Customers of banks who consider they have been mis-sold an interest rate hedging product (IRH P/Swap) have explored various avenues for remedies. A recent judgment discourages them from pursuing public law claims.
In February 2016 the Divisional Court (Elias LJ and Mitting J) dismissed an application for judicial review in R (on the application of Holmcroft Properties Limited) v KPMG LLP  EWHC 323. The customer (Holmcroft) had submitted a swap mis-selling complaint to Barclays Bank PLC (Barclays). This had progressed through Barclays’ past business review and redress scheme (Review Scheme). Holmcroft was disappointed to be offered no compensation for consequential loss. It was time-barred from bringing a private law claim against Barclays. Instead, Holmcroft attempted to overturn the Review Scheme outcome by bringing a public law claim against KPMG LLP (KPMG), the skilled person and independent reviewer appointed by Barclays for its Review Scheme. Why did the court reject Holmcroft’s claim?
Review Scheme framework
Public law claims are typically brought against public bodies. KPMG is a private body. To establish that KPMG should be subject to public law duties, it was necessary for Holmcroft to satisfy the court that KPMG’s Review Scheme role had a sufficient 'public law' flavour.
Briefly, the Review Scheme was set up pursuant to:
- an undertaking given by Barclays to the financial services regulator (FCA)
- a subsequent FCA requirement notice (issued under section 66 of the Financial Services and Markets Act 2000) requiring Barclays to provide a report prepared by a skilled person, appointed or approved by the FCA, and
- a letter of engagement (a contract) between Barclays and KPMG, entered into pursuant to the undertaking and in anticipation of the requirement notice.
KPMG reviewed Barclays’ Review Scheme outcomes and offers before they were communicated to customers. Following such review, Barclays’ redress offer in response to Holmcroft’s complaint was confirmed by KPMG to be appropriate, fair and reasonable.
Holmcroft’s public law (judicial review) claim sought to overturn KPMG’s confirmation of the Review Scheme outcome.
Key elements of the judgment
In dismissing Holmcroft’s claim, the court adopted a 2-stage approach.
- Question 1: Is KPMG amenable to judicial review? (Did KPMG owe Holmcroft any public law duties?) Decision 1: No. KPMG’s Review Scheme role, as independent reviewer and skilled person, is not amenable to judicial review.
- Question 2: If the answer to Question 1 had been “Yes”:
- Question 2(a): What public law duties would have been owed? Decision 2(a): Narrow procedural fairness duties only.
- Question 2(b): Could there have been any breach? Decision 2(b): No. Barclays’ review and redress arrangements had operated in a way that was fair to Holmcroft. (Holmcroft claimed, in particular, that Barclays should have disclosed its full records for Holmcroft to allow it to make properly informed representations on consequential loss. The court disagreed.) Holmcroft had been given sufficient information in the Barclays’ review letters, communicating the redress offer and reasons for it, to enable Holmcroft to made representations contesting that offer. The review steps taken by Barclays meant that there could be no material breach by KPMG of any public law duty of procedural fairness.
Reasons – Amenability/no public law duties
Why was the court satisfied that KPMG did not owe a customer such as Holmcroft any public law duties?
The court identified some aspects suggesting KPMG might be amenable to judicial review (concluding, for example, that "KPMG was 'woven into' the regulatory function").
These aspects are outweighed, however, by the numerous reasons provided for the court’s decision that KPMG is not so amenable and owes Holmcroft no public law duties.
- The Review Scheme is essentially voluntary. The FCA could not have compelled Barclays to engage KPMG in its Review Scheme role. As vital as KPMG’s role is in individual cases, it could not have been imposed on Barclays by the FCA in the exercise of its regulatory powers.
- The source of KPMG’s powers is contractual. (Such contracts are matters of private law.) Whilst not determinative, this is important. Barclays, not the FCA, appointed KPMG. The FCA only approved that appointment, and KPMG has no relationship with customers 'at all'.
- In reviewing offers, KPMG is assisting in achievement of public law objectives. That is not enough to subject KPMG to judicial review.
- There are limits to the FCA’s regulatory role. Had there been no willing skilled person, the FCA has no regulatory obligation to carry out KPMG’s role. ("Indeed, it is highly unlikely that [the FCA] would have had the resources to act in that way…")
- Barclays’ Review Scheme arrangements did not prevent the FCA from taking a more active role in individual cases. (The judgment alludes to the possibility of the FCA itself being liable to judicial review but observes, "we do not underestimate the difficulty of establishing a breach in any particular case.")
Futility and alternatives
The often limited nature of any judicial review remedy also seems to have influenced the court. Any public law 'victory' may readily prove fruitless. Generally, even if successful, a judicial review claim will only result in the challenged decision being set aside. A customer may remain disappointed by any further decision made to replace it. (The court stated, "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 again.")
Related to this, the court speculated on the availability of alternative remedies through private law rights of action. The court stated that, if these existed, "they would certainly be more appropriate remedies to pursue".
Adequacy of disclosure – information and reasons
Why was the court satisfied that, in any event, Holmcroft had been given sufficient information in Barclays’ decision letters?
Even had KPMG been under a public law duty, on the issue of procedural fairness, the court decided that it was enough that Barclays had given Holmcroft the gist of its reasons for the offer made and the material on which it was based.
The court stated, "We do not accept that there is any obligation to provide the full records available to the bank, or even those records on which the bank has relied. It is enough that the bank fairly summarises the reasons why it reached the decision in circumstances where the customer has had reasonable opportunity, and is sufficiently informed, to be able to respond to, and if appropriate take issue with, those reasons."(emphasis added)
Holmcroft’s application was dismissed and permission to appeal was refused. Holmcroft has since renewed its application for permission to appeal to the Court of Appeal. Notwithstanding that renewed application, the current position remains that the court has rejected this public law challenge to the Review Scheme outcome. The judgment must make sobering reading for Holmcroft and other customers who had sought to follow Holmcroft’s lead in bringing public law claims.
Customers who may have harboured doubts about the banks’ review scheme arrangements may have noted one conclusion in particular. Following a detailed review of the way in which the Review Scheme arrangements worked for Holmcroft, the court stated that: "The redress exercise appears to have been conducted in a conspicuously scrupulous way."