1 Thursday, 11 April 2024 2 (10.00 am) 3 MR STEVENS: Good morning, sir, can you see and hear me? 4 SIR WYN WILLIAMS: Yes, I can, thank you. 5 MR STEVENS: If I may call Mr Smith. 6 DAVID JOHN SMITH (affirmed) 7 Questioned by MR STEVENS 8 MR STEVENS: Mr Smith, my name is Sam Stevens and I ask 9 questions on behalf of the Inquiry. Could I ask you to 10 state your full name, please? 11 A. Hello, my name is David John Smith. 12 Q. Thank you for giving your evidence to the Inquiry today. 13 I want to turn to your witness statement, it should be 14 in a bundle of documents in front of you, dated 15 23 February 2024 -- 16 A. Yeah. 17 Q. -- and running to 98 paragraphs. 18 A. Yeah. 19 Q. Can I ask you please to turn to page 32, as I understand 20 you want to make some clarifications to paragraph 92. 21 A. Yes, that's right. Simple changes, really. When 22 I wrote this, I wasn't able to see the board minutes 23 that gave me the exact time when I took over as Chief 24 Customer Officer and Paula took over as Managing 25 Director. So in here -- 1 1 Q. When you say "Paula", you mean Paula Vennells? 2 A. Paula Vennells, yes, sorry. In here we talk about 3 November/December 2010. In fact, I'm now aware that -- 4 from the board minutes, that Paula took over I think it 5 was the middle of October, the exact date, I think, is 6 in that board minute but around the 18th, which actually 7 means that that paragraph is slightly wrong. It should 8 say "In around September 2010 it became clear around the 9 direction". And also to clarify that I handed over the 10 day-to-day running to Paula Vennells as per the board 11 minute on 18 October. Otherwise, I'm happy with the 12 statement. 13 Q. Just as a matter of clarity as well, the last sentence 14 you say, "I was still a Director of the POL board", Post 15 Office Limited board, currently it says for six or seven 16 months. 17 A. Yes, forgive me, the exact date, I think, is in the 18 Companies House records, it's sometimes in July so 19 it's -- to reflect the exact date, I think, would be 20 better. 21 Q. Can I ask you please to turn to page 35 of your 22 statement. 23 A. Yes. 24 Q. Do you see a signature? 25 A. I do. 2 1 Q. Is that your signature? 2 A. It is. 3 Q. Subject to the clarifications you just made, are the 4 contents of the statement true to the best of your 5 knowledge and belief? 6 A. Yes, they are. 7 Q. That statement now stands as your evidence to the 8 Inquiry. I'm going to ask you some questions about it 9 and other matters. 10 Dealing very briefly with your professional 11 background, you qualified as a chartered accountant in 12 1989; is that right? 13 A. Yes. 14 Q. You joined Royal Mail Group Plc in August 2002? 15 A. Yes. 16 Q. Your prior board experience before joining Royal Mail 17 was being Finance Director at two other companies? 18 A. Yes. 19 Q. At this point, I think it's probably helpful to try to 20 summarise the structure of Post Office Limited and Royal 21 Mail when you took over as Managing Director. 22 A. Okay. I mean, the actual company structure is quite 23 complicated because there are lots of subsidiaries but, 24 in simple terms, as a group holding company, Royal Mail 25 Group, a subsidiary of that company was the Post Office 3 1 Group and, underneath the Post Office, there were then 2 some individual subsidiaries, as well. So my 3 responsibility was as a Director of Royal Mail Group, 4 and then also the Managing Director of Post Office and 5 all its subsidiaries. 6 Q. Let's go through it stages. You were a member of the 7 Post Office Limited Board? 8 A. Yes. 9 Q. That was a -- well, there were two other group companies 10 I want to ask you about at the time. One was Royal Mail 11 Group Limited, and the other was Royal Mail Holdings 12 Plc? 13 A. Yeah. 14 Q. Is it right that Post Office Limited was a subsidiary of 15 Royal Mail Group Limited? 16 A. I believe so. I can't remember the exact structure but, 17 yes, inside the group it was a subsidiary. 18 Q. Royal Mail Group Limited was a subsidiary of Royal Mail 19 Holdings Plc? 20 A. Yes, I believe so. 21 Q. Of Royal Mail Group Limited and Royal Mail Holdings Plc, 22 which, if any, board meetings did you attend of those 23 two companies? 24 A. I think I attended all of the -- both of them, because 25 I was a director of both companies. 4 1 Q. Which board of which company was responsible for the 2 group? 3 A. It would have been the -- I think it was the Plc board 4 at the top, it's the top holding company. 5 Q. Thank you. Back to your career. Before joining Post 6 Office, you served as Finance Director of Parcelforce, 7 which was a part of the Royal Mail Group? 8 A. Yes. 9 Q. Between 2007 and 2009 you were Managing Director of 10 Parcelforce? 11 A. That's right. 12 Q. You were appointed as Managing Director of Post Office 13 Limited in April 2010? 14 A. Yes. 15 Q. Prior to joining Post Office Limited as Managing 16 Director, what was your understanding of the culture of 17 management within Post Office Limited? 18 A. I didn't really have a strong perception of it. My time 19 was in Parcelforce, which is a very separate subsidiary 20 of the group, doing entirely different things. So the 21 only perceptions I really would have had was the 22 occasional group meetings where the MD of the Post 23 Office and the MD of Parcelforce would have met, which 24 would have been part of the management reporting. But 25 inside the company itself, I didn't really have anything 5 1 to do with the Post Office before I joined it, so 2 I couldn't really comment on the culture. 3 Q. It's right that your predecessor as Managing Director of 4 Post Office Limited was Alan Cook? 5 A. That's right. 6 Q. When you took over as Managing Director, did you have 7 a meeting with Alan Cook to discuss the company? 8 A. I can't recall the precision of it but I'm sure we would 9 have had not one meeting but number of conversations. 10 I'm sure we would have done. 11 Q. Please could we bring up your witness statement, page 9, 12 paragraph 21. You say that your role as MD and company 13 director at POL, Post Office Limited, was: 14 "... no different to any other CEO or director 15 role." 16 That can come down. Thank you. 17 So whilst this was a different title, Managing 18 Director, did you see your role as Managing Director of 19 Post Office Limited as akin to a CEO of another company? 20 A. Yes, in that it was about setting the strategy and 21 direction and resources for the business. That's what 22 I meant by that. 23 Q. You remained Managing Director of Post Office Limited -- 24 well, we've discussed it -- until October, started in 25 April and then October 2010. When you joined in April 6 1 2010, did you expect your appointment to be a long-term 2 one? 3 A. Yes, very much so. 4 Q. We'll come back to that in due course. Before moving 5 on, I want to talk about some codes and principles of 6 corporate governance. Did you apply or take into 7 account any codes relevant to corporate governance and 8 management? 9 A. The structures of the business as the wider group were 10 well established before I joined, so I didn't change 11 anything, but I was well aware, having been a director 12 of a number of companies, of their general requirements 13 and corporate governance. 14 Q. To what extent did you pay regard to the Financial 15 Reporting Council's Combined Code of Corporate 16 Governance when you were Managing Director of Post 17 Office Limited? 18 A. I think I was aware of it through the sort of annual 19 audit cycle, and would have taken counsel, for instance, 20 from the auditors as part of the management letter 21 process, as to the controls that were needed and the 22 governance steps that were needed. So, to that extent, 23 I was aware of it. 24 Q. In your view, were your expectations for the standards 25 of corporate governance in a publicly owned company like 7 1 Post Office Limited, different to your expectations for 2 a publicly listed company? 3 A. Yes, there is a difference. There's obviously the 4 listing requirements from the Stock Exchange, for 5 example, that lay out clear distinctions in terms of 6 requirements. So I was aware there was a difference but 7 I don't think I spent a large amount of time thinking 8 about that in that particular period. 9 Q. Would any of those differences, which you understood 10 there to be have affected your executive function as 11 Managing Director? 12 A. I don't know that I thought about that at the time, I'm 13 sorry. 14 Q. I want, then, to look at the executive function and the 15 Executive Team. We've touched on the Post Office 16 Limited Board already. In your witness statement, you 17 describe a level down of management called the Executive 18 Team -- 19 A. Yeah. 20 Q. -- and you chaired the Executive Team. Is it fair to 21 say that the Executive Team was responsible for running 22 the Post Office business? 23 A. From a day-to-day perspective, yes. 24 Q. The attendees would have included Susan Crichton? 25 A. Yes. 8 1 Q. You're nodding yes. At that point, she was Head of 2 Legal of Post Office Limited? 3 A. I think that was her title, I can't be entirely certain 4 but, yes, that was the broad area of her responsibility. 5 Q. And Paula Vennells attended those meetings? 6 A. Yes, she did. 7 Q. Her role was Network Director? 8 A. Yes. 9 Q. They all, on the Executive Team, reported to you? 10 A. Yes, I think that's right. 11 Q. As Managing Director, would you accept that ultimate 12 executive accountability for the operation of Post 13 Office Limited rested with you? 14 A. Yes. 15 Q. In your witness statement, you say that the Executive 16 Team met once a week? 17 A. Yeah, I think so. This is vague in time. We would have 18 generally been meeting to talk about day-to-day matters 19 on a weekly basis. We probably met more formally once 20 a month and that would have been used to inform anything 21 that then went up to the POL board. 22 Q. Can you just give us a précis of what would have been 23 discussed at the weekly meetings? 24 A. So it would have been typically, maybe, we've got a new 25 product launch, are we ready for it? There's 9 1 a particular question that's come in that we need to 2 think about or answer from maybe the operation. We 3 might have been talking about the sort of systems 4 rollout that was taking place at the time because we 5 were looking at that on a daily/weekly basis in my early 6 days. So it's the day-to-day what needs to be fixed 7 tomorrow, what do I need to be aware of immediately type 8 of things, rather than anything, say, more strategic or 9 long-term. 10 Q. Just so we're clear, Susan Crichton attended those 11 meetings? 12 A. I believe so, yes. 13 Q. The monthly meetings within the Executive Team, were 14 they where the more strategic decisions were made? 15 A. Yes, they were more structured so we would have been, 16 for instance, looking at the financial results for the 17 month, looking at the progress on the change programmes 18 in the business, we might have been reviewing investment 19 cases that we wanted to take forwards to the Board. So 20 it was definitely more strategic, yes. 21 Q. You referred to preparing things to then be taken up to 22 the Post Office Limited Board? 23 A. Yes. 24 Q. Who was responsible for the transferring information 25 from the Executive Team to the Post Office Limited 10 1 Board? 2 A. Well, as a combination, we had a Company Secretary. The 3 agenda would largely be discussed between the Company 4 Secretary, myself and the Chair and there would have, 5 I believe, been a set of standing agenda items through 6 the year that we would have been expected to look at, 7 for example, health and safety, and so those items would 8 have been collated into an agenda and then the Company 9 Secretary would have pulled the appropriate papers 10 together, probably with the help of my own Exec 11 Assistant. 12 Q. Just to clarify, firstly, the Chair and the Company 13 Secretary, they didn't attend the Executive Team 14 meetings? 15 A. The Chair definitely didn't. I'm not sure about the 16 Company Secretary. 17 Q. In terms of who was aware of or on top of the 18 discussions at the Executive Team level -- 19 A. Yes. 20 Q. -- and what information from the Executive Team level 21 needed to go up to the Board, that was your 22 responsibility? 23 A. It would have channelled through me, yes. 24 Q. Who was responsible for passing relevant information 25 from the operation of Post Office Limited to the parent 11 1 company? 2 A. I -- well there were a number of informal channels but 3 the formal channel was I had a monthly report that would 4 be sent to the Group and would be part of the Group 5 Board pack and at the Board meeting, there would be 6 a standing item where I would talk through the matters 7 that the main Board needed to know about. 8 Q. The monthly -- the formal monthly channel -- 9 A. Yes. 10 Q. -- which person was that report to? 11 A. I would imagine, but can't be certain, it would have 12 been the Company Secretary of the Group. 13 Q. What were the informal channels? 14 A. Well, all -- it was group matrix. So, for example, 15 communications, we'd talk to the Communications Team 16 centrally; finance, we'd talk to the Finance Team 17 centrally, et cetera. So those informal matrices would 18 sometimes have a hard line into me, sometimes have 19 dotted line into me and maybe a hard line into the 20 Finance Director of the Group but those were what 21 I meant by informal channels. 22 Q. So is it fair to say that, from the Executive Team, you 23 had a responsibility to pass information to the Post 24 Office Limited Board and to the parent company -- 25 A. Yes. 12 1 Q. -- but there were other lines of communication below you 2 between the Post Office Limited company and the parent 3 company? 4 A. Exactly so. 5 Q. Did you ever find that the corporate structure within 6 the Group obstructed or hindered the flow of relevant 7 information through the Group? 8 A. I'm not sure that I did. The only reason for the pause 9 is, as we get to the back end of my time in the Group, 10 we are starting to think about the possibility of 11 separating Royal Mail from Post Office and we, 12 therefore, started to think about the difference in 13 terms of duties of care that those two groups have got 14 and, whilst I can't pick out a specific example that 15 says, "Here was something that caused friction here", 16 I'm sure that we were aware of that governance change 17 and we're managing our way through it, during the sort 18 of later months of my time in the Group. But, other 19 than that, no. 20 Q. It sounds like nothing stands out to you as a particular 21 bit of information that you couldn't get to the relevant 22 part of the Group because of the Group structure? 23 A. No, no, no. 24 Q. We don't need to turn it up but, in your statement, you 25 refer to one of your responsibilities to make sure that 13 1 the right control systems were in place for risk 2 management and finance. Would you agree that 3 identifying, analysing and managing risk is a very 4 important part of running a company? 5 A. Yes. 6 Q. Would it be fair to say that it goes to the heart of the 7 role of the company executive? 8 A. Yes. 9 Q. What steps did you take, on becoming Managing Director, 10 to satisfy yourself that the Post Office business had 11 identified all relevant risks in its business? 12 A. Yeah, um, the business, like the wider Group, ran 13 a formal risk register and also had internal audit 14 functions to review the controls and systems that were 15 in place across the Group. 16 I reviewed those systems as part of my induction 17 process, ie have we got a risk register, is it covering 18 the right sorts of risks, et cetera. I also had, or we 19 had, a regular process for an Audit Committee where 20 risks would be reviewed, and we also had a standing 21 agenda to review outcomes of each of the audits each 22 month as they came through the organisation. 23 So there was on that side and then, from a financial 24 side, we obviously had the internal Audit Teams also 25 looking at finance controls and finance systems, and we 14 1 also had the external auditors working with us. I had 2 known E&Y in my previous roles in the business, so I was 3 comfortable that the types of audits that they were 4 likely to perform would be sufficient to satisfy our 5 duties, and also met with E&Y as part of the process for 6 preparations for audit, reviewing management letters, 7 and of the signing of the accounts process itself. 8 Q. Can you just, for the record, provide the job title of 9 Ian Wise (sic)? 10 A. Sorry, Ernst & Young -- 11 Q. Oh, E&Y, sorry! 12 A. Ernst & Young, the auditors. 13 Q. Yes, I apologise, I misheard you. To what extent did 14 you consult with teams, such as the legal department 15 within Post Office Limited, when considering the risk 16 register of how to identify a risk? 17 A. I can't remember exactly how this would have worked at 18 the time. But, certainly, the -- all parts of the 19 senior management team would have been involved in 20 building the risk register, all parts of the management 21 team, as in the Exec Team that I was describing earlier, 22 would have reviewed the outputs of the risk register, 23 and so Legal, just like all other departments, would 24 have had the opportunity to go through and flag any 25 concerns that they had got, and then we would have 15 1 discussed what are the mitigants that we can put in 2 place to ameliorate those risks. 3 Q. With that in mind, I want to move to oversight of 4 prosecution. In your witness statement -- we don't need 5 to turn it up -- but you say you were almost certain 6 that Susan Crichton gave you a briefing on the work of 7 the Legal Department when you joined as Managing 8 Director? 9 A. Yeah. 10 Q. You say that that would have likely included the 11 criminal enforcement work. Can you remember any further 12 detail of the -- 13 A. I'm sorry, I can't. My induction would have taken place 14 through sort of April of that year. I do know that we 15 set up a fairly extensive induction, so it was across 16 all parts of the business, not just in the Head Office 17 but going out to visit branches, for instance going out 18 to the cash centres and all of those things. So I do 19 know that was arranged and organised but I can't 20 remember the specifics, I'm afraid, of what would have 21 been discussed and disclosed in each of those sessions. 22 Q. You may have to forgive me for just going through this 23 in stages. I want to ask what you think you knew at the 24 time. Were you aware of the prosecution of 25 subpostmasters for theft, fraud offences and false 16 1 accounting when you were Managing Director? 2 A. Yes, I would have been, yes. 3 Q. Would that have been from the start of your time as 4 Managing Director? 5 A. It would have certainly been in the early days. It may 6 not have been on day one but certainly as part of that 7 induction process and also the fact that in the monthly 8 management meetings we would have had standard reports 9 from each department, and certainly I can remember the 10 Legal Department would have laid out these are the 11 current cases that we're working on. 12 Q. I want to come to those reports in a moment. Staying in 13 with what you knew, were you aware that those 14 prosecutions were pursued using data generated by the 15 Horizon IT system? 16 A. I don't think I was initially, but certainly I was -- 17 I became aware of it. I can't remember when but I did 18 become aware of it. 19 Q. At an operational level, who did you think was carrying 20 out the investigations that led to those prosecutions? 21 A. I was aware that there were a combination of people 22 involved but that we had a security function whose day 23 job it would have been to audit the branch, gather the 24 evidence and bring it back into the business to consider 25 what to be done about it. 17 1 Q. You said "we had an audit function", I think. When you 2 say "we", who do you -- 3 A. As in the Post Office, sorry. 4 Q. Post Office Limited? 5 A. Yes. 6 SIR WYN WILLIAMS: Can I be clear Mr Smith, when you use the 7 expression "we" or the expression "the business", can 8 I take it that you're talking about the legal entity, 9 the Post Office Limited? 10 A. Sir, yes, I will try to be clear that, if I don't mean 11 that, I will put out what entity I'm talking about. 12 But, so far, yes, that's what -- 13 SIR WYN WILLIAMS: Yes, what I'm anxious to avoid any 14 misunderstanding of crossovers between any part of Royal 15 Mail and the Post Office, if you understand. 16 A. Yes. 17 SIR WYN WILLIAMS: So I'd like you to be precise, if you 18 would. 19 A. Yes, okay. 20 MR STEVENS: Again, at an operational level, who did you 21 think was responsible for the decision of whether or not 22 to prosecute a subpostmaster? 23 A. I think that I believed that that was the Legal Team. 24 Q. Which Legal Team? 25 A. Sorry, under Sue Crichton. I don't recall the structure 18 1 underneath Sue but it would have been under Sue's team. 2 Q. So Post Office Limited? 3 A. Yes, Post Office Limited not Royal Mail. 4 Q. Again, staying operationally, who did you think was 5 responsible for the conduct of those prosecutions? 6 A. Again, the same team. 7 Q. Now, there's a difference between conducting 8 a prosecution, investigations, et cetera. Who did you 9 think was responsible for providing legal advice to Post 10 Office Limited on the conduct of prosecutions and 11 investigations? 12 A. I was aware that we had a separate external legal firm 13 supporting us. I don't think I knew for certain, but 14 I would have imagined that, between the Post Office 15 Legal Team and any external support that they may have 16 required, between them they would have made that 17 decision. 18 Q. To what extent did you think that, at an operational 19 level, responsibility for any of those matters to do 20 with prosecution lay with Royal Mail Group or Royal Mail 21 Holdings? 22 A. Well, in that it was a -- that Post Office Limited was 23 a subsidiary of the Group, there's clearly a reporting 24 line and responsibility there, but I was clear that the 25 conduct of all of the decision making lay in Post Office 19 1 Limited through the legal structure that I'd described 2 earlier. Not at Royal Mail Group. 3 Q. To what extent did you consider that the Post Office was 4 in an unusual position, in that it was the alleged 5 victim of crimes that it was investigating, that it 6 investigated those crimes itself and then decided 7 whether to prosecute them? 8 A. I'm sad to say that at the time I didn't really reflect 9 on it in the way that perhaps I should have done. 10 Q. Presumably you accept that, when carrying out the 11 conduct of prosecutions, Post Office Limited was 12 responsible for conducting them appropriately and 13 lawfully? 14 A. Absolutely yes. 15 Q. As you say, at executive level, your evidence is that 16 the Post Office Legal Department was responsible for the 17 conduct of those prosecutions. Do you accept that you 18 were ultimately responsible for ensuring that the Post 19 Office Legal Department fulfilled its responsibilities 20 to conduct investigations and prosecutions appropriately 21 and lawfully? 22 A. I mean, ultimately, as the Managing Director of that 23 entity, yes. 24 Q. What steps did you take to see that the prosecutions 25 were conducted appropriately and lawfully? 20 1 A. I think the initial conversations with Sue around the 2 induction to the business gave me a flavour and 3 a picture. I think the monthly reporting that came in 4 through that structure to the Exec Team to review cases, 5 but I didn't go beyond that to review the individual 6 cases and the conduct of the cases. 7 Q. Please can we turn up your witness statement page 10, 8 paragraph 24. Just before this -- we don't need to have 9 it on the screen -- you say that you're responding to 10 a question the Inquiry asked concerning risk and 11 compliance issues arising from the prosecution of 12 subpostmasters. In paragraph 24, you say: 13 "As a Crown Office, [Post Office Limited] dealt with 14 the public money and therefore had a responsibility to 15 protect the public purse." 16 You expand on that. Towards the bottom, four lines 17 up, you say: 18 "I cannot recall thinking that any risk or 19 compliance issues arose from [Post Office Limited] 20 undertaking this role, but with the benefit of 21 hindsight, and in light of the wrongful prosecutions, 22 I can see the inherent risks in the prosecutions taking 23 place 'in house' and not by an independent enforcement 24 authority." 25 That can come down. Thank you. 21 1 What do you consider those inherent risks to be? 2 A. I think that the sort of passage of time has shown that 3 conducting the case, gathering the data, acting as the 4 prosecution can lead you to a position where you might 5 not think as independently as you should do about the 6 quality of the information, have you disclosed 7 everything? Have you presented the case in a balanced 8 way? And I think those kinds of risks are clearly 9 there. I think the other danger is that, potentially, 10 the balance of probability might be stretched too far in 11 terms of whether to take a case through a legal process 12 or not. 13 Q. Can I ask you to expand on what you mean by that? 14 A. Yeah, so I think you should only take a case on where 15 you think that, in layman's terms you're certain of the 16 facts, you're certain of what the case is, you're 17 certain that somebody is guilty. It is possible -- I'm 18 not sure that I ever saw this but it is possible that, 19 you know, that 100 per cent picture might change. You 20 might take a 90 per cent picture or an 80 per cent 21 picture. I never saw that but that's the type of risk 22 that I was thinking about when I wrote that comment. 23 Q. Why did it require hindsight to identify those risks? 24 A. I think at the time I was not focused on the level of 25 controls, the level of risks associated with what we can 22 1 now see. That's the issue. 2 Q. Why do you think that was? 3 A. Because, if we go back to 2010, as you'll see earlier in 4 my statement, the focus of the Board and the focus of 5 the business was actually almost entirely around the 6 separation of the Post Office from Royal Mail Group, 7 a new party coming in from Government, the need to 8 refinance the business, which was fundamental to its 9 long-term existence, because it was coming to the end of 10 a funding package with Government and, more latterly, 11 the Bank of Ireland, sort of, final knockings of the 12 banking crisis from 2008. And those elements, sad to 13 say, were actually where the Board was fundamentally 14 focused through most of the time that I was with the 15 Post Office. 16 Q. The fact that you didn't identify those risks at the 17 time, what do you think about that now? 18 A. Well, with hindsight, it's obviously very sad because, 19 had we identified those risks, we might have been able 20 to put in place better control mechanisms, better 21 inspection mechanisms of governance, and we didn't. 22 Q. To what extent did you accept responsibility for not 23 identifying that risk? 24 A. I certainly think I am a part of it. As I said, the 25 structures were there before I came, they were certainly 23 1 not changed while I was there and, along with the rest 2 of the Executive Team, we did review the risk registers, 3 we didn't flag this as a potential new risk to think 4 about. But, ultimately, I managed that process. 5 Q. Do you have any insight as to why anyone else in the 6 team didn't identify those risks or present them to you? 7 A. No. I mean it's like all risks in a risk register. If 8 you ask me was Covid on that risk register? No, it 9 wasn't. You become aware of things, don't you, and then 10 you react to them, and this is one of those that we 11 didn't pick up at the time and should have done. 12 SIR WYN WILLIAMS: I just want to be clear about what the 13 "should have done" means, in that context, Mr Smith, and 14 it's a theme that has surfaced in various forms 15 throughout the Inquiry and, if I can put it in this way, 16 the debate between foresight and hindsight. 