Following a review of Royal Mail's mail integrity procedures, Postcomm proposed to fine Royal Mail £11.38m in February 2006. Postcomm had found that inadequacies in Royal Mail's recruitment and training of agency staff had, amongst other factors, put Royal Mail in breach of its licence obligation to ensure that adequate mail protection procedures are in place. Following consultation Postcomm reduced the fine to £9.62 in August 2006 but Royal Mail challenged that decision for not complying with Postcomm's own penalties policy.

Postcomm did not have absolute data on the amount or value of mail lost through Royal Mail's failures and so made a series of assumptions about the number of items that had been lost, the value of such items and what percentage of the losses were caused by factors outside Royal Mail's control. Royal Mail argued that the use of such assumptions meant that Postcomm's decision had not been "soundly based on fact" as its penalties policy required.

Both the High Court and now the Court of Appeal read Postcomm's penalties policy in light of its statutory duty to exercise its functions in the manner best calculated to meet the interests of users of postal services and ensure compliance. The Court of Appeal determined that Postcomm had used its best endeavours to ensure that its decision was soundly based on fact and that its ability to impose a financial penalty should not be frustrated by lack of precise evidence.

As we reported in May, this decision can be contrasted with Royal Mail's successful appeal against a £1m penalty Postcomm sought to impose in relation to an alleged unfair commercial advantage. Postcomm consulted on reforms to its penalties policy last year. That consultation is now closed and an updated policy is expected shortly. This judgement will support Postcomm's proposals to re-emphasise the underlying objectives of its penalties policy and provides useful guidance to other regulators about the operation of their policies