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England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Holmcroft Properties Ltd, R (On the Application Of) v KPMG LLP  EWCA Civ 2093 (28 September 2018)
Cite as:  Bus LR 203,  EWCA Civ 2093
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ON APPEAL FROM THE HIGH COURT OF
JUSTICE QUEEN'S BENCH DIVISION
Royal Courts of Justice
B e f o r e :
LORD JUSTICE NEWEY
LORD JUSTICE COULSON
| The Queen on the application of Holmcroft Properties Limited
- and –
|(1) Financial Conduct Authority
(2) Barclays Bank Plc
Javan Herberg QC and Mr Hanif Mussa (instructed by Herbert Smith Freehills LLP) for the Respondent
Richard Coleman QC and Ms Kerenza Davis (instructed by Baker McKenzie) for the First Interested Party
Dinah Rose QC and Ben Jaffey QC (instructed by Linklaters LLP) for the Second Interested Party
Hearing dates : 22-23 May 2018
Crown Copyright ©
Lady Justice Arden :
1. INDEPENDENT REVIEWER IN CUSTOMER REDRESS SCHEME: AMENABILITY TO JUDICIAL REVIEW AND FAIRNESS
2. IRHP COMPENSATION ARRANGEMENTS AND HOLMCROFT'S CLAIM
3. JUDGMENT OF THE DIVISIONAL COURT
38 We have not found this question to be easy to resolve but ultimately we consider that KPMG's duties do not have sufficient public law flavour to render it amenable to judicial review. We reach this conclusion for a number of interrelated reasons, although there are certainly pointers in favour of amenability.
39 We accept that KPMG was clearly "woven into" the regulatory function, to use the expression of Rose LJ in Ex p Aegon Life  CLC 88 . Its function in approving the terms of any offers was critical in achieving the twin aims of objectivity and acceptability. As a matter of substance it could veto any offer which it did not approve and effectively compel Barclays to tailor its offer accordingly. Whether that was the contractual effect of the arrangements or not is of little moment; it was certainly the commercial reality. In our view there is some artificiality in treating KPMG as merely assisting Barclays in its compliance obligations, as occasionally happens in the ordinary course of affairs. This was more than a mere private arrangement and the bank would never have conferred the veto power upon KPMG unless required to do so by the FCA as part of its regulatory functions. Moreover, Barclays did not have a free hand in the appointment; it had to be approved by the regulator. The voluntary arrangement was coupled with the reporting requirements which were imposed by statute. KPMG was undertaking its duties both for Barclays and for the FCA so as to assist the latter in the effective performance of its regulatory functions.
40 Moreover, there was a clear public connection between its function and the regulatory duties carried out by the FCA. But as the authorities show, that does not of itself suffice to render it amenable to judicial review.
41 Notwithstanding these powerful pointers in favour of amenability, we have finally concluded, not without some hesitation, that the public element is not sufficiently strong for the following reasons.
42 First, although the FCA had a number of more draconian powers it could have exercised, it none the less chose to adopt an essentially voluntary scheme of redress. Barclays was left to remedy its own errors and to identify, and where necessary provide redress for, unsophisticated customers who had been sold these products improperly. At this stage the FCA simply reserved the right to use more draconian statutory powers should the need arise. No doubt one of the circumstances where it might do so is if the report from KPMG which Barclays had to secure pursuant to a section 166 requirement concerning the redress scheme suggested that the scheme had not operated satisfactorily. For the purpose of obtaining that report, it did need to employ its statutory powers. But KPMG's role in the individual case, as vital as it was, could not have been imposed upon Barclays by the FCA in the exercise of its regulatory powers.
43 Second, the fact that KPMG's powers were conferred by contract is important, albeit not determinative, and in that context it is relevant that KPMG had no relationship with the customers at all. Also relevant is the fact that KPMG was not actually appointed by the FCA to do anything at all. All the regulator did was to approve their appointment as someone who had the skills and experience to carry out the functions which Barclays had to secure, pursuant to their voluntary undertaking. That approval of the appointment itself cannot suffice to attract public law duties, as the claimant conceded.