17 A. Yes. 18 SIR WYN WILLIAMS: My understanding of your evidence is 19 this, and please correct me if I'm wrong: all the risks 20 which you have elucidated in relation to paragraph 24 21 were foreseeable risks, at the time. However, because 22 there were other, as you saw it -- and I'm not 23 challenging you on this for the moment -- more important 24 things to consider in the business, they took up your 25 thought processes, rather than the foreseeable risks 24 1 which you've identified; is that fair? 2 A. Yes, I think so. 3 SIR WYN WILLIAMS: Yes, fine. 4 MR STEVENS: Thank you, sir. 5 I just want to come, before we move on to 6 a different topic, to the monthly legal reports. You 7 referred to these earlier and you said that it would 8 include lists of legal cases. Was that lists of all 9 cases that Post Office Limited were involved with in 10 terms of prosecutions? 11 A. I can't be certain of the detail here because it's 12 a long time ago, but I do recall that, as with all the 13 other departments, they would have written out their 14 performance overview of what's happening and inside the 15 Legal one would have been a summary of I think each of 16 the cases that they were acting on at that point in time 17 and the status of that and, if we needed to talk about 18 them, because they were flagged as there's something 19 that needs to be resolved or an issue here, then they 20 would have been discussed in the meetings. 21 Q. So you said if we needed to talk about them because? 22 A. Yes. 23 Q. -- it was flagged; can you recall any time when you did 24 talk about them? 25 A. I am not certain but would imagine that we would have 25 1 talked about the Seema Misra case, but I'm not certain. 2 Q. We'll come to that in due course. 3 A. Yes, I'm sure. 4 Q. So you focused back on when you arrived. I want to now 5 look at your knowledge of the IT system. It's probably 6 helpful, at this point, just to cover some terminology. 7 The IT system that was in place between or used between 8 2000 and 2010, I'm going to refer to as Legacy 9 Horizon -- 10 A. Of course. 11 Q. -- following the Group Litigation use of words, and the 12 version of Horizon that was being brought in when you 13 became Managing Director, I'm going to refer to that as 14 Horizon Online. 15 A. Okay. 16 Q. In your statement, you say you were not aware of any 17 bugs, errors or defects in the Horizon IT System when 18 you joined. I assume that refers to Legacy Horizon? 19 A. It actually referred to all of it because, when 20 I joined, I didn't really know anything about Horizon 21 other than it was the system that was used to operate 22 the business. 23 Q. Did you think that the Horizon IT System would have been 24 completely free of bugs, errors and defects? 25 A. By the Horizon system do you mean Legacy or? 26 1 Q. Let's deal with both. Firstly, Legacy Horizon? 2 A. So certainly in terms of the Legacy system, it had been 3 in for many, many years. I didn't envisage there would 4 be material problems with it at that point, no. In 5 terms of the online system, I was aware that we had been 6 going through pilot very quickly into my tenure, as 7 we'll no doubt discuss in a minute. I was aware that 8 there were problems with freezing accounts and it didn't 9 strike me as particularly unusual, with a new system 10 coming in, for there to be a bug of some sort that 11 needed to be resolved. 12 Q. When you spoke about Legacy Horizon, you referred to 13 material problems. Does that mean there may have been 14 some bugs, errors and defects that were immaterial? 15 A. There may have been but I didn't think that there would 16 have been anything significant. Let's put it that way. 17 Q. In your statement you also say that you weren't aware of 18 complaints about the integrity of the Horizon IT System 19 when you joined? 20 A. Yes. 21 Q. When did you become aware of such complaints? 22 A. I can't be certain but it would have been relatively 23 early on, probably through the briefing processes, but 24 I can't be certain of that. 25 Q. Can I turn up a document, please, UKGI00000028. This is 27 1 a letter, it's from Alan Cook on 13 October 2009 -- 2 that's your predecessor -- sent half a year before you 3 joined. 4 A. Yeah, can I have a moment to read it because I've not 5 seen this before today. 6 Q. Oh, have you not? 7 A. No. 8 Q. Yes, of course you can. Please do read it. 9 A. Thank you. Can we move on, please. 10 Q. Have you read that? 11 A. Yeah. 12 Q. Thank you. If we could go back to the first page, 13 please. So we see there's a Parliamentary question 14 that's been responded to? 15 A. Yes. 16 Q. It says: 17 "To ask the Minister of State, Secretary of State 18 for Business, Innovation and Skills, whether he has 19 received reports of errors in the Post Office Horizon 20 system which have led to postmasters or postmistresses 21 being falsely accused of fraud; and if he will make 22 a statement." 23 You have read the response that's there. That can 24 come down. Thank you. 25 Do you remember if you were made aware of that 28 1 letter during the process of joining? 2 A. Based on the fact I've never seen it before, I don't 3 think so. As I've said, more generally, I was made 4 aware of some of the challenges that Horizon had 5 encountered through my briefing into the business but 6 not the specifics of that letter, no. 7 Q. I want to break down those challenges. Are you 8 referring to challenges in legal cases, including 9 prosecutions? 10 A. No, I'm really thinking more about I've been made aware 11 of the Computer Weekly sort of press type of noise that 12 was out there. That's what I'm thinking about. 13 Q. So are you referring to the article by Rebecca Thomson 14 published on 11 May 2009 in -- 15 A. I believe so, yes. 16 Q. That article reported on allegations by 17 subpostmasters -- at the time allegations by 18 subpostmasters -- that they had been convicted or held 19 liable on the basis of data generated by the Horizon IT 20 System which they claim was unreliable? 21 A. I believe so, yes. 22 Q. What did you make of those complaints when you first 23 heard about them? 24 A. Well, I mean, I obviously asked about why we believed 25 our system was robust and why we were continuing to be 29 1 successful through cases, the themes of which are not 2 dissimilar to what ultimately came through later in the 3 Rod Ismay report, that we'll no doubt get to. 4 Q. So let's break that down. You're saying you were 5 briefed on these allegations and the complaints and, at 6 that time at the briefing you raised questions about how 7 you were certain that the system was robust? 8 A. In the round, yes. I didn't -- this was not a huge 9 probing exercise to get to the bottom of every single 10 case. This was a "Okay, well, why did we think we were 11 okay", kind of conversation, and that was as far as it 12 went. 13 Q. Do you remember the response you were given when asked 14 those questions? 15 A. I think it was along the lines of what eventually comes 16 out in the Ismay report, in other words, the system's 17 pretty much tamper proof. We've got strong audit 18 records. We've got independent security going round 19 checking and balancing and the court cases that we've 20 held have been largely successful. So it was kind of at 21 that level, rather than anything more detailed. 22 Q. Who told you that? 23 A. I think -- I can certainly remember having conversations 24 with Paula. I think I had conversations -- Paula 25 Vennells -- and I think I had conversations with Susan 30 1 Crichton as well but I can't be certain beyond that. 2 Q. At that point, were you aware of any concerns about how 3 the -- sorry, I'll start that again. 4 Were you aware of complaints about how 5 investigations were handled by Post Office Limited? 6 A. At that time no, I don't think so. We're talking about 7 April, as part of my induction into the business. 8 Q. Please can we bring up POL00106867. Can we go to 9 page 3, please, and down to the email midway. Thank 10 you. This is an email on 26 February 2010, so before 11 your time. It's from Andy Hayward, who was Senior Fraud 12 Risk Programme Manager in Post Office Limited Security 13 Team. Do you remember working with him? 14 A. I don't really, no. 15 Q. Now, I think it's important to make one clarification 16 here before we move on. You'll see there's a recipient 17 list on the right and in the CC column it says "David X 18 Smith". The Inquiry understand that's not you? 19 A. Correct. That would have been the IT David. I know 20 you've had a few issues with this over the course but 21 this is not me, no. I was "David Y Smith" on the 22 systems. 23 Q. The email says: 24 "Following our conference call today, below is 25 a brief summary of the agreed activities to progress the 31 1 next steps in relation to the above piece of work ..." 2 You see the above piece of is "Subject: Challenges 3 to Horizon". 4 Point 1, it refers to gathering information on past 5 and present cases with reference to the Horizon 6 challenges; point 2, it said Information Security were 7 to conduct initial investigations and provide terms of 8 reference outlining remit and requirements to carry out 9 full investigation; and 3: 10 "Subject to agreement of 2 above, conduct full 11 investigations into integrity issues, with 12 conclusions/report provided. Once investigated and 13 conclusions drawn, gain external verification to give 14 a level of 'external gravitas' to the response to these 15 challenges." 16 That can come down. Thank you. 17 Were you aware that Post Office had considered 18 conducting full investigations in response to challenges 19 to Horizon integrity in February 2010? 20 A. No. 21 Q. It's clear, isn't it, that those challenges hadn't been 22 resolved by the time you joined as Managing Director? 23 A. It is now. I'm not sure that it was when I joined. 24 Q. Why do you think you weren't briefed on or told about 25 that plan to do an investigation? 32 1 A. I don't know. 2 Q. I want to move on to look at Horizon Online now, please. 3 Can we look at your witness statement, page 5, 4 paragraph 11. You say: 5 "The Board was responsible for the rollout of the 6 upgrade of 'Horizon' to 'Horizon Online' and therefore 7 this was ultimately my responsibility. I feel it 8 important to point out that, in light of the major 9 issues facing the business outlined above, my primary 10 focus was on keeping the business afloat in 11 a financially precarious time and, as a result of this, 12 and the fact that the rollout was already under way, 13 Horizon Online was a lower priority." 14 I want to explore that. Could we look, please, at 15 POL00001615. This is described as a "Weekly Highlight 16 Report". It says "Forward one2eleven Programme" at the 17 top and it's for the period 9 April to 15 April, so when 18 you joined. You comment on this in your witness 19 statement. Can you just summarise briefly what this is? 20 A. Yeah, there's a change programme that was running 21 through the business called -- "Forward one2eleven" was 22 the way it was badged. Programme owner -- or project 23 sponsor was myself, programme owner was Sue. This is 24 a weekly update to us on the status of each of those 25 programmes, one of which was the Horizon rollout -- 33 1 horizon Online, I should say, sorry. 2 Q. If we can go to page 3, please, it says, "What did not 3 go so well, this week", and "Horizon Online": 4 "The Horizon Online pilot continues to run at 614 5 branches, but further branch migrations remain suspended 6 due to the series of live service interruptions which 7 have occurred since 26 March", and it continues. 8 So you were aware of issues with the Horizon Online 9 rollout -- 10 A. Oh, absolutely. My comment in para 11 of my statement 11 doesn't mean I wasn't working on Horizon. I was, at 12 a couple of points, significant points. One of them is 13 here. But, relative to other priorities and time over 14 the generality of my time in the business, it was 15 a lower priority. But not a zero priority. A lower 16 priority. 17 Q. Can we look at page 7, please. If we see here, there's 18 a form of risk register is -- 19 A. Yeah. 20 Q. Page 11, please. Horizon Online, we see it's been given 21 a red risk. 22 A. Yeah. 23 Q. There's a series of crossed out dates, which is the 24 planned dates column, which we see the full rollout 25 commencing has been pushed back, and then it's "TBA". 34 1 Could we then go back, please, to page 6. In "New or 2 Major Risks: AEI -- Product", and it says: 3 "DVLA go live is dependent on HNG-X, [that's Horizon 4 Online] implementing routers into all required branches 5 by the date agreed with the client." 6 So it's fair, isn't it, that the Horizon Online 7 rollout and the delays was having effect on the business 8 across the board? 9 A. Yes. 10 Q. That document can come down now. Thank you. 11 You were aware of those knock-on effects? 12 A. Yeah, which is why I've said there had been couple of 13 times in my tenure, this being the first of them, where 14 Horizon got high on the priority list, and the challenge 15 here was that we had rolled out about 600, I think, 16 something like that, sites, and they were experiencing 17 problems with freezing screens, which meant that it was 18 trade affecting. So they were not able to transact in 19 the way they should be able to in a timely manner. 20 We were very well aware that, if we could not fix 21 that problem relatively quickly, we would have to roll 22 back to the Legacy system and, during the course of my 23 first couple of weeks in the business, I had 24 conversations with senior people inside Fujitsu to 25 understand the problem, the fix, the timetable, and to 35 1 press upon them the importance of correctly fixing or 2 giving us a view that we could roll back, because we 3 needed to be one or the other. We couldn't have 4 a number of sites that were unable to trade normally. 5 Q. We'll look at those discussions in a moment but is it 6 your evidence that, at the start, Horizon Online was 7 a higher priority? 8 A. Higher, yes, it still wouldn't have been the number 1 9 priority even at that point, it would have been higher, 10 because the other people in the business were dealing 11 with that on a day-to-day basis, Mike Young, for 12 example, who was running the rollout programme. 13 Q. Could we look at FUJ00174292. If we could go down to 14 the email just below. Thank you. So this is an email 15 from Gavin Bounds Roger Gilbert, and it's from 9 April 16 2010, and it refers to: 17 "Duncan spoke with the new CEO, David Smith, this 18 morning." 19 A. Yeah. 20 Q. Duncan there, Duncan Tait? 21 A. I assume so. Obviously, this was a Fujitsu email so I'd 22 never seen it before you sent it to me but I assume so. 23 Q. If it is Duncan Tait, he was Managing Director of the 24 Private Sector Division of Fujitsu at that time? 25 A. I certainly spoke to senior people in Fujitsu at that 36 1 time. I can't recall exactly who it was. 2 Q. It refers to, it says: 3 "A constructive session I believe, of course focused 4 on the issues of the last two weeks ..." 5 You may have already answered this but can you 6 recall this specific phone call? 7 A. I can recall it, I can recall feeling reassured from the 8 call that -- 9 Q. Why did you feel reassured? 10 A. Because they'd identified what the issue was and -- 11 Q. When you say "the issue", what issue are you -- 12 A. As in why the account was freezing. They had a clear 13 plan of action to fix it and, on that basis, assuming 14 that that were to take place, then we would have been 15 back in a sensible place to continue the rollout and, in 16 fact, that's what ultimately happened. 17 Q. At the bottom, you can see an email that is sent which 18 prompts this reply and that email says: 19 "What's the latest on our relationship with the Post 20 Office?" 21 What was your view of the relationship between 22 Fujitsu and the Post Office at this time? 23 A. My view was that, at a strategic level, the two parties 24 were comfortable. At an operational level, there was 25 certainly pressure to identify and fix this particular 37 1 problem, and we had explored internally, you know, what 2 options had we got to put additional pressure on them to 3 make sure that they had the right resource and 4 appropriate focus to get it fixed. So at a strategic 5 level, fine. At an operational level at that point, 6 there were probably tensions between the two groups. 7 Q. Back to the email we looked at first, after the 8 constructive session, it said: 9 "... but ended with the CEO saying 'once we have 10 these issues sorted we should meet and discuss 11 futures'." 12 Do you think that was something you would have said? 13 A. I might not have said it exactly in those words but 14 I certainly would have wanted to build a strategic 15 relationship with Fujitsu as a major partner of the 16 business. That would be typical in any role. So 17 I would have expected to be seeing them maybe a couple 18 of times a year at a board-to-board type level, so that 19 probably would have been what he reflects back here. 20 Q. That can come down. Thank you. 21 Can we turn then, please, to FUJ00142190. If we can 22 go down to show the sender, please. 23 That letter is from Alan D'Alvarez, sent on 8 April 24 2010, so a day before your conversation we've referred 25 to. Did you see this report at the time? 38 1 A. I don't recall ever seeing it at the time. That's not 2 to say I didn't but I don't recall seeing it. 3 Q. So it's a draft report prepared by Fujitsu in response 4 to a request by Post Office regarding a particular 5 technical issue, which we can look at if we go over the 6 page, please. It says, "Background": 7 "During Branch Trading Statement ..." 8 Pausing there, what does "branch trading statement" 9 mean to you? 10 A. At the end of a cycle they would print out effectively 11 a balance to say, "This is what we transacted in the 12 period". 13 Q. It refers to the Trial Report, that allows the 14 postmaster to check that the data is correct, and the 15 Final Report, which was printed off and kept in the 16 office. The Final Report was an important document, 17 wasn't it? 18 A. I believe so. 19 Q. Do you know why? 20 A. Well, I do now, because I've read all of the papers. At 21 the time, I wasn't really aware of the day-to-day 22 mechanics of what happened on each site. 23 Q. The "Problem Description" says: 24 "On the Final Report, the stockholding figures in 25 the second section of the report are incorrect on the 39 1 final balance." 2 Fujitsu went on to state that the error affect the 3 printed final account but not the database itself. This 4 is different from the screen freezing issue you refer 5 into your witness statement? 6 A. Indeed, and wasn't what I was talking to Fujitsu about. 7 I was talking to them about the screen freeze. 8 Q. Were you made aware of this issue? 9 A. I don't believe so, no. 10 Q. Could we look, please, at FUJ00095628. If we could go 11 to page 3, please. Page 2, sorry. Thank you. 12 So we see that this is an email from Duncan Tait on 13 10 May, it's internal to Fujitsu so you wouldn't have 14 seen it at the time. 15 If we look, it says, "Roger, I spoke to Mike Young 16 on Friday morning", which would be 7 May 2010, based on 17 this email. He said: 18 "He made the following points: 19 "The programme was reviewed at Group level 20 (ie outside the Post Office by Royal Mail board) with 21 Mike Young, Dave Smith (new POMD) and the group legal 22 counsel and FD discussing options." 23 Do you recall that meeting? 24 A. I don't specifically, I'm afraid, no. 25 Q. It states, in the paragraph with the bullet points: 40 1 "Their confidence has been knocked due to: 2 "Ongoing issues with Oracle stability impacting 3 HNG-X stability." 4 Was that a matter that you were aware of? 5 A. That is what I think of as the freeze accounts, I think 6 that's what that means, or that's what it meant to me at 7 the time. 8 Q. The data centre outage? 9 A. I was aware there had been problems with -- at the time 10 at the data centre, yes. 11 Q. The "outage caused by 'Fujitsu operator error' last week 12 which caused" -- 13 A. I'm not sure I was really aware of that one. 14 Q. We then look to a series of requests that Mr Young made. 15 If we go down to the numbers, thank you. So: 16 "Based on advice from Group legal counsel Mike feels 17 he wants some assurance that the P&L for the account is 18 sustainable over the short and long term so they can see 19 we can invest and provide the resources necessary to get 20 the problems fixed. This will look like some form of an 21 'open book' arrangement." 22 Do you remember that request being made? 23 A. Not directly, as in here but, context wise, as I said 24 earlier, we were aware that it was important for us to 25 either move forwards or roll back because of the trade 41 1 affecting issues. I was aware from the briefings that 2 I'd had that, contractually, we had limited options to 3 push them to move forwards or back, and the list that we 4 have here, I think, is, our sort of considered view as 5 to what levers we might be able to pull in order for 6 Fujitsu to move at the speed we were hoping they would 7 move, either forwards or back. But, beyond that, no. 8 Q. What does an "open book arrangement" mean to you? 9 A. Well, what it actually means is that they share their 10 financial position in relation to the contract, so that 11 we could see whether it's making a profit or a loss. 12 The concern that was, I think, at the time was that we 13 were moving from the old contract to a new one and part 14 of the rationale from moving to Horizon Online, as well 15 as the benefits of Cloud and the benefits of simpler 16 systems, was that we would have less complex estate to 17 manage and, therefore, there would be a lower cost. 18 And what we were concerned about was have we 19 actually extracted too much cost reduction from 20 Horizon -- from Fujitsu for the new Horizon version and 21 they can no longer make money so, therefore, they're not 22 going to put the effort in to put it right? That was 23 the thread. 24 Q. Number 2 says: 25 "He wants an independent review of the processes, 42 1 tools and resource on the programme to assure themselves 2 we are genuinely up to it." 3 Do you remember that, as a request? 4 A. Not specifically worded like that but I do recall 5 a conversation that was saying are we sure they have 6 enough resource to deliver this in the timescales that 7 we need? 8 Q. Requesting an independent review -- 9 A. Is strong, yes. 10 Q. Is strong? 11 A. Yes, I don't think we would have expected anybody to 12 agree to that, we wouldn't have done it in reverse, but 13 this was us looking at ways to negotiate to get the 14 product to where it needed to be as quickly as possible. 15 Q. Were you aware of the plan to ask for an independent 16 review? 17 A. I'm not certain, I probably would have been. But I'm 18 not certain. 19 Q. As you say, it's a very significant issue? 20 A. Yes. 21 Q. This reports that it was a call with Mike Young 22 following a discussion at Group level, which includes 23 you. You say it may have happened, you're not certain. 24 How confident or unconfident are you that you would have 25 been aware -- 43 1 A. Unfortunately, this is 14 years ago and I just can't 2 remember the meeting. I think it sounds like I would 3 have known about it and should have known about it, so 4 it's likely that I would have had known but I'm not 5 certain. 6 Q. Before going to 3, I want to come back to something you 7 said. What do you think was the likelihood of Fujitsu 8 agreeing to an independent review? 9 A. I don't think we thought it was likely at all. I think 10 what we thought it would do was focus their minds to 11 complete the fix that was needed from the freezed-up 12 accounts to enable us to then continue with the rollout. 13 Q. On what basis did you think it was unlikely that they 14 would agree? 15 A. Well, I was just looking at it in reverse and, I think, 16 you know, we had no contractual right to insist on it. 17 If they believed that they were going to deliver the 18 programme, then why would they want anybody else to look 19 at, was kind of the thinking that I got and, if the boot 20 had been on the other foot, I don't think that we, as 21 an organisation, as in Royal Mail Group or Post Office 22 Limited, would have accepted a third party reviewing our 23 program of activity either. 24 Q. So if we look below 3, where it says, "My view is it 25 will be difficult, based upon where we are now, for us 44 1 to resist 1 and 2", 2 being the independent review, 2 "there is some risk in those areas"; that was against 3 what your assessment of the situation was? 4 A. That was their internal view. We never saw that, and 5 wasn't what we were thinking. 6 Q. 3, he says: 7 "... he wants Dave Smith to have some dialogue with 8 Richard C ..." 9 That's presumably Richard Christou? 10 A. I would assume so, yes, I don't know but I would assume 11 so. 12 Q. "... so they contest the Japanese board's commitment to 13 the account and programme ([conference] call or VC would 14 work)." 15 Do you remember that being requested as well? 16 A. I remember that and I also remember attempts to set up 17 that call and, certainly, a call did take place at some 18 point but when it was I can't remember exactly. 19 Q. Do you remember what was said on that call? 20 A. Only that we were concerned about the elements and were 21 pleased to see that they'd moved forwards and progressed 22 them and I think because the call would have taken place 23 some time after the programme had started to roll out 24 again. 25 Q. If we could, please, go to FUJ00095658. So it's 45 1 a letter of same day, 10 May 2010. This from Mike Young 2 to Duncan Tait. We don't need to go through all of the 3 letter, it covers very similar ground, but if we could 4 go to the bottom of that page, please, on the second 5 sentence, it says: 6 "We would very much like to see the executive 7 correspondence within Fujitsu relating to the recent Red 8 Alert. This, we feel, would give us an understanding of 9 how the Executive Management within Fujitsu are aware 10 and responding to some of the problems we have seen in 11 rollout." 12 In your experience, is that request for executive 13 correspondence a standard one? 14 A. I'm not sure it's a standard one. I certainly have used 15 similar tactics to get suppliers to move in the 16 directions we wanted to in other organisations, but it's 17 not standard, no. 18 Q. Why did Post Office want to see that -- or did you 19 expect to be able to see that correspondence? 20 A. No, I mean, again, it goes back to we were looking for 21 levers to ensure that they were moving forwards with the 22 programme because we either needed to revert back or to 23 the old Legacy system or move forwards. We couldn't 24 stay where we were. 25 Q. At this stage, had the relationship with Fujitsu and 46 1 Post Office, had that changed since when you first 2 joined? 3 A. I don't believe so, not at a macro strategic level, 4 I don't think it had. 5 MR STEVENS: We're going to come back to that theme but 6 I want to stay chronologically for the time being, 7 unless, sir, it may be a good time to break, looking at 8 the time. 9 SIR WYN WILLIAMS: Yes, fine, Mr Stevens. When shall we 10 resume? 11 MR STEVENS: Shall we say 11.25 past, sir? 12 SIR WYN WILLIAMS: Yes, that's fine. 13 MR STEVENS: Thank you. 14 (11.11 am) 15 (A short break) 16 (11.25 am) 17 MR STEVENS: Sir, can you see and hear me? 18 SIR WYN WILLIAMS: Yes, I can, thank you. 19 MR STEVENS: Thank you I'll carry on. Can we bring up 20 UKGI00016119. This is a letter to Sir Edward Davey, 21 then MP, Minister for Postal Affairs, from Alan Bates on 22 20 May 2010. 23 Were you aware of the JFSA -- the Justice for 24 Subpostmasters Alliance -- when you had joined, or in 25 the early days of Post Office Limited? 47 1 A. When I joined, no. Relatively quickly thereafter, 2 I would say yes, but I can't recall exactly when, but 3 yes, I was aware of it. 4 Q. If we could look at the fourth paragraph, please. The 5 last sentence says: 6 "Though an independent external investigation 7 instigated at Ministerial level would be the most 8 appropriate, and would without any doubt easily find 9 evidence of the error ridden system." 10 Had you seen this letter to Ed Davey at the time or 11 when you were Managing Director of Post Office? 