Filed on behalf of the: Defendant

Witness: N. Beal
Statement No.: First
Date Made: 24 August 2018

THE POST OFFICE GROUP LITIGATION

Claim Nos: HQl6X01238, HQ17X02637 and HQl7X04248

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION
. ROYAL COURTS OF JUSTICE

BETWEEN

ALAN BATES & OTHERS

Claimants

AND

POST OFFICE LIMITED

Defendant

WITNESS STATEMENT OF NICHOLAS PETER BEAL

l, NICHOLAS (NICK) PETER BEAL of Finsbury Dials, 20 Finsbury Street London EC2Y
gAQ WILL SAY as follows:

1 I am the Head of Agents' Development and Remuneration at Post Office Limited

(Post Office). I am authorised to make this statement on behalf of the Post
Office.

2. The facts set out in this statement are within my own knowledge, or if they are
outside my knowledge, I have explained the source of my information or belief.

3. Where below I speak about practices in place before I started working on Post
Office's network policies in 2010, this knowledge is based on my own personal
experience, discussions with other long serving colleagues over many years and
various documents I have seen over time.

4. ln this statement, the term Subpostmaster is used to generally refer to agents of

Post Office who operate branches on its behalf, including subpostmasters,
subpostmistresses, postmasters and operators.

5. This statement should be read in light of Angela Van Den Bogerd's statement,
which explains the background to Post Office's business and sets the background
context for this statement.

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INTRODUCTION

6. ln this statement I discuss:

6.1 The different types of standard contracts Post Office has with
Subpostmasters and the different types of branches within the post Office
network.

6.2 The remuneration Subpostmasters receive.

6.3 The role of the National Federation of Subpostmasters (NFSp)

MY BACKGROUND

7. I commenced my employment with Post Office (known as post Office Counters

(POCL) at that time) in 1987.

8. I\Iy first role was a counter clerk at a Post Office branch between 1g87 and 1990.

I Thereafter, between 1990 and 1996 I held various managerial roles that included
managing, or being an assistant manager in, a number of branches (Crown or
Directly Managed as they are now known) for a short period and other project
management, product design, client management, business planning and
reporting roles. This included my first role relating to the agency branches,
whereby I was seconded to the Thames Valley Automation project - an early lT
project in POCL where a computer system was trialled in a number of branches
(agency and Crowns) in the Thames Valley area. My role in this project was as a
field installation and training manager and this included computer installation/set
up in agency branches and training Subpostmasters to use the system.

10 Between 1996 and 2001,1held a Service Development manager role. ln this

role, I was involved in the analysis and design of changes to operational
procedures in advance of the roll out of the Horizon system. This essentially was
the design of how products would operate on the new Horizon system.

11 I was appointed Head of Operational Finance and Planning in 2001 and held this
position until 2004. I managed a team delivering management information,
financial analysis and business planning support to the operations teams within
Post Office.

12 ln 2004,1 moved to network policy, and this is the area I have been involved in
ever since. Between 2004 and 2010, I held the position of Network Planning
Manager. I was involved in developing and piloting the new outreach Post Office
branch models for rural areas and in planning various branch closure processes

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for the Network Change programme (described in Angela Van Den Bogerd's
statement).

13 Between 2010 and 2011,1held the position of Network Relationships Manger. I

took on responsibility for managing Post Office's relationship with the NFSP. My
other responsibilities included developing the new branch operating models that
were introduced under the Network Transformation programme (described in
Angela Van Den Bogerd's statement). I discuss these new branch operating.
models in my statement below.

14 ln 2011, I was appointed Head of Network Development. My title changed to

Head of Agents' Development and Remuneration in 2012, but the role remained
similar. I have 3 main accountabilities: (i) managing Post Office's relationship with
the NFSP; (ii) the remuneration of Subpostmasters; and (iii) developing and
implementing the terms of Subpostmasters contracts.

THE CONTRACT MODELS

15. Historically, Post Office has developed and maintained various contract models
for the operation of Post Office branches. These various models have evolved
over time due to changes in the regulatory and client driven requirements and
also in response to changes in the market, particularly the increasing pressures of
retail competition and technological progress.

16 For each model, there is a standard contract. lf a Subpostmaster requested a

change to the standard contract offered, the request would not be acceptable to
Post Office. The reason for this is the size of our network. We have over 11 ,000
branches. To manage a network of this size, we have to be as consistent as
possible across all our Subpostmasters whilst recognising that there are different
types of branches that require different standard arrangements. Without
consistency within each of the models, the administrative costs of running our
network would be too great.

