absolutely no sense not to do that.

23 It would have been a complete waste of time in that regard if

24 then each every unitary case had to be fleshed out on a

25 fact-sensitive footing to see whether, in fact, any obligation

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2 admitted by the Post Office was engaged. That would have been

3 hopeless. It was no surprise at all that the learned judge

4 went on to identify the incidents, which he did by reference

5 to the findings of fact that he had made about the nature of

6 the relationship, and the nature of the accounting system

7 employed and the branch trading statements, and the overall

8 commercial and contractual context. That was an unimpeachable

9 exercise, in circumstances where the authorities make clear

10 that the content of the duty of good faith is

11 context-sensitive. My learned friend accepts, barring

12 transparency, the slightly longer list to which your Lordship

13 referred her, and we have in Al Nehayan the ideas of fidelity

14 to the bargain and so forth also being captured by the duty of

15 good faith.

16 The incidents of those duties are completely

17 unimpeachable, we say, because they spring from the judge's

18 findings of fact and the application of the correct principles

19 of law as to what the appropriate incidents of a good faith

20 term may be and what he found they in fact were.

21 The suggestion that he ignored necessity is put to bed

22 not only by the fact that he recites the authorities in which

23 the necessity test is a part of the test, it is not only that,

24 which already makes the appeal unpromising, because to get the

25 appeal up and running, you have to say the judge recited the

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2 correct test but then did not apply it, not only that, but

3 when we look at the judgment at paragraph 748, on page 371,

4 the lead-in to this is that he has considered there the

5 different terms in the light of his finding at 746, "there is

6 an implied obligation for good faith, those that are

7 consequential upon, in my judgment, or incidents of that

8 finding that these are relational contracts are those

9 identified as terms in Common Issue 2 at (i)", and he lists

10 them there.

11 He then says, "The amendment to (n) which I require is

12 as follows", and he explains it. He says, "I consider that

13 this should be narrowed in the following way", and your

14 Lordship will see he deals with the narrowing of (o) as well,

15 he says, "It is this that is the necessary incident of the

16 implied duty of good faith." The penultimate line, "It is

17 not necessary for the Post Office not to suspend (or

18 terminate) a SPM if the Post Office was in material breach",

19 and so forth.

20 In crafting the limits of the incidents, he has

21 specifically confined two of them by reference to the

22 touchstone of necessity which Post Office has to submit he did

23 not have in mind and he wrongly ignored. We respectfully say

24 not only is it the case that the passages which I am about to

25 show your Lordship show that he had the right test in mind,

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2 but it is demonstrable that he, in fact, applied it, including

3 when he was working out what the proper scope of the incidents

4 of the good faith term were. Those are the key headline

5 submissions.

6 Can I take your Lordship now, if I may, to what is said

7 by Post Office very briefly in their skeleton argument in

8 relation to this ground of appeal. It is in bundle CV1, it is

9 behind tab 3, and it starts on page 23. Your Lordship will

10 note over the page at paragraph 9 there is a reference to

11 paragraph 710 in his judgment, and the next reference in

12 paragraph 10 is to paragraph 712.

13 LORD JUSTICE COULSON: I have read and noted up paragraph 711, if

14 that is your point.

15 MR. GREEN: Exactly, that is the point. So, that is the point at

16 which we respectfully say Post Office has fallen into error in

17 criticising the judge because he at 711 says, "I therefore

18 consider that in this respect, the learned editors of Chitty

19 do not correctly summarise the jurisprudence in this area of

20 the law. I consider that there is a specie of contracts,

21 which are most usefully termed 'relational contracts', in

22 which there is implied an obligation of good faith (which is

23 also termed 'fair dealing' in some of the cases)." So, he has

24 decided to adopt, in this judgment, the definition of

25 "relational contract" as one in which there is such an implied

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2 obligation of good faith, and that is the working definition

3 he is using, and he makes that clear.

4 The complaint that we get as to automaticity is found in

5 the expression in paragraph 11 where the Post Office says,

6 "This was another point on which the Judge took a different

7 view from Chitty, which states, at 1-057, that a duty of good

8 faith is not implied simply because a contract has

9 'relational' features." My Lord, we respectfully agree.

10 Identifying relational features is the beginning of the

11 analysis, not the end. You identify the relational features,

12 you look at the expectations of reasonable people in the

13 position of the parties who were making a contract, you test

14 it against the terms of the contract in their commercial

15 context, and that is the right approach, and it is what he

16 did. However, your Lordship will note in the middle of

17 paragraph 11, it says, "Its implication always depends on the

18 terms of the particular contract." Referring to Chitty, what

19 is cited in Chitty at 1-057, it says, "The authority cited in

20 support is Globe Motors ... per Beatson LJ at paras 67-68."

21 My Lord, that is precisely the passage that we see the

22 judge cite on page 358 at paragraph 705, point 2, "In Globe

23 Motors ... Beatson LJ stated at [67] to [68] as follows", and

24 your Lordship will see, about two-thirds of the way down, the

25 words "which are not legislated for in the express terms of

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2 the contract", and this is referring to the "expectations of

3 loyalty", the phrase there, "which are not legislated for in

4 the express terms of the contract but are implicit in the

5 parties' understanding and", crucially, "necessary to give

6 business efficacy to the arrangements."

7 So, the correct approach is to identify, as a matter of

8 fact, what are those expectations and what was the party's

9 understanding when they contracted, and identify on the

10 completely vanilla, totally orthodox test of necessity,

11 whether or not one has to imply such a term for the purpose of

12 business efficacy, giving effect to those arrangements. So,

13 the very passage in the skeleton that they rely on is the very

14 passage that is recited by the judge in the judgment.

15 However, it goes further than that, my Lord, because at

16 paragraph 12 they refer to Monde Petroleum, and this is where

17 there is a criticism of the judge for leaving out the words

18 "or relational one". Does my Lord have that at paragraph 12?

19 LORD JUSTICE COULSON: Yes.

20 MR. GREEN: Those are the words that they criticise the judge for

21 leaving out. Bearing in mind, my Lord, the judge has decided,

22 for the purposes of clarity, to adopt his definition of

23 "relational contract" being the one in which a good faith term

24 is applied. It would have been extremely confusing, having

25 adopted a different approach to the use of the word

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2 "relational" for him to have included that there. However,

3 what is interesting is immediately after that passage, in

4 Monde Petroleum, what we find is the reference back to Globe

5 Motors and the passage that the judge has referred to, and

6 I have just shown your Lordship.

7 So, it really is a distinction without a difference. It

8 is an unfair criticism of the judge that he sought to include

9 clearly the reference to Monde Petroleum, and avoid any

10 confusion of the different uses of the word "relational" --

11 your Lordship has seen Chitty talking about "relational

12 features", and so forth -- to say that in doing that he was

13 applying the wrong test, when the very case referred to, Monde

14 Petroleum, goes immediately on to then cite Globe Motors.

15 My Lord, that is the point about the issue of necessity,

16 and the judge taking the right course as a matter of law. It

17 is completely unfair to criticise him for not having done

18 that, when he plainly did.

19 As to the content and the issue of honesty, just

20 returning to it if I may, your Lordship mentioned that there

21 is a reference in one part of Chitty. Your Lordship's

22 formulation of "in one part of Chitty" was prescient, because

23 Chitty is not even consistent on this. One understands that

24 it may be a less familiar territory for those writing the

25 commentary, but if we look at the back of bundle A5 ----

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2 LORD JUSTICE COULSON: Do not let them hear you say that!

3 MR. GREEN: ---- it is page 57 in the book, in Chitty itself.

4 LORD JUSTICE COULSON: Because the equation is on 59.

5 MR. GREEN: Indeed.

6 LORD JUSTICE COULSON: But you were be taking me to 57.

7 MR. GREEN: Just to show your Lordship that they are not quite

8 consistent either.

9 LORD JUSTICE COULSON: Okay.

10 MR. GREEN: So, there is no equation between honesty and good

11 faith. We can see that unequivocally from the bottom two

12 lines on 57 in the main text, not the footnotes. "On the

13 other hand, it has been said that a court should not imply a

14 term requiring good faith in a party to a contract where it

15 would be inconsistent with the express terms which set out the

16 parties' mutual obligations", and then, tellingly, you may

17 think, there just leaves the duty of honesty. So, they cannot

18 be the same thing, even on the face of what Chitty is saying

19 there. So, Chitty is not clear, but the cases are. The good

20 faith term is not confined to honesty simpliciter. There

21 literally is, in our respectful submission, zero prospect of

22 success of an appeal on that footing, particularly in the

23 light of my learned friend's concession that all of those

24 facets of the duty, apart from transparency, are agreed. It

25 simply goes to your Lordship's point that in one place they

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2 say it may be similar, but, as we can see here, they say

3 something slightly different.

4 My Lord, in relation to the scope, it is also right that

5 the arguments prayed in aid -- and I will take them quite

6 briefly because it is one minute to one ----

7 LORD JUSTICE COULSON: When you talk about scope, this is scope of

8 the duty?

9 MR. GREEN: The content of the duty.

10 LORD JUSTICE COULSON: This is 2(c), you are still on that.

11 MR. GREEN: Indeed, 2(c). The arguments on that do not recognise

12 the way that the two implied terms in Yam Seng were argued,

13 found by the judge, and have been understood, and also

14 overlook what is said in Al Nehayan at paragraph 175, which is

15 in bundle A5 at 51. My Lord, I am not going to take your

16 Lordship to them, because it is 30 seconds to go, but

17 mentioning, for example, fidelity to the bargain and not

18 undermining the substance of what it has been bargaining for

19 but identifying it is not a demanding standard. So, the

20 decision made by the judge in this case is absolutely in the

21 central channel of the authorities in that respect.

22 Is that a convenient moment?

23 LORD JUSTICE COULSON: That deals with 2. So, you are going to

24 come on and deal with the implied terms?

25 MR. GREEN: I am going to come on and deal with the implied terms.

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2 LORD JUSTICE COULSON: All right. We will come back at

3 two o'clock.

4 (Adjourned for a short time)

5 LORD JUSTICE COULSON: Yes?

6 MR. GREEN: My Lord, just before turning to the implied terms

7 simpliciter, as it were, divorced from good faith, there are

8 just two short points I wanted to make as overarching points,

9 because they inform later arguments. There has been

10 discussion in some of the authorities of the distinction

11 between the civil law concept of good faith and the common law

12 concept of good faith. In Yam Seng it was pointed out that

13 there are plenty of Anglo Saxon cases in other jurisdictions

14 recognising a good faith term.