12 A. I think at the time the letter was written, not 13 directly. I'm pretty sure though that, in the 14 correspondence in sort of July time from BIS, it would 15 have been part of the bundle of papers that we'd have 16 come across from Oliver Griffiths, I think, he was 17 saying potentially we're getting some inbound queries 18 that you need to address, essentially, is what he was 19 saying. So I think I had seen it at some point but not 20 exactly at the date when it's dated here. 21 Q. Please can we bring up POL00417098, and page 5, please. 22 This is a letter in response, it's hard to see, but it 23 looks like it will be 21 May 2010. It says: 24 "Thank you for your letter of 20 May, requesting to 25 meet to discuss the Post Office Horizon system. 48 1 "Since 2001, when the Royal Mail (which includes 2 Post Office Limited) was set up as a public limited 3 company with the Government as its any shareholder, 4 Government has adopted an arm's length relationship with 5 the company so that it has the commercial freedom to run 6 its business operations without interference from the 7 shareholder. 8 "The integrity of the Post Office Horizon system is 9 an operational and contractual matter for [the Post 10 Office] and not Government, whilst I do appreciate your 11 concerns and those of the Alliance members, I do not 12 believe a meeting would serve any useful purpose." 13 That Government position, that these Horizon issues 14 were an operational matter for Post Office Limited, is 15 that something on which you were consulted whilst you 16 were Managing Director? 17 A. I was certainly having conversations with both BIS and 18 Shareholder Executive, as sort of preparation and 19 briefing notes for the minister coming in. I'm not 20 certain exactly of when and how those meetings would 21 have taken place but there would have been a number of 22 conversations either from myself or my team with BIS to 23 help prepare the response for the Minister so, yes, 24 I suppose is the answer. 25 Q. Were you happy with that approach? 49 1 A. As it stood there, yes, based on what we knew at the 2 time, yes. 3 Q. Please can we bring up RMG00000139. This is a report 4 that you gave to the Royal Mail Holdings Board. It says 5 May 2010 but over -- at the end, we don't need to go 6 there -- we'll see it's dated June 2010. Can we look at 7 the bottom of the first page, please. (3) refers to 8 a meeting with Edward Davey MP. 9 A. Yeah. 10 Q. If you could just read that paragraph to yourself. 11 (Pause) 12 Do you recall if you discussed the Horizon IT System 13 at this meeting? 14 A. I can't recall specifics of the meeting in great deal, 15 to be fair. I mean, the minutes there probably give you 16 the summary of the key things that were discussed. 17 I think it's possible that we could have discussed it 18 but I can't be sure. 19 Q. Before the break, we discussed that the Post Office was 20 seeking an independent review of Horizon Online. Did 21 you tell him about that position? 22 A. No, I think what we were talking about, if we were 23 talking at all, would have been that -- by the time 24 we're talking here, we're in early June, I think, that 25 the rollout had now recommenced, and that we were on 50 1 track to complete it sometime in the autumn, probably 2 September/October time. So the events of the previous 3 couple of months ago had resolved themselves, so I don't 4 think we would have spent time talking about that 5 particular issue. 6 Q. Let's look at that. Can we go to FUJ00096312, please. 7 If we could go right to the bottom of the first page, 8 please. It's an email, Duncan Tait to Mike Young on 9 29 June 2010. So after your meeting with Ed Davey. 10 Carry on, please, into the body of the email. The third 11 paragraph says "Since your letter", referring back to 12 the letter of 10 May from Mike Young, which we looked at 13 before the break, in which a request for an independent 14 review was referred to. It says: 15 "... I am extremely pleased with the progress that 16 has been made. We have located the source of the 17 troubles and taken steps to rectify the issues and we 18 have now recommenced the pilot. Currently counters 19 running on HNG-X stands at just under 20% of the estate. 20 We are now rolling out at about the maximum levels 21 original envisaged with no further sign of the problems 22 that initiated our discussions. Tuning will continue 23 and we expect to emerge from the pilot with high levels 24 of confidence for the remainder of the deployment." 25 It goes on to refer to the deficiencies in the 51 1 product code. If we turn to Mike Young's email at the 2 top, please, page 1, this is on 30 June, so the day 3 after. It says: 4 "On the issue of having qualified independent party 5 audit to evaluate Fujitsu Programme execution, along 6 with the staffing levels and skills base, I had been 7 briefed that you had spoken to several entities to 8 pursue this endeavour. Indeed, I was told you were 9 close to agreeing terms with one of these. 10 Additionally, in our calls you will recall I had asked 11 whether there was a possibility of the Post Office 12 'owning' the Terms of Reference and again, this was 13 something you were going to strongly consider. 14 "As it stands now, I feel I have been led down 15 [a] journey of number of months, just so that you can 16 now say 'no'. This does not reflect well on our 17 relationship and will not be well received in the next 18 review. I have as a matter of course, been keeping both 19 the Post Office Executive and the Group Executive aware 20 of the progress I was told we were making in these 21 areas." 22 So is it fair to say, following your meeting with Ed 23 Davey on 30 June, Post Office was still seeking to 24 pursue an independent review of Horizon Online? 25 A. I'm not certain, to be honest. I can't recall the 52 1 details here. I do know that we were at this point, 2 somewhere around 2,000 sites rolled out, from the sort 3 of 600 back in April, and that the plan was on track to 4 complete the rollout in the autumn. So from that 5 perspective, the imperative of meeting and forcing the 6 review had diminished somewhat but I can't recall the 7 detail. 8 Q. Well, the email from Duncan Tait says: 9 "At this crucial phase of the programme we can see 10 no benefit and will not be pursuing a third party 11 review." 12 A. (The witness nodded) 13 Q. That's quite stark, isn't it? 14 A. Yes, it is. 15 Q. You can't recall what you made of that? 16 A. Well, I think I can't recall the detail of this specific 17 email exchange but I can recall that, at that point in 18 time, we were rolling forward again at pace and that, 19 had that to continue, which it did, then we would have 20 been content to have completed the rollout. 21 Q. I take it you don't recall anything further what 22 happened after this email? 23 A. No, I'm sorry I don't. I mean, this would be more in 24 Mike Young's space because he was managing the 25 day-to-day relationship here. 53 1 Q. Well, looking at this now, how did this affect or did it 2 have any affect on the relationship between Fujitsu and 3 Post Office Limited? 4 A. I don't think at the time I was viewing it particularly 5 different from where I was in April. What I had seen 6 was a conversation high up into Fujitsu with myself, 7 following which there was action, the programme did 8 start rolling out again and actually completed later in 9 the autumn. So, at that level, the relationship was 10 okay. 11 Q. Can we go to POL00004669. Thank you. This is a letter 12 that's addressed to you from Pamela Stubbs on 5 June 13 2010 and I think, in your witness statement, you say you 14 don't recall having received this letter. 15 A. That's correct, yeah. 16 Q. It says: 17 "I am writing as a subpostmistress who has worked 18 for the Post Office for some 23 years and who has been 19 in charge of this office for eleven years since my 20 husband's death. During this time I have had very few 21 problems with the work involved in running the office. 22 However, all that changed when I moved from my old 23 building into a Portakabin for the duration of the 24 demolition and rebuild of the new shop in the office. 25 Almost from the day my Horizon system was relocated into 54 1 the Portakabin, my office balances were short by 2 thousands of pounds in each trading period. 3 "I flagged up each shortage with the helpline, 4 particularly after the Christmas 2009 trading period 5 when the office was short by some £9,000 -- even though 6 I had only been open for two-and-a-half weeks. No help 7 or advice was forthcoming and so I decided on my own 8 that I would print off transaction logs for every week 9 to enable me to make some sense of these losses." 10 Later on in the fourth paragraph it says: 11 "I have had an Auditor monitor me at work. He 12 checked my cash, did a cash declaration, watched every 13 transaction for a morning's work. At the end he 14 produced another cash declaration which showed, on 15 Horizon at least, that the office had lost £190." 16 If we could go over the page, please, final 17 paragraph says: 18 "I sincerely hope that you will be able to intervene 19 in this matter, since I am of the opinion that no one 20 will actually look at Horizon in an impartial way unless 21 directed by a person of Authority at the top of Post 22 Office Limited." 23 That can come down. Thank you. 24 We don't need to go there, you note in your witness 25 statement that this letter was acknowledged on 8 June 55 1 2010 by Simon Smith who was in the Executive 2 Correspondence Team. 3 A. (The witness nodded) 4 Q. You're nodding your head. 5 A. Yes, sorry. Yes. 6 Q. Can you just describe how the Executive Correspondence 7 Team was made up? 8 A. There was a senior lead person who ran a team of, 9 I can't remember the exact number but, say, three to 10 five people, that sort of size and, in keeping with many 11 large organisations, letters that would come in for the 12 senior team, for the Chair, for the Chief Exec or the 13 MD, would generally be dealt with by that team. They 14 would have the power and responsibility to enquire into 15 different parts of the business to enable them to write 16 an appropriate response and, generally, they would judge 17 whether that would need to come across my desk to 18 review, and then sign off. 19 Q. Firstly, who was responsible for overseeing that team? 20 A. I think at that time -- and I apologise, I may have this 21 not right -- but I think it was Mike Granville who ran 22 the overall team and then I think it was Michele, was 23 it, Graves, under him, who was actually running the 24 day-to-day of the activity. 25 Q. But presumably if this team was preparing correspondence 56 1 to be sent out in response to letters to you -- 2 A. Yeah. 3 Q. -- you would have had some oversight of it? 4 A. Absolutely. They physically sat about where this team 5 is here, so they weren't far away, so they always had 6 the opportunity to say, "Have a look at this, what do 7 you think about this?" kind of thing but, in this 8 particular instance, I don't recall anything about it 9 unfortunately. 10 Q. You said in your witness statement -- we don't need to 11 go there -- you say, if appropriate, the answer to a bit 12 of correspondence might appear on your desk to look at? 13 A. Yes. 14 Q. What type of correspondence would they put on your desk? 15 A. I would have thought letters from MPs, for example. 16 I remember seeing a letter from David Cameron as 17 an example. I think I mentioned that in the statement. 18 That type of thing would come across my desk but, 19 generally, 80 or 90 per cent, I'm guessing, probably 20 wouldn't have done. 21 Q. So was it linked to the perceived importance of the 22 person rather than the importance of the -- 23 A. No, it was a judgement of both. A judgement of both. 24 Q. To what extent did you set parameters or give them 25 guidance on what correspondence should be directed to 57 1 you? 2 A. I don't think I did because that was already in 3 existence before I joined, and I let it run as it was 4 running. 5 Q. And do you know what that guidance specifically said or 6 was it just in accordance with the evidence you've 7 given? 8 A. I don't know, I'm sorry. 9 Q. So is it the case that complaints such as the one we 10 just went to, those wouldn't be passed to you as 11 a matter of course? 12 A. Not necessarily they wouldn't. They wouldn't have 13 always come to me, no. 14 Q. Please can we look at POL00106847. If we could go to 15 page 13 at the bottom, please. So we see the start of 16 an email at the bottom from Mark Dinsdale on 17 14 September 2010, and you've clarified evidence this is 18 about the time that you were considering leaving the 19 Post Office. You're nodding yes. 20 A. Yes, sorry. 21 Q. Over the page, please. It says, "This is quickly" -- 22 I should say, sorry, it refers to the Barkham Post 23 Office, which is what we're considering here. 24 A. Right. 25 Q. It says: 58 1 "This is quickly turning into a bit of a problem. 2 "This is a potential fraud where loss has occurred 3 when an SPMR moved into a Portakabin, but ceased the 4 moment she was suspended and somebody else run the 5 office." 6 Firstly, was it usual for complaints such as this 7 still to be investigated and not responded to months 8 after they were made? 9 A. I can't comment in general terms but I would have 10 expected at least an initial response to say we are 11 investigating it. 12 Q. As I said earlier, that was done on 8 June? 13 A. Yes. 14 Q. I'm talking about a finished investigated response. 15 A. Sorry, repeat the question. I'm not quite sure. 16 Q. Of course. To what extent was it usual for the 17 Executive Correspondence Team to take several months to 18 come back with a substantive response to a complaint, 19 such as the one we saw earlier? 20 A. I don't know, it would have depended upon the nature of 21 the issue and what needed to be done to investigate it 22 but, in this particular case, they were obviously 23 investigating deeply what happened so I'm not surprised 24 it took a while to respond. 25 Q. In the fourth paragraph, maybe, the last paragraph, it 59 1 says: 2 "This now leaves us in a very difficult situation 3 with the SPMR writing letters to Dave Smith, her MP and 4 no doubt countless other people, this is high profile. 5 She has also joined the SPMRs' fight to question the 6 integrity of Horizon." 7 It being described as "high profile", do you think 8 this is something that would have come across your desk 9 at any point? 10 A. I don't know. I would have hoped so but I don't know 11 that it did. 12 Q. Please can we turn to FUJ00121097, and page 2, please. 13 If we could go to the bottom, please. It's an email 14 from Penny Thomas of Fujitsu to Post Office, members of 15 the Post Office. Do you recall any of those people on 16 the send line? 17 A. Sue and Mark I certainly remember being in the business. 18 I'm not exactly sure what their job titles were at the 19 time but they would have been relatively senior 20 management, I would have thought. 21 Q. It says: 22 "We have identified that a number of recent ARQ 23 returns contain duplicated transaction records." 24 Would you have known at the time what ARQ data was? 25 A. I'm not sure I would have done, no. 60 1 Q. Do you know what it is now? 2 A. I understand it's a data log, data pool of all the 3 detailed transactions from the branch account. 4 Q. That is the basis on which -- the data with which Post 5 Office would pursue prosecutions in some cases. 6 A. I understand, yes. 7 Q. So the issue of there being duplicated transaction 8 records within that, would you accept that's 9 a significant problem? 10 A. I would. 11 Q. Is this something you were briefed on? 12 A. No, I'm not aware of it. 13 Q. Why do you think that important information like that 14 wasn't getting to you? 15 A. I don't know. I can't say. 16 Q. Please can we turn to POL00417098, please. Page 13, 17 please. This is a document referring to a Parliamentary 18 question asked by Priti Patel on 6 July 2010: 19 "To ask the Secretary of State, Department for 20 Business, Innovation and Skills, what his most recent 21 estimate is of the cost of postmasters and 22 subpostmasters of errors in the Horizon operating 23 system; and if he will take a statement." 24 The Department asked you to respond to Priti Patel 25 in a letter? 61 1 A. Yes. 2 Q. What did you think your personal obligation was when 3 writing to MPs such as Priti Patel to respond to 4 questions? 5 A. The same as it would have been to anybody else, to 6 respond in a factually accurate way, with what 7 I understood to be the position. 8 Q. Can we look at your letter in response, please, it's 9 POL00001762. If we can go down to try to get as much of 10 the letter in as we can, please. We see at the bottom 11 it says "GRO" which is a redaction, but this is a letter 12 which was signed by you, wasn't it? 13 A. Yes, I do agree with that. 14 Q. In your witness statement -- we don't need to turn it 15 up -- at paragraph 70, you say that: 16 "I am confident that I would not have written my 17 response without being satisfied at the time with what 18 we were saying and based on the provision of relevant 19 information." 20 How did you satisfy yourself that the information in 21 the letter was accurate? 22 A. The letter itself would have been drafted by Mike 23 Granville and his team would have done the usual 24 internal review processes, so that's the first thing to 25 say. The position with Horizon at the time was that we 62 1 were back to rolling out the system, so I was 2 comfortable that the system was okay. I had obviously 3 got the legal processes and reports from Sue and team 4 giving me an indication of the status of each of the 5 legal reports and, overall, I was comfortable at that 6 time that the system was robust and couldn't be 7 accessed, because of the sort of tamper-proof logs and 8 backdoor system protections, and the internal Audit 9 Team's work and Security team's work that was going on 10 in the generality. So that was the backdrop in my mind 11 as to why I was comfortable to stand behind a set of 12 statements like these. 13 Q. So you didn't make any particular investigations in 14 response? 15 A. Not specifically to this but you'll see later on that, 16 obviously, I then did look for an internal review. 17 Q. We'll come to that shortly. You also said you didn't 18 draft the letter, it was put on your desk, effectively? 19 A. Yes. 20 Q. Could we look please, it's a letter I showed you earlier 21 and, unfortunately, you hadn't seen it before but you 22 had a chance to read it earlier, UKGI00000028, please, 23 and can we look at that side by side, please. If we 24 look on the -- there's the letter to Mr Newmark MP on 25 the left and the letter to Priti Patel MP on the right. 63 1 The first paragraph after the question says: 2 "The Horizon computerised accounting system operates 3 in around 12,000 Post Office branches and processes up 4 to 750 transactions a second at peak times." 5 If you just read those letters to yourself. The 6 letter to Priti Patel MP is effectively taken from this 7 earlier one from Alan Cook. 8 A. It does look very similar, yes. 9 Q. Were you aware at the time that people such as Alan 10 Bates were complaining that the response that was coming 11 from Post Office on complaints was like a template, the 12 same response? 13 A. No, I wasn't, and, obviously, I'd not -- as I said to 14 you earlier, I'd not seen this letter before today but 15 it is clearly quite shocking. 16 Q. Those can come down. Thank you. I'm now going to come 17 to the investigation you referred to. You've already 18 mentioned the Shareholder Executive, just for 19 background, would you accept that that was a Government 20 body which managed the Government shareholder 21 relationship with businesses such as Post Office? 22 A. Yes, that's a basic description, yes. 23 Q. Could we look at POL00417098, please. If we can go to 24 the email at the bottom please. It's an email from 25 Oliver Griffiths at Shareholder Executive. Do you 64 1 recall dealing with him? 2 A. Yes, he would have been a regular contact of mine 3 through my time in role and was generally a liaison 4 point between the Post Office and the Shareholder 5 Executive. 6 Q. So this was sent on 21 July to you. 7 A. (The witness nodded) 8 Q. It says: 9 "As we discussed briefly on Monday evening, there 10 has been recent interest from MPs in purported cases 11 where the Horizon system has left subpostmasters out of 12 pocket." 13 Do you recall that discussion? 14 A. Not now I don't but I'm sure it took place. 15 Q. It says: 16 "We have to date said that this is an operational 17 matter for POL [Post Office Limited] and resisted calls 18 to impose a review of Horizon ..." 19 The email goes on to say: 20 "We are in theory happy to continue holding this 21 line -- but if we do so and it turns out that there have 22 been problems with Horizon, then there will be 23 significant political heat. Grateful therefore if you 24 could let me know how confident [Post Office Limited] is 25 that there is nothing behind these claims." 65 1 Can we then look at POL00417100. Please could we go 2 to the third page. Further down, please. Thank you. 3 We have an email from you, David Y Smith, 21 July 2010 4 at 19.04. So that's after the email from Shareholder 5 Executive. 6 A. Yes. 7 Q. You say: 8 "Further to yesterday's complaint around Horizon 9 from Oliver and a Parliamentary question to Ed Davey 10 from Priti Patel on the same issue we have today been 11 notified that Channel 4 will run a news item on the same 12 issue. This may be all the same group of people and may 13 also just be a function of the new rollout. However ... 14 "Sue Huggins will lead our response via Mary to the 15 specific request. But I want an internal investigation 16 under Mike Moores lead please over the next week on the 17 following." 18 You sent this the day after responding to Priti 19 Patel. Why did you now think you needed 20 an investigation but you didn't when you responded to 21 Priti Patel? 22 A. I was really, in my mind, responding to Oliver asking 23 for, essentially, a stress test that we were comfortable 24 with what we were saying. What came out of Oliver's 25 piece was a set of conversations inside the business and 66 1 I wanted to make sure that we had got documented, you 2 know, why did we think the system was robust; what did 3 we think the issues were or weren't; and how were we 4 comfortable that the challenges that were being 5 presented in the Channel 4 programme particularly and in 6 the issues flagged again by Oliver were actually being 7 correctly addressed? 8 So it was really the Oliver email to me that made me 9 think, actually, I probably should look more deeply here 10 than we have done so far. 11 Q. But why didn't that spring to mind when responding to 12 a Member of Parliament? 13 A. Well, because the work that had been done previously, as 14 I'd outlined, gave me comfort that what we were saying 15 in that letter was true. I still believed it was true 16 but I wanted to be able to give the Shareholder 17 Executive the same confidence that we had got by pulling 18 out the data that said, "Look, this is why we believe 19 that our systems are robust". 20 Q. So you were looking to give confidence to the 21 Shareholder Executive? 22 A. Yes, yes. 23 Q. The queries you ask, the first is "How robust is 24 Horizon"? Now, below that, there then appears to be 25 an answer. If we go to the first page, please, of the 67 1 document, we see there's an email from Mark Burley, 2 you're not included in the list, but it says: 3 "I have added some specific comments against the 4 questions from David Smith below and I would also [add] 5 the following ..." 6 So do I take it that the answers to your questions 7 weren't in your original email? 8 A. Absolutely not, no. My email, I know I've seen 9 previously there weren't Terms of Reference for the 10 Ismay report but my email was, essentially, the Terms of 11 Reference, here's the questions that I think we should 12 be answering, to give us confidence to, or to give the 13 Shareholder Executive confidence in what we're saying. 14 So this set here, that you see here, is after that has 15 happened, and people are starting to annotate their 16 answers to the emails. 17 Q. Can we turn to page 5, please, and if we could go down 18 to the bottom, the penultimate paragraph it says: 19 "How do we treat discrepancies? Is there any 20 exceptional circumstance applied where we don't seek 21 recovery of funds, prosecution, etc, ie are we heavy 22 handed and disproportionate in our response?" 23 Then over the page at the top, it says: 24 "How many have we prosecuted? What is our success 25 rate?" 68 1 Why did you seek answers to these questions? 2 A. I wanted to understand if the process that we were going 3 through was fair, I suppose. In other words, that we 4 got the right judgement of we'd got the right evidence 5 and we were prosecuting correctly, and I was looking for 6 not just an internal measure but, for instance, what was 7 the same situation that was going on in the banking 8 world where cash would be handled in a similar way. So 9 I was trying to verify and give an external benchmark, 10 if you will, that the rate of prosecutions that were 11 taking place inside the business were not out of line 12 with what you might expect for any environment where 13 there's a lot of cash around. 14 Q. Well, that's the rate of prosecutions. What about the 15 question "How do we treat discrepancies? Is there any 16 exceptional circumstance applied where we don't seek 17 recovery of funds or prosecution, ie are we heavy-handed 18 and disproportionate in our response?" 19 A. Yeah, I mean, I was trying to find out the answer to 20 that question because I wanted to ensure that we were 21 acting fairly. 22 Q. If you go, actually, on page 7, please. If we could 23 just go down to the bottom. Thank you. It says: 24 "Suggest we need input from Lynn, Keith Woollard, 25 Rod and Leslie as a minimum." 69 1 Were any of those people in the Legal Department? 2 A. I can't tell you. Leslie was IT; I can't remember Lynn; 3 Rod was obviously Rod Ismay, who was in the finance 4 world; and I'm not sure what Keith's role was. So 5 I don't know is the answer to that. 6 Q. The questions you are asking, why weren't you getting 7 this type of information from your weekly Executive Team 8 meetings? 9 A. In the weekly Executive Team meeting, we were just 10 looking at the cases that were live at any point in 11 time, so we were not looking at general trends and 12 prosecution rates versus other companies and many of 13 those types of things. So it wasn't visible. 14 Q. The requests you made here at this stage, would you have 15 discussed this in the Executive Team meeting? 16 A. Yeah, the genesis of what came out here is really 17 a combination of the request from Oliver, which we've 18 discussed, the board discussions that would have been 19 taking place at the time around the questions from 20 Channel 4, which were we were being asked about and, 21 more generally, myself trying to get a balance and sense 22 of, well, if I were outside of this organisation, what 23 would I want to know that would give me comfort that we 24 were following due process? 25 So it's a combination of those and, unfortunately, 70 1 in the mists of time, I haven't got any way of saying 2 this came from here and this came from here and that 3 came from there but the genesis of this and ultimately 4 the Ismay report that comes from it, is effectively that 5 set of activity that was taking place in that period of 6 time. 7 Q. You referred to conversations with the board about the 8 Channel 4 proposed programme. Can you recall the detail 9 of any of those conversations? 