Lady Justice Arden :
1. INDEPENDENT
REVIEWER
IN CUSTOMER
REDRESS
SCHEME: AMENABILITY TO JUDICIAL
REVIEW
AND FAIRNESS
- These proceedings arise out of customer
redress
arrangements set up by the Financial Services Authority ("the FSA") (now the Financial Conduct Authority ("FCA")) with Barclays Bank plc ("Barclays"). In common with other banks, Barclays had missold interest
rate
hedging products ("IRHPs") to customers for whom they were not appropriate. The FSA was until 1 April 2013 the
regulator
with statutory powers of the UK financial services industry.
- As part of these
redress
arrangements, Barclays
voluntarily
agreed with the FSA that it would provide fair compensation to customers affected by the misselling. In addition, it also agreed with the FSA to appoint a "skilled person" to whom section 166 of the Financial Services and Markets Act 2000 ("FSMA") as then in force (which is set out in the Appendix to this judgment) would apply. Barclays chose to appoint the
respondent
firm of accountants ("
KPMG")
for this purpose. The FSA exercised its own statutory powers under section 166 to approve the appointment and to
require
the "skilled person" to make a
report
to it on the operation of the
redress
arrangements. Barclays also undertook to engage and obtain an opinion (an "AFR assessment") from the skilled person as Independent
Reviewer
in each case in which an offer of
redress
was made as to whether the compensation was appropriate, fair and
reasonable.
- The appellant ("
Holmcroft")
was a customer of Barclays to which IRHPs were missold. Barclays offered
Holmcroft
compensation under the
redress
arrangements but the offer did not include compensation for certain consequential loss to which
Holmcroft
considers it is entitled.
KPMG
as Independent
Reviewer
made an AFR assessment approving the offer.
Holmcroft
then sought judicial
review
of
KPMG's
decision to approve Barclays' offer on the basis that it had failed to discharge its public law duties of fairness.
- By order dated 6 March 2016 the Divisional Court (Elias LJ and Mitting J) dismissed the proceedings, first on the ground that the decision of a skilled person with
respect
to an AFR assessment was not amenable to judicial
review,
and, secondly on the ground that in any event the AFR assessment in this case was not, as
Holmcroft
alleged, unlawful.
Holmcroft
contended before the Divisional Court that in breach of its public law duties
KPMG
had failed to ensure that
Holmcroft
was provided with the bank
records
on which Barclays
relied
in making its decision declining to make the offer sought in
relation
to consequential loss.
Holmcroft
argued that the
result
of
KPMG's
actions was that it was unable to make effective
representations
to Barclays. On this appeal,
Holmcroft
contends that the Divisional Court was wrong on both grounds, but the second ground arises only if
Holmcroft
is correct on the first ground.
2. IRHP COMPENSATION ARRANGEMENTS AND
HOLMCROFT'S
CLAIM
- In March 2005,
Holmcroft
and its subsidiary, Holmwood Nursing Home Limited ("HNHL"), borrowed some £2m and £400,000
respectively
from Barclays to acquire
property.
In April 2005,
Holmcroft
purchased an IRHP from Barclays. Both loans were
restructured
on 21 March 2007 as a 20-year
repayment
loan of £2.4m. On 10 April 2008,
Holmcroft
purchased a second IRHP. Barclays also provided
Holmcroft
with current account facilities.
-
Holmcroft
subsequently suffered serious financial difficulty. In May 2011, Barclays appointed
receivers
of
Holmcroft's
properties.
Holmcroft
contended that the IRHPs had exacerbated its financial position, and caused it consequential loss. Barclays' own perception of the affairs of
Holmcroft
and HNHL was different, and drew on its internal
records,
known as Zeus
records,
which are
relevant
to the second ground.