15 However, my Lord, there is an important point which

16 supports the approach that the judge took here, found in the

17 distinction between the civil law approach and the common law

18 approach. The civil law approach, if we take for example the

19 French civil law Article 1104, which we have actually referred

20 to in our openings at page 186, internal A16, which is in the

21 second bundle -- I will not take your Lordship to it -- that

22 is a matter of ordre public or public order in French law

23 which requires contracts to be negotiated, formed and

24 performed as a matter of good faith.

25 So, the civil law approach is for the state to decide

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2 what the parties can agree, and constrain the parties in that

3 way. The common law approach is the antithesis of that. The

4 common law approach, which we find in the authorities, has

5 specifically been to identify correctly what the correctly

6 ascertained objective intention of the parties was when they

7 contracted, and to give expression to that as necessary. So,

8 my Lord, we respectfully say that far from any good faith term

9 being constrained by the parties' intentions, the way it finds

10 expression in the common law is that it is implied to give

11 effect to the correctly ascertained objective intentions of

12 the parties when contracting.

13 My Lord, that immediately matters on a point which my

14 learned friend made in her submissions in relation to

15 paragraph 732 on page 368 of the judgment. Your Lordship

16 finds, four lines down on the right-hand side, "Further,

17 I find that the notice provisions do not undermine the

18 correctly ascertained objective intention of the parties when

19 contracting, namely that the post of SPM at a particular

20 branch was intended by both parties to be a long term one."

21 My learned friend's objection to the judge being able to

22 identify that was to an approach which was based on the

23 subject of intentions of six lead claimants. There are three

24 reasons why that is wrong. The first is that if the judge

25 could not make any findings about the background facts and

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2 contractual context within which the contracts was made from

3 the evidence he heard, it would defeat the purpose of the

4 common issues trial in that respect. The second reason is, as

5 we set out in our notes in reply at the end of the hearing,

6 which, just for your Lordship's reference, it is in that

7 second additional bundle at tab 2 and it is expressly

8 referred, the first point was selection of lead claimants and

9 included correspondence between the parties on the very basis

10 that they were intended to be representative. The third point

11 is that had the judge made findings based on subjective

12 intentions, he would have been applying the wrong test. The

13 correct test is the correctly ascertained objective intention

14 of the parties when contracting, sometimes referred to the

15 intentions or expectation of reasonable people in the position

16 of the parties.

17 My Lord, of course he heard evidence from individuals,

18 but his task was to apply the correct test and make the

19 findings he in fact made in the light of that evidence, as the

20 parties had agreed he should. Can I give your Lordship just

21 two illustrations in the types of findings we find in the

22 judgment.

23 LORD JUSTICE COULSON: This is still in 2?

24 MR. GREEN: Still in 2, my Lord, but it feeds into other points.

25 I will make the point very shortly. If your Lordship looks at

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2 page 320 in the judgment. This is under the heading that

3 begins at 319 "The Factual Matrix". The learned judge invited

4 the parties to agree facts before the trial and there were

5 different categories, and the categories of completely agreed

6 facts, i.e. the fact was agreed and its relevance was agreed,

7 was category 1, and we see those on page 320. Your Lordship

8 will see number 26 as an example, "The Claimants did make long

9 term and expensive commitments in respect of their

10 relationship with the Post Office. The Post Office denied this

11 was true. This denial is an example of the attritional

12 approach of the Post Office to this litigation. This is, in

13 my judgment, obviously true; Claimants who purchased property

14 (freehold or leasehold) and who, literally, lived 'above the

15 shop', because they lived above the premises, obviously made

16 an expensive commitment. Even those who did not obtain

17 residential accommodation as part of their acquisition of any

18 branch made long term and expensive commitments. Sensibly,

19 this point should not have been in issue and could readily

20 have been agreed."

21 That was one of the points that was found in the face of

22 disagreement. But one of the agreed facts was that the Post

23 Office itself makes expensive and long-term commitments.

24 By way of another fact, just to give your Lordship a

25 flavour of it and no more, 323, number 66, the judge heard

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2 extensive evidence about how applicants for a post had to

3 share information about all their pensions, share plans, what

4 they had in the bank, whether they had any ISAs. All of their

5 detailed financial information and the extent and length and

6 duration and terms of mortgages and so forth, and the nature

7 of the property interest they were acquiring.

8 My Lord, pausing there, both in relation to the exercise

9 that was called upon in relation to relational contract, and

10 in order properly to ascertain the objective intentions of the

11 parties to provide the context for implication of any terms on

12 the freestanding terms, the judge identified the correct test,

13 applied it, and made very detailed findings after a five or

14 six-week trial, from which he identified the respective

15 intentions and expectations of the parties and gave expression

16 to those, as necessary, in his findings on relational contract

17 and implied terms.

18 My Lord, it is against that background that I would

19 invite your Lordship, if I may, to just consider the implied

20 terms simpliciter, and the relevant passage, effectively,

21 starts at 743 on page 370. The criticism made of the judge,

22 as if it is a tell-tale criticism of him having fallen into

23 error by my learned friend, is the part of 743 where he says,

24 "... and secondly, if not, are they to be implied terms

25 because they are necessary to give business efficacy to the

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2 contracts ..."

3 So, the complaint, in a sense, is that the judge goes

4 on, later, to find specific terms that he would not have found

5 sprang from the good faith obligation but were necessary.

6 Your Lordship finds that -- 748 is the part I have shown your

7 Lordship already on 371, which is where he narrows the

8 incidents of the good faith term to ensure they are tailored

9 to necessity, giving the lie to the suggestion that he did not

10 apply necessity as a test. Then 749 is where he addresses the

11 four terms which he has found are not consequential upon the

12 contracts being relational.

13 My Lord, in our submission, his analysis is precise and

14 impeccable in this respect. Not only is it right in finding

15 the implied terms as he does, whether in a heartbeat or not,

16 but it is also right because in the way that he does it, it

17 demonstrates, beyond argument, to this court the care which he

18 took to consider and define the limits of the incidents of the

19 good faith obligation. It puts it completely beyond any

20 doubt.

21 The reason I say that is this. At 749 he gives the

22 first two examples of the four, which he has implied in the

23 end, because they are necessary for business efficacy. "(a)",

24 I will use as the example, "To provide adequate training and

25 support ..." If your Lordship looks at 750, the judge

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2 carefully says, "I find that these terms are to be implied,

3 not as consequential upon the finding that the contracts are

4 relational ones, but as part of the exercise necessary to

5 consider whether they are necessary for business efficacy."

6 All the judge is saying is they are not necessary incidents of

7 an obligation of good faith, which he has identified, in the

8 same way that he narrowed the terms on the previous page.

9 What he goes on to explain, rightly, he says, "It is perfectly

10 possible that a party acting in good faith may provide

11 inadequate training -- they might be wholly well-intentioned

12 in doing so, and be attempting to be wholly co-operative with

13 the venture in which they are involved with the other

14 contracting party, but objectively provide wholly deficient

15 training."

16 The judge there correctly passes the obligations which

17 spring from or are incidents of the good faith obligation from

18 those which are nonetheless freestanding and necessary. It

19 does not support at all the contention that he did not regard

20 necessity as essential to the good faith terms, as I have

21 already demonstrated.

22 My Lord, in relation to implied terms, your Lordship

23 sees there that the terms he has implied, he has identified

24 the correct test and he has implied those terms on the basis

25 of necessity for giving business efficacy to the parties'

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2 expectations and intentions when the contract was formed.

3 That is an unimpeachable exercise.

4 So, we say, in those circumstances, and given the very

5 particular and unusual nature of this contract, and the

6 arrangements being made by the parties, which the judge

7 himself has expressly identified, for example when he says

8 that Post Office was required to run branches in areas that

9 were not commercially viable, and he refers to the social

10 function of the Post Office in that respect, he was not

11 required to construe every contract in the world; he was

12 required carefully to analyse and construe this contract,

13 identify its purposes and the parties' respective intentions

14 and expectations, and in those circumstances, determine, on

15 the correct principles, what terms needed to be implied for

16 business efficacy. We respectfully say, we understand Post

17 Office does not like them, but there is absolutely no basis

18 whatsoever on which the terms that he has implied can be

19 impugned.

20 I note that my learned friend complains about the

21 termination term. The difficulty with the termination term is

22 that it is also a prisoner, not just to good prospects on its

23 own terms, that ground, but also succeeding on both the true

24 agreement and UCTA. So, unless they get home on all three of

25 those, Post Office is not going to be in a position in which

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2 it is able, on a whim, to dismiss someone in the way in which

3 it contends, and therefore defeat any ability of that person

4 to any entitlement of that person to any compensation beyond

5 the notice period. So there is no material benefit to Post

6 Office, unless they can win on all three of those points, the

7 prospects of which being multiplied together in series.

8 My Lord, can I identify very briefly a point made. It

9 is actually made in their skeleton argument on page 25, and it

10 is said to relate to the relational contract point, but it

11 obviously applies to the incidents and the implied terms.

12 That is the criticism of the judge, which we respectfully say

13 is unfair, the implicit criticism that he did not have proper

14 regard to the express terms of the contract. At 702 in his

15 judgment, on page 358, he says in the very introduction into

16 this entire section, four lines down on the right-hand side,

17 "... it is necessary to consider the express terms before

18 coming to a firm conclusion on the matter." So it is not a

19 tenable position to say that he was unaware of that. He then

20 picks it up at 721. In case the Post Office's submission is

21 driven to the position where they say he recited it but then

22 did not do it, it is plain from 721, four lines down in the

23 middle, "Whether any contract is relational is heavily

24 dependent upon context, as well as the terms. The

25 circumstances of the relationship, defined by the terms of the

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2 agreement, set in its commercial context, is what decides

3 whether a contract is relational or not." So he had all the

4 terms firmly in mind.

5 He deals with it further at 724, the bottom of 724,

6 repeating the circumstances defined in the terms set out in

7 commercial context, et cetera. He identifies the features and

8 so forth at 728, having identified the ones that are in

9 principle relevant at 725. He talks at the bottom of 728

10 about the aspects which were not purely commercial, and

11 identifies the secondary features as well. That is in the

12 run-up to 732, which applies the right test, as I have already

13 identified. However, he also carefully says, at 737 and 738,

14 that he has looked at whether there are any specific express

15 terms that prevent a duty of faith being implied. He says:

16 "I find there are no such terms, in any of them." It was

17 perfectly open for Post Office to suggest that there were, but

18 your Lordship has heard nothing to the point on that from my

19 learned friend. So not only is the criticism baseless, but

20 there is no actual concrete example which we respectfully say

21 would justify the point, even if there was some foundation for

22 it. So that is the exercise in which he was generally engaged

23 in that respect.

24 My Lord, can I turn to the issue of discretions of which

25 complaint is made. So that is ground 3 -- sorry, paragraph 5.

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2 LORD JUSTICE COULSON: Common issues. Let us stick to grounds,

3 can we? So it is ground 5.