10 A. Not specifics. In the generality, as a business -- and 11 I'm talking about Royal Mail Group here -- any items of 12 PR would have been dealt with by the group's PR 13 function, and I think it was Mary Fagan, probably at the 14 time, and so they would have taken the overall control 15 of how that process was to be handled. A set of 16 questions, I think, did come in from Channel 4 for us to 17 respond to, some of which would have ended up being in 18 the summary of what we just looked at, and I know that 19 at a sort of weekly and monthly sort of cadence, we 20 would have been generally talking about PR issues in the 21 round because, as I'm sure you're well aware, the Post 22 Office and Royal Mail, more generally, is pretty much in 23 the news all the time and, therefore, there's always 24 an eye on what is going on from a PR perspective. 25 So that's, it would have been in that sort of 71 1 context that we'd have had conversations. 2 Q. So was the real trigger for this in your email 3 Channel 4's involvement? 4 A. No, I think it was a combination of in my mind, as I've 5 said in here, in my mind it was -- Oliver was the 6 specific trigger but, if we look at what was happening 7 in the round at the time, there were a number of 8 elements that come together that ultimately give us the, 9 albeit brief, terms of reference that we're using to 10 pull together a summary and, essentially, what I'm 11 thinking about in my head at the time is I'm trying to 12 stress test what people are telling me so that I've got 13 confidence and so that ShEx have got confidence in our 14 position. 15 Q. If we can bring back the last document again, please, 16 it's POL00417100, and if we could turn to page 9, 17 please. An email from Paul Budd to you and Sue Huggins, 18 and below, it says it provides a draft of a response to 19 Channel 4. 20 A. Yes. 21 Q. If you could just move down to see the response, please. 22 Reading that, did you approve of the message that 23 was set out in this draft? 24 A. I don't know that I physically approved it. So it would 25 have resonated as the house position, the business 72 1 position at the time, as to what we thought about the 2 system. We didn't know what the Post Office -- what 3 Channel 4's programme was actually going to say, so it 4 was difficult to be more specific than that. But that 5 was generally accepted as the position of the business 6 at the time. 7 Q. In your statement, you refer to having a conversation 8 about the questions being taken through the -- 9 A. Yes. 10 Q. Following that conversation, what were you views on the 11 robustness of the Horizon IT system? 12 A. So the -- I think -- can you point me at where in my 13 statement -- 14 Q. Yes, of course, sorry. 15 A. I just want to be certain before I answer. 16 Q. If we turn to paragraph 73, please. 17 A. Thank you. Yeah. 18 Q. So you say, "My email is addressed to Mike Young, Sue 19 Huggins and Mike Moores". 20 A. Yeah. 21 Q. That was the email we were just referring to: 22 "... and it looks from the email like we met and 23 chatted to work our way through our responses." 24 A. Yeah. 25 Q. "Due to the passage of time, I cannot say why these 73 1 particular questions laid out in my email were asked but 2 they were likely to be a combination of what I was 3 asking ..." 4 A. Okay. Yeah, I understand the context of the question. 5 So this is me sitting down with the senior members of 6 the team -- Mike Moores being the CFO, the Finance 7 Director, Sue, who was responsible for, essentially, the 8 operation of Horizon day-to-day, and Mike Young, the 9 Head of IT -- and we were discussing the framing of what 10 we wanted to do in terms of the review. So that's what 11 I meant by that. What we were not doing was discussing 12 all of the detail of each of the individual components 13 of what our position would be. So, in other words, we 14 didn't have a long conversation about, for instance, 15 Fujitsu's control systems or those types of things. 16 That came afterwards when the Ismay report was written. 17 Q. Well, let's -- 18 A. This is more about a conversation about how do we set up 19 the review? 20 Q. Well, let's look at that. That document can come down. 21 Thank you. 22 The Inquiry refers to and you have referred to the 23 Ismay report. That's referring to a report made by 24 Roderick Ismay on 2 August 2010 called Horizon Response 25 to Challenges Regarding System Integrity. When do you 74 1 think you provided -- or when would you think Mr Ismay 2 was instructed to prepare that report? 3 A. I can't remember the exact date but it certainly would 4 have been very soon after that set of emails we've just 5 looked at so within a day or two, I would have thought. 6 Q. You accept that there were no written terms of 7 reference? 8 A. Not specifically, no. Only the conversations that we 9 would have had and also the email that we just looked at 10 that laid out the questions from the Channel 4 piece. 11 Q. Why weren't there written terms of reference for such 12 an important report? 13 A. I don't know and, obviously, looking later on in my 14 statement, I reflect back that that's a mistake. 15 Q. Can we look at, please, page 29 of your statement, 16 paragraph 82. You refer to the terms of reference -- oh 17 sorry, I'm going too fast. 18 You refer to the terms of reference in the first few 19 sentences and then, in the middle, you say: 20 "I also believe that I spoke with Rod Ismay to 21 further explain the context for the request for him to 22 carry out a review. I cannot say for definite but 23 I expect that I asked him to produce an answer for 24 Parliament and to provide a response to the Channel 4 25 news item and therefore I wanted to get something which 75 1 could quickly but effectively confirm what our position 2 was and if it was incorrect." 3 Should that sentence finish there? 4 A. No, it looks like a mistake -- "and, if it was 5 incorrect, to flag back what we needed to be aware of", 6 I think. 7 Q. Why did you have a conversation with Mr Ismay and not -- 8 why wasn't that delegated to one of the people in your 9 line? 10 A. I think the structure at the time was that Mike 11 Moores -- actually it was Mike I had charged with 12 writing the report, and that between Mike and myself and 13 Mike Young and Sue, we go back to that conversation, we 14 agreed that it would be appropriate for Rod to carry out 15 the actual activity, and Mike, myself and Mike Young, 16 all at various times, did have conversations with Rod to 17 sort of set the tone of what we wanted and expected to 18 come back and also to help and review his progress. 19 That was more the two Mikes than myself but the three of 20 us -- it wasn't just one conversation, it was a set of 21 conversations. 22 Q. So your evidence is that Mr Ismay was getting 23 instructions from multiple people at multiple times? 24 A. No, he was getting instructions from me at the start, he 25 was then getting input and guidance on, you know, where 76 1 information might be, how to get it, how to pull it 2 together and what the summary and structure of the 3 report might best be presented like to present it back 4 in a coherent way. 5 Q. What would you have said to him in your instructions? 6 A. I would have said that "The BIS team have requested that 7 we pull together a stress test report, summary report, 8 to review why and how we consider our Horizon system to 9 be robust and, in order to do that, I'd like you to also 10 consider the types of questions that are here from the 11 Channel 4 investigation, I want you to look across the 12 whole organisation, I want you to pull in whatever 13 resources you need to pull this together, I want you to 14 liaise with Mike Moores, Mike Young and Sue to assist 15 you in pulling that together, and then I'd like you to 16 report back. The board wants an honest view; it doesn't 17 want a view that is one sided; it just wants a view of 18 what you see, what you know, and we need it in a couple 19 of weeks' time as a first view because we are being 20 asked to report back to ShEx". 21 I think that would have been the shape of it. 22 Q. If that was the instructions you gave, why was Rod Ismay 23 the man for the job? 24 A. Rod was highly thought of in the business. He had held 25 a number of senior management positions right across 77 1 a lot of the organisation. So he ran Internal Audit for 2 a period of time. He had responsibility for security 3 for a period of time and, at that particular point in 4 time, he was running the back office accounting teams. 5 He was a qualified Auditor, having come to us from Ernst 6 & Young, he was highly respected across the business 7 and, as I had charged Mike Moores, he was a reporting to 8 Mike. So that was the set of reasons why we chose him. 9 Q. What about his IT experience? 10 A. No, he wasn't an IT expert but I wasn't asking him to 11 audit the IT system. I was asking him to give me the 12 rationale as to why the business thought that we were 13 confident and comfortable in the assertions that we were 14 making, and I was asking him to talk to the relevant 15 experts across the business. So he had Mike Young and 16 team, for instance, Lesley Sewell, to talk to from an IT 17 perspective, just like he had Susan Crichton from 18 a legal perspective, just like he had other experts from 19 the business to be involved. 20 And I think you can see, in the sort of summary of 21 the report that comes back, it's an extensive list right 22 across the organisation that input into the report, 23 because no one person could have written it anyway. 24 Q. I think you just said that you were looking for the 25 rationale for why the business was confident in its 78 1 position? 2 A. Yeah, that is essentially the exam question that we were 3 being asked by Oliver at Shareholder Exec. 4 Q. Could we look at Mr Ismay's statement, please, 5 WITN04630100, page 10, paragraph 39. Mr Ismay in his 6 written evidence to the Inquiry says that: 7 "... after being asked by David Smith to conduct 8 a review in light of the challenges being made about the 9 system. It was a summary of existing conclusions not 10 a fresh investigation. The conclusions came from 11 internal discussions with recipients of the document or 12 with their team members that they recommended be 13 consulted, including IT." 14 Do you agree with that? 15 A. Broadly, that sounds right, yes. 16 Q. Can we turn to paragraph 41, please. It says: 17 "The report was requested, and I wrote it, in 18 an environment where challenges were made about Horizon, 19 but there was no ready document available which pulled 20 together reasons for assurance." 21 Do you agree with that? 22 A. I think that's true, as well, yes. 23 Q. Were you asking Rod Ismay to produce that document? 24 A. I was asking him to give me, as I already discussed, 25 a stress test report on why we believed that we were 79 1 confident in our assertions that the system was fine. 2 Q. They're separate things, aren't they? One is finding 3 a report which gives reassurance and drafting a report 4 for why there is reassurance, and a stress test or 5 investigation into whether something does have 6 integrity? 7 A. Yeah, I mean, at the level of doing a full audit review 8 yes, of course there is. In the timescale that we were 9 talking about here, which is a sort of one to two-week 10 report, I was not expecting him to come back and say 11 he's done a full forensic investigation into Horizon. 12 That wasn't what I was expecting back. 13 Q. Can we turn, please, to Mr Ismay's oral evidence to the 14 Inquiry. It's INQ00001063. Can we turn, please, to 15 page 26. 16 If we could focus on the top two -- that's perfect, 17 thank you. 18 Line 16 of page 101, Mr Ismay is asked the question: 19 "What were the terms of reference for the writing of 20 the report?" 21 He refers to not being given written terms and, at 22 page 25, he says: 23 "Dave, I think, was relatively new to Post Office." 24 Sorry, line 25: 25 "Dave, I think, was relatively new to Post Office. 80 1 I think he was only Managing Director for about a year. 2 I think he came from somewhere in Royal Mail and went 3 back to somewhere in Royal Mail. 4 "In the period that he was there, I think that, 5 given the comments that he was hearing allegations, this 6 was a question to me to say, 'Well, you know, what's the 7 counterargument to this?'" 8 Was that what you asked him to do, to provide you 9 with a counterargument to allegations? 10 A. No, no. I stand by what I said. 11 Q. Can we go back, please, to POL00417098. At the bottom 12 was the email from Shareholder Executive that I took you 13 to earlier. The top email is from Tracy Abberstein. 14 That was your personal assistant? 15 A. That's correct, yes. 16 Q. You see at the top it says "From: Tracy Abberstein on 17 behalf of David Y Smith". On the "From" line, beneath 18 Mike Granville; do you see that? 19 A. Yes, I do. 20 Q. How would this email have come about? Would it have 21 been dictated? 22 A. I would have thought so. I can't recall exactly but 23 I would have thought so. 24 Q. So the response is -- sorry, the email says: 25 "Mike Granville will liaise with you both to prepare 81 1 a brief for Oliver to give the reassurance required!" 2 Is that not what Rod Ismay is saying: that he was 3 asked to provide a brief or a report that set out 4 grounds for reassurance in the Horizon IT system? 5 A. I don't think those are the words that he used. We may 6 be splitting hairs here. As I said, the genesis of the 7 report was a combination of what is here and what was in 8 the Channel 4 email that we've gone through earlier, and 9 I was asking for, essentially, a summary position on our 10 thoughts around those areas, which we could then use to 11 respond back to Oliver, for sure, but that wasn't the 12 only purpose of the report. 13 Q. Could we please go to POL00106867. Could we start, 14 please, I think it's page 5. Just go down slightly, 15 please. It might be the next page, I apologise. No, my 16 error, page 3. I'm terribly sorry. 17 If you could go down, please. You remember this 18 email from Andy Haywood, which we looked at at the start 19 of your evidence? 20 A. Yes. 21 Q. So that's on 26 February 2010. You remember it said, 22 number 3: 23 "... conduct full investigations into integrity 24 issues ..." 25 Could we look at page 9 of this document, please. 82 1 This is from Sue Lowther, 8 March, so it follows that 2 email. It's later in the chronology. It says: 3 "As was discussed on the conference call and taking 4 into account Rob's comments, to confirm that what we are 5 looking at is a 'general' due diligence exercise on the 6 integrity of Horizon, to confirm our belief in the 7 robustness of the system and thus rebut any challenges." 8 Do you accept that this is effectively asking for 9 a document or an investigation that, rather than 10 investigate integrity issues, would look to confirm the 11 belief and provide assurance for Post Office's position 12 in the robustness of the system? 13 A. Yeah, I mean, as I said before, I wasn't here when this 14 came but, on the face of what I see here, yes. 15 Q. Do you think that's consistent with what Rod Ismay says 16 he was asked to do? 17 A. It does look like it, yes. 18 SIR WYN WILLIAMS: I'm sorry, I'm struggling a bit with 19 parts of this evidence. Can I just recap a moment? 20 Could we go back, please, to Mr Ismay's statement 21 and the paragraphs you took Mr Smith to, paragraphs 39 22 and 41, on page 10 and 11. 23 MR STEVENS: Yes, of course, it's WITN04630100, thank you, 24 and it's page 10. 25 SIR WYN WILLIAMS: Yes. It's paragraph 39, is it not? 83 1 MR STEVENS: Yes, paragraph 39, sir, page 10. 2 SIR WYN WILLIAMS: Yes. 3 MR STEVENS: Sorry, we're on the wrong witness statement. 4 I may have given the wrong reference, sorry. The 5 reference is WITN04630100, page 10, please. 6 SIR WYN WILLIAMS: Yes, so in paragraph 39, Mr Smith, you 7 see that it contains the sentence, essentially, in the 8 middle of the paragraph: 9 "It was a summary of the existing conclusions, not 10 a fresh investigation." 11 Yes? 12 A. Yes, I see that. 13 SIR WYN WILLIAMS: Then if we go to 41, it ends: 14 "... there was no ready document available which 15 pulled together reasons for assurance." 16 My note -- and this is what I want to check with 17 you -- is that you, essentially, agreed with Mr Ismay's 18 descriptions of what the report was to be, as set out in 19 paragraph 39 and 41. 20 A. Sir, yes, that's correct. 21 SIR WYN WILLIAMS: Fine. Then can we please look at your 22 witness statement. This is -- sorry, I -- let me get 23 the -- 24 MR STEVENS: WITN05460100. 25 SIR WYN WILLIAMS: Yes. I want you to go, please, to 84 1 page 30, paragraph 87. Then over the page to page 31. 2 Reading that paragraph, as I will now: 3 "I have read Rod Ismay's statement dated 13 January 4 and note that he says that he was asked to summarise 5 existing conclusions." 6 Then you say this: 7 "This is simply not my recollection and I do not 8 believe that this is inferred by the email 9 correspondence", and then I interpose which we have 10 looked at. 11 Which is it, Mr Smith? 12 A. What I mean by that is that the questions that I laid 13 out for him or for Sue, Mike and Mike, which was the 14 Channel 4 questions, I didn't think that they had been 15 visited and written down and laid out anywhere, 16 previously, and so that's why I mean that it wasn't just 17 pulling together what we'd already done. I was asking 18 for the specific answers to these questions -- 19 SIR WYN WILLIAMS: Well, I follow -- 20 A. -- and so that's all I -- we may be -- you know, 21 semantics of words here but my view of what happened was 22 here's a set of questions and here's also what we are 23 getting from ShEx, I would like you to report back to 24 me, talking to all of the relevant people in the 25 business, to give me a summarised position of the 85 1 answers to those questions. 2 What I didn't say was, "Go and do a fresh 3 investigation, go and do a detailed investigation", or 4 anything at all as to how he should carry out that 5 investigation; I didn't give him that instruction. 6 SIR WYN WILLIAMS: But what I draw from that, and this is 7 what I want to be sure that I'm entitled to draw from 8 that, that you did intend that he should effectively 9 draw together conclusions which had already been arrived 10 at. It was not an exercise in testing those 11 conclusions. 12 A. That is correct. It was not. I did not intend us to go 13 and do a full forensic investigation, for example. 14 SIR WYN WILLIAMS: So, if you like, so that I'm absolutely 15 clear about this, there were a number of reasons already 16 held in senior levels of the Post Office as to why 17 Horizon was robust, and what you were asking him to do, 18 in effect, was to reduce those into writing in one 19 document so that everybody knew what they were? 20 A. Largely, yes. Yes. 21 SIR WYN WILLIAMS: Right. Okay, I've got it now, thank you. 22 MR STEVENS: Sir, we mentioned a short break before lunch. 23 I think it's probably a good time to take that. 24 SIR WYN WILLIAMS: All right, let's have a few minutes, at 25 least. 86 1 (12.35 pm) 2 (A short break) 3 (12.44 pm) 4 MR STEVENS: Sir, can you see and hear me? 5 SIR WYN WILLIAMS: Yes, I can, thank you. 6 MR STEVENS: Please can we turn to your witness statement, 7 page 30, paragraph 86. You're talking here about after 8 receiving the Ismay report. You say: 9 "At the time, I do not think that we thought that 10 there was any merit in commissioning a further report by 11 an IT expert or a forensic accountant or similar to test 12 the reliability of Horizon as the report was clear-cut 13 in its position. There was nothing in it which 14 suggested we should investigate Fujitsu or Horizon 15 further." 16 That can come down. Who was "we" when you say that? 17 A. I'm talking here about a combination of the Post Office 18 senior management team. So this would have been Paula 19 and would have been -- 20 Q. Paula Vennells? 21 A. Paula Vennells, Mike Young, Mike Moores. It would also 22 have been a set of conversations with the Royal Mail 23 Group, so certainly the Chair and Chief Exec and I, 24 I would expect, would have had a conversation about it. 25 So they are a set of conversations rather than a set 87 1 piece meeting to draw a conclusion. 2 Q. Your evidence earlier was that you hadn't asked Rod 3 Ismay to do a forensic investigation into the Horizon IT 4 System? 5 A. Yes. 6 Q. Well, we repeat your evidence but the evidence you just 7 gave, this wasn't going to be a report that did a deep 8 dive into whether or not Horizon was available? 9 A. Yeah. 10 Q. So how on earth could you take comfort from that report 11 that a further investigation by an IT expert or forensic 12 accountant wasn't required? 13 A. Well, at the time, the fundamental piece was that we 14 believed the system was tamper proof so the Fujitsu 15 position that was laid out was quite clear. We had not 16 seen in any of the recent cases any issues that would 17 suggest a problem and, in fact, a few weeks later, as we 18 now know wrongly, but at the time, we saw the Seema 19 Misra case as a test of the Horizon system, and it had 20 come through that, and so those were the fundamental 21 reasons. 22 Q. Could we bring up the Ismay report, please. The 23 reference is POL00107129. Apologies if I said the wrong 24 reference. If you could go to page 10, please. 4(c), 25 it says, "Independent Review and Audit Angles": 88 1 "[Post Office Limited] has actively considered the 2 merits of an independent review. This has been purely 3 from the perspective that we believe in Horizon but that 4 a review could help give others the same confidence that 5 we have." 6 Then the penultimate paragraph says: 7 "It is also important to be crystal clear about any 8 review if one were commissioned -- any investigation 9 would need to be disclosed in court. Although we would 10 be doing the review to comfort others, any perception 11 that POL doubts its own systems would mean that all 12 criminal prosecutions would have to be stayed. It would 13 also beg a question for the Court of Appeal over past 14 prosecutions and imprisonments." 15 Was this the reason why you chose not to do 16 an independent review? 17 A. No, it wasn't. 18 Q. Why do you say that? 19 A. I've given you the reasons why. The fundamentals were 20 we believed that the system was sound, that it couldn't 21 be tampered with and that that was tested a few weeks 22 later in the Misra case as the latest example of 23 a series of those, tests of the system. So those were 24 the reasons that we made it. It wasn't this particular 25 point. 89 1 Q. Did the reason given there of the issue of disclosure, 2 did that have any effect in your mind on whether or 3 not -- 4 A. No, no. 5 Q. That document can come down. Thank you. You say the 6 Misra case was seen as a test case. What, if any, steps 7 did you take to oversee the conduct of that case by Post 8 Office Limited? 9 A. Well, you may recall that the case started some time 10 before I joined and was well in hand before I joined the 11 business. So my own conduct in the case was limited. 12 I was aware of it through its sort of April to September 13 time frame. The relative importance of it obviously 14 became clearer to me, so I became a little closer to 15 understanding what the case headlines were. But 16 I didn't review the case in detail, didn't have any 17 conduct over the case and was really looking at it from 18 the perspective of I'm keen to see what the results are 19 rather than having any conduct of the case. 20 Q. Could we look at POL00169170. The email at the very 21 bottom, it's sent from Jarnail Singh. I don't need to 22 read it out. It's an email that's been read out in the 23 Inquiry several times before. It states what the result 24 of the Misra trial was and that she'd been convicted, 25 and your response is, on 21 October 2010: 90 1 "Rod 2 "Brilliant news. Well done. Please pass on my 3 thanks to the team." 4 Why was this brilliant news? 5 A. This is -- well, first of all, I'd just like to place on 6 record an apology to Seema Misra and family because of 7 the way this has been perceived and portrayed 8 subsequently and, looking at it through their eyes 9 rather than through mine, you can see that it may have 10 caused substantial upset, and I really do apologise for 11 that. At the time, what I'm doing here is what I would 12 do generally with lots of things in business: I'm saying 13 to the team "Thank you for all your hard work, it's 14 terrific that you got the result that you got, and I'm 15 really happy that we have progressed". It's nothing 16 more or less than that and, in the context of probably 17 receiving 200 to 300 emails a day, which would have been 18 typical at that time, I would literally have gone 19 "Brilliant news. Well done. Thanks very much", send, 20 and that would have been it. 21 In the benefit of hindsight and looking through the 22 2024 lens not the 2010 lens, at best, from Seema Misra's 23 perspective, you can see this is really poorly thought 24 through and I do apologise again for that. 25 Q. You referred earlier to it being a test case and did you 91 1 place any reliance on the fact that Ms Misra was 2 convicted in how to deal with the question of whether 3 there should be an independent review in future? 4 A. I can't be sure, to be honest, because it's a way back 5 in the mists of time. I do know that, from this point 6 forwards, we didn't really think about whether we should 7 have an inquiry again while I was at the Post Office 8 and, certainly, if you look from board minutes from the 9 month after and the month after that, which had been 10 shared with me, we're not talking about Horizon at all. 11 So it must have played some part in the thinking but 12 I can't be sure what part. 13 MR STEVENS: Sir, I'm looking at the time and we have to 14 finish Mr Smith's evidence this morning. There are one 15 set of questions from Core Participants. I propose at 16 this point not to ask any further questions and hand 17 over to the Core Participants. 18 SIR WYN WILLIAMS: All right let me unmute myself. Yes. 19 That's fine. Who is going to ask some questions? 20 MR STEVENS: It's Hodge Jones & Allen team. 21 SIR WYN WILLIAMS: Right. 22 MS PAGE: Thank you. 23 Sir, I would invite you to give this witness the 24 warning against self-incrimination. 25 SIR WYN WILLIAMS: Well, I think I'm entitled to be told in 92 1 very brief terms, without making your cross-examination 2 ineffective, the basis for that, and I'm literally 3 asking just for a few sentences, Ms Page. 4 MS PAGE: We say that the Ismay report was a cover-up. 5 SIR WYN WILLIAMS: Right. All right. 6 Well, Mr Smith, under our law, a witness at a public 7 inquiry has the right to decline to answer a question 8 put to him by Counsel to the Inquiry or by any other 9 legal representative or, for that matter, put to you by 10 me if there is a risk that to answer that question would 11 incriminate the witness. The legal principle is known 12 in shorthand form as the privilege against 13 self-incrimination. 14 It's been suggested to me that I should give you 15 a direction about that and I think it probably is 16 appropriate, given what Ms Page has had to say. It is 17 for you to make clear to me, in respect of any question 18 put to you, that it is your wish to rely upon the 19 privilege against self-incrimination. If, therefore, 20 Ms Page, or, for that matter me, if I intervene, asks 21 you any questions which you do not wish to answer on the 22 ground that to answer such questions might incriminate 23 you, you must tell me immediately after such question is 24 put to you. At that point, I will consider your 25 objection to answering the question and thereafter rule 93 1 upon whether your objection should be upheld. 2 Mr Smith, are you assisted by a solicitor or 3 barrister in the hearing room today? 4 A. Sir, yes, I am. 5 SIR WYN WILLIAMS: Right. So if the point arises where you 6 wish to take advice about a question, please alert me to 7 that and then I will afford you the opportunity of 8 taking advice and then we will go from there. So do you 9 understand all that? 10 A. Yes, sir, I do. Thank you. 11 SIR WYN WILLIAMS: Thank you very much. 12 Over to you, Ms Page -- 13 MS PAGE: Thank you. 14 SIR WYN WILLIAMS: -- or Mr Henry, as the case may be. 15 Questioned by MS PAGE 16 MS PAGE: You've heard what I've already said, I don't 17 propose to go over the Ismay report in any greater 18 detail but, in short, the first question I ask is 19 whether you deliberately had your team produce a report 20 for you which would cover up the fact that you knew, and 21 everyone in your senior leadership team knew, that 22 Horizon's integrity was very much in doubt and that you 23 wanted to cover that up? 24 A. No, absolutely not. 25 Q. Well, then, if I may, I'm going to ask some questions 94 1 about the Seema Misra trial and that case. 2 This Inquiry has seen a document which shows that, 3 not long before the trial, there was a meeting between 4 Post Office and Fujitsu in which the receipts and 5 payments mismatch bug was discussed. Have you seen any 6 of the evidence or seen that document? 