44 Third, the authorities, in particular Ex p Aegon Life and the YL case  1 AC 95 , show that the fact that private arrangements are used to secure public law objectives does not bring those arrangements into the public domain sufficient to attract public law principles. Those cases were admittedly concerned with factually dissimilar considerations, as Mr Gordon stresses, but they do suggest that the courts are reluctant to find amenability to judicial review merely because a private body is carrying out functions at the behest of a public body which, if performed by that public body, would be subject to public law principles. The fact that KPMG in reviewing offers was assisting in the achievement of public law objectives is not enough to subject it to judicial review.
45 Fourth, the FCA had no regulatory obligation to carry out the role which KPMG played had there been no willing skilled adviser. Indeed, it is highly unlikely that it would have had the resources to act in that way. It would have had to use other statutory means of securing appropriate redress. This reinforces the first point, that the arrangements were voluntary albeit under the cloud of more drastic statutory sanctions; and moreover, that they only directly engaged Barclays who could have kept KPMG out of the picture by choosing a different skilled person.
46 Finally, it is of some relevance that the FCA was not disqualified by the arrangements from taking a more active role in particular cases. It is obvious that one of the purposes underlying the scheme was that the FCA should not have to become involved in particular cases, and no doubt it would in almost all cases refer any complaints back to Barclays and KPMG. But if a claimant alleged that they were being treated unfairly by both Barclays and KPMG, the FCA would need to explore that complaint, even if only cursorily, to satisfy itself that there was no obvious failure in the operation of the arrangements which it had set up to provide redress. The FCA would potentially be subject to judicial review if it failed to regulate in an appropriate manner, although we do not underestimate the difficulty of establishing a breach in any particular case.
47 In short, there was no direct public law element in KPMG's role; and although it played an important part in the redress scheme, that of itself was also voluntarily undertaken albeit under threat of potentially more onerous statutory sanctions.
48 We recognise that it may be said that without some recourse to public law proceedings against KPMG, there is no effective redress to ensure that fair and reasonable offers are made. But that was also true in Ex p Aegon Life  CLC 88 . Moreover, any public law remedy is a limited one. There would be no damages against KPMG absent a civil cause of action. The only relief would be to set aside the approval of the unfair offer and Barclays would have to consider the matter again. In this context it is not so surprising that there may be no effective redress—save perhaps exceptionally against the FCA itself—where both Barclays acts unfairly and KPMG does not identify the unfairness. The aim of the scheme is to remedy a pattern of improper selling. The broad regulatory objective is met if the banks adopt schemes to put the matter right and thereafter seek to implement them in good faith with close supervision from an objective and independent party. It does not guarantee a fair outcome in each and every case, but there is still the availability of civil actions, or possibly recourse to the Ombudsman, for those cases where the scheme does not allegedly work as it should.
4. ISSUE 1: KPMG'S AMENABILITY TO JUDICIAL REVIEW
(a) Submissions for Holmcroft
Our work will be performed to enable the Firm to comply with the draft Requirement Notice by commissioning a Skilled Person's review and to facilitate the discharge by the FSA of its statutory duties, including its regulatory and enforcement functions in respect of the Firm. Our work will not therefore be performed for the benefit of Customers who are seeking or who obtain redress. Despite the inherent conflict, or the perception of conflict between the Firm's interests and the interests of affected Customers and our acceptance of duties and responsibilities to the Firm and the FSA (in connection with the discharge of its statutory duties) alone, there is a risk that some Customers may seek to place reliance on our work and may feel aggrieved at the outcome for their own case or cases. Accordingly, to the fullest extent permitted by law, the Firm agrees to indemnify and hold harmless this firm, its partners and employees, against all actions, proceedings and claims brought or threatened against them or any of them, and all loss, damage and expense (including legal expenses) relating thereto, where the action, proceeding or claim is (i) brought or threatened by any Customer of the Firm and (ii) in any way relates to or concerns or is connected with the performance of the Skilled Person's review pursuant to this Engagement Letter. (emphasis added)
(b) Submissions on behalf of KPMG
( c) Submissions on behalf of the FCA
i. The fact that a service is for the public benefit does not mean providing the service is a public function (per Lord Mance, , Lord Neuberger, ; see also  of the judgment of the Divisional Court).
ii. The fact that a function has a public connection with a statutory duty of a public body does not necessarily mean that the function is itself public (per Lord Neuberger, ; and see also  and  of the judgment of the Divisional Court).
iii. The fact that a public authority could have performed the function (Lord Neuberger   and ) does not mean that the function is a public one if it is done by a private body (Lord Scott -; Lord Neuberger  and ; and see  and  of the judgment of the Divisional Court).
iv. The private profit-earning motivation behind a private body's operations points against treating it as a person with a function of a public nature (per Lord Mance, ).
v. Functions of a public character are essentially governmental functions (Lord Mance ; Lord Neuberger ,  and ).