4 MR. GREEN: Ground 5. It is perfectly correct that there is a

5 distinction between an absolute right, on the one hand, and a

6 power and discretion, on the other hand. The two significant

7 things that dispose, we would respectfully say, of the ground

8 of appeal, are, firstly, the judge held that the powers and

9 discretions were subject to the good faith term, or otherwise

10 were controlled by the implied terms. He made an express

11 finding on termination as to whether, in this particular

12 contract, that was a power or an absolute right, by

13 determining that it was controlled by the good faith term. As

14 your Lordship will know from the learned judge's N460 reasons,

15 he points out that Post Office did not argue that the good

16 faith term was not apt to control the termination provision,

17 and he says that at paragraph 43 at 479/11.

18 LORD JUSTICE COULSON: Which termination provision?

19 MR. GREEN: He is referring to common issue 16, as it then was.

20 So he is referring to termination on notice, which we have on

21 page 13, which is grounds 6 and 7.

22 LORD JUSTICE COULSON: That is 6 and 7. Are we coming on to

23 those?

24 MR. GREEN: My Lord, all I am trying to ----

25 LORD JUSTICE COULSON: It is very difficult to get either of you

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2 to stick to the grounds.

3 MR. GREEN: Sorry, can I say this ----

4 LORD JUSTICE COULSON: It is one of the reasons why the judgment

5 in this case is 1122 paragraphs, not a personal criticism of

6 Ms. Davies because she was not there, but it is very difficult

7 to keep all of you on the page. I appreciate that one thing

8 cuts across another, but unless you do that this sort of

9 litigation becomes difficult to manage.

10 MR. GREEN: My Lord, the short submission on ground 5 ----

11 LORD JUSTICE COULSON: Ground 5, one of the criticisms is that the

12 judge did not do the exercise of melding together the

13 discretions and powers, on the one hand, and the implied term

14 fetters, on the other, so as to arrive as at, "Well, this is

15 the result".

16 MR. GREEN: That is the criticism. We reject that. The term that

17 was pleaded was a term that all their powers and discretions

18 were so governed. The judge found in the claimants' favour on

19 that. Again, no example is given. Nor was any sensibly

20 advanced below to defeat it. The one they gave below, on

21 which they lost, was the involvement of the National

22 Federation of Sub-Postmasters in making contractual changes,

23 thereby meaning that in those circumstances Post Office would

24 not have to act in good faith. After the judge investigated

25 the supposed independence of the NFSP in some detail, he found

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2 against them on that point. What the judge has found is that

3 powers and discretions are subject to good faith term, and he

4 has found that termination provision was, in fact, a power or

5 discretion subject to control, which we come on to in 16.

6 LORD JUSTICE COULSON: So do we come onto grounds 6 and 7?

7 MR. GREEN: My Lord, yes.

8 LORD JUSTICE COULSON: It is the same point or points in both.

9 One relates to the three months in the SPMC and one relates to

10 the six months in the NTC?

11 MR. GREEN: Indeed.

12 LORD JUSTICE COULSON: I understand that.

13 MR. GREEN: My Lord, this is a fairly extreme case, as the court

14 will appreciate, from what the judge says about the Autoclenz

15 analysis. The Autoclenz analysis by the judge effectively

16 said that the test in Autoclenz is met that neither party

17 would expect it to operate in that way, and it did not

18 represent the true agreement. If your Lordship had heard the

19 evidence the judge heard you might well have reached the same

20 conclusion. But the question is what conclusion did the judge

21 reach and did he permissibly reach it. His conclusion is

22 absolutely clear about that. He was construing a very unusual

23 contract, with some very unusual terms and a very unusual

24 relationship between the parties, with a very unusual business

25 being operated by Post Office, which has two facets: the

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2 operation of a national network, as required by statute, a

3 network of sub-post offices, and supply through that network

4 to the general public of various postal and other services.

5 It was in construing this contract, not contracts in general,

6 that he reached the conclusions that he did, that in this

7 contract that was the construction to be put upon those words.

8 He does not find that that will always be so and he does not

9 contend that that is so.

10 I understand the answer from the Post Office to be, at

11 least in so far as good faith is controlling in relation to

12 those, which goes back to discretions and powers, that the

13 case is that what is said is that the law is the law. My

14 Lord, I have given my learned friend a copy of this. This is

15 just a copy of MSC at first instance, if I may.

16 LORD JUSTICE COULSON: What does this go to?

17 MR. GREEN: The short point is that Leggatt J ----

18 LORD JUSTICE COULSON: We are certainly really lacking in paper

19 and authorities in this case, so I am really glad you are

20 making good the gap. (Same handed)

21 MR. GREEN: It is paragraph 97 where he discusses the good faith

22 and contractual dealings. Then he says at the bottom: "One

23 such more specific rule now firmly established ... (reads to

24 the words - document not available to shorthand writers) ...

25 must not be exercised arbitrarily." Then, if your Lordship

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2 sees between B and C: "However, I cannot see why this should

3 make any difference in principle." He is referring there to

4 the choice whether or not to terminate the contract in

5 response to repudiatory breach, which is a much more extreme

6 matter to control than what the judge found in our case, which

7 is the exercise of a power to terminate.

8 My Lord, I take it no further than saying it is not open

9 to my learned friend to simply say the law is the law, and

10 that is it, because that is not the law. All we say is it is

11 obviously permissible, as a matter of principle, though it

12 would be rare, but in this contract, this judge, on his

13 findings, on this evidence applied the right test to those

14 facts, particularly with regard to the sort of commitments the

15 parties were making and the nature of the relationship, to

16 reach the conclusions that he did, which we respectfully say

17 cannot sensibly be impugned. We also say the fact that three

18 words are used in one contract that might be used in a

19 completely different contract does not take my learned friend

20 anywhere.

21 LORD JUSTICE COULSON: You mean the "not less than".

22 MR. GREEN: Yes. They are a prisoner to their context. It is

23 actually wrong to construe words without regard to their

24 contract. It is not just a good idea to do so. It is

25 positively wrong as a matter of law to construe the words of

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2 the Supreme Court authority level without that.

3 LORD JUSTICE COULSON: I get that, and of course that is right

4 but, that said, the argument about "not less than three months

5 or six months", leaving aside for this purpose any question of

6 good faith or fetters on discretion and so on, Post Office

7 raise a point of construction on the "not less than" and they

8 say that that means as long as you have given a minimum of

9 three months, or six months, whichever it is, then that is

10 sufficient as a matter of construction.

11 MR. GREEN: Your Lordship is quite right. That I think is

12 probably the only point of construction on the bare words

13 simpliciter.

14 LORD JUSTICE COULSON: Regrettably, it has been the only one

15 I have been able to find so far certainly, but I think it is

16 the only point of construction.

17 MR. GREEN: My Lord, all we say is because the context weighed so

18 heavily in this particular case, that was more than an

19 available view for the judge. He had all the evidence of the

20 Post Office about their practise across the years, paying

21 people out with 26 months, 28 months of remuneration when they

22 close post offices down, all of that. He had weeks of

23 evidence and in the light of all of that made the finding that

24 he did, which, we respectfully say, was an available

25 construction on the clause. We readily recognise that in

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2 other contracts it will mean something quite different, but it

3 is a prisoner to context and the judge was entitled to reach

4 the view that he did.

5 LORD JUSTICE COULSON: Okay.

6 MR. GREEN: My Lord, I will take the suspension very briefly. It

7 is a bit surprising, in a sense ----

8 LORD JUSTICE COULSON: Hang on a minute, which?

9 MR. GREEN: 11, 12 and 13. The judge was construing the clause in

10 the light of his other findings. Your Lordship will probably

11 know that in the Gogay case the care worker accused of child

12 abuse succeeded in recovering damages for personal injury

13 following a suspension that had been in breach of the implied

14 term of mutual trust and confidence, because it was a

15 knee-jerk reaction without investigation. So the idea that in

16 distinct but reasonably closely analogous relationship in that

17 respect, as regards power and control, there would not be an

18 available contractual fetter on the right of suspension we

19 just say is fanciful. If the judge had found that, we would

20 be here, but sitting in my learned friend's seat, but he did

21 not. We respectfully say he correctly made the findings that

22 he did on a proper construction in its contractual context of

23 the contract.

24 My Lord, we respectfully say, as to ground 14 ----

25 LORD JUSTICE COULSON: Hang on, there is 8, 9 and 10.

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2 MR. GREEN: My Lord, I will come back to 8 just briefly and deal

3 with the true agreement together, 8, 9 and 10.

4 LORD JUSTICE COULSON: They are different points. 8 is the

5 material/repudiatory point.

6 MR. GREEN: Shall I just deal with that now, my Lord? It is a

7 fairly straightforward point. This was not a completely easy

8 contract to interpret, because there was a materiality

9 requirement in 16.2.1. There was no materiality requirement

10 in 16.2.2 and there was no threshold whatsoever in 16.2.16 in

11 the contract. 16.2.16 was the ability for Post Office to

12 terminate if any sum was not paid when due. So, on the face

13 of it, literally, without any qualifications such as envisaged

14 in Lewison, it would entitle Post Office to terminate the

15 contract of a sub-postmaster or sub-postmistress if 1p was

16 paid one day late, in circumstances where the due date is not

17 actually defined in the contract itself or in the primary

18 contractual document. My Lord, I say that advisedly, because

19 there was a detailed investigation into the scope of what the

20 contractual documents were. The judge deals with that when he

21 explains how he requested it and he got, effectively, six

22 lever arch files photocopied double-sided, which was said to

23 contain the manual and documents to which the manual referred,

24 but even that did not contain all of them and Post Office's

25 witnesses could not say that they did. So this was a case

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2 where the express contractual terms were in a sort of

3 waterfall cascade of one document into another. Some of the

4 documents referred to had not been called that for 20 years.

5 The Book of Rules did not exist. No one knew quite how long

6 ago it had stopped existing, but there it was, bold as brass,

7 something you got bound by, no one could find it, no document

8 way in name cascading into the manual which included postal

9 instructions. Post Office witnesses had no idea what would or

10 would not be a postal instruction. My Lord, it is not really

11 your average commercial contract drafted by Slaughter & May on

12 one side and Freshfields on the other fighting it out, and

13 reaching compromises. We are miles away from that,

14 notwithstanding Post Office's protestations to the contrary.

15 So, it is in that context that, for example, failing to pay a

16 sum, any sum, by the due date has an even more extreme effect

17 than failing to pay 1p by one day.

18 So, the task faced by the judge in relation to that

19 clause was to look at the whole clause all the way through in

20 16, down to 16 .2.16, note that there is materiality referred

21 to in one place and not in another, and then look and say,

22 "Well, in the round, what am I supposed to find that this

23 clause allows them to do?" It was not the model of clarity.