7 A. I -- 8 Q. You should have seen the document at least? 9 A. I have seen a document around the bugs and mismatch 10 report, yes. 11 Q. Gareth Jenkins, a witness at Seema Misra's trial, was in 12 that meeting. Have you seen that? 13 A. Yeah, I believe -- yeah, I believe, yeah. 14 Q. Various options resolving that bug were discussed, one 15 of which made it perfectly plain that Fujitsu had the 16 power to remotely alter branch accounts. That was put 17 forward as a way to resolve the consequences of the 18 receipts and payments mismatch bug; did you see that? 19 A. Yes, I did see that. 20 Q. Now, your Legal Department, your Criminal Law Team, knew 21 about that on the Friday before Mrs Misra's trial 22 started on the Monday, because we have evidence which 23 shows that that document that you've read was emailed to 24 them and it was printed out by Jarnail Singh on the 25 Friday before the Monday start. 95 1 What sort of culture were you presiding over where 2 a legal department receives evidence of a bug in a trial 3 which was about Horizon and they do not disclose that 4 bug? What sort of culture were you presiding over? 5 A. Firstly, to say that the only reason that I know about 6 the bug and mismatch report was because it was presented 7 to me in the bundles that I've seen. So, at the time, 8 I was unaware. It's also fair to say that it was not 9 pulled out in the Ismay report as one of the Horizon 10 bugs; the others were listed but it was not. So I was 11 not aware of it and I did not know, until you have just 12 told me, that Mr Jarnail had the information that you 13 have laid out at the time that he had it. 14 In terms of the culture of the organisation, I'm 15 shocked and frankly appalled if that is, in fact, the 16 sequence of events and I didn't know about it. 17 Q. Well, one of the points that was made in the Ismay 18 report was that there were no backdoors into Horizon 19 accounts; that's right, isn't it? 20 A. Yes. 21 Q. Did you know about the fact that your staff, a little 22 bit after the report was finished, sent emails to one 23 another, including to Rod Ismay, in which they said that 24 they knew about the backdoors? They knew about the 25 backdoors because of that meeting about the receipts and 96 1 payments mismatch bug; did you know that? 2 A. No, I didn't know any of this. 3 Q. Nevertheless, during the trial, as we've seen, because 4 of your response to the famous bandwagon email, you were 5 keeping an eye on that trial, weren't you? 6 A. Only in overview terms. I didn't know anything about 7 the detail of the case. 8 Q. Well, let's bring it up again. It won't take long. 9 This is the last thing we need to look at. POL00169170. 10 So if we just look at that second paragraph from Rod 11 Ismay: 12 "Dave and the ET ..." 13 That's the Executive Team, isn't it? 14 A. Yes. 15 Q. "... have been aware of the significance of these 16 challenges ..." 17 That meant challenges to Horizon, didn't it? 18 A. I think so, yes. 19 Q. "... and have supportive of the excellent work going on 20 in so many teams to justify the confidence that we have 21 in Horizon and in our supporting processes." 22 So this trial was being used, wasn't it -- it was 23 being used not as a criminal trial to determine whether 24 somebody was guilty or not guilty of a crime but it was 25 being used to justify the confidence that you had in 97 1 Horizon? 2 A. No, that's not the case. It was being carried out 3 through the normal course of events. 4 Q. Why then did Mr Ismay, the man you say was in high 5 regard across the business and therefore you chose him 6 to write your report, why was he saying that the 7 excellent work in that trial was to "justify the 8 confidence that we", POL, "have in Horizon"? 9 A. I don't know. You'd have to ask him. I don't know why 10 he chose those words. 11 Q. In the aftermath of the Ismay report, this trial of 12 Seema Misra was being actively used by Post Office as 13 part of your campaign to claim that Horizon was robust, 14 wasn't it? 15 A. I don't believe so, no. 16 Q. You were deliberately closing your eyes to problems with 17 the integrity of Horizon that, weren't you? 18 A. No. 19 Q. You were encouraging your staff to pursue a trial as 20 another method of shoring up a problem system which you 21 knew had serious question marks over it? 22 A. Absolutely not. As I said to you before, the Seema 23 Misra case started long before I joined the business, 24 and -- 25 Q. You were watching it closely, weren't you? 98 1 A. We were watching it, yes. 2 Q. You were encouraging your staff to pursue that trial as 3 a test of Horizon? 4 A. Not to pursue it as a test of Horizon, no. To pursue 5 it, if it was appropriate to do so, like all other 6 cases. 7 MS PAGE: Thank you. Those are my questions. 8 SIR WYN WILLIAMS: Thank you, Ms Page. 9 That's it, is it Mr Stevens? 10 MR STEVENS: Yes, sir, that is it. 11 SIR WYN WILLIAMS: Right. 12 Thank you, Mr Smith, for making a witness statement 13 and for answering all the questions put to you. I'm 14 grateful to you. 15 THE WITNESS: Thank you, sir. 16 SIR WYN WILLIAMS: Right. We'll adjourn until -- if we give 17 ourselves a full hour, 2.05, we should get through the 18 afternoon, Mr Stephens, yes? 19 MR STEVENS: Yes, thank you, sir. 20 SIR WYN WILLIAMS: Fine, that's what we'll do. 21 (1.05 pm) 22 (The Short Adjournment) 23 (2.05 pm) 24 MR BLAKE: Good afternoon, sir, can you see and hear me? 25 SIR WYN WILLIAMS: I can. Thank you. 99 1 MR BLAKE: Thank you very much. Sir, this afternoon we're 2 going to hear from Sir Michael Hodgkinson. 3 SIR MICHAEL STEWART HODGKINSON (sworn) 4 Questioned by MR BLAKE 5 MR BLAKE: Thank you very much. Can you give your full 6 name, please? 7 A. Yeah, Michael Stewart Hodgson. 8 Q. Sir Michael, you should have in front of you a witness 9 statement. 10 A. Yeah. 11 Q. Is it dated 27 February 2024? 12 A. Yeah. 13 Q. Could I ask you to turn to the final page, please. Can 14 you confirm that this is your statement? 15 A. Yeah. 16 Q. On the final page, that's page 26, can you see 17 a signature? 18 A. I can. 19 Q. Is that your signature? 20 A. It is. 21 Q. Is that statement true to the best of your knowledge and 22 belief? 23 A. Yes. 24 Q. Thank you very much. That witness statement, which has 25 the URN WITN10660100 will be uploaded onto the Inquiry's 100 1 website shortly. Your career history is set out in your 2 statement at length and, for today's purpose, I think 3 all we need to know is that you were the Senior 4 Non-Executive Director of Royal Mail Holdings in January 5 2003 until August 2007; is that right? 6 A. That's correct. 7 Q. And also the Chairman of Post Office Limited from May 8 2003 to March 2007? 9 A. Correct. 10 Q. Thank you. Can I ask if possible for you to come 11 slightly closer to the microphone? 12 A. Sorry. 13 Q. Thank you. After leaving Royal Mail and Post Office, 14 you held a variety of positions: you were Deputy 15 Chairman of TUI Travel until 2018; and you also had 16 various involvement with Transport for London, rail and 17 airport interests and companies; is that correct? 18 A. That's correct. 19 Q. For those who aren't aware, can you explain what Royal 20 Mail Holdings was and its relationship to Post Office 21 Limited, and also where Royal Mail Group fell in with 22 that? 23 A. Right. The structure of the company was Royal Mail 24 Holdings was the main company and under it had several 25 subsidiary companies: it had GLS, which was the parcel 101 1 business in Europe; it had Parcelforce; it had Royal 2 Mail Group; and then Post Office. 3 Q. Your involvement with Royal Mail Holdings was 4 principally because of your involvement with Post Office 5 Limited, was it -- 6 A. Yeah. 7 Q. -- albeit that you had some degree of oversight of the 8 whole group. 9 A. Correct. 10 Q. Can you assist us with how decisions and strategies of 11 the Post Office Limited Board informed or affected the 12 goals of the Royal Mail Holdings Board and vice versa? 13 A. Right, obviously, the Royal Mail Holdings was a much 14 bigger company, much bigger sums of money but, 15 nevertheless, the Post Office was still a significant 16 part of the business and, unfortunately at that time, it 17 was still loss-making. So one of the strategies which 18 was applicable to both the benefit of Royal Mail 19 Holdings and for Post Office Limited is could we 20 actually devise a strategy that would be much more 21 financially viable for the Post Office company, and 22 obviously that would have fed into Royal Mail Holdings. 23 Q. How were the two boards related in respect of that? 24 A. Right, the Post Office Board reported in to the Royal 25 Mail Holdings Board and both the Chief Executive and the 102 1 Chairman of Post Office were on the Royal Mail Board. 2 Q. Thank you. We'll see in due course some minutes of 3 various board meetings from both Post Office Limited and 4 Royal Mail Holdings. I want to ask you some general 5 questions about the governance of Post Office Limited 6 and I'm going to start in respect of board composition 7 and various committees. 8 Could we bring up on to screen POL00423140, please. 9 POL00423140. Thank you very much. I believe this is 10 your first board meeting as Non-Executive Chairman of 11 Post Office Limited? 12 A. Correct. 13 Q. Just pausing at the very beginning, actually, where 14 you're listed as Non-Executive Chairman, can you assist 15 us with why you were a Non-Executive Chairman, as 16 opposed to an Executive Chairman? 17 A. Just basically, that was the title I had when I started. 18 I don't think there was anything specific, it was just 19 that we were part of the Royal Mail Board's 20 Non-Executive Team and that just naturally carried down 21 to Post Office. 22 Q. Thank you. Can you take us through, if we zoom out 23 slightly, the general composition of the board when you 24 first joined, in terms of executives, non-executives. 25 A. Would it be helpful if I discussed what the company was 103 1 looking like -- 2 Q. Absolutely. 3 A. -- because it wasn't a fully integrated company. It 4 still was taking significant numbers of services from 5 Royal Mail, so I think that's quite an important point 6 to make before I get into the individuals. 7 Q. Why is it? 8 A. Basically because we were part of an integrated company 9 and one of the reasons that they wanted someone like 10 myself to join as Chairman of the Post Office was the 11 thought that, in the next three or four years, that the 12 Royal Mail Letters business would be privatised and you 13 would then need to build up this separate Post Office 14 company, not just to be what it was of the day but to 15 eventually bring in and onboard all of the other aspects 16 of services that the Royal Mail supplied and bring in 17 full traditional corporate governance. 18 Q. So at this stage, May 2003, was it a company without 19 full traditional corporate governance? 20 A. Absolutely, there were no Non-Executive Directors other 21 than Allan Leighton and, for a brief period of time, 22 there was Elmar Toime, who was doing an assignment with 23 Royal Mail from New Zealand. 24 Q. Sir Michael, could I ask, if possible, for you to speak 25 slightly louder, if possible. 104 1 A. Sorry, okay. 2 Q. We see on the Board there apologies from, for example, 3 the Chairman and the Executive Deputy Chairman of Royal 4 Mail Holdings. Did they automatically have a seat on 5 the Board of Post Office Limited? 6 A. Yeah. 7 Q. Was it regular that they would attend or not attend? 8 A. I think David Mills was always there and Allan attended 9 for quite a lot of the time. 10 Q. Was that one way in which there could be feedback from 11 the developments at the Post Office Limited to the Royal 12 Mail Holdings or was there some other route to -- 13 A. I think it was two things. I think one, yes, feedback 14 back to Royal Mail Holdings but I think Allan was quite 15 keen to have a direct input into the Post Office as 16 well. 17 Q. Thank you, we can zoom out of that. I'm going to bring 18 up on the screen, and perhaps actually at the same time 19 side by side, some minutes from later in your time at 20 the Post Office Limited. Can we look at POL00021495, 21 please. Thank you very much. That's from October 2006. 22 If it's possible to have those both on screen side by 23 side, please. Thank you very much. Perhaps if we're 24 able to zoom in to the top half of both of those pages, 25 slightly more, if possible. 105 1 Zoom out slightly, so it has the full list of those 2 present. Can you assist us with any significant changes 3 that occurred in respect of the composition of the board 4 between, say, 2003 or 2006, or even when you left? 5 A. Well, the most significant change was the change in 6 Chief Executive. David Mills retired at the end of 2005 7 and Alan Cook joined in, I think it was March 2006. So 8 that's the biggest change. But, in addition, there had 9 been several other retirements so David Miller had left 10 Operations and we had new people on board there. We 11 had -- just looking through there, there was a new 12 Personnel Director, Human Resources, so there was 13 a significant amount of change over that what is three 14 and a half year period. 15 Q. Taking Alan Cook, he was brought on originally as 16 a Non-Executive Director -- 17 A. Yeah. 18 Q. -- but by 2006 he had become Managing Director. By 2006 19 was the Board any different in terms of Non-Executive 20 Directors or was it similarly an executive-led board? 21 A. It was basically still an executive-led board. We had 22 in the interim, we had Brian Goggin, who was the Chief 23 Executive of the Bank of Ireland, on the Board as 24 a Non-Exec, for about a two-year period. 25 Q. Can you assist us with the reasons behind that? Was it 106 1 something of that particular time, that was routine, or 2 was that something that was special to the Post Office 3 or a little bit different? 4 A. The Post Office had never had a Non-Executive Director 5 before I'd actually joined it. We took Alan Cook on as 6 a Non-Exec because I thought we desperately needed some 7 realtime, live, experienced person for selling financial 8 services, which was the big business we were actually 9 entering and that's why we hired Alan Cook as 10 a Non-Executive Director, and also, with a little bit 11 hope that he might eventually become the Chief Executive 12 because, again, I felt it was really important that we 13 had someone who was very experienced, knowledgeable, 14 about selling financial services. 15 He also had another very important feature and that 16 is he had been well known to government and well 17 respected by government. 18 Q. We often see nowadays Senior Independent Directors. Was 19 that a thought that was considered in respect of the 20 composition of the Post Office Board? 21 A. Not at that time but that was in the back of my mind all 22 the time because one of the reasons that it was 23 important that I had joined when I did was I, in the 24 18 months run-up to any form of privatisation would have 25 to decide, first of all, what kind of corporate 107 1 governance structure we needed for the Post Office going 2 forward and also what kind of individual experience 3 would be helpful, so that we would be ready to set up 4 a high-quality, standalone business. 5 Q. We see here also, on the left-hand side we have the 6 Chairman and Executive Deputy Chairman of Royal Mail 7 Holdings. By 2006, it seems to be the Chairman of the 8 Royal Mail Group. Can you assist us with that at all? 9 A. I don't think that is significant. I think it's just 10 the way the secretary noted the meeting minutes. 11 Q. Thank you. We have Alan Barrie listed as IT Director, 12 and that's on the left-hand side. 13 A. Yeah. 14 Q. I believe he left in 2004? 15 A. Yeah. 16 Q. But we later see, on the right-hand side, David Smith as 17 IT Delivery Director. 18 A. Yeah. 19 Q. That's not the David Smith that is in this phase; we 20 heard from -- we know him as David X Smith because of 21 his email address, he's listed as David X Smith. 22 A. Yeah. 23 Q. He was the IT Delivery Director. Is there a difference 24 there? So in 2003 it looks as though you had 25 an Information Technology Director as a full member of 108 1 the Board, whereas by 2006 it seems as though the 2 IT Delivery Director, David Smith, was only in 3 attendance rather than a full member? 4 A. I think that's true. 5 Q. We do see, however, Ric Francis, we can see apologies on 6 the right-hand side, who is the Operations Director, and 7 he seems to be a full member? 8 A. Yeah, and he took over, really, the day-to-day 9 management of IT. 10 Q. So are we to read into this that, actually, the 11 Information Technology Director was replaced at a higher 12 level by a new Operations Director? 13 A. Well, the Operations Director was really replacing the 14 old Dave Miller role. 15 Q. So that was the Chief Operating Officer? 16 A. Yeah. 17 Q. So he had a much wider remit than just -- 18 A. Yeah, yeah. 19 Q. -- the delivery of information technology? 20 A. Yeah, yeah. 21 Q. Can you see any issue in that, in that presumably the 22 Information Technology Director has a more hands-on 23 dealings with, say, the Horizon system than possibly 24 somebody at a higher level of Operations Director? 25 A. I mean, that's a fair comment but I think everybody had 109 1 quite a high degree of confidence in David Smith, and 2 then it would be really up to Alan Cook, as he came in, 3 to decide whether he wanted to make more changes to the 4 Board. 5 Q. On the right-hand side, you're now listed as Chairman 6 rather than Non-Executive Chairman. Was there a formal 7 change over that period or, again, is that just the 8 minutes? 9 A. Just the minutes. 10 Q. Looking at the structure of both in 2003 and later on, 11 do you consider that the structure of the Board of Post 12 Office Limited provided sufficient challenge to the 13 executives? 14 A. I mean, I think there was a fair bit of challenge on 15 this Board but also the Post Office Chief Executive and 16 myself were challenged quite strongly on things at the 17 Royal Mail Holdings Board because it was quite 18 a significant subsidiary of the Holdings Board. So 19 there was definitely some external challenge to what was 20 going on. 21 Q. Whose job was it in particular to feed back to the Royal 22 Mail Holdings Board? 23 A. Basically, if I remember correctly, there was a Chief 24 Executive's report to each of the Royal Mail Holdings 25 Board meetings. 110 1 Q. So, in terms of responsibility, I know that both of you, 2 the Chairman and the Chief Executive, attended that 3 board. Did you principally see it as the Chief 4 Executive's role -- 5 A. Yeah. 6 Q. -- to feed back, rather than your role? 7 A. Well, he can be reporting back in much more detail, 8 yeah. 9 Q. Can you assist us also with the dynamics between various 10 individuals involved, were certain members more active 11 or more open and more able in the list that we see here? 12 Did you have any particular concerns about any of those 13 individuals? 14 A. I mean Peter Corbett was always a very solid Finance 15 Director and always very sensible. We had split, 16 I think, the Sales and the Operations Director because 17 we were feeling we desperately needed more input to 18 selling the new financial services. But, generally 19 speaking, I would say it was a relatively harmonious 20 team who were working very solidly through the key 21 objectives that we actually had, and the main objective 22 we had was to have a credible plan for government by the 23 end of 2006 for future funding, and that was the main 24 focus of the Board and had been the main focus of the 25 Board over the previous three years. 111 1 Q. How would you describe your approach to your style of 2 chairmanship of this particular board? Were the 3 meetings, for example, very prescribed; were they very 4 open: a free-for-all, or something else? 5 A. The meetings were clearly geared around achieving the 6 core objectives that we had. So, if you go back to the 7 beginning, then the core objectives we had were to do 8 the first round of Post Office rationalisation; to 9 improve or reduce the loss-making Crown Office branches; 10 to judge over that period of time, myself, the quality 11 of the management; and, as I say, to generally reduce 12 costs over the operation. 13 And those objectives stayed pretty much the same 14 over the period and I think you'll see a common theme 15 with the big new theme coming in, which was the 16 introduction of financial services. 17 Q. So the overall theme being reducing costs, increasing 18 profitability? 19 A. And introducing new products because we were at the time 20 when the traditional product streams that were going 21 through the Post Office were dying. So, you know, we 22 knew that, eventually, pensions would be paid directly 23 into pensioners' bank accounts, the things like the TV 24 licences, the car licences, a whole range of the 25 traditional products were actually moving away from the 112 1 traditional Post Office. So it was absolutely vital 2 that new services were brought in, if there was to be 3 any form of viable future. 4 Q. We'll see in due course some serious problems expressed 5 at the Board level about the solvency in 2006. Was that 6 heightened in 2006 or was it a constant theme throughout 7 your time? 8 A. It was a constant theme throughout the whole period, 9 where the Directors had to constantly be looking at 10 this, for fear of becoming vulnerable themselves, for 11 overtrading and being liable for creditors. 12 Q. When you started in your role, I think you were told 13 that it was going to take two days a week to act as 14 Chairman of the Board. Whilst you were Chairman, you 15 were also involved in a number of other companies? 16 A. Yeah. 17 Q. I think you were Non-Executive Director of something 18 called FKI Plc, which is an engineering and 19 manufacturing company -- 20 A. Yeah. 21 Q. -- until July 2008; is that right? 22 A. Yes. 23 Q. You were a board member of Transport for London and 24 Chairman of their Finance Committee between 2001 and 25 2012? 113 1 A. Yeah. 2 Q. Non-Executive Director of First Choice Holidays, later 3 TUI, including as Chairman from March 2004? 4 A. Yeah. 5 Q. Non-Executive Director of Dublin Airport between 2004 6 and 2010? 7 A. Yeah. 8 Q. The Post Office Limited Nominated Director on the Board 9 of Bank of Ireland because of that link between the 10 two -- 11 A. (The witness nodded) 12 Q. -- between May 2004 and July 2006; is that correct? 13 A. Yes, that's correct. 14 Q. Taking, for example, the role of First Choice Holidays. 15 How many days a week did you tend to dedicate to that 16 role? 17 A. Basically, the First Choice Holidays was a unique 18 situation, insofar as I really only needed to dedicate 19 a day a week because we had a very unique situation that 20 worked very well, in that we had a lot of Non-Executive 21 Directors that had proper jobs during the week, and one 22 of the things that we did was, before the board meeting, 23 we would actually always have a Non-Executive Directors 24 dinner which enabled the Non-Executive Directors to 25 discuss offline all of the kind of issues that they 114 1 thought we needed to be addressing at the board, and 2 then the next day we would actually have the board 3 meeting and all the committees, so that these 4 Non-Executive Directors were effectively only taking out 5 one day for the process and then, in addition to that, 6 I always had a dinner ten days before the board meeting 7 with the Chief Executive, to get up to speed with what 8 was going on and to decide the issues we need to put 9 forward for the next board. 10 Q. Just pausing there, in respect of the Post Office, we 11 see or we've seen a lot of formal board minutes and 12 committee minutes, things like dinners and social 13 meetings, did they take place with, for example, the 14 Chief Executive of the Post Office? 15 A. Not on a regular basis. Occasionally, we would have 16 a dinner, but basically no. 17 Q. Was most of your business on the Post Office done in the 18 formal structures of -- 19 A. Yeah. 20 Q. -- committees -- 21 A. Yeah. 22 Q. -- boards. Yes. 23 Do you consider that, given the large number of 24 other involvements you had at the time, that you had 25 enough time to dedicate to the role of Chairman. 115 1 A. Well, I thought at the time I did. I thought that I had 2 planned my workload so that I had between 3 a three-quarters of a day and a day a week spare, 4 because I knew things would turn up, they always turn 5 up, and that was where I was able to fit in the 6 non-executive role of the Bank of Ireland because, 7 otherwise, I couldn't have done it. 8 Q. Do you think a part-time Chairman was the right approach 9 for Post Office during this period? 10 A. Given what people knew at the time, yes. 11 Q. How do you distinguish that from what people know now? 12 A. Well, I guess the kind of big issues with Horizon, which 13 just were not known. 14 Q. So do you think a full-time chairmanship would have made 15 a difference in respect of or could have made 16 a difference? 17 A. Well, I mean, it could possibly have made a difference. 18 I can't say definitely. 19 Q. What is it that you would have done personally 20 differently if you had been a full-time Chairman of Post 21 Office? 22 A. I think, based on the information that we actually had 23 at the time, we -- I would probably have spent more time 24 with the joint venture company between the Bank of 25 Ireland and the Post Office for developing the financial 116 1 services, because that was the key product, and that was 2 where we had the troubles, or the problems. 3 Q. Thank you. Those can come down. I'm going to ask you 4 about committees. You've said in your statement at 5 paragraph 31 that Post Office didn't have any of its own 6 subcommittees when you joined and you introduced the 7 Risk and Compliance Committee. You say that wasn't 8 unusual for a subsidiary. 9 Is that right, even in respect of a subsidiary of 10 the size of Post Office Limited? 11 A. I think, if you look at things like, you know, 12 Nominations Committee, Remuneration Committee, they can 13 be done through a committee that is based on something 14 the size of the Royal Mail Holdings. But I think again, 15 when you go down into things like risk and day-to-day 16 stuff, which is why we set up the Risk and Compliance 17 Committee, we should have our own starting point of 18 understanding what we might need going forward. 19 Q. Did it surprise you when you joined that the Post Office 20 didn't have that kind of a committee in place? 21 A. No, knowing the knowledge of the business when I joined, 22 because the business when I joined was very clearly that 23 each individual company was using the committees of the 24 central services, so remuneration, audit, nomination, so 25 all the conventional board committees, and it was only 117 1 going to develop its own committees as it went forward. 2 The main lurch forward would have been when we 3 finally got to the point of a privatisation and, in the 4 run-up to the privatisation, that's when the new 5 corporate governance processes would be introduced. 6 Q. Given the size of the company, though, not necessarily 7 profitability but certainly national importance, do you 8 think that dealings with things at the higher level the 9 Royal Mail Holdings level, was actually too high? 10 A. Probably. Which is why, as I say, we introduced the 11 Risk and Compliance Committee to start looking at things 12 more locally. 13 Q. How about a company that is involved in the prosecution 14 of people? Do you think that special rules should apply 15 in respect of those kinds of committees? 16 A. I think that's fair comment. 