Just before the inquiry paused for a break, David Smith was challenged over the failure of the Post Office's legal team to declare their knowledge of a bug in the Horizon system during the trial of Seema Misra.

Smith said he was never made aware of the bug in the system, telling counsel that he only learned of it at the inquiry.

He said he was "shocked and appalled" at the failure of the Post Office's legal team to declare their knowledge of back doors built into the Horizon system.

While he accepted that he had taken some oversight of the Misra trial, he denied any knowledge of emails sent by lawyers in which they admitted to knowing about the back door.

The inquiry is now breaking for lunch, but we'll continue to wrap up the end of that session.

We'll also bring you some analysis of what we've heard, so stay with us.

Sean Seddon
Reporting from the inquiry

Smith is now being asked about the case of Seema Misra, a sub-postmistress who was wrongly imprisoned during Smith’s tenure.

Smith has already apologised for an email he sent after her conviction which used the phrase “brilliant news”.

Misra’s conviction was important because, even though we now know it was a terrible miscarriage of justice, at the time it was seen as confirmation among Post Office managers that there was nothing major wrong with Horizon.

That email has just been put up on the screen, which must be quite an awkward moment for Smith. As he apologises, it's the first time this morning he has looked uncomfortable.

He says the “brilliant news” comment was intended as a reference to the hard work of Post Office lawyers involved in that case.

Smith continues: “In the benefit of hindsight…at best, from Seema’s perspective, you can see this is really very poorly thought through.”

As far as I can tell, Misra isn’t here today to hear Smith say that.

Stevens shows Smith an email which suggests that an in-depth investigation into Horizon's systems could put future prosecutions in jeopardy, as it would have to be declared in court.

The lead counsel asks Smith whether this influenced the limited scope of the inquiry he commissioned Rod Ismay to conduct, which Smith denies.

He is then asked about his role in the case of Seema Misra, but Smith says it began some time before he joined the business.

But he admits that he took a more active interest in the case as its profile increased.

Stevens turns to Rod Ismay's own statement about his report on the Horizon system.

In the statement, Ismay suggests he was asked to find a counter-argument to the allegations of Horizon's failings. When asked about this, Smith disagrees and says he did not ask that.

"I stand by what I said," he insists.

Then Stevens produces another letter, which again suggests that Ismay's report was asked to give reassurances about Horizon.

David Smith disagrees again, saying that he only asked for a summary of the Post Office's thoughts on the concerns over Horizon.

Peter Ruddick
Business reporter

This isn't just an inquiry about what happened to thousands of sub-postmasters, and why. This is about whether the way the Post Office was structured was part of the problem. Or part of the reason why the truth didn't come out sooner.

Both Alan Bates and Lord Arbuthnot have, this week, suggested that the government should not have opted to keep at "arms length" from the organisation.

David Smith's testimony this morning has revealed how that relationship worked in practice. When officials asked for assurances that ministers were making accurate statements, a report into Horizon was commissioned.

There are differing opinions on the thoroughness of that report. But the reality is ministers still remained quite far removed from the reality on the ground.

Should they, or officials have got more involved? That's a key question for the inquiry when it comes to report.

The inquiry is now asking why Rod Ismay was appointed to author the report into the Horizon system.

Smith replies that Ismay was a qualified auditor who was highly thought of across the business.

He admits that Ismay was not an IT expert, but emphasises that Ismay wasn't being asked to investigate the system itself, but rather why the Post Office "was confident in its position".

Smith adds that Ismay could have spoken to people with the necessary IT skills if needed.

Sean Seddon
Reporting from the inquiry

We're now talking about the so-called Ismay report, produced by Rod Ismay, who worked in finance at the Post Office, in 2010.

He was asked by Smith to gather evidence about Horizon at a time when there was increasing scrutiny from ministers and campaigners.

The upshot of that report was there were no fundamental problems with Horizon - and as we know, that remained the position of the Post Office for several years but turned out to be wrong.

Smith says the purpose of this document was to address "why and how we consider [Horizon] to be robust", rather than interrogate the allegations about it in depth.

When the inquiry heard from Ismay in May 2023, he agreed with the inquiry's suggestion he was asked to "present one side of the coin", rather than carry out a full investigation into the allegations.

Smith has already accepted in his witness statement that in hindsight he should have commissioned a full, independent investigation.

The inquiry is now asking Smith about a 2010 Channel 4 News item about the Horizon system and costs to sub-postmasters.

Smith says the issue was largely dealt with by the Post Office's PR team, though he accepts that there is "always an eye on" what is going on with the company's public image, adding that it is "in the news all the time".

But Smith denies the Channel 4 report was the trigger for his ordering a report into the Horizon system.

"There was no specific trigger," he says, adding that "there were a number" of issues which came together to prompt the report.

Smith says he was trying to "stress test" what people were telling him about the system.

Smith is asked now about the investigation he ordered, and how discrepancies were treated.

Smith says he wanted to understand if the process was fair and if the Post Office was prosecuting correctly.

He says he was trying to verify that the rate of prosecutions were not out of line with other environments, such as banking, where there a lot of cash is often exchanged.

He repeats he wanted to ensure the Post Office was acting fairly.

Sean Seddon
Reporting from the inquiry

"Political heat" is an expression used in one email sent to Smith in 2010 which has just been shown to the inquiry.