24 The judge looked at the authorities, looked at the commentary

25 in Lewison and reached the view that in the light of those

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2 principles he was entitled to reach the conclusion that he

3 did.

4 My Lord, 17 and 18, in relation to "true agreement", the

5 wrinkle on true agreement is that the evidence on true

6 agreement that is admissible on an Autoclenz analysis includes

7 the evidence that is post-contractual to work out what the

8 true agreement is. The judge heard gallons of evidence about

9 the run-up to the making of these contracts. He also heard

10 evidence from which he could understand the contractual

11 context, how things actually worked in practice, and there was

12 also some evidence that you could characterise as

13 post-contractual: what happened? From that, he reached the

14 view that he did on the Autoclenz test and we respectfully say

15 it is absolutely hopeless to seek to impeach that when it is a

16 view formed by him on the facts that he found. The gravamen

17 of the finding is whether the true agreement was to entitle

18 Post Office to use what was written in as the express notice

19 periods. You even had Mr. Beale, one of the witnesses, trying

20 to preserve the position, "We would rarely use it." There was

21 no example, certainly none of it being used in that way. That

22 was what the judge found and his conclusions are

23 unimpeachable, and driven by his findings on the facts.

24 My Lord, going back to where I was, which was 14,

25 looking at "onerous and unusual", this is obviously a distinct

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2 issue, which I want to keep distinct from others, but your

3 Lordship will have in mind that the judge decided this issue

4 in the light of his findings about, for example, how the

5 branch trading statements were put together, which we will

6 come on to in much more detail in relation to agency, and what

7 the nature of the relationship was. On the facts that he

8 identified, he reached the views that he did that these were

9 onerous, and that was a classic multi-factorial conclusion

10 which is not really amenable to appeal unless he has made

11 either an error of principle or reached a conclusion that was

12 plainly wrong. We respectfully say he has not done that. The

13 ground at 14 is amplified in the skeleton, effectively

14 criticising him for not directly accepting Post Office's

15 formulation of extraordinary harshness, which the judge refers

16 to at 979 in the judgment. That is, really, we say, an

17 attempt to manufacture a point of principle out of being

18 disappointed by losing the point. What the judge carefully

19 says at 980 is, "This judgment is unlikely to be improved by a

20 linguistic ----

21 LORD JUSTICE COULSON: Paragraph?

22 MR. GREEN: 980 at 424. He says: "This judgment is unlikely to

23 be improved by linguistic analysis of whether there is a

24 difference between harsh, onerous, unusual and/or

25 extraordinary (or outlandish). I prefer onerous and unusual,

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2 because that is the phrase in the majority of the cases, but

3 the test may amount to the same whether one uses the phrase

4 extortionate, extraordinarily harsh, or any permutation of

5 those words. A clause imposing a literally Draconian

6 punishment would undoubtedly qualify under any of these words,

7 but I doubt a clause has to be as severe as that in any

8 event." There is literally no prospect of establishing on

9 appeal that he misdirected himself in that respect. That is

10 absolutely orthodox. So he proceeds on that footing.

11 It is wrong to suggest that he has proceeded on the

12 wrong level of severity. He carefully had regard to the

13 bargaining positions of the parties, as we see at 982. He

14 specifically considers Carewatch, and says where Henderson J

15 said "[It is] always necessary to have full regard to the

16 context and the respective bargaining positions of the

17 parties." It is right your Lordship should know that

18 bargaining positions of the parties is one of the specific

19 factors in Autoclenz as well that Lord Clarke identified, to

20 my disappointment, because I was on the losing side in

21 Autoclenz. It is a specific factor, and it is a specific

22 factor here. There is a continuous theme running through ----

23 LORD JUSTICE COULSON: Specific factor in?

24 MR. GREEN: In onerous and unusual, at 982. The judge, rather

25 than ignoring Carewatch, specifically considers it, identifies

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2 the relevant feature of the ----

3 LORD JUSTICE COULSON: Where are you?

4 MR. GREEN: At 982 on page 424, my Lord, at the bottom it refers

5 to Henderson J (as he then was) in Carewatch, and quotes

6 directly from Carewatch, "[It is] always necessary to have

7 full regard to the context and the respective bargaining

8 positions of the parties", and then he analyses that precise

9 position. Although the judge adopts the same position in

10 relation to rules, instructions and standards at 984 onwards,

11 his approach does not seem to be criticised there. We say the

12 criticism is selective and it is misplaced. He identified the

13 right threshold, he applied the right test, and he took into

14 account the right factors, and did so expressly. So, we

15 respectfully say it is hopeless.

16 In relation to liability for losses, the judge

17 identified at 1010.

18 LORD JUSTICE COULSON: Liability for losses being?

19 MR. GREEN: It is still under onerous and unusual.

20 LORD JUSTICE COULSON: So, that is 14(a).

21 MR. GREEN: 14(a). The general point I have just made across the

22 whole piece.

23 LORD JUSTICE COULSON: Now you are coming to the individual.

24 MR. GREEN: And the specific, individual one. On liability for

25 losses, he deals with it at 1007-1010 in the judgment, and it

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2 is right, to give your Lordship context of this. Can I just

3 take you to 430, page 430, and just look in passing, by way of

4 contrast, at 998 and 999. The learned judge's findings about

5 the long-term nature of the relationship that fed into the

6 finding of a relational contract were the very findings that

7 defeated the claimant's arguments that the ability to change

8 the terms of appointment over time were onerous or unusual.

9 So, he has identified that the consequence of the finding of a

10 relational contract is against the claimant when it comes to

11 998-999, because the very intention and expectation of this

12 long relationship carries with it the likely need to change

13 the terms over the years ahead. So, that is a finding in Post

14 Office's favour on the basis of the very same findings of

15 fact.

16 LORD JUSTICE COULSON: What is the paragraph reference?

17 MR. GREEN: That is 998-999. So we lose on that, but then we turn

18 to -- accounts and liability for loss are on page 431. If

19 your Lordship looks at 432, paragraph 1010.

20 LORD JUSTICE COULSON: Sorry, you have gone on to what?

21 MR. GREEN: This is still liability for losses.

22 LORD JUSTICE COULSON: You have gone to 1010?

23 MR. GREEN: 1010 on page 432.

24 LORD JUSTICE COULSON: That is where he concludes it is an onerous

25 and unusual term.

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2 MR. GREEN: Yes, but it is why. He says, in line 2, "Its effect

3 is, absent any fault on the part of that SPM", this is under

4 the NTC contract, "that they may become liable for very

5 sizeable sums with no upper limit, for something entirely out

6 of their control." So, just to give your Lordship context,

7 one of the sub-postmasters, the court heard evidence, had a

8 shortfall on their system that multiplied up every time they

9 tried to address it by two, and eventually reached £2 million.

10 It is no surprise even with much smaller sums which would

11 still be large sums to SPMs, the idea that you are the

12 insurer, effectively an indemnifier of any mistakes made by

13 Post Office and unable to challenge them, the judge found was

14 onerous. We respectfully say that is not only an available

15 conclusion, we respectfully say it is the only conclusion on

16 the face of that term.

17 In relation to pay during suspension, which begins on

18 433 ----

19 LORD JUSTICE COULSON: This is 14(b).

20 MR. GREEN: 14(b). If your Lordship looks at what is said at

21 1024, the judge recites the fact, "The effect of these

22 provisions in each contract is broadly the same in terms of

23 the remuneration of the SPM. This is, firstly, that the Post

24 Office is not required to pay the SPM during a period of

25 suspension, even though the branch Post Office would remain

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2 open and being operated. Secondly, they also mean that the

3 Post Office may, even upon reinstatement, decide not to pay

4 the SPM at all for the period he or she had been suspended.

5 I consider both of those provisions to be onerous and

6 unusual."

7 So, my Lord, he makes that finding in the context of the

8 sub-postmaster or sub-postmistress coming along to the Post

9 Office, perhaps investing their life savings in the branch and

10 taking it over, and being remunerated through the agreement

11 with the Post Office for the cost of running the Post Office.

12 It is a very British solution to providing a social network of

13 hubs, as it were, for a service, which is that individuals are

14 providing the capital in each little sub-Post Office, not the

15 state. So, these people are paying for the cost of the office

16 being open, and then while they are personally suspended, they

17 are getting nothing for the use of those premises by the Post

18 Office. They are obviously not getting paid for their own

19 time, but they are also not getting the mortgage, the bills.

20 Again, we respectfully say, not only an available

21 conclusion but the only one.

22 The judge finds at 988 that the analogy of effectively a

23 business-to-business relationship is rather overstated by the

24 Post Office in its nature, and that forms the backdrop to the

25 conclusions that he reaches.

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2 Just one quick point on 1025, my Lord, if I may. It is

3 right that your Lordship understands when Post Office in their

4 argument refer to "maintaining access", what they mean is,

5 that does not mean allowing Post Office to pop in and have a

6 look.

7 LORD JUSTICE COULSON: No.

8 MR. GREEN: It means keeping it open for customers.

9 LORD JUSTICE COULSON: I understand that.

10 MR. GREEN: That is why the judge finds what he finds. Then we

11 get the summary termination at (c). That is, in a sense, a

12 consequence of the submissions that I have already addressed

13 your Lordship on, the ability, for example, potentially to

14 terminate summarily in a fairly unqualified situation.

15 Termination on notice, he makes the finding at 1039, and

16 specifically considers the impact this could have.

17 LORD JUSTICE COULSON: 14(c) only arises if the termination

18 without notice provisions are not construed as being related

19 to repudiatory breaches.

20 MR. GREEN: Precisely. My Lord, that is why they have to win

21 three points to get any material benefit.

22 MS. DAVIES: The termination on notice provisions have never been

23 construed as relating to the repudiatory breach but my Lord is

24 right, they were found by the judge to be a subjective implied

25 obligation by reason of good faith, and it is only if that

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2 limitation does not exist that this becomes relevant.

3 LORD JUSTICE COULSON: I was getting that from paragraph 1035,

4 which is the paragraph referred to in 14(c) of the grounds.

5 MR. GREEN: Yes.

6 LORD JUSTICE COULSON: Which begins, "However, if I am wrong, and

7 the termination without notice provisions are not construed as

8 being related to repudiatory breaches -----"

9 MS. DAVIES: That is the without notice. That is the summary

10 termination provisions ----

11 LORD JUSTICE COULSON: Termination without notice.

12 MS. DAVIES: ---- whereas in paragraph 1036 he is turning to the

13 termination with notice provisions.

14 LORD JUSTICE COULSON: I am dealing, again very boringly, with

15 what the points actually are, so 14(c), the point is summary

16 termination, 1035.

17 MR. GREEN: That is right.

18 LORD JUSTICE COULSON: Effectively onerous and unusual if he is

19 wrong.