- In 2012, the FSA identified serious failings in the selling of IRHPs. The FSA
reached
voluntary
settlements with several banks, including Barclays. As part of its settlement, Barclays undertook with the FSA that it would carry out an assessment of whether it was appropriate to provide
redress
to customers wrongly sold IRHPs, and if so, to determine what
redress
would be appropriate, fair and
reasonable
in the circumstances. Each offer of compensation would be
reviewed
by a skilled person appointed by Barclays and approved by the FSA pursuant to the exercise of its powers under section 166 FSMA. As part of its
role,
the skilled person had to confirm whether the
redress
offered to customers was appropriate, fair and
reasonable.
- Following
review,
on 28 March 2014 Barclays made
redress
offers of £243,821.43 and £197,003.37 to
Holmcroft
in
respect
of its IRHPs, plus an offer of 8% simple interest by way of compensation for consequential losses. By a
response
dated 22 July 2014,
Holmcroft
claimed further consequential losses of approximately £5.2m. Barclays
rejected
Holmcroft's
claim on 5 September 2014.
KPMG
as the Independent
Reviewer
confirmed the appropriateness of the offer of
redress
in their possession. Following a failure to submit further evidence in accordance with a deadline imposed by Barclays, Barclays treated
Holmcroft's
case as closed. The limitation periods for
Holmcroft
to bring
civil
claims against Barclays
regarding
the misselling of the IRHPs expired in April 2011 and April 2014
respectively.
- On 5 December 2014,
Holmcroft
issued an application for permission for a judicial
review
against
KPMG.
3. JUDGMENT OF THE DIVISIONAL COURT
- The Divisional Court accepted that the
role
of the Independent
Reviewer
was "woven into the fabric" of the FSA's
regulatory
function. The Independent
Reviewer
could
veto
an offer of compensation. It assisted the FSA in performing its
regulatory
function. However, on weighing up the
relevant
factors both ways the Divisional Court concluded that the
role
of the Independent
Reviewer
did not have sufficient "public law flavour" to make
KPMG
amenable to judicial
review.
- The Divisional Court gave five specific
reasons,
which I will summarise before setting out the
relevant
passage from the judgment. First, Barclays' implementation of the
redress
scheme was essentially
voluntary.
The Divisional Court considered that the FSA could not have imposed the
role
of the Independent
Reviewer
on Barclays. Moreover, Barclays decided what offer to make to affected customers.
- Second, the arrangement between Barclays and
KPMG
was contractual and the customer was not a party to it. The mere fact that the FSA
required
the engagement of a skilled person was not sufficient to make
KPMG
amenable to judicial
review.
- Third, likewise, the fact that
KPMG's
role
promoted the objectives of the
regulator
was not sufficient to make
KPMG
amenable to judicial
review.
- Fourth, the FSA had no statutory obligation, and probably not the
resources,
to carry out the
role
of the Independent
Reviewer
itself.
- Fifth, the FSA could have taken other
regulatory
steps to sanction Barclays' misselling, and it might be amenable to judicial
review
if it did so, but that did not affect
KPMG's
position.
- The following extract from the judgment of the Divisional Court contains the
relevant
passage:
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 [1994] 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 [2008] 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 [1994] 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.
- In the final paragraph of this extract, the Divisional Court considered the point that the customer might as a
result
of its conclusion on amenability to judicial
review
have no
remedy
if Barclays failed to make an offer which was fair and
reasonable
or if an offer which was not fair was mistakenly accepted. But it considered that this consequence was not fatal. Counsel had invited the Divisional Court to assume that the customer would have no contractual
remedy
if Barclays did not comply with the obligations which it had undertaken to the FSA. If there were such
remedies,
then there would clearly be no grounds for judicial
review
because there would be a more appropriate, alternative
remedy.
4. ISSUE 1:
KPMG'S
AMENABILITY TO JUDICIAL
REVIEW
(a) Submissions for
Holmcroft
- Mr
Richard
Gordon QC, for
Holmcroft,
submits that the Divisional Court elevated form over substance, as, for example, with its assessment of Barclays' implementation of the
redress
scheme as "
voluntary".