Much of the evidence in the last half hour or so has focused on the questions which were being asked by MPs around this time.

This is significant because Smith's short tenure with the Post Office coincided with an increase in public and political interest in this scandal, which was already more than 10 years in the making.

There's an awkward moment for Smith when he's shown two different responses sent to MPs about Horizon and the inquiry's lawyer points out the wording is very similar.

He suggests it could be seen as evidence of the Post Office issuing a stock answer to serious questions.

All of this scrutiny is the background to why Smith ordered Post Office officials to carry out an investigation into Horizon - an investigation we now know failed to uncover systemic issues.

Smith is being quizzed over a parliamentary question in 2010 by MP Priti Patel about the estimated cost to postmasters caused by the use of the Horizon system.

Smith accepts he was asked by former postal affairs minister Ed Davey to respond. In his reply, Smith told Patel that there was "no evidence to doubt the integrity" of the Horizon system.

He says when the letter was drafted the Post Office was back to rolling out the system and that he was "comfortable at that time that the system was robust".

Smith adds that while he didn't draft the letter, which he says was written by other members of his team, he was "comfortable" standing behind it.

The inquiry is shown an email from someone at Fujitsu to Post Office staff.

Smith says he recalls some of the names of people it was sent to, saying he thinks they were "relatively senior" management.

The email says the tech company has identified some duplicated transaction records.

Smith says he understands that was the data with which the Post Office was pursuing prosecutions.

He accepts that is significant problem but says he is not aware of being briefed on it.

Asked why such important information was not getting to him, he says: "I don't know, I can't say."

Stevens is reading a letter from a subpostmaster, which highlights issues with the Horizon system.

The letter asks for someone impartial to intervene.

Smith says that these letters would generally be dealt with by a senior team, and they would decide if they should be sent to his desk.

The team looking at the letters were physically "not far away from me", Smith adds.

But for this specific letter, he says that he doesn't remember anything particular about it, and suggests it never made its way to him.

Sean Seddon
Reporting from the inquiry

It's almost noon and we've had the first laugh of the day.

Smith recalls receiving many letters about Post Office issues, and mentions (perhaps name-drops) getting one from then Prime Minister David Cameron.

The inquiry's lawyer Sam Stevens wryly asks if his attention to a letter was linked to the perceived importance of the sender, which Smith rejects.

Cue a smattering of chuckles in the room.

David Smith is still being quizzed on the 2010 letter to then-Post Office Minister Ed Davey.

Asked if he told Davey that the Post Office was reviewing the Horizon system, Smith says he did not.

Moving on, Sam Stevens - the counsel to the inquiry - asks Smith about a letter from Fujitsu, where he was assured that issues with the Horizon system had been addressed.

In the letter, a Fujitsu representative dismisses Smith's previous suggestion of an independent review, saying it was not necessary.

Asked whether the issues over the system caused any difficulties in the Post Office's relationship with Fujitsu, Smith says it did not.

Smith says he became aware of the Justice for Subpostmasters Alliance “relatively quickly” on taking the role.

He's shown a letter exchange between former sub-postmaster and prominent campaigner Alan Bates and then postal affairs minister Ed Davey, where Davey describes how the government has adopted an "arms-length relationship with the company".

Davey's reply says the government position was that Horizon issues were an operational matter for the Post Office.

Asked if he was consulted on that, Smith says he was certainly having conversations with the government department doing preparation for the new minister coming in. He said there would have been a number of conversations between either himself or members of his team to help prepare Davey's response.

Asked if he was happy with the approach, he says yes, based on what they knew at the time.

Peter Ruddick
Business reporter

David Smith was only in charge of the Post Office for a short time. But it was a crucial time.

For the business, there were discussions about it being spun off from the wider Royal Mail group.

For sub-postmasters though, the focus was issues with the rollout of the Horizon system and then investigations and prosecutions.

Being in executive charge means making decisions on what to focus on. Smith has effectively admitted that, with hindsight, his priorities perhaps should have been different.

Sean Seddon
Reporting from the inquiry

I've been having a read through Smith's witness statement here at Aldwych House.

Smith wasn't involved with the Post Office for a long in the grand scheme of things but he accepts there were "potential missed opportunities" to look into Horizon issues in 2010.

He writes: "Looking back, I think that there was an institutional bias to not interrogate further what was being said by [sub-postmasters] and the public about Horizon.

"At the time, the Board took comfort from knowing that there were systems and processes in place for the management of cash and stock."

We'll be hearing more about the later months of his tenure now, and should hear some reflections on what he has written about these missed opportunities.

Simon Jack
Business editor

David Smith was head of the Post Office for only six months from April 2010 to October 2010.

He told the inquiry today that when he took over, he considered Horizon problems a low priority and was more concerned with financial problems in the aftermath of the financial crisis and conversations around the potential split of the Post Office from Royal Mail.

However, he accepted that during that six-month period, he was responsible for identifying risks to the business and the risks had been flagged.

Smith said that Horizon began to creep up the priority list when a new online version would freeze in hundreds of sites - which directly affected postmasters' ability to transact - hitting the overall business.

But perhaps the most important comment so far is that in hindsight, he thinks that having the Post Office collect, analyse and eventually use data to prosecute ran the risk of not being an independent process.