20 MR. GREEN: If he is wrong. Then, 1036 he turns to termination

21 with notice. I am sorry if I misspoke and led to confusion.

22 LORD JUSTICE COULSON: I am just trying to get what arises under

23 what.

24 MR. GREEN: Indeed, my Lord.

25 LORD JUSTICE COULSON: What previous decision. Effectively, it is

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2 a flowchart. So, then 14(d) is the termination on notice.

3 MR. GREEN: That is at 1036.

4 LORD JUSTICE COULSON: Sorry to interrupt you, Mr. Green.

5 Ms. Davies, do you accept that paragraph 14(d) ought to have a

6 paragraph 1036 after it just to help me orientate myself in

7 the judgment?

8 MS. DAVIES: Sorry, paragraph 18(d)?

9 LORD JUSTICE COULSON: 14(d), termination on notice.

10 MS. DAVIES: Yes, paragraph 1036.

11 LORD JUSTICE COULSON: He then says, "Turning to termination with

12 notice", so that is where we go. There may be other

13 paragraphs as well, but just to anchor me in the judgment.

14 MS. DAVIES: Yes, my Lord.

15 LORD JUSTICE COULSON: Thank you.

16 MR. GREEN: Your Lordship has the point at 1036 he says they would

17 not be onerous or unusual if construed as he says, but, if he

18 is wrong about that, 1037, and then goes on to reach the

19 conclusion. So, in the flowchart there is a "if then". He

20 has made those findings on the basis of the serious impact

21 that the clauses would have on the SPMs, made express factual

22 findings about it, exactly as you are required to by the

23 authorities. There is no error of principle or finding on the

24 facts. Post Office skeleton, I think paragraph 117, says you

25 cannot test it by reference to a hard case. Well, you have to

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2 test it by reference to what it entitles Post Office to do,

3 because that is the basis upon which the power is to be

4 measured -- the hypothetical hard case.

5 LORD JUSTICE COULSON: Because if it is not a hard case it is

6 unlikely to demonstrate an onerous or unusual outcome.

7 MR. GREEN: That is their submission. If you actually ground it

8 in reality, the judge says so if someone goes through this

9 long run-up of perhaps four or six months of appointment

10 process, obtains a long-term interest in the property, a

11 mortgage, perhaps 15/20-year mortgage, employs the staff,

12 takes them on and then the next day is given three months'

13 notice and he makes, your Lordship might think, unsurprising

14 findings about what the impact of that is, and that leads him

15 to his conclusion. We respectfully say it would be pretty

16 catastrophic for someone after six months, nine months or

17 12 months if they did it in the light of the facts that the

18 judge found about the intention of the parties on the

19 long-term notice of the agreement.

20 My Lord, can I just deal with one sub-point, which is

21 the question about there was a previous postmaster, Mr. Lalji,

22 who sought permission from the Court of Appeal, in which the

23 terms the judge was considering were considered by the Court

24 of Appeal, to which the judge, we respectfully say very

25 properly, had regard.

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2 LORD JUSTICE COULSON: Sorry, which ground are we under now?

3 MR. GREEN: This is in relation to suspension. I am actually

4 turning, if I may, to unfair contract terms over the page. If

5 your Lordship goes to 436.

6 LORD JUSTICE COULSON: Which ground?

7 MR. GREEN: Sorry, this is on unfair contract terms.

8 LORD JUSTICE COULSON: The first is to do with written standards

9 of business.

10 MR. GREEN: I am so sorry, my Lord.

11 LORD JUSTICE COULSON: Think of me as VAR, Mr. Green, mucking up

12 your enjoyment of the afternoon by getting you to look at the

13 fine print!

14 MR. GREEN: I am most grateful. The reason I was hesitating was

15 that the submission bears a little bit in relation to

16 suspension as well, but let me just deal with the points as

17 they are taken in here for clarity. So, the written standard

18 terms of business in ground 16, the Post Office is wrong about

19 that, and it is wrong for these reasons. It is wrong if Post

20 Office's submission is that you can only have one sort of

21 business conducted by a company. It is wrong on the facts,

22 because the judge found, and indeed it was Post Office's case,

23 that effectively it did two things in practice. It operated

24 this national network of sub-Post Offices, and provided

25 services to the public.

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2 My learned friend said that the SPMs were not recipients

3 of services or goods from the Post Office, and therefore that

4 that would count against them. She had to make that

5 submission, because Post Office has been at great pains to

6 make sure, throughout, that it has submitted these are

7 business-to-business agreements, not a Commerzbank

8 employment-style agreement. So, when it suits Post Office, it

9 is a business-to-business agreement, but when they want to be

10 able to say UCTA does not apply, suddenly it is exactly like

11 an employment agreement.

12 Because of that tension, my learned friend is driven to

13 submit that the SPMs were not recipients of services or goods

14 from the Post Office, but that is not right, they were. Post

15 Office provided SPMs with the Horizon system, and indeed the

16 judge made a specific finding about obligations to provide

17 adequate training in relation to that to a third party because

18 they are in a third party situation. The distinction that

19 UCTA is aimed at is standard terms of business entered into

20 with third parties, not with your own employees. On any test,

21 we say that was satisfied on the facts as the judge found them

22 about Post Office's business.

23 The second point is contractual performance

24 substantially different. We say that is a hopeless point

25 because the judge found that Post Office had obligations to

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2 remunerate the SPMs and to allow them to run the Post Office

3 branch. What my learned friend's submissions seek to do is to

4 suggest to your Lordship that Post Office's obligations were

5 entirely one-sided, the obligations in issue were not

6 obligations on Post Office, and my learned friend has referred

7 the court to Paragon v Nash.

8 My Lord, that is wrong for two reasons. Paragon v Nash

9 was about setting interest rates and the interest rate would

10 be set and the customer would have to pay it. It was

11 literally a one-sided obligation. All the obligations that

12 the judge had in mind were two-sided obligations and indeed

13 the obligation of Post Office to allow the postmaster to run

14 the branch is a one-sided facet of the bargain, but clearly an

15 obligation on Post Office. The performance of which is

16 substantially different if they do not let you do it at all

17 and exclude you from it.

18 Similarly, when they are talking about responsibility

19 for losses, I can understand a textual comment that making the

20 sub-postmaster responsible for losses might immediately at

21 first blush look like a one-sided obligation but it was not at

22 all. The way it worked was that Post Office would relieve

23 itself of its obligation to pay the sub-postmaster pro rata to

24 any losses that the SPM had not paid. So, Post Office was

25 able to relieve itself of the obligation to pay the SPM by

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2 sticking the sub-postmaster with sums that were generated on

3 the face of the Horizon system, the accuracy of which is the

4 subject of the second trial.

5 My Lord, it is wrong as a matter of principle to view

6 the tests as my learned friend identifies it, but it is also

7 wrong on the actual facts and the nature of the obligations

8 the judge was considering. We respectfully say not only was

9 it an available consideration, it is the only one.

10 In relation to the suspension -- if we look at 18(b),

11 there we have "withholding payment ----"

12 LORD JUSTICE COULSON: What about 18(a)?

13 MR. GREEN: That is responsibility for losses, which I have

14 addressed by reference to the corresponding advantage to Post

15 Office of just not having to pay you.

16 LORD JUSTICE COULSON: Sorry, you are still on substantially

17 different performance, are you?

18 MR. GREEN: Yes, exactly.

19 LORD JUSTICE COULSON: You have not got to reasonableness?

20 MR. GREEN: No, no.

21 LORD JUSTICE COULSON: Sorry.

22 MR. GREEN: I am giving the examples on substantially different

23 performance by reference to the ones they have set out there,

24 if it is helpful.

25 LORD JUSTICE COULSON: Yes, I understand that.

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2 MR. GREEN: So, withholding payment whilst at the same time

3 obliging the SPM to maintain customer access, is basically

4 saying that the SPM's obligations continue, but Post Office is

5 relieved of the obligation to pay the SPM, so to render no

6 performance at all in that respect.

7 My Lord, I can see the transcriber looking at me.

8 I wonder if that is a good moment for a five-minute break.

9 LORD JUSTICE COULSON: Yes, okay. How much longer do you have?

10 MR. GREEN: The original order said me until 3.45 so we would have

11 identical amounts of time, but I am happy to stop at 3.40.

12 That is an identical time.

13 LORD JUSTICE COULSON: We will come back at quarter-past. If you

14 stop at 3.40, I think, that will be fair. I have to finish at

15 4.00 because I have a meeting.

16 MR. GREEN: I am most grateful.

17 LORD JUSTICE COULSON: Thank you.

18 (A Short Break)

19 LORD JUSTICE COULSON: Yes?

20 MR. GREEN: My Lord, my learned friend has indicated she would

21 like ideally an extra five minutes, so I am going to try and

22 finish by 3.35, rather than 3.40 to try and give her the time

23 she would like. My Lord, there is one last point in relation

24 to onerous and unusual and UCTA before I move, if I may, to

25 deal with agency and the burden of proof on the liability for

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2 short falls. There is a case called Lalji v Post Office. It

3 is referred to by the judge in two places. He refers to it in

4 relation to onerous and unusual on termination on page 436 at

5 1030, and he refers to it again at 455, which is a

6 continuation of paragraph 1107 on the previous page. It was

7 only a permission application, but one of the interesting

8 features of that decision is that Court of Appeal were

9 proceeding on the footing that the Unfair Contract Terms Act

10 would apply to the appointment agreement of Mr. Lalji with the

11 Post Office. If your Lordship looks at 1032, that is

12 Sedley LJ, paragraphs [24]-[27] of the judgment as set out

13 there on page 436. And at paragraph [26] he says: "As to the

14 first of these, I see nothing at present in the evidence which

15 justifies the Post Office's resort to the drastic remedy of

16 summary termination. As to the second, it seems to me

17 cogently arguable that clause 19.6 of the contract, which

18 purports to give an unfettered power to forfeit remuneration

19 withheld during a period of suspension, falls foul of

20 s.3(3)(b) of the Unfair Contract Terms Act 1977." So the

21 assumed premise for consideration was that UCTA did apply.

22 That, as you will see from 1030, was a case particularly

23 relied upon by the Post Office. So the entire premise of the

24 hearing before the Court of Appeal has to be wrong, and the

25 Court of Appeal would have to be wrong about that, for the

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2 business point, taken by Post Office, before your Lordship to

3 be correct. As I say, it is only a permission decision, but

4 there it is. Your Lordship will see Brooke LJ' observations

5 at 455: "On the appeal Mr. Davies called in aid section

6 3(2)(b) of the [Unfair Contract Term] Act. He said that this

7 was a contract on the Post Office's written standard terms of

8 business by which the Post Office was claiming to be entitled

9 to render no performance at all in relation to its obligation

10 to remunerate Mr. Lalji during each month of his suspension."