The
voluntary
settlement agreed between Barclays and the FSA was a "deal" to avoid more stringent action. The
reality
was that the
redress
arrangements formed part of the FSA's single
regulatory
exercise so that, while assisting Barclays, the skilled person approved by the FSA could
veto
a claim. The Divisional Court found in
Holmcroft's
favour on that point.
- The
redress
arrangements constituted a compulsory system which moved the skilled person into the system of control. One of the terms of the settlement between the FSA and Barclays was that Barclays had to produce a provisional
redress
determination for each customer and provide for speedy
redress.
It also undertook to treat affected customers fairly. The FSA was exercising a
regulatory
function when it appointed a skilled person. Barclays undertook to assist the
regulator's
performance of its
regulatory
duties. The FSA did not have the
resources
to complete the process itself.
- Mr Gordon submits that the method of appointment of the Independent
Reviewer
was not the proper focus: see
R(o/a
Datafin plc)
v
Panel on Takeovers and Mergers [1987] QB 815, 838, 847 and 859, and
R(Beer)
v
Hampshire Farmers' Market
Ltd
[2004] 1 WLR 233, [16]. So, it was not enough that the FSA had approved the appointment of
KPMG
as the skilled person under its statutory powers.
Rather,
the question whether
KPMG
was amenable to judicial
review
depended on the nature of its function. Mr Gordon therefore emphasised the particular features of
KPMG's
involvement which
Holmcroft
considered critical.
- The terms of
KPMG's
engagement were important. They
recognised
the inherent
risk
of conflict in the Independent
Reviewer's
position as between Barclays and the customer by distancing the Independent
Reviewer
from the customer:
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)
- No argument was addressed to the effect of the words italicised so far as customers were concerned. Mr Gordon simply placed
reliance
on their existence.
- Mr Gordon submits that the skilled person is given a measure of control over Barclays. The assessment of the Divisional Court that
KPMG
was "woven into" the fabric of
regulation
(Judgment, [39], set out in [16] of this judgment) is not appealed.
KPMG
had a pivotal
role
in the
redress
scheme which the FSA had created. This was
reinforced
by the evidence of Peter Fox, on behalf of the FCA, who said that the involvement of the skilled person was considered by the FCA to be essential because of a perceived lack of trust on the part of the customers that the banks would conduct the
review
objectively, concerns
relating
to their past conduct in selling IRHPs, and a
recognition
that the FSA did not have the
resources
to deal with each case itself. Simone Ferreira, Head of Department in the FCA's event supervision department, stated in her witness statement that the FSA's
response
was that all the substantive disagreements between the bank and the skilled person had to be
reported
to enable the FSA to have some insight into how the process was operating. The FSA had made it clear to banks that in general the skilled person's
view
should prevail over that of the banks. However, the skilled person could not
require
the bank to accept its position and, if it
refused
to do so, the FSA would have to consider its powers in order to
require
the bank to take the steps deemed necessary to provide the customer with suitable
redress.
The FSA would have to be satisfied that the skilled person had
reached
the
right
conclusion.
- Mr Gordon further submits that it does not matter that the skilled person is not in a contractual
relationship
with the customer and cannot compel Barclays to make an offer of compensation. It is a "but for" test. An AFR assessment by
KPMG
was effectively decisive as to whether the customer would take the benefit. It was only if
KPMG
considered that it was appropriate, fair and
reasonable
that compensation would be paid.
- Moreover, contrary to the Divisional Court's second
reason
Mr Gordon argues, the contractual position was not
relevant
unless it diminished the force of
regulatory
control, which was not the case here. The fact that the powers of the skilled person derived from contract was entirely neutral in this case because of the public law character.
- The FCA
relies
on YL
v
Birmingham City Council [2008] 1 AC 95, but the provision of
redress
in this case was inherently a public function. Neither that case nor
R(Aegon
Life)
v
Insurance Ombudsman Bureau [1994] 1 CLC 88 assisted.