17 Q. Were you aware of the significance of, for example, 18 prosecutions when you joined the Post Office? 19 A. No, definitely not. 20 Q. One of the reasons you introduced that committee, you've 21 said in your statement, was because the plan was for the 22 Post Office to progress into the financial market, and 23 need for greater corporate governance in respect of the 24 financial market. Can you tell us why the financial 25 market aspect was seen as particularly important? 118 1 A. Right. I mean that was very important. First of all, 2 it was new products for us, so there was no real 3 history. Secondly, these products were becoming more 4 and more regulated and each product had to be not only 5 designed to meet the regulation but sold in a way that 6 matched the approved selling processes for those 7 financial regulated products, and we were looking at 8 bigger and bigger, wider and wider ranging of those 9 products. So, in order to keep some form of control, we 10 had to have our own Risk and Compliance Committee purely 11 for financial services. 12 Q. Does it strike you as interesting that a company would 13 approach its involvement in financial markets as perhaps 14 more serious from a risk perspective than a company that 15 prosecutes people or is involved in the prosecution of 16 people? 17 A. Yeah, I mean, that's fair comment. 18 Q. You also say in your statement, paragraph 32, that with 19 privatisation of Royal Mail Holdings, further committees 20 would eventually be required? 21 A. Yeah. 22 Q. Why would privatisation change the position? 23 A. I think fundamentally the cost base of the business and 24 obviously setting up your own complete new corporate 25 governance processes was going to be quite expensive, 119 1 and if you could still use the Royal Mail Holdings ones, 2 then that was a sensible way to go forward, until there 3 was clarity of what was going to happen, then. 4 Q. Post Office was wholly owned by Government. To what 5 extent did you consider the corporate governance rules 6 of, say, a commercially listed company to be applicable 7 to a wholly Government owned company? 8 A. Well, the private listed company rules were pretty 9 stringent, and you had to follow pretty strict 10 guidelines, so there was nothing wrong with the 11 corporate governance principles of a Plc. The issue, 12 when you were part of government was you needed to get 13 involved in other areas for which the government might 14 want to deviate from a conventional private profit 15 related company, and the classic case in the case of the 16 Post Office was the funding of the rural network, and so 17 we always were having discussions not just about running 18 the profit side of the business but also making sure 19 that the social responsibility side of the business 20 could be met. 21 Q. I hope this isn't too technical a question but, 22 corporate governance rules that applied to private 23 companies such as financial reporting counsels combined 24 code, did you see those as applying to Post Office 25 Limited or was it something different because it was 120 1 government owned? 2 A. I think we were aiming to replicate, over time, the Plc 3 corporate governance codes. 4 Q. So when you started, did you inherit a company that was 5 or was not closely aligned to those guidelines? 6 A. In the Post Office? 7 Q. Yes. 8 A. Yeah, no, it didn't have all those corporate governance 9 procedures there. 10 Q. By the time you left, do you consider that there was 11 an improvement and how significant was that improvement? 12 A. Well, there was an improvement, insofar as we had the 13 Risk and Compliance Committee, which was the basis of 14 moving forward, and that committee was evolving all the 15 time, as we tried to broaden its scope. So that was the 16 start but it could by no means be the end. 17 Q. So are we to take it that you didn't see that kind of 18 a committee as mandatory but you were building it up in 19 order to try to closely replicate the private sector? 20 A. Yeah. 21 Q. Yes? 22 A. Yeah, and also that we knew we would absolutely have to 23 have it in, you know, maybe one, two years' time. So 24 getting it going sooner rather than later was a sensible 25 proposition. 121 1 Q. What difference did you see in respect of the governance 2 of a publicly listed company and a publicly owned 3 company? 4 A. I need to think through that in two stages. The first 5 stage was that Post Office was not, as I say, a fully 6 fledged company, so didn't have a suite of corporate 7 governance processes that you would have expected to see 8 in a Plc. So that is a fairly significant difference 9 from when you start. 10 When you move to the next stage, when that's all set 11 up, then I think the only major difference would be, if 12 you're fully owned by the Government, then, obviously, 13 you have one shareholder to agree your corporate 14 strategy with, so that is quite different from the 15 private sector. 16 Q. What role did you see for Government and for the Civil 17 Service playing in that overall governance picture? 18 A. Well, the biggest role in the -- for the Post Office was 19 really twofold: (1) there was this whole question about 20 funding the social network and which was an absolutely 21 crucial part of the debate and discussions with 22 Government; and then the second issue, which you 23 referred to earlier, which comes up time and time again, 24 is, given that we would require money from the 25 Government going forward, then there was constant debate 122 1 about how could we actually get the money, what security 2 did we actually have over the commitments and how did 3 that result in the issues we had to face with day-to-day 4 trading? 5 Q. What, if any, conflicts of interest did you see in the 6 ownership of the Post Office by the Government? 7 A. I don't think there was any particular conflict and I -- 8 I'll be honest, I never thought it was ever going to be 9 a private company. I thought it would be a standalone, 10 fully government-owned company. 11 Q. Why did you think that? 12 A. I thought that the social issues surrounding the size of 13 the network were probably never going to go away and 14 were always going to be up for constant debate, and when 15 you need a substantial sum of money, other than from 16 private markets who can see a return, you're always 17 going to be vulnerable, and that never struck me as 18 being a thing that would be capable of being a private 19 company -- 20 Q. I want to ask you about -- 21 A. -- on its own. 22 Q. -- prosecutions and the Horizon system and we're going 23 to come back and look at specifics, but where did you 24 consider oversight and accountability in respect of the 25 investigation and prosecution functions to lie within 123 1 the company? 2 A. I think there was an underlying assumption that there 3 was a secure chain with several people's involvement, 4 insofar as everybody at the time thought Horizon data 5 was accurate. You then had the -- well, you then had 6 the audit process, you then had line management, who had 7 to make a decision, there was then a separate 8 investigation process and then, finally, there was 9 a legal process, if it got that far. So there were 10 many, many people in the chain that needed to be 11 convinced that the process was reasonable. 12 Q. Was there a specific mechanism for feedback to the board 13 or to the Chair in respect of the investigation and 14 prosecution function? 15 A. No, there wasn't. 16 Q. Who would you have expected to have fed back to the 17 board in respect of that function? 18 A. I would have expected the Chief Operating Officer and 19 the Chief Executive to have reported that back. 20 Q. Same question but for contractual and personnel 21 management of subpostmasters. So where do you consider 22 the oversight and accountability for those to lie? 23 A. Well, that was clearly in the Chief Operating Officer's 24 area. 25 Q. Again, was there a specific mechanism for feeding back 124 1 or was that -- 2 A. That was very much delegated. 3 Q. Where did you consider oversight and accountability for 4 issues relating to the Horizon system itself to lie? 5 A. That would be with the Post Office Board. 6 Q. The Post Office Board? 7 A. Yeah. 8 Q. Do you recall any specific mechanisms for reporting and 9 feeding back on that to the Board? 10 A. There were constant reports to the Board on how the 11 system needed to be developed going forward, and there 12 were kind of three phases there. There were lots of 13 individual projects that would come up, like for example 14 I remember the foreign exchange had been done on 15 a separate terminal and we wanted to get it on to the 16 Horizon terminal, so that there was a project that asked 17 for money to do that, and that was not unusual, to get 18 products doing that. 19 There was then the two major projects which occurred 20 during my -- well, one occurred and one was being 21 planned. One was IMPACT and the other was Next 22 Generation, so there was a lot of feedback to the board, 23 generally, about Horizon but mainly on a forward-looking 24 basis, because, as I say, there was a very strongly held 25 view that Horizon was good. 125 1 Q. Who was it that you would expect to feed back to the 2 board in respect of that information? 3 A. Well, that would be both the IT Director in the early 4 days, then the IT Director and the operations guy and 5 then also the Finance Director. 6 Q. Why the Finance Director? 7 A. Well, because he really was the main driver behind the 8 IMPACT project. 9 Q. Putting those three together, did the Board, so far as 10 you recall, ever receive notice of concerns about 11 prosecutions relating to Horizon or problems with the 12 Horizon system itself? 13 A. I was not made aware of those. 14 Q. I'd just like to read paragraph 38.1 of your statement, 15 which addresses the legal department. It says: 16 "I do not believe the Board had direct oversight or 17 involvement with the Legal Department and I do not 18 recall the structure of the Legal Team. This was 19 ultimately the responsibility of the CEO and COO." 20 We saw when we started today the Board composition. 21 It doesn't seem as though there was what you might see 22 nowadays, a General Counsel -- 23 A. Yeah. 24 Q. -- someone of an equivalent position. 25 Was there, in your view, any gap in relation to 126 1 oversight of the Legal Department at the Post Office? 2 A. I think there was and I think that was part of the fact 3 that some of the functions remained central. 4 Q. Can you expand on that, please? 5 A. I think we had a subset of the Royal Mail Legal 6 Department. 7 Q. What was the problem with that? 8 A. I think then it wasn't represented on its own right on 9 the POL Board. 10 Q. Did that change at all during your time? 11 A. No. 12 Q. Was that something you were aware of at the time or is 13 that looking back now? 14 A. I think more looking back. 15 Q. More broadly, how would you see the experience of 16 subpostmasters reach board level? Was there data 17 collection, surveys, one-on-one discussions with, for 18 example, the NFSP or the CWU? 19 A. There were, as far as I'm aware, regular discussions of 20 the operations team with the NFSP and one would have 21 assumed that, if they had big problems, they would have 22 been feeding back, which I was not aware of. 23 Q. Was there any way to directly feed back the experience 24 of subpostmasters, for example? 25 A. I'm not aware of surveys that were done. 127 1 Q. No. Do you think, in some way, that might have been 2 affected by the nature of the contract with 3 subpostmasters where, for example, a subpostmaster 4 wasn't necessarily considered to be an employee of Post 5 Office and they weren't necessarily treated in the same 6 way; they were something else, something outside of -- 7 A. We were certainly doing very big surveys of our own 8 internal staff, and you'll probably see all the way 9 through, both Royal Mail and the Post Office Board 10 minutes, the "Have your say", results. As far as 11 I know, they were not done with the external 12 postmasters. 13 Q. Can you assist us with really how the Board saw 14 subpostmasters and saw the role of the subpostmasters? 15 A. I think the Board saw the role of the postmasters as 16 a very important part of the overall package. They were 17 going to be very important in actually selling the 18 financial services that we hoped would form the basis of 19 the company's future profitability. They were also 20 crucial in supporting the social obligations that the 21 Post Office had. So I think they were a pretty 22 important part of the business. 23 Q. In those circumstances, you've said that there was a lot 24 of feedback provided by employees of the Post Office? 25 A. Yeah. 128 1 Q. In circumstances where subpostmasters were seen as 2 important, why do you think it was that there wasn't 3 that level of feedback being obtained from 4 subpostmasters? 5 A. I can't answer that question properly because it wasn't 6 discussed at the time. But I personally think that it 7 was because people saw the subpostmasters as highly 8 motivated individual businesses, whereas our employees, 9 we had a major responsibility to motivate them and, with 10 all of the headcount reductions that were taking place, 11 obviously morale was quite a challenge and we were 12 constantly trying to keep in touch with how we felt the 13 vast majority of the staff felt. 14 Q. If I may pick up on a particular word that you used, you 15 said "businesses". Was it that subpostmasters were seen 16 as businesses rather than individuals, humans? 17 A. I think they were probably, yeah. 18 Q. I'm going to move on to the Risk and Compliance 19 Committee that you set up and I'd like to start with 20 some board minutes that refer to its establishment. Can 21 we look at POL00021486. This is a board meeting of 22 15 December 2004, and we see there, just while we're on 23 this page, we can see David Smith, that's David X Smith 24 Delivery Director, Acting IT Director at that stage. 25 Can we turn to page 6, please. I'm just going to 129 1 read to you from the bottom of that page and over to the 2 next page. This refers to the Risk and Compliance 3 Committee being established: 4 "Peter Corbett provided a short presentation to 5 highlight the work of the newly formed Risk and 6 Compliance Committee." 7 Then it goes on to show the various things that the 8 Board noted: 9 "The Risk and Compliance Committee chaired by Sir 10 Michael Hodgkinson. Graham Halliday and David Miller 11 regularly contribute to it; 12 "The scope of its activity included audit, 13 compliance and legal issues ..." 14 Just pausing there, did you expect that major 15 litigation risks would be raised in this forum? 16 A. Not initially, but it's something that one would have 17 expected to move forward when we developed the 18 Committee. 19 Q. Why not initially? 20 A. I think just because there was just time to get the 21 thing going. This was an entirely new process, we had 22 entirely new lots of information flow to understand. 23 Q. So one of its long-term purposes would be to have major 24 litigation risks brought to that committee? 25 A. Eventually, yeah. 130 1 Q. Eventually: 2 "Its primary aim was to ensure the service and 3 conformance elements of the business were working 4 together properly. Rod Ismay ... was working closely 5 with Lynn Hobbs ... and Tony Marsh ... to help ensure 6 this is achieved; 7 "The next quarterly meeting would be on 5 January 8 2005 to discuss Branch Control, Vital Few Controls, 9 Audit Reports, Anti-Money Laundering measures, Crime and 10 Fraud and the work of the Group Audit Committee." 11 It then says: 12 "The Risk and Compliance Committee had found that 13 although the overall trend of losses due to fraud had 14 fallen from an annual rate of £29 million to 15 £20 million, this area still represented a significant 16 risk." 17 If there were concerns about Horizon, problems with 18 the integrity of Horizon, was this the committee to 19 bring those kinds of problems to? 20 A. It would certainly have been one of the committees, 21 I think if people had thought there were big problems 22 with Horizon, they would have come first of all to the 23 board but they could also have come, and should also 24 have come, to this Committee. 25 Q. So would this Committee have a wider or narrower remit? 131 1 You say they should have gone to the Board? 2 A. Well, I think they would go to both because of the 3 importance. 4 Q. We see a number of names there, Rod Ismay, Lynn Hobbs, 5 Tony Marsh. Were they tasked with bringing risks to the 6 committee setting agenda, or was that somebody else? 7 A. They were tasked with bringing, you know, the risk to 8 the Committee, the agenda would be set by Peter Corbett 9 and myself, and then each person that attended would 10 have, you know, their own right to talk about what they 11 wanted to talk about so that we had a fairly open 12 agenda. 13 Q. We just recently spoken about the role of 14 subpostmasters. Where did subpostmasters, if at all, 15 fit in with the company's consideration of risk? I mean 16 we see there reference to fraud. Was it concerned 17 principally with the risks that subpostmasters posed or 18 did it consider risks to subpostmasters? 19 A. It considered risks to the whole business. So it was 20 considering risks to the company for fraud, which would 21 have included postmasters, but it also included crime 22 risks in other areas of fraud, such as the Crown Offices 23 and also the Cash-in-Transit Network. So it was, you 24 know, fairly broad in its thought processes on fraud. 25 Q. In terms of major projects, so something like Horizon 132 1 Online, was this a committee that would deal with that 2 or was there a separate major projects committee? 3 A. The Horizon, you know, for example IMPACT, that would 4 not have -- the way that project would have been 5 approved and developed would not have come through this 6 committee until it was operational. 7 Q. Was there a separate major projects committee or 8 equivalent? 9 A. There was not a separate committee, as such, but there 10 were groups of people who were formed to judge, you 11 know, projects, viability, et cetera, et cetera, and 12 they would then report to the Board. 13 Q. Finally, how about whistleblowing? Where did that fit 14 in to the overall picture? 15 A. Whistleblowing was just generic and they would have -- 16 any whistleblower would have had the right to blow the 17 whistle to any single Board member, me, or wherever they 18 thought would get the best, you know, listening. 19 Q. Do you recall any particular processes being in place at 20 that time? 21 A. No. 22 Q. Can we please look at POL00021420, please. These are 23 some minutes from a Risk and Compliance Committee. If 24 we scroll down, please, we can see there, at the very 25 bottom of this page, it says: 133 1 "Following appointment as Managing Director, Alan 2 Cook to resign from this Committee." 3 This is the Committee that addresses risk. Am 4 I right to say that, if you held the position of 5 Managing Director, it wasn't seen as somehow appropriate 6 for you to be on that committee? 7 A. Right, there was a big debate which went backwards 8 forwards as to whether Alan should be off this committee 9 because this committee was independent and governance, 10 or whether he should be on it because all of the stuff 11 that was being talked about was quite important. And 12 eventually, I think, and I think the record will show, 13 that Alan decided it was important enough for him to 14 continue attending. But there was an iteration when we 15 were debating how appropriate that was, and that's what 16 this refers to. 17 Q. So, ultimately, during the course of your time at the 18 Post Office, the Managing Director in some capacity was 19 attending those meetings? 20 A. At the beginning, the Managing Director did not attend, 21 so I don't think David Mills ever attended. As I say, 22 this would have been Alan's almost first week, and he 23 I think -- I can't remember did he actually attend? If 24 you scroll down or up. 25 Q. If we look at the top it says he sent his apologies. 134 1 A. Right, okay, but he was actually debating whether he 2 should or should not come. 3 Q. Thank you. I'm now going to turn to some Board minutes. 4 Can we please look at POL00021482, please. We're now on 5 19 June 2003, so this is likely to be the second Board 6 meeting that you attended. 7 A. Yeah. 8 Q. We have Alan Barrie there as Information Technology 9 Director. 10 A. Yeah. 11 Q. So this is at a time where the Information Technology 12 Director was a full board member, it seems; is that 13 right? 14 A. Yeah. 15 Q. Do you recall who reported to him? Was it a particular 16 team, individuals or something else? 17 A. I can't remember the teams. 18 Q. Would you have expected him to have been apprised of any 19 issues with Horizon? 20 A. I would have thought so. 21 Q. If we look over the page, page 2, please. We have 22 "Chairman's Business"? 23 A. Yeah. 24 Q. The second entry there is "Horizon", and it says: 25 "The Chairman expressed a particular interest in 135 1 furthering his understanding of the capabilities and 2 limitations of the Horizon system. Meetings would be 3 arranged with the appropriate managers to provide the 4 Chairman with a detailed overview ..." 5 Can you assist us with why Horizon was a particular 6 interest of yours so early on in your time? 7 A. Right. I, by that time, had formed or -- based on all 8 the conversations and visits that I'd had, that, in 9 fact, Horizon was a well regarded, well performing 10 system. However, we were just about to launch into 11 a whole new array of new products and it didn't 12 necessarily mean for me, coming into the business, that, 13 in fact, the system was first of all capable of adapting 14 to those new products and, secondly, was it suitable for 15 those products? So I said it would be very important 16 for me to at least gain an impression as to whether 17 people in the development of Horizon had actually 18 thought through the future, rather than just today. So 19 that was the purpose of this particular question. 20 Q. We have there Alan Barrie's name under "Action". Was 21 there a number of people that you spoke to about Horizon 22 at this time? 23 A. On this particular issue? 24 Q. Well, it seems as though there's going to be a meeting 25 with appropriate managers? 136 1 A. Yeah. 2 Q. Do you recall who you met with? 3 A. Right. The answer is I can't recall who I met with, 4 I assume, but I can't prove it, that Alan Barrie set it 5 up. We could not get any minutes from the archive to 6 see who had actually attended but I do remember that 7 between three and five people attended this meeting and 8 that was when they went through their view of what the 9 future capabilities were. 10 Q. Were they all from the Post Office? 11 A. Well, I had thought that there was someone from Fujitsu 12 but there is no way that we could prove that one way or 13 the other, and they -- that may have not been the case, 14 but that's what I thought. 15 Q. Now, the way that you've explained it seems to be that 16 the focus is on the future rather than -- 17 A. Yeah. 18 Q. -- the past? 19 A. That was the future, yeah. I wanted to know because not 20 only were the new products quite different, but if you 21 go down -- let's say the system goes down for an hour 22 with some products, it's a nuisance, but if -- and you 23 see it all the time, if the banking system goes down 24 it's a crisis. And, given, you know, that we were 25 government owned, I wanted to understand whether we not 137 1 only had the ability of the system itself to handle the 2 new products but the resilience to actually handle them. 3 So that was the purpose of the questions. 4 Q. Was it a single meeting? Were there a series of 5 meetings? 6 A. That was a single -- well, it was a single long meeting, 7 if I remember. 8 Q. Do you recall in the early days of your time as Chairman 9 more meetings than this relating to Horizon? 10 A. Not that particular issue, as I think I said earlier, 11 Horizon was a constant issue because there were constant 12 requests for money to upgrade the thing to handle this 13 particular new product, that particular new product, and 14 then the big products of IMPACT and New Generation. 15 Q. During this particular meeting or any other meetings 16 around this approximate time, did anybody raise any 17 concerns about the integrity or reliability of Horizon? 18 A. No, not at always. 19 Q. I want to take you chronologically up to 2007, and we'll 20 be looking at some board minutes -- not just board 21 minutes but contemporaneous documents -- to see the 22 kinds of things that were known to some people within 23 the business. I'd like to start with POL00028438, 24 please. This is a document that we saw in Phase 2 of 25 the Inquiry. Phase 2 related to the procurement of the 138 1 Horizon system and the early days of the Horizon system. 2 Sorry, it's POL00028439. We have it. This is 3 a letter from Ernst & Young to Mr Miller. It's dated 4 23 August 1999. David Miller at that stage, I think, 5 was the Managing Director of the Post Office Network 6 until 2001. We heard from him in Phase 2. He became 7 the Operations Director, which in 2004 was renamed the 8 COO and we've seen him appear in a number of those board 9 minutes. I'm just going to read to you a few extracts 10 from this letter. 11 This is at the acceptance testing phase of Horizon 12 and Ernst & Young wrote in the following terms. They 13 say: 14 "As auditors of the Post Office we have been asked 15 by Post Office Counters Limited to provide you with our 16 views in respect of certain accounting integrity issues 17 arising from tests performed by [Post Office Counters 18 Limited] on Horizon data in the live trial." 19 I'll skip down where it says: 20 "The following issue, as described to us by [Post 21 Office Counters Limited] gives us concern as to the 22 ability of [Post Office Counters Limited] to produce 23 statutory accounts to a suitable degree of integrity. 24 We understand that [Post Office Counters Limited] has 25 attributed a severity rating of 'High' to this matter. 139 1 "Incident 376. Data integrity -- In order to test 2 the integrity of weekly polling of Horizon cash account 3 transactions, [Post Office Counters Limited] are 4 reconstructing a weekly total by outlet from daily 5 Horizon pollings. At present this control test is 6 showing discrepancies in that certain transactions do 7 not record the full set of attributes and this results 8 in the whole transaction being lost from the daily 9 polling." 10 During your enquiries into Horizon or at any time, 11 did anybody tell you about the history of the acceptance 12 process and matters such as this, concerns about data 13 integrity, during that period? 14 A. No, never. 15 Q. If we go back, please, to POL00021482 -- these were the 16 minutes of 19 June 2003 -- we see there David Miller, 17 who was the addressee of that Ernst & Young letter, sat 18 on the Board as Chief Operating Officer as a full board 19 member; is that correct? 20 A. Yeah. 21 Q. Can we please look at POL00021485. These are the Board 22 minutes from 13 October 2004. We, again, have Mr Miller 23 attending as a board member. If we could please look at 24 page 10. We have there a presentation relating to 25 "Horizon Next Generation Business Case". David Smith 140 1 presented the Horizon Next Generation Business Case to 2 the board and it details there the presentation that was 3 received by the board. 4 Could we turn over the page to page 13. We have 5 a presentation there under "Human Resources". There is 6 a report: 7 "The board agreed that in situations where fraud had 8 been perpetrated against the Company, the appropriate 9 civil orders would be used immediately and in advance of 10 any criminal proceedings. This would help recovery 11 efforts by ensuring that the assets of those involved in 12 criminal activity were quickly secured. David Miller 13 would verify the current procedures and report back to 14 the Board." 