[The Panel] is without doubt performing a public duty and an important one. This is clear from the expressed willingness of the Secretary of State for Trade and Industry to limit legislation in the field of take-overs and to use the Panel as the centrepiece of his regulation of that market. The rights of citizens are indirectly affected by its decisions, some, but by no means all of whom, may in a technical sense be said to have assented to this situation, eg the members of the Stock Exchange.... Its source of power is only partly based on moral persuasion and the assent of institutions and their members, the bottom line being the statutory powers exercised by the Department of Trade and Industry and the Bank of England. In this context I should be very disappointed if the courts could not recognise the realities of executive power and allowed their vision to be clouded by the subtlety and sometimes complexity of the way in which it can be exerted.
A body whose birth and constitution owed nothing to any exercise of governmental power may be subject to judicial review if it has been woven into the fabric of public regulation or into a system of governmental control (per Sir Thomas Bingham MR at pp921C and 923H) or is integrated into a system of statutory regulation (per Hoffmann LJ at p932H) or is a surrogate organ of government (per Hoffmann LJ at p932D) or but for its existence a governmental body would assume control (per Farquharson LJ at p930B and Hoffmann LJ at p932B)…
The fact is that even if the Corporation of Lloyd's does perform public functions, for example, for the protection of policy holders, the rights relied on in these proceedings relate exclusively to the contract governing the relationship between Names and their members' agents and, in some instances, their managing agents. We do not consider that that involves public law. This is consonant with Mr Justice Saville's conclusion that a Name was not entitled to disregard a cash call made in good faith by the members' agents. We accordingly endorse Mr. Pollock's submission that "all of the powers which are subject of complaint in the present application are exercised by Lloyd's over its members solely by virtue of the contractual agreement of the members of the Society to be bound by the decisions and directions of the Council and those acting on its behalf".
Lloyd's is not a public law body which regulates the insurance market. As Mr Pollock remarked, the Department of Trade and Industry does that. Lloyd's operates within one section of the market. Its powers are derived from a private Act which does not extend to any persons in the insurance business other than those who wish to operate in the section of the market governed by Lloyd's and who, in order to do so, have to commit themselves by entering into the uniform contract prescribed by Lloyd's. In our judgment, neither the evidence nor the submissions in this case suggest that there is such a public law element about the relationship between Lloyd's and the Names as places it within the public domain and so renders it susceptible to judicial review.
the law has now been developed to the point where, unless the source of power clearly provides the answer, the question whether the decision of a body is amenable to judicial review requires a careful consideration of the nature of the power and function that has been exercised to see whether the decision has a sufficient public element, flavour or character to bring it within the purview of public law. It may be said with some justification that this criterion for amenability is very broad, not to say question-begging. But it provides the framework for the investigation that has to be conducted.
5. Issue 2: fairness in relation to access to barclays' internal records
Lord Justice Newey:
Lord Justice Coulson
166.— Reports by skilled persons.
(1) The Authority may, by notice in writing given to a person to whom subsection (2) applies, require him to provide the Authority with a report on any matter about which the Authority has required or could require the provision of information or production of documents under section 165.
(2) This subsection applies to–
(a) an authorised person ("A"),
(b) any other member of A's group,
(c) a partnership of which A is a member, or
(d) a person who has at any relevant time been a person falling within paragraph (a), (b) or (c),
who is, or was at the relevant time, carrying on a business.
(3) The Authority may require the report to be in such form as may be specified in the notice.
(4) The person appointed to make a report required by subsection (1) must be a person–
(a) nominated or approved by the Authority; and
(b) appearing to the Authority to have the skills necessary to make a report on the matter concerned.
(5) It is the duty of any person who is providing (or who at any time has provided) services to a person to whom subsection (2) applies in relation to a matter on which a report is required under subsection (1) to give a person appointed to provide such a report all such assistance as the appointed person may reasonably require.
(6) The obligation imposed by subsection (5) is enforceable, on the application of the Authority, by an injunction or, in Scotland, by an order for specific performance under section 45 of the Court of Session Act 1988.