- The submissions already summarised constitute Mr Gordon's criticism of the Divisional Court's first three
reasons.
Mr Gordon submits that the fourth
reason
of the Divisional Court is undermined by the fact that the FSA
reserved
power to impose further sanctions. The fifth
reason
pointed towards amenability to judicial
review.
- Moreover, amenability to judicial
review
was a point of principle, and the Divisional Court were wrong to approach it as one of balancing the
various
factors.
(b) Submissions on behalf of
KPMG
- Mr Javan Herberg QC, for
KPMG,
seeks to uphold the decision of the Divisional Court for the
reasons
that it gave.
- Mr Herberg submits that
Holmcroft's
judicial
review
claim is
really
a contractual challenge to Barclays' decision not to award it compensation for the consequential loss that it claims to have suffered due to the misselling. The source of the power was purely contractual. The skilled person contracted its services because of Barclays' own promise to the FSA. The
reporting
role
could not confer on
KPMG
a public law framework. The skilled person did not supplant the FSA's
role.
This is not a species of public law decision-making. There was a suite of other powers available to the FSA some of which included customer
redress.
It is impossible to say that because those might lead to public law
remedies,
this process must also do so. The case law pointed against amenability to judicial
review
in this situation.
- In conclusion, the source of
KPMG's
power to make AFR assessments was purely contractual, derived from a contract to provide services for
reward
to assist in making offers to customers. AFR assessments had no effect on customers'
rights.
The FSA could not have
required
Barclays to offer
redress
but Barclays gave an undertaking to do so. It is not enough to show that, if it had not done so, the FSA might have imposed some other sanction.
( c) Submissions on behalf of the FCA
- Mr
Richard
Coleman QC, for the FCA, also seeks to uphold the decision of the Divisional Court for the
reasons
that it gave.
- Mr Coleman submits that the question which the Divisional Court had to decide was one of fact and degree, evaluation, applying the law to the facts, and that an appellate court is
restricted
to considering whether a
relevant
factor was wrongly left out of account or whether an irrelevant factor was taken into account.
- In addition, Mr Coleman makes two broad submissions: (1) by analogy with decided cases,
KPMG
was not amenable to judicial
review;
and (2)
KPMG
was not doing anything that could be described as a governmental function.
- Mr Coleman submits that
Holmcroft
does not
refer
to any case where the commercial entity is carrying on for profit an activity under a commercial contract which it was under no public duty to carry out. This case is analogous to
R
(o/a Aga Khan)
v
Jockey Club [1993] 1 WLR 909, where this Court held that a decision of the Jockey Club was not amenable to judicial
review
at the instance of a member. (The
reference
to a body being "woven into" a system of
regulation
is derived from the judgment of Sir Thomas Bingham MR in this case).
- Mr Coleman, in a written submission signed also by Ms Kerenza Davis,
relies
on YL for the following propositions:
i. The fact that a service is for the public benefit does not mean providing the service is a public function (per Lord Mance, [120], Lord Neuberger, [135]; see also [36] 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, [140]; and see also [36] and [40] of the judgment of the Divisional Court).
iii. The fact that a public authority could have performed the function (Lord Neuberger [149] [160] and [162]) does not mean that the function is a public one if it is done by a private body (Lord Scott [29]-[31]; Lord Neuberger [144] and [14]; and see [36] and [44] 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, [116]).
v.
Functions of a public character are essentially governmental functions (Lord Mance [115]; Lord Neuberger [159], [160] and [162]).
(d) Submissions on behalf of Barclays
- Ms Dinah
Rose
QC, for Barclays, made short submissions on this point, but they are covered above. Her more detailed submissions on this appeal were focused on the fairness issue, which is the second issue on this appeal.
