Battle over `poor post service’ compensation payments

A legal battle began today over millions of pounds said to be owed by Royal Mail Plc to large customers who were the victims of poor and inadequate services.

The Consumer Council for Postal Services, known as Postwatch, applied for judicial review at the High Court in London over a refusal by the UK postal regulatory body to force Royal Mail to pay up.

The Postal Services Commission (Postcomm) refused last January to make an enforcement order under the 2000 Postal Services Act for the financial year 2003-4.

David Pannick QC, appearing for Postwatch, today told a judge that Postcomm was under a statutory duty to enforce.

The case turns on the disputed interpretation of an exclusion clause in the statutory compensation scheme.

Postwatch argues Postcomm’s interpretation is incompatible with the scheme and wrongly allowed Royal Mail to under-compensate users of bulk mail services by up to £35 million.

Mr Pannick told Mr Justice Sullivan: “There is no doubt that in the financial year 2003-4 – the first year for which the scheme applies – Royal Mail failed to meet any of the quality of service targets under their licence.”

He said: “We estimate that what would otherwise be compensation of £70 million for the aggrieved customers of the inadequate service has been reduced to compensation of £35 million by reason of the disputed interpretation adopted by Postcomm.”

Mr Pannick told the judge that, if Postwatch’s challenge on the law succeeded, Postcomm and Royal Mail would then argue that the Royal Mail should not be required to pay the compensation claimed for the past financial period because of the need for “regulatory fairness” and to “promote confidence in the integrity of the regulatory regime”.

Mr Pannick said: “I shall submit that we have some difficulty in understanding how confidence in the integrity of the regulatory regime could be promoted by allowing Royal Mail to keep what would be a windfall of up to £35 million which they hold as a result of an erroneous interpretation of the scheme.”.

The crucial clause which has given rise to today’s costly legal action involving top QCs arises in paragraph 20 (b) of the Standards of Service Compensation Scheme, set up as a condition of the Royal Mail’s postal operator’s licence.

In relation to customers who post large volumes of mail, the scheme provides that the amount of compensation payable is to be in proportion to the extent by which Royal Mail falls short of the minimum required standards over a financial year.

Postwatch contends that Royal Mail’s failure to meet any of the standards of service in 2003-4 meant the first payments should have become due in or after August 2004.

But Royal Mail argues that the exclusion clause at paragraph 20 (b) of the scheme enables it to withhold substantial payments.

The clause states that Royal Mail shall be under no obligation to provide compensation “where a sender is in default of credit terms, without reasonable excuse”.

Postwatch complains that Postcomm has interpreted this clause as meaning that, where customers have failed to pay Royal Mail in accordance with its credit terms “at any time during the year” the right to compensation is extinguished – regardless of the extent of the default.

The hearing is expected to last two days.