17. Below I outline the main contract types we have with Subpostmasters

The Subpostmasters Contract

18. The Subpostmasters Contract was rolled out in 1994. Prior to the Network
Transformation programme, most Subpostmasters entered into the
Subpostmasters Contract with Post Office. lt was the standard commercial model
and the most widely used contract for agent Subpostmasters during the 1990s
and the 2000s. I would estimate that during this period around 80% or more of
branches were on the Subpostmasters Contract. This estimate is based upon the

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number of branches in the network at the end of March 2009. I have used this
date as it is the last full year prior to the start of the development of the Network
Transformation Programme. Prior to this, the figure would have been higher as
most of the branches closed in the previous decade would have operated on the
Subpostmasters Contract.

19 Of the Lead Claimants, Mr Bates, Ms Stubbs and Mr Sabir entered into the
Subpostmasters Contract for the branches they operated.

The Modified Subpostmasters Contracts and the franchise agreements

20 From 1989, Post Office began embarking on a long-term programme of

converting the Crown branches from being directly managed by Post Office to
being operated by agents. Crown branches were larger branches in terms of
footfall and volume of business transacted.

21 The Crown branches were marketed to two different groups, the large national
multiples and independent operators. The large national multiples were large
retailers, initially Sainsbury, Asda and Tesco, who took on and managed multiple
branches across the country. A Company Franchise Agreement providing a full
franchise offer was developed and marketed to these entities. As the programme
of converting Crown offices continued, in later years, branches on this contract
type were also operated by other national multiples such as McColls and the
Cooperative Society.

22. Where the Crown branches were being offered to individual agents, Post Office
developed the Modified Subpostmasters Contract (the Modified Contract). This
contract was based on the standard Subpostmasters Contract and many of the
terms of the two contracts were identical. The main difference was in relation to
the remuneration structure. This is discussed in the remuneration section below.

23 Of the Lead Claimants, Mr Abdulla entered into the Modified Subpostmasters

Contract.

24 ln 1995, Post Office rolled out the lndividual Franchise Post Office Contract. This
was used where the larger Crown branches were being offered to independent
retailers, where there would be a significant retail offering alongside the Post
Office branch.

Community Subpostmasters Contract

25. ln 1988, Post Office created a new variant to the standard Subpostmasters
Contract, the Community Subpostmasters Contract (the Community Contract),
which was aimed at retaining Post Office services in more remote rural areas.

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This contract was offered to small branches which typically opened for less than
20 hours per week. The principal difference between this contract and the
standard Subpostmasters Contract was that the remuneration offered under the
Community Contract was largely fixed, rather than varying with transaction
volumes.

26. At the same time it was recognised that for slightly larger branches in more
remote rural areas there were occasions where to maintain Post Office services
for less than full time hours would need to be an option. These branches, called
Restricted Hours branches, operated usually between 21 and 36 hours per week.
However, the remuneration structure for the Restricted Hours branches was
similar to Community branches with the remuneration primarily fixed.

27 There is a further contract variant for very small branches called the Minimum
Payment contract. I cannot confirm when this was introduced but I believe it
existed for many years prior to 1988 and was for very small branches that opened
on a full time basis and where the remuneration was largely fixed. This was again
for branches in more remote rural areas.

The Network Transformation Contracts

28 ln 2011, Post Office embarked on the Network Transformation (NT) programme.

The key aims of the programme were to re-develop the branch network so that it
could operate on a more sustainable footing and to give customers enhanced
access to Post Office products and services. Government funding was received
for the NT programme and the funding was used to convert existing branches to
two new operating models that were developed. These models were the Locals
model and the Mains model.

29 The focus of the Locals model was to integrate the Post Office branch into the
host retail business to a far greater degree than was previously the case. This
was done by taking away the separate Post Office counter and back-office space
and replacing it with a single serving position for both retail and Post Office
services, with the tills for both sitting on the same counter side-by-side. This
freed up more retail space for the Subpostmaster and potentially saved on staff
costs because the Subpostmaster did not require dedicated staff behind the Post
Office counter. One member of staff could then serve both retail and Post Office
customers together from one place. The product set available for sale was
reduced to around 85o/o of the full set that would be available at a Mains branch.
The remaining products were the simpler transactions which would lower the
Subpostmaster's costs by eliminating the more complex back office duties
involved in the more complex transactions (such as overseas Mails services,

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issuing tax discs and passport renewals). Another benefit of the integration was
that the Subpostmaster could extend the opening hours of the post Office branch
to match his retail opening hours with limited additional expense.

30 The Mains model was more akin to the traditional Post Office branch format
where a separate Post Office counter was retained. However, in most of these
branches a combined Post Office and retail counter was also installed upon
conversion so that certain simple products could be sold from the retail side
during the (usually) longer retail opening hours. This gave the Subpostmaster
more flexibility: he could still sell the full range of products from the traditional and
separate Post Office counter whilst offering a smaller range of products from the
convenience of the retail counter.