11 This was by no means an eccentric submission by us. It

12 had been foreshadowed in a case in which the Post Office

13 itself had been a party in relation it their own terms.

14 My Lord can I turn and use the remaining 15 minutes to

15 deal with two points - agency and accounts, on the one hand,

16 and the liability for short falls, on the other. Those are

17 the grounds set out on pages 17 and 18 and the agency grounds

18 are between 21 and 24.

19 LORD JUSTICE COULSON: I have those.

20 MR. GREEN: The short point here, my Lord, is that there was a

21 very detailed, as your Lordship may have picked up from the

22 judgment, investigation of how the branch trading statement

23 actually worked, with a methodology being put to some of the

24 claimants' witnesses from which Post Office subsequently

25 receded and accepted, effectively, the methodology of how it

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2 worked contended for by the claimants, and the judge deals

3 with that in his judgment. The result of that inquiry were

4 the judge's findings particularly leading up to and from 816

5 down to 819. Just so that your Lordship has it in mind, the

6 paragraphs that Post Office are quite keen to set against

7 those are him developing his alternative case between 820 and

8 826.

9 The short point here is that the branch trading

10 statement would, by design, include items which a

11 sub-postmistress or sub-postmaster disagreed with. Post

12 Office was driven before Fraser J to assert that the so-called

13 account for agency principles included what was on Horizon and

14 what was said to the help line. Your Lordship will anticipate

15 that the claimants' case before the judge was this is about as

16 far away from the historical development of the idea of a

17 settled account as you can get. This is not you send your

18 agent off to Venice to go and buy some silk and he comes back

19 and presents an account to you and is bound by it at all. The

20 reason it is not is because the SPM, who is seeking to be held

21 to be bound by the settled account, has no control over the

22 contents of the account, in particular items which they either

23 do not understand or positively dispute. The judge, of

24 course, heard evidence that they considered putting a dispute

25 button on the Horizon terminal and decided to reject that

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2 idea.

3 LORD JUSTICE COULSON: A what button.

4 MR. GREEN: A dispute button. You get the thing and you have to

5 accept into the record on Horizon these transactions. The

6 judge also heard evidence from Mrs. Stubbs, who had rung up,

7 complaining about these discrepancies. In parallel Post, it

8 dawning on them recording internally that this was a Horizon

9 problem, they did not tell her. She later finds out from the

10 help line that they did not realise she was disputing it,

11 notwithstanding that she had called several times first.

12 There was absolutely no reality factually to the contentions

13 of the Post Office about what the account by which you are

14 bound should be. It was not capable of certain

15 identification, it was not recorded properly in a document by

16 the person supposed to be bound by it, and it had none of the

17 characteristics of the type of account to which an agent has

18 been held historically in the cases through which those

19 principles are found their development and expression. We

20 respectfully say it was a hopeless case from the outset, but

21 it also dovetails, and this is why I am taking them one after

22 the other if I may, with the Post Office's case in relation to

23 the burden of proof and liability for short falls on which

24 they lost. Those are the grounds that your Lordship afforded

25 my learned friend extra time to develop on page 18, grounds 25

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2 and 26.

3 I hope your Lordship will anticipate the submission that

4 the challenge to that is completely without merit. That is

5 our submission. There is a good reason for that, which is

6 that if your Lordship were to look at the bundle of pleadings,

7 CB3, and I will only take you very quickly to it, tab 12, on

8 page 650, I just give this as an example, Post Office had sort

9 of two goes at their construction of clause 12.12 of the SPMC.

10 Your Lordship will see at 94, (2), it says: "On the true

11 construction of section 12.12 sub-postmasters are responsible

12 for all losses as defined in paragraph 41 above, disclosed in

13 their branch accounts, save for losses that were neither

14 caused by any negligence, any carelessness or any error on

15 their part, nor caused by any act or omission on the part of

16 their assistants." So Post Office's contended construction,

17 not rewrote in the forensic sense, but actually rewrote their

18 clause which did not say that. It is unsurprising that on

19 that matter of construction the judge found that the clause

20 meant what it said. There is no prospect of successfully

21 overturning that.

22 My Lord, why that matters in the SPMC situation is that

23 Post Office was trying to use what it called all the agency

24 principles to oust the conclusion as to what the parties had

25 expressly agreed as to where liability should fall, where the

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2 burden of proof was, because the judge found the burden of

3 proof to be on the Post Office. What this court is now asked

4 to grant permission on is a contention that a type of

5 relationship, which is a prisoner to the parties' consent,

6 which has no application to the facts for the reasons on the

7 branch trading statement I have identified, should in fact

8 lead to a conclusion that the SPMs are bound by the figures on

9 the Horizon system unless they can prove to the contrary. So,

10 my learned friend is seeking permission on an issue which

11 would reverse the judge's decision on what the contract said

12 when the issue itself is actually a prisoner to a proper

13 interpretation of what the parties have agreed. So it is

14 completely hopeless on the facts, and running contrary to the

15 express findings in relation to what the contractual

16 arrangements were.

17 In fairness to the Post Office, there may be one issue

18 on which there was a misunderstanding by them in relation to

19 the deliberate rendering of false accounts, because what the

20 judge found was if you deliberately agree to false accounts,

21 you are just doing what you have been told in following the

22 system. How that arose below, my Lord, was that there was

23 quite a lot of evidence heard about the fact that if a

24 sub-postmaster saw a figure on the Horizon system that they

25 knew to be wrong, they were nonetheless effectively rendering

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2 that account. Now, in fairness to Post Office, I think that

3 what Post Office wanted a finding on was what if an SPM

4 dishonestly declared something. It is fair to say that that

5 is not the question the judge has answered. He has answered a

6 slightly different question. However, what is significant is

7 the parties were afforded an opportunity to ask the judge to

8 clarify anything in the judgment, and that is not a point that

9 was asked of the judge in the document provided by Post

10 Office. We accept that that issue remains undecided, subject

11 to the very clear findings by the judge that lead up to

12 paragraph 819 on 385 that an SPM is not bound by the account

13 on Horizon as a settled account for all of those reasons. No

14 amount of ritual incantation that the word "agent" means that

15 all common law principles have to be imported can change that,

16 for reasons both of fact and principle.

17 My Lord I am under my time. Unless I can assist your

18 Lordship further with any particular points?

19 LORD JUSTICE COULSON: No, that is most helpful, thank you very

20 much.

21 MR. GREEN: I am grateful.

22

23

24

25

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2 MS. DAVIES: My Lord, I am proposing to take this in the order of

3 the grounds, if I may.

4 In relation to ground 2, my Lord, I should make clear at

5 the outset that we are not seeking to advance a ground of

6 appeal based on an unfair reading of the judgment. If my Lord

7 takes the view that the fair reading of the judgment is, as my

8 learned friend suggested today, and is plainly so, so it is

9 not reasonably arguable of being capable of having the meaning

10 that we suggest, then my Lord will conclude that permission

11 should not be granted in relation to that.

12 My learned friend suggested that the judgment in this

13 respect is to be read as the judge using the term "relational

14 contract" with a specific defined meaning, i.e. a contract

15 into which an obligation of good faith is to be implied,

16 applying the necessity test as set out in Marks & Spencer. He

17 was using it as a shorthand, my learned friend suggested, for

18 that.

19 My Lord, the difficulty here is that the judge himself

20 did not use that language. It is not language, for example,

21 that the judge used in paragraph 711 of the judgment at page

22 362, to which my learned friend particularly drew attention,

23 and it is not consistent, in our submission, with the fact

24 that in the judgment at paragraphs 725-726 the learned judge

25 sought to focus on defining characteristics of a relational

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2 contract, rather than focusing on the necessity test. Nor, in

3 my submission, does my learned friend gain support for his

4 interpretation of the judgment from paragraph 748, which he

5 also specifically drew my Lord's attention to, at page 371,

6 which is the paragraph where the learned judge sought to

7 modify the terms he implied as incidental to the good faith

8 obligation in relation to suspension and termination, because

9 he suggested that the broader terms being contended for by the

10 claimants were not a necessary incident of the implied duty of

11 good faith. There, what the judge was doing was asking

12 himself the question whether these specific terms, as

13 presented by the claimants, were a necessary part of the good

14 faith obligation. He was not asking himself whether the good

15 faith obligation as a whole was necessarily applying the

16 Marks & Spencer test. It is to be noted, and we do emphasise

17 this, my Lord, the very fact that he concluded that 10 terms

18 were to be implied as an incident of the good faith obligation

19 but did not satisfy the necessity test shows that he cannot

20 have been approaching this question of incidents as involving

21 the application of the Marks & Spencer test. Therefore, my

22 Lord, even if your Lordship is against us on ground 2(a) and

23 concludes that my learned friend's interpretation of the

24 judgment; in other words, that the judge was using relational

25 contract as shorthand for a contract into which an obligation

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2 of good faith is to be implied following the necessity test,

3 so even if my Lord concludes that that interpretation is

4 plainly the correct one, so permission to appeal should not be

5 granted in relation to 2(a), in our submission, it necessarily

6 follows that in that event my Lord should grant permission as

7 regards the 10 terms which the judge implied as incidental

8 only to the good faith obligation, but which did not meet the

9 necessity test, because if the judge was using relational

10 contract as shorthand in that way, it cannot logically be the

11 case that the incidents which he found were necessarily to the

12 good faith obligation could be implied if they did not meet

13 the necessity test, because the good faith term, on this

14 approach to the judgment, cannot be an obligation that is any

15 broader than is necessary.

16 In the context of his submissions about this area, my

17 learned friend sought to criticise Post Office for filing to

18 give clarity to the implied terms which Post Office conceded,

19 the Sterling v Maitland, and the necessary co-operation term.

20 Our submission is that that was a matter for the breach trial,

21 not the common issues trial, which was concerned with

22 different questions as to whether the terms proposed by the

23 claimants should be implied at all. The judge, as my Lord has

24 seen, decided that it was appropriate to descend into detail

25 as to what the good faith obligation that he implied meant.

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2 LORD JUSTICE COULSON: We have to be slightly careful about that,

3 because my view is that that trespasses into the recusal

4 application. That was a point taken in the recusal

5 application.

6 MS. DAVIES: Sorry, my Lord, forgive me?

7 LORD JUSTICE COULSON: It was a point that was taken that the

8 judge should not have dealt with those points. He should not

9 have descended into the detail in relation to the terms

10 because that was for the breach trial.

11 MS. DAVIES: My Lord, I was not going to suggest that the judge

12 should not have done that. I am just explaining that the

13 judge did do that.

14 LORD JUSTICE COULSON: Clearly that was piffle. I am on record as

15 saying piffle, but I am on record saying that that was a poor

16 argument which I did not accept. So we just have to be

17 slightly careful.