15 So did Mr Miller, who, as we see, is present and 16 involved in matters relating to, for example, criminal 17 proceedings at that Board meeting, did he ever raise at 18 those board meetings, where the topic of Horizon was 19 addressed, any concerns about Horizon integrity, Horizon 20 reliability or any concerns about the impact or 21 potential impact on prosecutions? 22 A. As I say, I never heard any serious concerns about the 23 Horizon integrity raised when I was there at the Board. 24 Q. Thank you. I'm going to move on in time to one of our 25 case studies from Phase 4, and that's the case of Julie 141 1 Wolstenholme. Can we please look at WITN00210101, 2 please. I don't expect you to have looked at this 3 document at all during your time at the Post Office. 4 But I'm just going to take you to a couple of paragraphs 5 just to give you a flavour of this particular case. 6 This is a joint expert report that was obtained in 7 the case of Mrs Wolstenholme, and I'm just going to read 8 to you from page 2, please. If we scroll down page 2, 9 Mr Coyne, the expert, says as follows, he says: 10 "This, in my opinion, is not a true representation 11 of the evidence that I have had access to. Of the 90 or 12 so fault logs that I have reviewed, 63 of these are 13 without doubt system related failures. Only 13 could be 14 considered as Mrs Wolstenholme calling the wrong support 15 Helpdesk requesting answers to 'How do I ...?' type 16 training questions. 17 "The majority of the system issues were screen 18 locks, freezes, and blue screen errors which are clearly 19 not a fault of Mrs Wolstenholme's making, but most 20 probably due to faulty computer hardware software, 21 interfaces or power." 22 If we scroll down, please, over the page, he gives 23 there further opinion. If we scroll down to the final 24 couple of paragraphs, just to give you a flavour of this 25 case that the Inquiry has heard a lot about already, it 142 1 says: 2 "From 31 October ... there seems to be a number of 3 logs which talk of 'large discrepancies' in stock 4 figures, trial balances with 'all sorts of figures 5 showing minus figures'." 6 Next paragraph says: 7 "Although the documents do not list an upgrade 8 taking place it seems that these 'large' reported 9 discrepancies occur very frequently and shortly after 10 the noted upgrade." 11 If we please go on to POL00118229. This is again 12 a document that we saw back in the beginning of Phase 4 13 of this Inquiry. It's the advice from counsel in that 14 particular case, and I'm just going to read to you some 15 very short extracts on page 3, please. 16 Counsel summarises the case as follows: 17 "Mrs Wolstenholme has defended the proceedings, 18 claiming that the computer system installed by the Post 19 Office was defective and this was, in fact, the cause of 20 the losses recorded within her accounts." 21 The next paragraph says: 22 "The trial of this matter is now about one month 23 away. A joint computer expert's report has been 24 obtained. This report concludes, from the limited 25 records available, that the computer system installed by 143 1 the Post Office did appear defective." 2 If we go over to page 15, please. The bottom of 3 page 15 has counsel's conclusions. He says: 4 "On the basis of the above, it can be concluded that 5 the Post Office claim against Mrs Wolstenholme will 6 fail, save for her return of the equipment which she has 7 possibly retained. Her claim against the Post Office in 8 respect of failure to give proper notice is likely to 9 succeed. What is the appropriate course of conduct in 10 the circumstances, particularly given the desire of 11 those instructing me and the Post Office to avoid, if 12 possible, publication of the negative experts' report in 13 the public arena?" 14 So it seems as though counsel has been instructed, 15 if possible, to avoid publication of that report that we 16 have just seen. 17 A final document in relation to this matter. Can 18 I take you to POL00142503, please. This is an email 19 from Rod Ismay, relating to the settlement of that case. 20 You can see the subject "Legal case -- Cleveleys", 21 Mrs Wolstenholme. He says: 22 "In summary we suspended Mrs Wolstenholme in 2001 23 after apparent discrepancies in her cash accounts. We 24 claimed for the value of these losses and she 25 counterclaimed for loss of earnings. Within her claim 144 1 was an 'experts opinion' which was unfavourable 2 concerning Horizon and Fujitsu. 3 "We have lodged £25,000 in court but 4 Mrs Wolstenholme has no legal representation and is 5 pursuing the full amount of her claim (£188k). It goes 6 to court next month." 7 Then it says: 8 "Mandy -- Peter Corbett is on holiday now." 9 So Peter Corbett was the Finance Director who we 10 have seen attended the board meetings. 11 A. Yeah. 12 Q. "I am therefore escalating this to Dave Miller." 13 Again, Chief Operating Officer, also attended Board 14 meetings: 15 "Do you have a copy of the IT 'expert's opinion'?" 16 So they were both, Peter Corbett and David Miller, 17 members of the Members of the board. 18 Mr Miller's evidence to the Inquiry is likely to be 19 that he did sign off the settlement of that claim and 20 he's likely to say that he questioned whether there were 21 problems with Horizon arising from this case and was 22 told by Tony Marsh that there weren't. But did he ever 23 raise, for example, at Board level or with you 24 personally, a significant payment relating to a Horizon 25 related case? 145 1 A. I really don't remember that. 2 Q. Would you have expected significant settlement sums to 3 have been raised at board level? 4 A. I would have thought so. 5 Q. Can I please turn to POL00119895, please. We're now 6 moving to December 2005. Again, this is not a document 7 that you would have seen at the time. It is a meeting. 8 Present is Keith Baines, do you recall Mr Baines? 9 A. I don't recall. 10 Q. We have Mandy Talbot the Litigation Team Leader. I'm 11 just going to read a few extracts from this document. 12 "Findings", it says as follows: 13 "There is no generally understood process for 14 identifying emerging cases in which the integrity of 15 accounting information produced by Horizon may become 16 an issue. 17 "There are a number of channels by which such cases 18 may enter Post Office [and it refers to a flip chart 19 list] and there is no process for making information 20 about them available to all relevant functions. This 21 increases the risk that different parts of the business 22 may be dealing with the same issue and not coordinate 23 responses." 24 Go over the page, please. Paragraph 5 says: 25 "To date, the number of cases in which the integrity 146 1 of Horizon data has been an issue is small; however, 2 recent correspondence in the SubPostmaster may well 3 cause an increase; also there may also be an effect from 4 the introduction of transaction corrections, replacing 5 error notices." 6 If we scroll down, please, to paragraph 8. It says: 7 "If all potential cases were to require Horizon data 8 to be analysed early in the process, then the workload 9 would be considerable -- and much would later prove 10 unnecessary; currently there are around 12 suspensions 11 per week, and a significant proportion of them will 12 relate to financial discrepancies. Most of these are 13 subsequently settled by agreement, or are not contested. 14 "Where a case does go to court, it is essential that 15 Post Office is able to refute any suggestion that 16 Horizon is unreliable (in general) or that it could have 17 caused specific losses to the subpostmaster bringing the 18 case. The evidence needed for these 2 points will be 19 different." 20 Just pausing there, it seems, from a reading of this 21 document, that there are a growing number of cases 22 relating to Horizon, and there is a concern amongst the 23 business to coordinate those and to assure that the Post 24 Office is able to refute any suggestion that Horizon is 25 unreliable. Do you agree with that as a fair summary? 147 1 A. That's what this seems to say. 2 Q. If we go over the page, please, to page 3 3 "Recommendations": 4 "A coordination role should be established to 5 maintain a list of all current civil cases and potential 6 civil cases where accuracy of Horizon accounting 7 information may be an issue, and ensure that all 8 relevant business functions are made aware of these 9 cases." 10 If we scroll over, please, to page 5 we have there 11 under "Specific actions": 12 "KB [Keith Baines] -- to brief Dave Smith on the 13 meeting's recommendations." 14 That's David X Smith, who we saw previously 15 regularly attended Board meetings? 16 A. Yeah, the IT, yeah. 17 Q. Can we please look at RMG00000131. These are minutes of 18 the Board meeting. This is two months earlier, so 19 19 October 2005. We see, if we scroll down, we have the 20 names Derek Rocholl and David Smith IT Delivery 21 Director. 22 If we turn to page 9, halfway down there is 23 a presentation to the Board on a Horizon proposition. 24 It says: 25 "Ric Francis introduced Dave Smith and Ian 148 1 O'Driscoll. A presentation was provided on the Horizon 2 Next Generation", and it notes various things from the 3 board. 4 So around the time, slightly before that meeting 5 that we just saw, Mr Smith was presenting to the board 6 on matters relating to Horizon. Did Mr Smith ever raise 7 any concerns with Horizon integrity, Horizon reliability 8 or the growing number of cases challenging Horizon, 9 either with the board or with you personally? 10 A. No, I don't think so. 11 Q. While we're on this document, if we could just turn to 12 the first page, we see there the name Ric Francis, now 13 Operations Director, as a full member of the Board. 14 That's October 2005. 15 Can we please look at POL00081928, please. Now, 16 this is a series of emails, again not ones you will have 17 seen at all. Can we look at page 5, we're in February 18 2006. If we zoom out slightly, we can see that this is 19 an email chain, and on that chain we have somebody 20 called Gary Blackburn, who is listed as Resolution 21 Manager, Operations, and also, if we scroll down the 22 page we have Lynne Fallowfield, Problem Manager, 23 Operations. 24 Would they have fit -- I took you just now to Ric 25 Francis, Operations Director. Were those roles we see 149 1 there of Operations, did they fit under him? 2 A. Could you go back to the previous one? 3 Q. The previous document or the -- 4 A. No the previous name. 5 Q. The previous name, yes. If we scroll up, it's Gary 6 Blackburn, Resolution Manager, Post Office Limited, 7 Operations. 8 A. I'm honestly not sure where they would have figured in 9 the organisation. 10 Q. If Ric Francis' title was Operations Director, is it 11 likely or unlikely that they would have fit under him, 12 or are you not able to assist? 13 A. I honestly can't answer that question. I don't know. 14 They could be in finance but I just don't know. 15 Q. Would they be reporting to somebody who attended the 16 Board in some way? 17 A. They would certainly be part of a chain of people 18 reporting to the Board but they may not have been the 19 immediate next report. 20 Q. Who is, in your view, the likely Board member that they 21 would have reported to or are you not able to assist? 22 A. I honestly can't tell you. I really don't know. 23 I don't recognise the names. 24 Q. Well, if we scroll over the page, I'm just going to 25 briefly read to you from this email chain. It's one 150 1 that the Inquiry has seen before, it relates to what's 2 known as the Callendar Square bug, and this is an email 3 from Anne Chambers. It relates to a problem at the 4 Callendar Square branch and Anne Chambers says as 5 follows, she says: 6 "Haven't looked at the recent evidence, but I know 7 in the past this site had hit this Riposte lock problem 8 2 or 3 times within a few weeks. This problem has been 9 around for years and affects a number of sites was 10 weeks, and finally Escher say that they have done 11 something about it. I am interested in whether they 12 really have fixed it which is why I left the call 13 open -- to remind me to check over the whole estate once 14 S90 [that's a particular release] is live -- call me 15 cynical but I do not just accept a 3rd party's word that 16 they have fixed something! 17 "What I never got to the bottom of, having usually 18 had more pressing things to do, was why this outlet was 19 particularly prone to the problem. Possibly because 20 they follow some particular procedure/sequence which 21 makes it more likely to happen? This could still be 22 worth investigating, especially if they have continuing 23 problems, but I don't think it is worthwhile until [that 24 particular fix has taken place]." 25 She says: 151 1 "Please note that the [Known Error Logs] tell the 2 [Helpdesk] that they must contact sites and warn them of 3 balancing problems if they notice the event storms 4 caused by the held lock, and advise them to reboot the 5 affected counter before continuing with the balance. 6 Unfortunately in practice it seems to take SMC several 7 hours to notice these storms by which time the damage 8 may have been done." 9 If we scroll over the page, very, very briefly at 10 the bottom of that page, there's an exchange there that 11 refers to various reports that have been made, and it 12 says: 13 "At the bottom of this email re a magical £43,000 14 appearing and disappearing the [postmaster] is male. He 15 reports: 16 "You may recall that in September the above office 17 had major problems with their Horizon system relating to 18 transfers between stock units. 19 "The [subpostmaster] has reported that he is again 20 experiencing problems with transfers, which resulted in 21 a loss of around £43,000 which has subsequently 22 rectified itself", the subpostmaster is concerned, 23 et cetera. 24 Now, I certainly don't expect you to have seen this 25 particular correspondence but, just like my questions 152 1 relating to Mr Miller and Mr Smith, did Mr Francis or 2 whoever may have been the ultimate line manager to those 3 individuals in the Operations Department, ever raise any 4 concerns about the integrity or reliability of Horizon 5 with the Board at this particular time? 6 A. No. 7 Q. Mr Miller, Mr Smith, Mr Francis, all attending board 8 meetings, no mention of Horizon integrity or reliability 9 issues, no mention of -- 10 A. No. 11 Q. -- a growing number of court cases that we've seen. 12 What do you think went wrong, in terms of the ability to 13 report these kinds of things to the board? 14 A. It's difficult to answer that question. One would have 15 thought that they would have been reporting those kind 16 of things but they didn't and I can't give an answer. 17 Q. Thinking about the documents you've seen, the experience 18 you've had subsequently, is there something in 19 particular that you can pinpoint that you think went 20 wrong in that reporting line to the board? 21 A. Well, there are three people involved, as you said, so 22 you'd have thought that one way or the other it would 23 have got to the board. I just got no idea. 24 MR BLAKE: Sir, might that be an appropriate moment to take 25 our mid-afternoon break? 153 1 SIR WYN WILLIAMS: Yes, of course. Sir Michael, just 2 pursuing one aspect of that, I can understand how the 3 more senior these people are, the more discretion they 4 may have to act, and they make a judgement about whether 5 to bring things to the board, et cetera. But, going 6 back to Mrs Wolstenholme's case where she is claiming 7 £188,000 from the Post Office, which in 2003/4 is 8 a substantial amount of money, and I don't know 9 precisely how much Mrs Wolstenholme was paid but all the 10 indications are that it was a very significant sum of 11 money. 12 I'm intrigued as to how that could have happened 13 without the Board being involved. Can you help me with 14 that? 15 A. I've got no idea. I would agree with you: it was a very 16 large sum of money in any day, and particularly in those 17 days. I mean, you can speculate but I can't -- 18 SIR WYN WILLIAMS: That's fine but am I right in thinking 19 that, in terms of corporate governance, it should have 20 been brought to the attention of the Board and signed 21 off at that level? 22 A. A potential legal case of that size, in my opinion, 23 should have been reported to the board. 24 SIR WYN WILLIAMS: Fine. Thank you. 25 All right, yes, let's have our break, Mr Blake. 154 1 What time shall we start? 2 MR BLAKE: If we could return at 3.45, please. 3 SIR WYN WILLIAMS: Fine. 4 MR BLAKE: Thank you. 5 (3.28 pm) 6 (A short break) 7 (3.45 pm) 8 MR BLAKE: Thank you, sir, can you see and hear me? 9 SIR WYN WILLIAMS: Yes, I can, thank you. 10 MR BLAKE: Thank you very much. 11 Sir Michael, I only have a few more documents to 12 take you to. The first that I'm going to take you to is 13 actually to go back to a document we looked at earlier. 14 It's POL00021420 and it's the minutes of the Risk and 15 Compliance Committee. Just out of absolute fairness to 16 you, if we look at the final page of this particular 17 meeting, there is, in an appendix, a discussion about 18 the status of the IMPACT Programme. 19 A. Yes. 20 Q. I think we discussed earlier about what level the IMPACT 21 Programme was discussed at -- 22 A. (The witness nodded) 23 Q. -- and it does seem to at least have been discussed at 24 this meeting? 25 A. Yeah, this one. 155 1 Q. Just reading those first three paragraphs, "Executive 2 Summary": 3 "IMPACT and the POLFS accounting system have moved 4 on significantly since the last report ... 5 "The system is not yet processing all transactions 6 correctly and so the end state of POLFS ledgers which 7 automatically interface to the main business account has 8 not yet achieved. However, manual adjustments can and 9 are being made to the ledgers for the year end. 10 "The adjustments include several mispostings which 11 individually are very large, but which in most cases are 12 substantiated. Where full substantiation has not yet 13 been provided, there is clear ownership to ensure that 14 they are evidenced for the year end." 15 So it does seem as though there was some touching on 16 an issue during the early stages of the IMPACT Programme 17 within this committee but is that really the height of 18 issues relating to Horizon being brought to your 19 attention and to the attention of those senior 20 committees? 21 A. Right, yeah, I mean this was a particular issue which, 22 to be fair to Peter Corbett, he had flashed up right at 23 the early stage, that he wasn't satisfied with the 24 quality of some of the balances in the Post Office 25 ledgers. But, also, the difficulty they had in getting 156 1 that sorted out was far greater than they thought. In 2 my understanding, this is all inside Post Office, not 3 outside Post Office. 4 Q. Thank you. This is March 2006. We saw those earlier 5 emails and documents relating to ongoing litigation 6 relating to the Horizon system. I assume that nobody 7 put two and two together in relation to problems with 8 the Horizon system and ongoing litigation? 9 A. I don't think this was the outside of the Post Office 10 business bit of Horizon. This was the stuff inside the 11 Post Office, in the internal accounting systems. 12 Q. So this didn't affect subpostmasters? 13 A. I was told it didn't. But, you know ... 14 Q. Thank you. I'm going to now turn to a new document, 15 that's POL00329630. This takes us to 9 February 2006. 16 It's minutes of the Post Office Board. This is a few 17 months after we saw the discussion regarding the growing 18 number of Horizon cases and the coordination of those 19 cases. Could we please turn over the page to page 2. 20 We'd mentioned one committee already, the Risk 21 Committee. It looks as though, at this point, there's 22 a further committee being set up. It says: 23 "Sir Michael Hodgkinson reported that the Board 24 would need to maintain its focus on sales, and 25 a significant part of the April Board would be devoted 157 1 to this issue; 2 "In the light of the continuing need to focus on 3 sales in the context of other important strategic 4 developments ... the Board agreed to the formation of 5 a subcommittee of the board which would be chaired by 6 [you] and include all Executive Directors." 7 Can you assist us with the purpose of this 8 particular Board? 9 A. Right, the issue at this point in time was a lot of 10 the -- the home telephone and the currency had actually 11 started to go quite well but the pick-up on the 12 insurance products and the other new products was much 13 slower than everybody had thought and so it was felt 14 that if we really were going to get to the point where 15 we could do the presentation to the Government in 16 a credible way of showing that the financial services 17 businesses were capable of arriving at certain levels of 18 profitability, we really had to work very, very hard to 19 ensure that the sales picked up and, therefore, we 20 formed a committee to discuss all sorts of ways that we 21 might be able to do this. 22 Q. So is there, by this time, essentially, two committees 23 that -- 24 A. There would be two, there would be two. 25 This was more of an operations committee rather than 158 1 a governance committee. You know, this was trying to 2 get things done. 3 Q. Thank you. If we look further down the page there is 4 a section on "Business Sales and Performance Review". 5 If we scroll over the page, we see there at (c): 6 "Operating profit ... was a loss of £104 million ... 7 "(j) The current proposal for the 2006/07 budget was 8 for a £190 million loss (£65 million worse than 9 2005/06). 10 "(k) Traditional income was project to fall by 11 £100 million ..." 12 Then we have a section on "Solvency" below, and it 13 says: 14 "It was reported that the Board had been advised 15 that, given the concern over the solvency of the Company 16 and the Board's legal duty to run the business with 17 a view to minimising loss to the Company's creditors, it 18 was appropriate that the Board should keep the company's 19 solvency under regular view with a view to satisfying 20 itself that creditors were not likely to be prejudiced 21 by the Company continuing to trade; in other words that 22 the Company was not likely in the foreseeable future to 23 go into insolvent liquidation leaving creditors unpaid. 24 The Board meeting was an opportunity for the Directors 25 to carry out such a review ..." 159 1 Is this what you were talking about very early on in 2 your evidence -- 3 A. Yes. 4 Q. -- about real financial problems at this stage? 5 A. As I said right at the beginning, the company 6 desperately needed government money to fund, in 7 particular, the rural network and, at the same time, the 8 loss of income from its traditional products, and we 9 therefore spent a lot of time trying to make sure, two 10 things: one, that we could legally carry on trading 11 vis-à-vis the creditors; but, secondly, thinking of all 12 sorts of creative ways that we could get money into the 13 business, including things like letters of comfort from 14 government, so that, in fact, we could legitimately sign 15 off the accounts. 16 Q. How bad were things? I mean, in the history of your 17 career? 18 A. Oh, I mean, this was a disaster by most companies' 19 standards. You know, by most companies' standards 20 would -- you know, the business would have folded but 21 you've got the government money coming in for the rural 22 Post Office, which makes life, you know, much more 23 complicated, and so we knew the business at this stage 24 was not viable as a standalone business. But we had to 25 make sure that we could still have access to the cash to 160 1 carry on trading. 2 Q. Can we look at page 6, please. It says there in that 3 first substantive paragraph, it says: 4 "It was also noted that negotiations with Fujitsu 5 were ongoing with a view to amending and extending the 6 current IT outsourcing agreement for the Horizon system 7 until 2015. It was agreed that the contract extension 8 should not be formally signed until the directors were 9 satisfied that the company would be likely to be able to 10 meet its liabilities to Fujitsu for the full extended 11 term of that agreement." 12 Can you assist us with that, then? What was the 13 concern about -- 14 A. Right, well, we had, with one hand, if you like, the 15 need to carry on in trying to get a much more cost 16 effective Horizon system. That was going to cost money, 17 but, on the right-hand, we hadn't got the money. So the 18 question was, how do we balance this? And I think in 19 the end, a contract, a provisional contract was signed 20 with Fujitsu that depended upon actual validation, 21 dependent on Government money. So it was trying to find 22 a way through the minefield and keep the discussions 23 going on the Next Generation. 24 Q. On the subject of a more cost effective Horizon system, 25 if we look at page 14, please, page 14 into page 15, 161 1 there's a section in these minutes that addresses 2 "Horizon Next Generation Business Case". It's at the 3 bottom of that page, and it says: 4 "Ric Francis introduced David Smith to the Board 5 ..." 6 So that's the same David X Smith that we've been 7 seeing throughout this afternoon. 8 A. Yeah. 9 Q. "... and the Horizon Next Generation Business Case was 10 discussed. The Board noted that: 11 "It was essential that the Post Office achieved 12 significant reductions in IT costs to return the 13 business to sustainable profitability. The major 14 opportunity to do this resided with the Horizon system 15 that was provided by Fujitsu Services under a contract 16 that expired in March 2010; 17 "In March 2005 Fujitsu Services proposed a major 18 investment in application, branch and data centre 19 hardware which would simplify the solution enabling 20 significant reductions in recurring operating costs on 21 the basis that the terms of the existing contract was 22 extended to March 2015. However, this proposition gave 23 no scope for further reductions once the benefits of the 24 upfront investment had been realised; 25 "Post Office Limited had negotiated a new deal with 162 1 Fujitsu that delivered significant guaranteed cost 2 reductions on radically different terms to those in the 3 current contract. Under these revised terms Post Office 4 Limited would be able to market test all components of 5 the contract and Fujitsu Services were incentivised to 6 achieve further year on year [cost reductions]." 7 If we look at (f), it says: 8 "... the Board agreed a further £4 million 9 investment (in addition to the £6 million already 10 authorised) to continue development work in order to 11 maintain the necessary progress to meet the Post Office 12 Business Plan. The Board agreed the deal with Fujitsu 13 in principle, but the Board noted that it would be 14 necessary to make the next investment decision in the 15 April-May time frame when the overall position on the 16 potential to sign the long-term contracts would be 17 clearer." 18 Is a fair interpretation of this that, at this time, 19 the focus was on a cheaper Horizon, one that led to cost 20 savings? 21 A. I would just add one thing: cheaper and no worse. 22 I don't think there was any thought that the, you know, 23 that the lower cost was in any way going to degrade the 24 functionality or integrity of Horizon. 25 Q. But it long-term plan there was to achieve savings -- 163 1 A. Yeah, there was -- yes, well, it's crucial to make the 2 business viable. 3 Q. What we don't see here is, for example, any mention of 4 the user experience of Horizon, do we? That doesn't 5 seem to factor into the thinking of certainly, at board 6 level, the -- 7 A. There was a lot of discussion about the fact that this 8 new reduced project for Horizon would not deteriorate 9 anything in terms of quality. So we went forward on the 10 basis that the cost savings were not reducing the 11 quality of Horizon. 12 Q. Can you assist us with how the Board was obtaining the 13 information about the quality of Horizon for the user? 14 So can you recall, for example, any internal or 15 independent investigation during that period of 16 renegotiation that looked into the effectiveness of 17 Horizon, and whether it was the right strategy for the 18 user? 19 A. Right, the only external review that was done was with 20 Gardner, which was looking at and reviewing whether the 21 kind of concepts were reasonable and whether the pricing 22 from Fujitsu was reasonable. I don't think there was 23 a big survey done about the issues in the field, as it 24 were. Although don't forget all along, we did have, you 25 know, the big Crown Offices which were our own field 164 1 testing. 