31 Under the NT programme, Subpostmasters were given the option to convert their
branches to the Local or Mains models. Where Subpostmasters chose to
convert, providing they met Post Office's suitability criteria, funding was provided
for the fit-out costs of conversions. Branches with more than around 1,500
weekly customer visits and in suitable locations could convert to the Mains model,
and the remainder could convert to the Locals model.

32 lf a Subpostmaster did not wish to convert to the new models, he could leave the
network and be paid a leaver's payment which was equivalent to 18 months
remuneration (rising to 26 months remuneration later in the programme).
However, the leaver's payment was only available if a suitable replacement
Subpostmaster was found to open a branch in that locality (either at the existing
branch premises or new nearby premises). The replacement Subpostmasterwas
appointed on the Mains or Locals model and received funding to fit out the
branch. lt was intended that over time the entire network (with the exception of
branches in locations designated as being within the Community statusl) should
convert to either the Locals or Mains branch models, with branches operating
under the older contracts being phased out.

33. Post Office changed the suite of standard contracts for the purpose of the NT
programme. Despite the changes, the core principles of the agent being
responsible for running the branch, employing assistants, completing the
accounts and liability for losses remained the same.

1
A Community status location is a location where there was no other retail location within 0.5m of
the existing Post office branch at the time of this status being introduced in 2013. Any Post Office
branch in such a location was not required to convert to a Locals or Mains contract and could
remain on its existing contract. For the avoidance of doubt, this is not the same as the branches
that operate on the Community contract, although all branches on a Community contract are likely
to be designated as in a Community status location.

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34. There are broadly 2 categories of NT Contracts; the Local post Office Agreement
(the Locals Contract) and the Mains Post Office Agreement (the Mains
Contract). For completeness, I should mention that within each category there
are a number of variants. For example, there are separate contracts depending
on whether the converted branch is an existing Post Office branch (these
contracts are referred to as On Site contracts) or whether the contract is for a
branch at a new location (referred to as Off Site contracts). There are also
separate contracts depending on whether the Subpostmaster had been operating
the branch previously under the traditional Subpostmasters Contract and was
converting to the new model or was a new applicant replacing an existing
Subpostmaster leaving under Network Transformation. The majority of the
differences between these contracts relate to the obligations of post Office and
the Subpostmaster before the Subpostmaster starts operating the new model
branch (for example, obligations in respect of how the fit-out work is to be carried
out).

35 Of the Lead Claimants, Ms Dar entered into the Off Site Local post Office
Agreement (a contract used for new Subpostmasters setting up a Local post
Office branch at new premises) and Ms Stockdale entered into the On Site
Variant Local Post Office (Post Office Limited Cash) Agreement (a contract used
for new Subpostmasters setting up a Local Post Office branch at existing branch
premises).

36. When Post Office was preparing the Locals and Mains contracts, we consulted
and negotiated extensively with the NFSP regarding the changes we were
making. The NSFP were broadly supportive of the NT Programme and the new
NT Contracts.

Variations

37. From time to time, Post Office has varied the terms of its standard contracts to
reflect operational changes, changes in the regulatory requirements and in
response to shifts in market conditions. Both the Subpostmasters Contract and
NT Contracts contain terms permitting Post Office to amend the contractual terms
by giving notice. This is necessary to allow Post Office to implement changes
across the branch network in a consistent and efficient way.

38. To the best of my knowledge, below is a list the variations that have been applied
since 2002 to the Subpostmasters Contract, the Modifled Contract, the
Community Contract (collectively, the Traditional Contracts) and the variations
that applied to the suite of NT Contracts:

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38.1 On 4 November 2002, Subpostmasters were notified of a number of

variations to the terms of the Traditional Contracts. The variations were
necessary due to the change of business name from post Office Counters
Limited to Post Office Limited.

38.2 On 1 April 2002, the Modified Contract was amended to allow

Subpostmasters under this contract to claim holiday substitution and sick
absence substitution allowance.

38.3 On 1 August 2004, section 23 of the Subpostmasters Contract and section

19 of the Community Contract were varied due to the introduction by post
Office of a new saving stamp.

38.4 ln October 2004, the remuneration sections of all the Traditional Contracts
were varied so that the same remuneration structure applied across all the
Traditional Contracts.

38.5 On 1 April 2005, section 21 of the Subpostmasters Contract, section 21M

of the Modified Contract and section 17 of the Community Contract were
varied. This variation related to telephone facilities at Post Office
branches.

38.6 On 23 September 2005, section 17 ol the Subpostmasters Contract,

section 13 of the Community Contract and section 13M of the Modified
Contract were varied. These sections relate to the Subpostmaster's
private business and certain restrictions, for example in relation to
gambling and political activities.