(e) My conclusions on
KPMG's
amenability to judicial
review
- Having considered the parties' submissions, I conclude for the
reasons
given below that the Divisional Court was
right
in the conclusion that it
reached
for holding that
KPMG
was not amenable to judicial
review.
At the same time, I consider that the Divisional Court may be said to have focussed too narrowly on the source of the Independent
Reviewer's
power and that, as I explain below, it should have taken a wider
view
of the
regulatory
position and factual context.
- I shall consider first the authorities which have been cited, then the
regulatory
position and then the factual context.
- The authorities cited demonstrate, as the Divisional Court pointed out, that the fact that the decision emanates from contractual arrangements does not mean that public law principles are inapplicable. The question is whether the body is carrying out a public law function: see Datafin, Beer and Aegon Life.
- In the leading case of Datafin, the decision sought to be
reviewed
was that of the Panel on Takeovers and Mergers ("the Panel"). The applicant was bidding in competition with another company for a controlling interest in a third company. Datafin considered that the other company was acting in breach of the
rules
of the Panel on takeovers, but the Panel
ruled
against it. Datafin then sought judicial
review
of the decision of the Panel and this Court had to consider whether the Panel was amenable to judicial
review.
Sir John Donaldson MR held at pages 838-9:
[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.
- Despite the fact that the legal source of the Panel's power was merely contractual and private, and that its functions were hybrid, partly public and partly private, this Court held that the Panel was amenable to judicial
review.
In
reaching
this conclusion, this Court looked beyond the mere source of the Panel's power and the manner in which it had been appointed: see in particular per Lloyd LJ at page 847, and per Nicholls LJ at page 850.
- Unlike Datafin, Aegon Life concerned a compensation scheme administered by the Insurance Ombudsman Bureau ("the IOB"). This scheme had some statutory
recognition
under the Financial Services Act 1986 ("the 1986 Act"), but it was originally set up before that Act. By 1993, it was supported by some 350 insurers
representing
some 90% of the insurers eligible to participate in it. If the IOB did not deal with customer complaints, they would have to be dealt with under the
rules
of a self-
regulatory
organisation
recognised
under the 1986 Act.
Rose
LJ, sitting in the Divisional Court, with whom McKinnon J agreed, held that the IOB was not amenable to judicial
review.
He derived certain principles from Aga Khan, including the following principle which makes it clear that a body whose powers are derived from contract may be amenable to judicial
review:
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)…
-
Rose
LJ also
relied
on a passage from the judgment of Leggatt LJ in
R(o/a
Briggs)
v
Corporation of Lloyd's [1993] 1 Lloyd's Law
Rep
176, 185 where Leggatt LJ held that Lloyd's was not amenable to judicial
review
at the instance of a name (an underwriting member of the Society of Lloyd's) who had agreed to its
rules
containing powers to perform the act which the name sought to judicially
review:
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 facts of Aegon Life make it the closest to this case of all the authorities cited to us. As explained, there was a pre-existing
voluntary
arrangement for customer
redress.
On the other hand, there are important differences between the facts of the present case and the facts of that case, as Mr Gordon pointed out. In particular, in this case there was a
requirement
by the FSA. As the Divisional Court held, the Independent
Reviewer
had a key
role
in the scheme (Judgment, [28]).
- YL concerned a different issue. The question was whether a private company, in providing accommodation and care for the claimant, was exercising a public law function for the purposes of section 6(3)(b) of the Human
Rights
Act 1998. The majority considered that the actual provision of care was not a public function. Mr Gordon submits that this case is not analogous. The present case, he submits, was closer to determining eligibility for care. I do not consider that this is a
valid
argument because there was no policy element in the work of
KPMG
in making AFR assessments. The list of propositions from YL put forward by Mr Coleman and Ms Davis is helpful but does not take matters much further than the authorities cited above.