18 MS. DAVIES: Sorry, my Lord, if I gave the impression that I was

19 seeking to criticise the judge for doing that approach, I was

20 certainly not intending to do so. The point is what we are

21 saying for present purposes is the question for your Lordship

22 to decide today is whether there is a reasonable prospect of

23 success as regards the specific incidents of the implied

24 obligation of good faith, the 17 of them which he found to be

25 implied. To do that, one of course has to go through each of

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2 those and ask whether there is a realistic prospect of Post

3 Office showing that the terms should not have been implied at

4 all, or are too broad.

5 LORD JUSTICE COULSON: I am not necessarily sure that that second

6 bit follows. I am not doing a mechanistic exercise in

7 relation to 20 implied terms.

8 MS. DAVIES: My Lord, this is why we had to include them as

9 separate grounds. What the judge has found is this is the

10 term in the contract. If the term goes beyond the duty of

11 good faith, for example because it is absolute in nature or it

12 is unended in time, then it is not a necessary incident of the

13 obligation of good faith that the judge found.

14 LORD JUSTICE COULSON: That is the case, yes.

15 MS. DAVIES: So, therefore the argument that this term, as found

16 by the judge, should not be implied into the contract, in our

17 submission, has a realistic prospect of success.

18 LORD JUSTICE COULSON: I understand that. That is going back to

19 that argument. I understand the point.

20 MS. DAVIES: So far as the specific incidents are concerned, my

21 learned friend suggested that we had in some way overlooked

22 the findings of Leggatt J in Yam Seng and Al Nehayan as to the

23 content of the duty of good faith. With respect to my learned

24 friend, we do not seek to do so. To the contrary, what we

25 seek to emphasise is that in Yam Seng and Al Nehayan, Leggatt

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2 J, Leggatt LJ as he later became, gave specific content to the

3 allegation of good faith and took specific care in both cases

4 to limit the specific terms he was implying to meet that

5 obligation in ways in which the judge in this judgment, in our

6 respectful submission, has gone beyond.

7 My learned friend also sought to rely on paragraphs 749

8 and 750 at page 372 as showing that the learned judge had

9 reasonably appreciated the limits of the obligation of good

10 faith. He drew attention in particular to the fact that the

11 learned judge in relation to paragraph 750 noted that it was

12 perfectly possible that a party acting in good faith may

13 provide inadequate training. However, the point that we are

14 seeking to make, my Lord, is that the same point applies to

15 the other implied terms which the judge did find to be

16 incidents of the duty of good faith. Going back, for example,

17 to (c) and (d), which we looked at this morning, which relate

18 to retaining records and disclosing records, it is perfectly

19 possible, in our submission, that there could be a failure to

20 keep a record or a failure to disclose a record that was made

21 by a party acting in good faith, making a mistake, for

22 example. Similarly, as regards investigating short falls, it

23 is perfectly possible not to investigate a shortfall, small in

24 amount, not disputed by a sub-postmaster, where you would not

25 be acting in the absence of good faith. The same analysis, we

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2 submit, is actually where the error crept in in relation to

3 the specific incidence of the implied obligation that the

4 judge found.

5 If I can then turn to the termination provisions, with

6 respect to my learned friend, it is not right, in our

7 submission, that we need to win on all three points for this

8 to become relevant. He said we need to win on implied

9 obligation of good faith, necessity, Autoclenz and UCTA.

10 Taking, first of all, Autoclenz, if my Lord looks at

11 paragraph 924 of the judgment ----

12 LORD JUSTICE COULSON: You say it is not right that you need to

13 win on ----

14 MS. DAVIES: All three.

15 LORD JUSTICE COULSON: What do you say?

16 MS. DAVIES: My Lord, we say that the court's findings in relation

17 to implied limitations, whether as a matter of good faith or

18 necessity, have freestanding consequences regardless of the

19 Autoclenz findings, for the reasons that I shall show my Lord,

20 and also regardless of the UCTA findings.

21 LORD JUSTICE COULSON: If we concentrate on the not less than

22 three months point ----

23 MS. DAVIES: My Lord, the reason they have freestanding importance

24 is because the limitations the judge found on the termination

25 with notice provisions were twofold: one, in terms of whether

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2 you could serve a notice at all, which had to be exercised in

3 accordance with the good faith obligation, and in any event as

4 a matter of necessity could not be done arbitrarily,

5 irrationally, had to be done for reasonable and proper cause

6 and could not be done in circumstances where Post Office was

7 in material breach of contract itself in a way that was

8 relevant. So that limits on the judge's approach the ability

9 to serve a notice to serve to terminate at all.

10 Then there is a separate limitation ----

11 LORD JUSTICE COULSON: I am sure that is fine. We are dealing

12 with what it is you need to win to have a meaningful victory,

13 as it were. Mr. Green is saying you need to win on each of

14 those three points. This is in relation to the termination

15 provisions. You are saying, no, that is wrong.

16 MS. DAVIES: Yes.

17 LORD JUSTICE COULSON: And I am just trying to find out what it is

18 that you say.

19 MS. DAVIES: The Autoclenz ----

20 LORD JUSTICE COULSON: No, we have three. Which of them? If I do

21 want to give permission on one of these, if that is not right,

22 and these are all freestanding, then that is fine, I will

23 treat them all as freestanding. I do not want to be told

24 subsequently, "Well, you have deprived me of the right of

25 getting anywhere because you have allowed X, but not Y and Z."

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2 MS. DAVIES: I apologise, my Lord.

3 LORD JUSTICE COULSON: I am only trying to be helpful.

4 MS. DAVIES: I assure you, my Lord, so am I. The implied

5 limitation on the right to serve notice at all is not affected

6 by the Autoclenz finding. The Autoclenz finding only relates

7 to the period of notice, and I will show my Lord why we say

8 that is so.

9 On UCTA, just assumed that we failed on UCTA, so there

10 is no termination on the notice provision in these contracts

11 because they are held to be unreasonable, questions will then

12 still arise as to what termination provision should be in the

13 contract. No one is suggesting that there should be no right

14 to terminate on notice at all. That would obviously be

15 nonsensical and would not be in the interests of Mr. Green's

16 clients any more than mine. The question will then still

17 arise whatever is the replacement entitlement to terminate on

18 notice is subject to the implied limitations as regards

19 serving notice, which the judge found. In other words, what

20 I am trying to say is both the Autoclenz and UCTA points only

21 effectively affect the period of notice to be given. They do

22 not affect the issue which the judge also found against Post

23 Office, namely that the ability to terminate on notice, to

24 serve on notice, is subject to implied limitations.

25 That point, which is 2(o) of the common issues, the

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2 implied term at 2(o) of the common issues, is a freestanding

3 point from both the Autoclenz and the UCTA points.

4 LORD JUSTICE COULSON: And that is ground?

5 MS. DAVIES: That is covered by both grounds 3 and 4, because the

6 learned got to those limitations both by implied obligation of

7 good faith and necessity.

8 LORD JUSTICE COULSON: On that basis, if I find there is no

9 realistic prospect of success on grounds 3 and 4 that is it,

10 and I do not need to worry about Autoclenz and UCTA?

11 MS. DAVIES: No, my Lord. 3 and 4 are only dealing with the

12 limitation on the right to serve notice at all. 6 and 7 are

13 dealing with the limitation as regards the period of notice to

14 be given. If my Lord was with us on grounds 6 and 7, you

15 would also need to consider Autoclenz and UCTA so far as it

16 relates to the period of notice.

17 LORD JUSTICE COULSON: So, if Mr. Green is right in relation to

18 that on the period, you do need to be successful on each of

19 those three things?

20 MS. DAVIES: Yes, my Lord.

21 LORD JUSTICE COULSON: Actually, the answer to his question is, as

22 to period, yes, good faith, Autoclenz, UCTA; as to ability to

23 terminate at all, it is the implied terms.

24 MS. DAVIES: Yes, my Lord. On the point of ability to terminate

25 at all, my learned friend said that the judge's approach was

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2 as a specific matter of construction of these contracts, these

3 two contracts and with respect to my learned friend, we submit

4 that is not what the judge did at all. The two passages of

5 the judgment where he dealt with this, are first of all

6 paragraphs 747 and 748, where he got there as a necessary

7 incident of the good faith obligation and my Lord knows that

8 we refer to Ilkerler and Monde, both of which show that

9 restrictions on the right to terminate are not a necessary

10 incident of the obligation of good faith as regards the

11 performance of the contract. That is paragraph 29 of

12 Longmore LJ's judgment of Ilkerler and paragraphs 260-261 and

13 265 ----

14 LORD JUSTICE COULSON: You referred to those this morning.

15 MS. DAVIES: Yes. Then if my Lord looks at paragraphs 757 to 761,

16 which is where he dealt with it under the necessity head, and

17 my Lord can see in 756, (o) is one of the four terms he is

18 referring to in 757. He says he is surprised Post Office

19 denies their existence as implied terms and then refers to

20 Lord Sumption's dicta in BT v Telefónica and then he says,

21 "... it is well established that in the absence of very clear

22 language to the contrary, a contractual discretion must be

23 exercised in good faith and not arbitrarily or capriciously."

24 He says that exact passage was reproduced in an earlier

25 paragraph of Mr. Richard Salter's judgment, in a case which

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2 was fully argued before him and then says, "I find that there

3 is no clear language to the contrary in either the SPMC, the

4 Modified SPMC, or the NTC." He approaching this solely on

5 the basis that it must follow unless there is clear language

6 to the contrary. But the point my Lord is, if my Lord in

7 particular looks at other paragraphs of Monde, which we

8 referred to this morning and have cited in our skeleton, in

9 particular 265-266 these types of clauses giving rights to

10 termination are not to be categorised as conferring

11 contractual discretions at all.

12 The final point in relation this aspect of termination,

13 my Lord, is my learned friend also suggested that Post Office

14 had not argued below that the good faith term did not limit

15 the right to terminate. We dealt with that at paragraph 87 of

16 our skeleton, where we set out the paragraphs of the closing

17 where Post Office did make clear that its case was the only

18 limitations were those spelled out in the clause.

19 Before turning to Autoclenz, just briefly, my Lord, my

20 learned friend referred to the first instance judgment in

21 MSC Mediterranean Shipping where Leggatt J at paragraph 97 did

22 suggest that powers to terminate for repudiatory breach might

23 be categorised as discretions not to be exercised arbitrarily,

24 capriciously or unreasonably. The short answer to that, my

25 Lord, is in paragraph 46 of the Lomas judgment, the Court of

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2 Appeal disagreed with that approach.

3 Then if I can move briefly to Autoclenz. My learned

4 friend spent some time in his submissions emphasising that the

5 learned judge's finding on the facts was that neither party

6 would expect the contract to be swiftly terminated on notice.