38.7 On 31 July 2006, section 12A of the Subpostmasters Contract, section 8A

of the Community Contract and section 9M(A) of the Modified Contract
were varied in relation to responsibility for the safeguarding of the mail.

38.8 On 31 July 2006, a variation was issued in respect of section 15 of the

Subpostmasters Contract, section 11 of the Community Contract and
section 10M of the Modified Contract in relation to Assistants.

38.9 On 31 July 2006, a variation was issued in respect of section 16 of the

Subpostmasters Contract, section 12 of the Community Contract and 12M
of the Modified Contract in relation to the divulgence of official information.

38.10 ln October 2015, the remuneration sections of the Traditional Contracts

were amended to allow for a phased change of the remuneration structure
from a part fixed, part variable model to a fully variable model based on

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the volume and value of transactions undertaken at the branch. This

variation was not issued to Subpostmasters operating branches with
community status locations. See further note 1 on page 6 above.

38.11 ln November 2017, the terms relating to telephone facilities across all post
Office contracts were amended due to Post Office moving its lT network
and telephony services provider from BT to Verizon.

38.12 ln April 2018, new terms were introduced to all Post Office,s contracts with
Subpostmasters in relation to complying with the new data protection
requirements introduced by the General Data Protection Regulation.

39 ln addition to the above variations, Post Office also reviews the remuneration
structure and rates annually. Additional contract terms may also be agreed for
branches with additional equipment such as Paystation terminals, ATMs and AEI
terminals (used for Government identity services). From time to time, post Office
also issues changes to the operating instructions and manuals. These are issued
frequently and are usually in response to changes in regulatory and client
requirements, changes in the products being sold at the branches and/or where
new technology may be adopted.

40. The Traditional Contracts provided that Post Office may amend the rates and
remuneration structure following consultation and negotiation with the NFSp.
This requirement is not included in the NT Contracts. However, to the best of my
knowledge, it has been Post Office's practice that all changes to remuneration
(both under the Traditional Contracts and NT Contracts) are made following
consultation / negotiation with the NFSP.

41 Further, since 2010, when I took over the role of liaising with the NFSP, it has
also been the practice of my team to consult with the NFSP on all proposed
contractual changes (i.e. amendments to the contracts, operational instructions
and/or remuneration) that my team is aware of. My team holds monthly meetings
with the NFSP. Depending on the proposed amendment, these may be
discussed at the meetings or we may send a notice of the proposed change to the
NFSP to give them an opportunity to comment if they wish to. We take their
views into account in deciding whether and how to proceed with the proposed
amendment.

REMUNERATION

42. Over the years, the manner in which the remuneration has been calculated has
evolved. There has been a gradual move away from paying fixed annual

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remuneration which was loosely based on historic sales volumes for a branch to
the current system where all or a large part of the remuneration is, for most
contract types, fully variable based on the volume and value of products
transacted.

43. There are, however, still significant variations within the system. Different branch
types are remunerated on different models, and the precise amount paid will also
be different on a branch-by-branch basis (even for branches on the same model).

THE NATIONAL FEDERATION OF SUBPOSTMASTERS

44. The NFSP was set up in 1897 and is an independent members'organisation

supporting Subpostmasters. The NFSP is the only representative body with
which Post Office will seek to discuss and consult on matters affecting
Subpostmasters.

45. The NFSP is independent of Post Office. ln 2015, the structure of the NFSP
changed to a trade association that was to be funded by Post Office pursuant to a
1S-year grant arrangement. A copy of the Grant Agreement is available on
NFSP's website.2 The long-term nature of the Grant Agreement was designed to
underline the NFSP's independence from Post Office.

46. The NFSP looks to support Subpostmasters to maximise the profit from their post
office and retail businesses, therefore including looking to grow the remuneration
from their post office and improve the operation of their post office. As I

mentioned in paragraphs 40 and 41 above, it has been, to the best of my

knowledge, Post Office's practice to consult and negotiate with the NFSP on all
proposed changes to Post Office's contract terms with its Subpostmasters.

47 The NFSP also works with Post Office on a range of other issues including
branch security, operational systems and technology. Our interests are usually
aligned because we both want what is good for the network as a whole, although
we sometimes have different views on how that might be achieved.

48 The NFSP provides a range of services offering support, advice and information
to its members. lts monthly magazine, "The Subpostmaster", provides up-to-date
information on issues affecting Subpostmasters. Their 24-hour helpline gives
advice on matters such as contract issues in relation to the staff employed by
Subpostmasters. Support and guidance is available from the NFSP in the event
of issues arising with Post Office. Subpostmasters have access to local support

2
See https:l/vrrww. nfsp. oro.uk/about-us

AC 151538199 10
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