- In my judgment the passage from the judgment of Dyson LJ in Beer cited by the Divisional Court at [26] of its judgment is important because it summarises the jurisprudence on amenability and makes it clear that all the circumstances
relating
to the nature and function of the power are
relevant.
That passage
reads:
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.
- The point that all the circumstances should be considered is
relevant
to this case. In my judgment, the first four
reasons
given by the Divisional Court disclose a concern with the source of
KPMG's
power as Independent
Reviewer.
Thus, the first and second
reasons
relate
to the origin of the arrangements and the source of the power to make an AFR assessment. The Independent
Reviewer
had no statutory power to make AFR assessments. Its power to make those assessments derived from its engagement by contract by Barclays, though Barclays was of course acting under a
requirement
made by the FSA and the
redress
arrangements undoubtedly in general promoted the objectives of statutory
regulation.
The third
reason
was largely an analysis of the authorities on the consequence flowing from the source of the power. In its fourth
reason,
the Divisional Court emphasised that the FSA could not itself have done what the skilled person was engaged by Barclays to do, again a point about the source of the power. That brings me to the second area I wish to consider, namely the
regulatory
position.
- As to the
regulatory
powers, consistently with the Divisional Court's fourth
reason,
the parties stressed in argument that the powers to appoint a skilled person went no further than to
require
him to investigate and
report
to the FSA. The
rest
of his
role
in
relation
to the AFR assessments was grafted on to that position.
- I would analyse the position of the skilled person as part of a wider
regulatory
context. In my judgment, it is necessary to stand back and examine the function that the Independent
Reviewer
fulfilled in the overall scheme of things. The so-called
voluntary
settlement involved an investigation by the FSA into IRHPs and its conclusion that they had been missold to non-sophisticated investors who ought to be compensated for any
recoverable
loss. It obtained the commitment of the banks which had been
responsible
for the misselling to provide fair,
reasonable
and appropriate compensation to their customers. It policed this commitment by a high-level
review
conducted on its behalf by the skilled person, followed by detailed
reporting
to itself. The FSA did not seek to be involved in the negotiations with the individual customers, so the main activity for agreeing compensation
rested
with the bank and its customer and constituted the pursuit of private law
rights.
To say that the function of making AFR assessments was outside the scheme of statutory
regulation
in my judgment involves too narrow a
view
of the FSA's statutory functions and what it was aiming to achieve. To this extent I would accept Mr Gordon's submission on this point.
- Turning to the
relevant
factual context, I consider that this too can and should be
viewed
more widely. There are similarities between the scheme agreed between the banks and the FSA and other industry-wide
redress
schemes for consumers who were entitled to compensation. In this context, "consumers" are those persons who under FSA
rules
were non-sophisticated investors for whom the IRHP was not a suitable product. There were two different features in this case: first the industry
regulator,
the FSA, imposed an obligation on the banks to grant
redress
and, second, the
regulator
required
Barclays to engage the skilled person to opine on whether the compensation offered was appropriate, fair and
reasonable.
- Those features, however, do not alter the nature of the scheme which is essentially for the pursuit of private
rights.
Thus, customers' legal
rights
were unaffected, although as a practical matter any
refusal
of the Independent
Reviewer
to make a favourable AFR assessment might lead to the customer
receiving
a better offer under the scheme. The FSA made no stipulation that there should be a process for dealing with a customer's complaint that the skilled person ought not to have given a confirmation, provided of course that the confirmation qualified as a confirmation for the purposes of its settlement with the bank. There is nothing to suggest that it intended that there should be any challenge on public law grounds to the issue of the confirmation and therefore in my
view
a
review
of the AFR assessment was over and beyond the
regulatory
exercise performed by the FSA. The compensation was moreover to be negotiated on private law principles: limitation, heads of
recoverable
damage and causation. If compensation was agreed, that agreement would be enforceable through the courts: the FSA imposed no system for this. The FSA did not aim to
remove
the
role
of the courts in enforcing
civil
claims, and its
regulatory
function did not extend to
replacing
the
role
of the court. Far from being neutral the fact that the engagement of the Independent
Reviewer
was contractual was all of a piece with the fact that it was not performing any public function.