7 My Lord, we are not seeking, by this ground, to attack

8 the finding as to parties' expectations. The question we are

9 seeking to raise is whether that satisfies the Autoclenz test,

10 and we submit it plainly does not. If my Lord goes back to

11 paragraph 915 of the judgment at page 403, and the extract

12 from Lord Clarke's judgment in Autoclenz, having referred to

13 the judgment below of Aikens LJ in the passage that the judge

14 underlined, "In addition, he correctly warned against focusing

15 on the 'true intentions' or 'true expectations' of the parties

16 because of the risk of concentrating too much on what were the

17 private intentions of the parties. He added: 'What the

18 parties privately intended or expected (either before or after

19 the contract was agreed) may be evidence of what, objectively

20 discerned, was actually agreed between the parties ... But

21 what ultimately matters is only what was agreed, either as set

22 out in the written terms or, if it is alleged those terms are

23 not accurate, what is proved to be their actual agreement at

24 the time the contract was concluded'." And he accepted an

25 agreement may be express, not implied.

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2 Our criticism, my Lord, which we submit has a realistic

3 prospect of success, is that the judge here fell into error

4 because he focused on expectation and did not identify what

5 had actually been agreed between the parties.

6 Turning then, my Lord, to grounds 11-12, briefly, on

7 suspension. My learned friend suggested that the judge's

8 approach was an available fetter on the contractual right to

9 suspend and in so doing was suggesting, as I understood it,

10 that such fetters were necessary. However, the point that we

11 are making, my Lord, is that the fetter on the contractual

12 right to suspend is spelt out in detail in the contracts,

13 which give a limited not unfettered right to suspend, in

14 particular circumstances. This is a situation where there was

15 no room for implying additional fetters in the way that the

16 judge sought to do so.

17 I jumped over ground 8, because I was following the

18 order of my learned friend's submission, which was the one

19 relating to material breach. My learned friend made some

20 points about the breadth of the provisions in paragraph 16.2.1

21 and 16.2.2 of the relevant contract. My Lord, the point here

22 is if my Lord looks at paragraph 907 on page 401, what the

23 judge has found is that each of the provisions in paragraph

24 16.2.1 to 16.2.2 should properly be construed as being limited

25 to repudiatory breaches in the way identified by, and, in the

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1 HELEN DAVIES QC

2 judge's view, wrongly, in our submission, consistent with the

3 views expressed in the interpretation of the contract. So, he

4 is treating the words in 16.2.1 and 16.2.2, that specifically

5 refer to material breaches, he is reading those down and

6 construing them as meaning repudiatory breach.

7 My Lord, in the last two minutes left available to me if

8 I could very briefly deal with a few points on ground 14,

9 which is the unusual and onerous terms. As regards paragraph

10 14(a), my learned friend suggested that it was neither unduly

11 onerous, nor unusual, for sub-postmasters not to be liable for

12 mistakes by Post Office, but, my Lord, that is not what this

13 clause is concerned about. This clause is concerned solely

14 with rendering the sub-postmaster strictly liable for the loss

15 of cash or stock, so Post Office's cash or stock. It is that

16 obligation which the judge found to be onerous and unusual,

17 and so it is a much narrower obligation than the one suggested

18 by my learned friend.

19 In our submission, there is not anything unusual or

20 unduly onerous in a finding that an agent is strictly liable

21 for his loss of his principal's cash or property, absent

22 criminal offence.

23 Ground 14(b), suspension. My learned friend sought in

24 this context to say the finding that it was unduly onerous and

25 unusual was not surprising given that the sub-postmaster had

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2 a rented property, et cetera, et cetera. But the short point

3 here, my Lord, is my learned friend's submissions and the

4 judge's finding ignore the fact that during the period of

5 suspension the sub-postmaster is not providing any services,

6 and indeed, as the judge found in other places, Post Office

7 will retain a replacement SPM, sub-postmaster, and it is not

8 unduly onerous or surprising, in our submission, that if you

9 are not providing a service, you should not receive payment.

10 Finally, my Lord, termination without notice under this

11 head. The judge's finding, my Lord, one needs to look at at

12 paragraph 1035. The reason he found that if the termination

13 without notice provision was not limited to repudiatory breach

14 it would be unduly onerous and unusual is that he was of the

15 view that the provisions, if not limited to repudiatory

16 breach, would entitle Post Office to terminate without notice

17 for any breach, no matter how minor, and that is what rendered

18 them onerous and unusual. My Lord can see that at page 437.

19 My Lord, we are contending for that and never have done.

20 We accept that they are limited to material breach, which is a

21 substantive concept identified and explained in the passages

22 in Lewison that I have looked at this morning. So, with

23 respect, my Lord, the learned judge's reasoning does not

24 address the particular issue that arises.

25 If I may have the indulgence of one minute on

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2 Commerzbank, on the UCTA point on Commerzbank, which is ground

3 16, which is the only other point I wanted to address?

4 LORD JUSTICE COULSON: Yes.

5 MS. DAVIES: The bank in Commerzbank was acting as a business when

6 contracting with its employees. So, the description of these

7 contracts as business-to-business contracts does not help my

8 learned friend. The second point my learned friend made was

9 that Post Office is providing the services to sub-postmasters

10 because it provides Horizon, but the bank in Commerzbank would

11 just as much be providing its employees with the tools

12 necessary to undertake their activities and training and so on

13 and so forth. So, again, that is not a valid distinction, in

14 our submission.

15 My Lord, all the other points dealt with by my learned

16 friend we have dealt with in our skeleton, so unless there are

17 other points I can assist my Lord on ----

18 LORD JUSTICE COULSON: All right. When I had originally concluded

19 that I thought in the round it was in the interests of justice

20 to deal with the permission application orally, that was some

21 time ago, late August or early September, I cannot remember

22 when, and the parties had a difficulty -- no criticism -- as

23 to when they could do it and so in the end we settled on today

24 because it was my week off, as it were. But when that was

25 fixed, when that was said to be the convenient date, my clerk

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2 was told that that was a timeslot in which the parties either

3 had organised or were organising a mediation.

4 MS. DAVIES: Yes, the parties amended those arrangements, my Lord,

5 in light of today, so that is why people are here. They could

6 not be in two places at once.

7 LORD JUSTICE COULSON: I understand that. Does that mean the

8 mediation has yet to happen?

9 MS. DAVIES: Yes, my Lord.

10 LORD JUSTICE COULSON: And when is that? I ask because ----

11 MR. GREEN: 28th and 29th.

12 LORD JUSTICE COULSON: Pardon?

13 MR. GREEN: 27th and 28th.

14 MS. DAVIES: 27th and 28th.

15 LORD JUSTICE COULSON: So, that is not next week, because that

16 starts the 18th ----

17 MS. DAVIES: It is the back end of the week after.

18 LORD JUSTICE COULSON: ---- but the back end of the week after.

19 So, therefore, you would like to know the result by the end of

20 next week ----

21 MS. DAVIES: My Lord ----

22 LORD JUSTICE COULSON: ---- inevitably.

23 MS. DAVIES: ---- if that were possible.

24 LORD JUSTICE COULSON: Inevitably, because that may have some

25 materiality to the mediation.

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2 MS. DAVIES: That, of course, cannot be ruled out, my Lord. So,

3 if it were possible ----

4 LORD JUSTICE COULSON: Okay. I think that that will be possible.

5 My clerk will let the parties know if there is a difficulty

6 with that, but if you do not hear from her, you can assume

7 that you will get the order by the end of next week, let us

8 say, by lunchtime next Friday. So, next Friday is the ----

9 MS. DAVIES: 22nd November.

10 LORD JUSTICE COULSON: ---- 22nd, so by lunchtime on Friday, the

11 22nd.

12 MS. DAVIES: My Lord, we are very grateful. We do of course

13 appreciate the nature of this case is that there is a large

14 volume of material.

15 LORD JUSTICE COULSON: Obviously the normal order on a PTA is the

16 decision and then the reasons. Just from a logistical point

17 of view I think I will do the reasons on a separate sheet, so

18 whatever the result, the reasons for the result will say,

19 "Please see", whatever it is, and then that will be the

20 decision. I think that it would also follow that although, of

21 course, that is a public document, in the same way as the

22 reasons for my refusal in that instance to grant permission in

23 relation to the recusal application, this separate document,

24 although it will look a bit like a judgment, is obviously not

25 a judgment. It is simply the reasons for either agreeing to

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2 or refusing permission to appeal, so as long as that is clear,

3 and it will therefore not have a neutral citation number, and

4 it will therefore not be a document which is capable of being

5 cited. I only say that because I know sometimes there can be

6 a debate about that.

7 MS. DAVIES: My Lord, capable of being cited more generally,

8 I totally understand.

9 LORD JUSTICE COULSON: That is what I mean, capable of being cited

10 more generally.

11 MS. DAVIES: As per Fraser J, obviously if issues arose, because

12 we are only part of the way through this litigation ----

13 LORD JUSTICE COULSON: No, for the parties, this is the result of

14 the parties' contested application, so they can do what they

15 like with it. Provided it remains lawful they can do what

16 they like with it. No, I am simply saying for wider

17 consumption. I only say that because I did do a permission

18 application last year where there were some points of

19 principle and the parties were very anxious and I got

20 permission from the Master of the Rolls for that to be a

21 document in which I could loftily say that it could be cited

22 in other cases, but this is not that case.

23 MS. DAVIES: There is some more general interest in grounds 2 and

24 3, but I cannot put it any higher than that. One knows that

25 from commentary in the legal press and so on.

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1 DISCUSSION

2 LORD JUSTICE COULSON: Not round our way.

3 MS. DAVIES: We have referred I think in the letter we wrote to

4 the court that there certainly have been a number of articles

5 about that aspect of the judgment, but I understand what my

6 Lord is saying.

7 LORD JUSTICE COULSON: It is the sort of thing that some people

8 get very excited about. I do not know how long I have been

9 doing this, but I cannot remember my life ever being enhanced

10 or detrimentally affected by the concept of relational

11 contracts. Good faith, yes, relational contracts, no. That

12 is the basis on which I shall produce it, and I will rely on

13 you both to keep the academics at bay. As I say, unless you

14 hear from my clerk to the contrary, you will have something no

15 later than lunchtime on Friday, and hopefully, if I get shot

16 of this cold, before that.

17 MS. DAVIES: My Lord, we are very grateful and I do appreciate we

18 have rattled through an awful lot of material in a short space

19 of time.

20 LORD JUSTICE COULSON: As I hope you can tell, I have done a lot

21 of reading, possibly rather more than I will get the credit

22 for here.

23 MS. DAVIES: We are very grateful for that, my Lord.

24 LORD JUSTICE COULSON: That is all right. Thank you both very

25 much.

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