2 Q. Do you recall, during these discussions, any questions 3 being asked about the reliability and integrity of the 4 data that is produced by Horizon? 5 A. Not specifically in those formats. 6 Q. We certainly don't see within these minutes any 7 discussion -- 8 A. No, I agree. 9 Q. -- of those kind of issues? 10 A. But there were discussions that the quality would not 11 deteriorate. I mean, that was given. 12 Q. Who were those discussions with? 13 A. Oh, just at the Board level. 14 Q. Who would have been presenting a position on that to the 15 Board? 16 A. That would have been David Smith and Ric Francis. 17 Q. Do you see this, the renegotiation of Horizon, as 18 a potential missed opportunity in respect of improving 19 the Horizon system? 20 A. I think the alternatives we were faced with was do we 21 start again from square one or do we move forward with 22 the New Generation of the Fujitsu contract? And there 23 was a lot of debate about the issue and it was decided 24 that this would be the best long way forward, I mean you 25 can't say any more than that. It was debated whether we 165 1 should change. 2 Q. During that debate, did anybody raise any issues that 3 subpostmasters had been experiencing with the Horizon 4 system? 5 A. No. 6 Q. Whose responsibility would it have been to have raised 7 those issues? 8 A. That would now have been David Smith and Ric Francis. 9 Q. Who, sorry? 10 A. Ric Francis. 11 Q. Thank you. Can we please look at RMG00000033, please. 12 This is the same matter but now being raised at the 13 Royal Mail Holdings level. It reached the Royal Mail 14 Holdings board on 27 April 2006. I have no idea if I've 15 got the number of zeros right but it's lots of zeros, 16 33. 17 So this is the first time that we'll have looked at 18 Royal Mail Holdings' minutes during your evidence 19 session. We have there Alan Cook, Managing Director, 20 Post Office, as present. We have yourself listed there 21 as Non-Executive Director. If we scroll down, we also 22 have Mr Francis, Ric Francis, Operations Director. 23 A. Yeah. 24 Q. He's listed there for RMH06/87 and that's what I'm going 25 to be taking you to. But if we slowly scroll down to 166 1 page 9, we get an impression of the kinds of matters 2 that are dealt with at this level, a wide variety of 3 different issues, Royal Mail -- if we stop where you are 4 and scroll slightly up an entry about the vehicle 5 replacement programme. If we keep on scrolling down. 6 Is there a tendency -- I know you've said that 7 things were dealt with at this level, but for Post 8 Office matters to be slightly overlooked or minimised, 9 given the number of issues that this board had to deal 10 with in relation to all of the work that Royal Mail 11 Holdings was responsible for? 12 A. I think at the time there was a very strong view that 13 the Post Office was being well run, had made amazing 14 strides forward and that the issues that needed to come 15 to Royal Mail were coming to Royal Mail. I think the 16 reason there's more letters stuff here is the scale of 17 the investment that was being required in the letters 18 business was much bigger and the issues they were 19 dealing with was much bigger. 20 Q. So was a great degree of trust put in Post Office 21 Limited by Royal Mail Holdings -- 22 A. Yeah, I think so. 23 Q. -- to operate itself independently. 24 If we could please look, this is "Horizon: Next 25 Generation". I think that this is the item that Ric 167 1 Francis attended -- 2 A. Yeah. 3 Q. -- this Board meeting for. Presumably he didn't attend 4 on a regular basis the Royal Mail Holdings -- 5 A. No, no, no. 6 Q. Right. "Horizon: Next Generation": 7 "The Board noted Alan Cook's paper and Ric Francis' 8 further explanation of the business case for the 9 replacement of Post Office's [EPOS] system ... 10 "The proposed deal with Fujitsu offered 11 a replacement system at a significantly lower cost than 12 any of the other available options." 13 I mean, did it strike anybody that perhaps lower 14 cost wasn't necessarily going to lead to improvements in 15 the system itself? 16 A. Well, this was all done at the time when the general 17 view was that Horizon was producing, you know, good, 18 accurate information. 19 Q. "For a total investment of £127 million, the proposed 20 deal would deliver an incremental post-tax NPV of some 21 £90 million compared with continuing with the current 22 system and contract until 2015. Richard handover 23 pointed at that while the scale of cost reduction was 24 commendable, in his experience of dealing with Fujitsu, 25 cost reduction could also be accompanied by service 168 1 degradation. Ric Francis noted this ..." 2 Now, Richard Handover. He was a non-executive. 3 A. Yeah. 4 Q. Am I right in saying he was the Chair and Chief 5 Executive of WHSmith? 6 A. Yeah, that's right. 7 Q. Was he somebody who was held in high regard by the 8 Board? 9 A. Yeah, I agree. 10 Q. That seems to be quite a pressing comment that he's made 11 there. 12 A. And I think Ric Francis and the IT Team took that on 13 board and, as we went forward, we were told that these 14 kind of issues, you know, service degradation, was 15 currently not likely to happen and that we'd covered it. 16 Q. You said, "We were told". Who was telling -- 17 A. That would be Ric Francis and David Smith. 18 Q. They were telling you. Do you recall specific -- 19 A. No the Board, they were telling the Board. Sorry, not 20 me personally. 21 Q. So they were telling the Post Office Board -- 22 A. Yeah. 23 Q. -- or the Royal Mail Holdings Board that it wouldn't 24 happen? 25 A. Well, at this particular thing, he had -- Ric had just 169 1 noted this particular thing but, as we progressed 2 further with the contract, that particular point had 3 been noted. 4 Q. So it had been noted by Ric Francis, we see there, but 5 it seems -- certainly, the Inquiry doesn't have a note 6 of it being taken forward specifically in relation to 7 Mr Handover's comment. Do you think that some action 8 actually did take place in relation to reassuring the 9 Post Office that cost reduction wouldn't be accompanied 10 by service degradation? 11 A. We were continually assured of that, you know, as I say 12 people are -- all the way through the project, people 13 kept asking that kind of question. 14 Q. Who is "we"? 15 A. The Board. 16 Q. Reassured by who? 17 A. Ric Francis and David Smith. 18 Q. Were you aware of who they obtained their information 19 from? 20 A. No. 21 Q. If we scroll down, please: 22 "After further discussion the Board: 23 "Expressed its support for the business case set out 24 in the paper. 25 "Authorised release of up to £25m of capital, in 170 1 addition to £10m already approved, to enable the 2 continued development of the Horizon replacement system. 3 "Approved [the Post Office's] concluding detailed 4 contract negotiations with Fujitsu Services as proposed 5 in line with the parameters of the business case. This 6 was subject to the Post Office resolving its funding 7 issues currently being discussed with Government." 8 So what do you think went wrong? I mean, why do you 9 think the warnings like that from a Senior Non-Executive 10 Director weren't heeded, or didn't lead to greater 11 scrutiny? 12 A. I mean, we were told on the Board of the Post Office 13 that, in fact, we were guaranteed no deterioration in 14 quality of service, and that question continually got 15 asked as the project proceeded. That's basically where 16 it left. 17 Q. Finally, I would just like to take you to paragraph 54 18 of your witness statement, it's WITN10660100. 19 Paragraph 54. You refer there to being provided with 20 information -- it's page 21 -- at the end of your time 21 at the Post Office. You say: 22 "I do not recall hearing about any bugs, errors, 23 defects or concerns with the integrity of Horizon. From 24 recollection, the first time I heard any comment about 25 possible problems with Horizon was in early August 2007, 171 1 when I called into the office to say farewell to my 2 colleagues. One of the Senior Area Managers [who's name 3 you don't recall] had recently received an audit report 4 about a large deficit in one of the post offices in her 5 area. She told me that her team had not been able to, 6 to date, to understand what the problem was, and she 7 said she was wondering whether there could be a problem 8 with Horizon. She said her team were investigating all 9 possible ways that the Horizon system might have caused 10 the issue, but the investigation appeared to be at 11 a very early stage. I trusted that [was all] in hand." 12 Do you think at your time in the Post Office that 13 was the general approach of the board: to trust that all 14 was in hand with Horizon? 15 A. Not in -- I think the general view was that the system 16 was working across a vast estate quite well. As far as 17 the Board was concerned, they were not getting lots of, 18 you know, information back saying there was a big 19 problem and, therefore, we thought that Horizon was 20 providing what it was supposed to do, and that is 21 provide good quality information. 22 I mean, that's all I can say. I mean, in a way, on 23 this particular case, in a way, it gave me encouragement 24 that, if there were an issue, that it would be 25 investigated in great deal and, you know, there were 172 1 tools in place where, if someone went to that level of 2 detail, you could actually be satisfied -- satisfy 3 yourself. So I think, you know, that was where it was. 4 Q. Thank you. Are you able to assist us, I know you've 5 said in the statement you don't remember the person's 6 name but can you recall the area? 7 A. South of England. That's all I know. 8 MR BLAKE: Thank you very much. 9 Sir, those are all of my questions. Mr Stein has 10 some questions. 11 SIR WYN WILLIAMS: Yes. Mr Stein? 12 MR BLAKE: Thank you. 13 Questioned by MR STEIN 14 MR STEIN: Sir Michael, my name is Sam Stein. I represent 15 a large number of subpostmasters and mistresses and I'm 16 instructed by a firm of solicitors called Howe+Co. 17 Just to refer to your statement to start off with 18 please. By way of background, when you left university 19 you joined the Ford Motor Company; is that right? After 20 that, you joined British Leyland -- 21 A. Yeah. 22 Q. -- and then, I think, you became Managing Director of 23 the newly formed Land Rover Limited; is that correct? 24 A. Correct. 25 Q. Did any of those companies prosecute its own staff? 173 1 A. Not that I was aware of. 2 Q. No, all right. So you moved then onwards to the Grand 3 Metropolitan Group, responsible, initially, for a major 4 section of the Brewing Division and then you became 5 Chief Exec of the European Food Division. 6 A. Correct. 7 Q. What about the Grand Metropolitan Group? Did it 8 prosecute its own staff? 9 A. No. 10 Q. All right. After that, in 1992, you joined BAA Plc, 11 rising to become Chief Executive Officer of that, of BAA 12 in 1999; is that right? 13 A. Correct. 14 Q. Did BAA prosecute its own staff? 15 A. No. 16 Q. Okay. So when you joined the Post Office, as we 17 understand it, I now refer to paragraph 62, sir, of your 18 statement. Sir Michael, that says this, at paragraph 62 19 of your statement: 20 "I can recall that SPMs were occasionally prosecuted 21 for fraud, which I think I learned during my induction 22 process." 23 That paragraph finishes by saying this: 24 "I do not have any recollection of these cases being 25 discussed during POL Board meetings." 174 1 Okay. So let's piece this all together. So after 2 leaving BAA, you join POL and then fairly rapidly become 3 Managing Director, yes? 4 A. Um -- 5 Q. In 2003? 6 A. Yeah, not Managing Director, Chairman. 7 Q. Chairman. So in 2003, you take on that responsibility 8 at the Post Office, yes? All right. During the 9 induction process, in relation to the Post Office, you 10 learn that the Post Office prosecutes its own people; is 11 that right? 12 A. I didn't learn that particular bit; I learnt that 13 occasionally people were prosecuted. I didn't -- 14 I wasn't aware of the process of how it went on. 15 Q. Well, let's just re-read this. Paragraph 62: 16 "I can recall that SPMs were occasionally 17 prosecuting for fraud ..." 18 A. Yeah. 19 Q. "... which I think I learnt during my induction 20 process." 21 So what did you learn in your induction process 22 about SPMs occasionally being prosecuted? 23 A. What it says there. 24 Q. Well, what bit? That you, the Post Office prosecuted 25 your own staff members? Somebody else did? The police 175 1 did? Tell us. 2 A. I didn't -- I didn't know the process of the prosecution 3 at that stage. 4 Q. Right, okay, so when did you learn about the process of 5 prosecution by the Post Office of which you were chair? 6 A. I think that was much later on. 7 Q. Help us, please. You left in, I think, 2007? 8 A. Beginning of '07, yeah. 9 Q. So when, during the period of time between 2003 to 2007, 10 did you suddenly get told "By the way we happen to 11 prosecute our own people?" 12 A. I can't tell you the precise timing. I don't know. 13 Q. Well, closer to the beginning when you became Chair or 14 closer to the end when you left? 15 A. I would say closer to the end. 16 Q. Right, and did you say to the people around you "Well 17 that's a bit of a surprise, I'm a bit surprised that we 18 prosecute auditor own staff. I'd like to know a bit 19 more about it"? 20 A. No, I didn't. 21 Q. Well, you have suddenly been made aware that you're the 22 Chair of a Prosecution Authority, yes? Yes? 23 A. Yes. 24 Q. Yes. That's an unusual thing, given your business 25 background, yes? 176 1 A. Yes. 2 Q. What did you do to investigate that the Post Office was 3 properly prosecuting its own members? 4 A. I didn't do anything. 5 Q. Now, you're aware that obviously the branch Post Office 6 system existed, you're aware of that much -- 7 A. Yeah. 8 Q. -- and you're aware that the branch Post Office's were 9 run by subpostmasters, often living in the branch post 10 offices, yes? 11 A. (The witness nodded) 12 Q. The traditional post office in the countryside, living 13 in their own place, having perhaps a small grocery 14 business at the side, yes? Yes? 15 A. (The witness nodded) 16 Q. You're aware that they lived there often with their 17 families, yes -- 18 A. Yes. 19 Q. -- and little businesses that they were. The typical 20 scene for the post office branch that you can think of. 21 Right, okay. 22 A. Yes. 23 Q. So by the time you learn that you're Chair of 24 a Prosecution Authority, did you say to yourself "Well, 25 we need to make sure that these little people who work 177 1 in the subpostmaster branches, that are running these 2 places within the community, are dealt with fairly and 3 properly by the Post Office of which I'm Chair"? Did 4 that occur to you? 5 A. Well, the whole process of prosecution we thought was 6 based first of all on accurate Horizon information. 7 Secondly, there was an audit which was done by a 8 separate group of people. Thirdly, there was then 9 an investigated branch that we had been told objectively 10 investigated the case, and then there was a legal 11 analysis and a decision made whether to prosecute or 12 not. So, in the process, there were several individual 13 people or individual stages of the thing which is 14 a pretty good guise that it's fairly objective. 15 Q. Sir Michael, as I understand your answers to me this 16 afternoon, you've said that it was late in the period of 17 time -- 18 A. Yeah -- 19 Q. -- of which you were Chair of the Post Office -- 20 A. Yeah. 21 Q. -- that you learnt that the prosecution prosecuted its 22 own subpostmasters? 23 A. Yeah. 24 Q. So are you saying that it was late in the time that you 25 were chair of the Post Office that you learnt about all 178 1 these systems of investigation, all these systems of 2 using the Horizon system? Did that come late in the 3 day? 4 A. There's -- a separate question is I didn't know at the 5 beginning the process of prosecution, but we did know 6 the fact that there was a whole series of checks on the 7 way through, whether a prosecution actually took place. 8 Q. Right. So you were at least aware that there was 9 an investigation system -- 10 A. Oh, yeah. 11 Q. -- investigating your own subpostmasters? 12 A. Yeah. 13 Q. Right. Okay. So let's hold on for the moment to that 14 idea. What did you do to make sure so that the 15 investigation system was carried out properly and 16 fairly? What did you do, Sir Michael? 17 A. Well, in the Risk and Compliance Committee, we did 18 discuss the processes but they were discussed at 19 a general level. 20 Q. So you individually listened to the discussion, did you 21 take part? Did you dwell on the detail? Did you find 22 out what the investigation process was? 23 A. We knew what the investigation process was and how it 24 went about it. 25 Q. Right. 179 1 A. We didn't know about individual cases or anything like 2 that. 3 Q. Okay. But you were aware, on the second part of what 4 you said, that the Horizon system data was used to 5 support or part of prosecutions? 6 A. Yeah. 7 Q. All right. Now, I'm going to take you to paragraph 51 8 and 52 of your statement, Mr Blake has touched on this 9 before. So of the statement WITN10660100. Paragraph 51 10 at the bottom of page 19. Thank you. 11 If you go to the bottom of the page, 19, please. 12 Right. 13 So bottom of page 19, paragraph 51, when you became 14 the chairman of POL, you requested to further your 15 understanding of the Horizon system, okay? 16 You've been asked about the purpose of my request, 17 you say here, and when you talk about the first POL 18 board meeting and, again, you've been asked a couple of 19 questions about that by Mr Blake. 20 At the bottom of that page, it says this: 21 "I wanted to learn more about Horizon. I was 22 interested in the capabilities of Horizon because of the 23 POL Board's strategic plans for growth into the 24 financial services market." 25 Okay? 180 1 Now, I'm going to take you, page 20, to the last 2 five lines of the top paragraph. You'll see there it 3 says: 4 "However, we were entering into a completely 5 different world with different products and I wanted to 6 understand whether the system had been designed with 7 these products in mind, whether it was reliable and 8 whether it was capable of handling transaction of much 9 higher value." 10 Right. So, piece this together. What seems to have 11 happened is that, when you became chair of POL, you 12 wanted to learn about the Horizon system and, for the 13 reasons you set out, you wanted to know whether it was 14 reliable or not. All right. We know, looking at 15 paragraph 52, page 20, that you recall a meeting was 16 arranged a few weeks after the board meeting to address 17 your queries. You go on to say this: 18 "I really cannot recall who attended the meeting, 19 but I think it was the senior IT management and members 20 of Fujitsu." 21 So you asked to have a meeting and when you made 22 your statement, your recollection was that it was senior 23 IT management and members of Fujitsu that attended the 24 meeting; is that correct, yes? 25 A. Yeah. 181 1 Q. You'll need to say "yes" or "no", so that -- 2 A. Sorry. 3 Q. All right. You said earlier in your evidence that you 4 can't recall the numbers but it was something like three 5 to five people? 6 A. Yeah. 7 Q. Okay. Now, help us a little bit more with that meeting. 8 I'm going to take you to a document, which is 9 FUJ00002037. This document is called at the top 10 "Application Support Service (Fourth Line): Service 11 Description", it's got, left-hand side, "Fujitsu", 12 "Fujitsu Services", and you'll see the date which is in 13 August 2006, okay? All right. 14 Go further down that page to the bottom of page 1, 15 you'll see who are the approval authorities for the 16 document. You've got there name, Dave Hulbert, Post 17 Office Head of Systems Operations. Okay? 18 Now, Mr Hulbert was a long-term Post Office 19 employee, he had been part of matters before 1999 and 20 had, by this stage, risen to head of systems operations. 21 Was he, by chance, anyone that was present during 22 this meeting that you had when you were trying to make 23 sure that the Horizon system was reliable or not? 24 A. I have absolutely no idea. 25 Q. Okay. Let's look further down the page at other people 182 1 that were around, page 2. Go to page 2, you'll see 2 there that it's got "Document History", "Review 3 Details", mandatory review. Under "Mandatory review", 4 it there refers to Post Office Operations Support, Post 5 Office Commercial, those two individuals are Bernadette 6 O'Donnell and then Commercial is Mike Hannon, okay? 7 Then there are the Fujitsu people mentioned, Pam 8 Purewal, James Stinchcombe, Mik Peach, right? So you 9 can see that this is a joint document, Fujitsu and POL, 10 with those individuals there present. 11 Now, can we go to page 9, please, the very bottom at 12 page 9 of that document. If you look there under "Third 13 Line Support Service", as you've got there at the bottom 14 of page 9, highlighted, thank you very much, it says 15 this: 16 "The Third Line Support Service works closely with 17 the Application Support Service (Fourth Line) to provide 18 bug fixes to enable the resolution of Software 19 Incidents." 20 Okay? Right. 21 So when you had your meeting with POL staff members 22 and, you think, Fujitsu staff members to check to see if 23 the Horizon system was reliable or not, were you told 24 that there were four lines of support for the Horizon 25 system which included third and fourth line to help with 183 1 bug fixes? 2 A. No, I wasn't told that. 3 Q. And the bug fixes were to enable the resolution of 4 software incidents? 5 A. (The witness nodded) 6 Q. Were you ever told that? 7 A. No. 8 Q. Did you ever ask any questions about "Well, what happens 9 with this thing when it goes wrong? How do you fix it?" 10 at that meeting? 11 A. That -- not at that particular meeting. That meeting 12 was purely focused on was the system capable of handling 13 the new project -- products that we were about to launch 14 over the next two years? 15 Q. Well, it's a bit more than that, isn't it, because you 16 say in your statement that you wanted to make sure it 17 was reliable for those purposes? 18 A. Yeah, but the reliability in my mind was the whole 19 capacity of the thing so that if everybody started 20 drawing the money out of the banking system at the same 21 time, there was capacity in the system to handle it. So 22 that was the reliability thing that we were looking at 23 at that -- or I was asking questions about. 24 Q. Right, so at that meeting you weren't told that there 25 was an entire support system that related to bug 184 1 fixes -- 2 A. No. 3 Q. -- to make sure that any software incidents were kept 4 under control? 5 A. (The witness shook his head) 6 Q. You said in answer to my questions that "Not at that 7 particular meeting". When did you learn about the bug 8 fixes? 9 A. I -- as I said all the way through, I'd -- I did not 10 hear lot of talk about bug fixes, errors and defects. 11 Q. Well, you said to me "Not at that particular meeting", 12 which seems to imply that you were told later on at some 13 other meeting about bug fixes? 14 A. No, no. 15 Q. Okay. So, in essence, Sir Michael, it comes to this, 16 does it, that you knew that the Horizon system data was 17 being used in the prosecution of subpostmasters -- 18 A. Yeah. 19 Q. -- yes? You knew that there was an Investigation 20 Department that was investigating subpostmasters, yes? 21 A. (The witness nodded) 22 Q. At some point in your work as chair of the Post Office, 23 you learnt that subpostmasters were actually prosecuted 24 by the Post Office, yes -- 25 A. (The witness nodded) 185 1 Q. -- and at no point did you directly try and find out 2 exactly how this system worked in order to make sure 3 that accurate data was used to prosecute subpostmasters? 4 Is that about it? 5 A. If -- in terms of going through a personal audit of it, 6 that's about it. 7 Q. During your time, Sir Michael, people were prosecuted, 8 people were told to pay up for any shortfalls, because 9 apparently it was their fault because the Post Office 10 didn't look into it. That was during your time, 11 Sir Michael. 12 A. No, I know. 13 Q. Is there anything you want to say to those people? 14 A. I was going to say something at the end. Is this the 15 appropriate time? 16 MR BLAKE: Yes. 17 A. Right. I definitely want to say something. I mean, 18 I have been saddened and appalled at the evidence that 19 has come out over the last 15 years since I left, where 20 so many innocent postmasters and mistresses were 21 unfairly prosecuted under the Horizon system and, as 22 a result, suffered most dreadful experiences and 23 devastating consequences, not just for themselves but 24 for their families. 25 And I just want to put on record that I apologise 186 1 unreservedly for the fact that, whilst I was Chairman of 2 the Post Office, I did not discover the problems with 3 the Horizon system, and all I can say is that I am very, 4 very sorry for the misery that that then subsequently 5 caused. So I apologise again, unreservedly. 6 MR STEIN: Sir Michael, I understand you apologise. What 7 part of it was your fault? 8 A. You just don't really know. I mean, what else could 9 I have done? I mean, I just -- I tried to make sure the 10 business was run as well as I possibly could. Where 11 there were issues reported to us, I tried to make sure 12 that people took action. There's a -- not much you can 13 do. I mean, there are two ways I could have found out 14 about information. One is reporting up from the 15 organisation, and that didn't happen. 16 The other thing that surprised me, and still 17 surprises me -- and in other businesses I have had this 18 happen -- you get letters from outside, from all over 19 the place, that says "You need to investigate this", and 20 I never got that kind of correspondence or messaging 21 and, as a result, that's how I operated over the four 22 years I was there. 23 MR BLAKE: Thank you very much, sir. 24 I think that is all of the questions this afternoon, 25 unless you, sir, have any questions? 187 1 SIR WYN WILLIAMS: No. No thank you, Mr Blake. 2 Thank you, Sir Michael, for making your witness 3 statement and for answering all the questions which have 4 been put to you this afternoon. I'm grateful. 5 THE WITNESS: Thank you. 6 SIR WYN WILLIAMS: So we'll begin again at 10.00 tomorrow, 7 Mr Blake? 8 MR BLAKE: Yes, that's correct. 9 SIR WYN WILLIAMS: Can I just check, because people tend to 10 forget these things, normally on a Friday we finish at 11 3.00, but we've got two witnesses of, I guess, 12 comparable length to today, or not? 13 MR BLAKE: Yes. I mean, we certainly have a lot to get 14 through tomorrow. 15 SIR WYN WILLIAMS: I was just going to ask whether people 16 wanted to start at 9.30 to relieve them of the 17 possibility that they would have to go significantly 18 beyond 3.00 tomorrow? 19 MR BLAKE: I see plenty of nods or people not shaking their 20 heads. Providing all the arrangements can be made with 21 the witnesses, then, absolutely, I think that would be 22 very helpful. Sir, perhaps we could proceed on that 23 basis and, if it's going to be any different -- 24 SIR WYN WILLIAMS: We'll proceed on the basis that we'll 25 begin at 9.30 tomorrow, unless the Inquiry has to send 188 1 out a message to everyone that it'll be 10.00 as usual. 2 MR BLAKE: Thank you very much, sir. 3 SIR WYN WILLIAMS: All right, thank you very much, everyone. 4 Bye. 5 (4.30 pm) 6 (The hearing adjourned until 9.30 am the following day) 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 189 I N D E X DAVID JOHN SMITH (affirmed) ...................1 Questioned by MR STEVENS ......................1 Questioned by MS PAGE ........................94 SIR MICHAEL STEWART HODGKINSON (sworn) ......100 Questioned by MR BLAKE ......................100 Questioned by MR STEIN ......................173 190