- The
reality
is that
Holmcroft's
bringing of a complaint against
KPMG
was ancillary to pursuing a private law claim. The
requirements
of the FSA merely overlaid, or sat alongside, a private dispute. They did not change the character of that dispute, which was fundamentally a private law matter.
- Contrary to the submission of Mr Gordon, the possibility that
regulatory
sanctions might still be imposed if the FSA considered that that was an appropriate step does not mean that actions of the Independent
Reviewer
are amenable to judicial
review.
Sanctions were a separate matter and only a possibility.
- My conclusion exposes a gap in the protection which the FSA secured for customers of Barclays, and the question arises whether that undermines the conclusion. I do not consider that to be so. As the Divisional Court made clear at [48] of its judgment, if an AFR assessment was not judicially
reviewable,
the customer would have no means of
redress
in public law where the offer was insufficient and the skilled person gave a confirmation incorrectly. However, the customer would be free to
reject
the offer and his legal
remedies
against the bank for the misselling would be unaffected. The protection intended by the AFR assessment is lost only if the customer is unaware of the defect. As to this, as the Divisional Court pointed out, the FSA did not confer on customers a guarantee that every customer will
receive
an offer which is appropriate, fair and
reasonable.
The
regulatory
objectives could still be met because the institution of the
redress
arrangements by the FSA made it likely that the customer would do so, and in addition would be likely to help
restore
confidence in the domestic banking system, which was one of the aims of the FSA: on this, see the evidence of Peter Fox, [23] above.
- Contrary to Mr Coleman's submission, the Divisional Court did not balance the factors in the way that leads to a judicial evaluation which should not be overturned on an appeal unless it is clearly wrong. Amenability to judicial
review
is a question of law.
- As already explained, I consider that the conclusion of the Divisional Court was correct and that the decision of the Independent
Reviewer
is not amenable to judicial
review,
and that accordingly this ground of appeal fails.
5. Issue 2: fairness in
relation
to access to barclays' internal
records
- In the light of my conclusions on Issue 1, this issue does not arise.
- I do not propose to deal with it for that
reason
and for the further
reasons
given below.
- As Ms Dinah
Rose
QC, for Barclays, pointed out,
Holmcroft
has failed to identify any
relevant
point in support of its claims for consequential loss that it could not make because of the non-disclosure to it of the internal
records
of Barclays. This is so even though those
records
have now been disclosed to it. I also bear in mind that, after careful consideration of the material, the Divisional Court concluded that the summaries of the
reasons
which Barclays gave
Holmcroft
for its decision to
reject
the claim for consequential loss were accurate. It is not enough for
Holmcroft
to argue on this appeal that it might have been able to find a point if it had disclosure at the time.
- In addition, again as Ms
Rose
points out,
Holmcroft
had
remedies
under the general law against Barclays which it could have pursued for the misselling of the IRHPs. By the time
KPMG
had made its AFR assessment, its claims had become statute-barred. However, Barclays had offered
Holmcroft
the possibility of a standstill on limitation while the process initiated by the FSA was being undertaken, but, for
reasons
that have not been explained,
Holmcroft
did not take this offer up. In any event,
Holmcroft
could have issued claims on a precautionary basis to protect its position in
respect
of those
remedies.
- In those circumstances, irrespective of its unfairness argument,
Holmcroft's
claims for judicial
review
would have been
refused
as a matter of discretion.
6. CONCLUSION
- For the
reasons
given above, I would dismiss this appeal.
Lord Justice Newey:
- I agree.
Lord Justice Coulson
- I also agree.
APPENDIX TO JUDGMENT OF ARDEN LJ
Section 166 Financial Services and Markets Act 2000
(as in force at the time of the events in these proceedings)
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.