In R (on the application of Holmcroft Properties Limited) v KPMG LLP EWHC 323, the Divisional Court (Lord Justice Elias and Mr Justice Mitting) dismissed the Claimant's attempt to judicially review KPMG LLP for its role as an independent reviewer in connection with a past business review exercise carried out by Barclays Bank Plc.
The Court held that:
- KPMG was not amenable to judicial review in its role as an independent reviewer in connection with Barclays' past business review exercise;
- It was relevant to this conclusion that KPMG's appointment and powers were a result of a voluntary contractual arrangement;
- Even if KPMG were amenable, the extent of any public law procedural fairness duties owed would have to be consistent with the contractual arrangements in place between it and Barclays and would therefore be narrow.
Having determined that there had been widespread mis-selling of interest rate hedging products ("IRHPs") by a number of large banks, the Financial Conduct Authority ("FCA", then the FSA) agreed the terms of a past business review exercise with each of the banks (including Barclays), whereby each bank would review its sales of IRHPs and offer redress to customers where appropriate. As part of this agreement with the FCA, Barclays undertook that it would appoint an Independent Reviewer ("IR") to (i) make regular reports to the FCA on the progress of the exercise, and (ii) confirm that the redress offers Barclays proposed for each individual mis-sale were "appropriate, fair and reasonable" ("AFR"). As part of (ii), Barclays undertook not to offer any redress unless the IR considered it AFR. This undertaking was accompanied by a Requirement Notice issued by the FCA to Barclays under s.166 Financial Services and Markets Act, requiring it to appoint a skilled person to report to the FCA. Barclays appointed KPMG as both its IR and skilled person. The Claimant, which had been mis-sold two IRHPs by Barclays, had been offered basic redress but its claim for substantial consequential losses had been rejected by Barclays. KPMG had confirmed that Barclays' redress offer (including its rejection of Holmcroft's consequential loss claim) was AFR.
The Court considered the authorities on amenability before discussing them and reaching its conclusions.
It decided that, although "there are certainly pointers in favour of amenability", KPMG's duties "do not have sufficient public law flavour to render it amenable to judicial review". The Court relied on the following factors to reach its conclusion:
- KPMG's appointment was a result of a voluntary agreement between the FCA and Barclays – KPMG's role could not have been imposed on Barclays in the exercise of the FCA's regulatory powers.
- It is relevant that KPMG's powers were conferred by a contract between itself and Barclays, and KPMG were not appointed by the FCA.
- The fact that KPMG in reviewing offers is assisting in the achievement of public law objectives is not enough to make it amenable.
- Had there been no willing IR, the FCA had no regulatory obligation to carry out the role KPMG played (it would have instead had to use other statutory means of achieving redress).
- The FCA was not disqualified by the arrangements from taking a more active role in particular cases.
Nature of any public law duties owed
The Court also set out its view that, even if KPMG were amenable (which it was not), the extent of the public law procedural fairness duties owed would be narrow. It held that any public law duty "would have to be framed in a manner which is consistent with the terms of engagement", as public law "could not impose duties which undermined the basis of the private contractual arrangements".
In these circumstances, the only possible public law challenge (indeed the only public law challenge pursued by the Claimant at the hearing) was that KPMG had acted procedurally unfairly by approving a redress offer in circumstances where Barclays had not disclosed all of its bank records to the Claimant. Instead, the records had been summarised in Barclays’ consequential loss decision. The allegation was that such inadequate disclosure deprived the Claimant of a chance to make properly informed representations about their consequential loss claim.
No unfairness in present case
The Court examined the Claimant's factual case to ascertain whether, on the facts, there had been inadequate disclosure. It held that Barclays' summary of the records was "accurate and substantially complete" so as to allow the Claimant the opportunity to make properly informed representations.
Therefore even if KPMG had been found amenable to judicial review, and owed the public law duty alleged, on the facts there had been no unfairness to the Claimant and could be no breach by KPMG of any public law duty. It was consequently immaterial whether KPMG had properly reviewed the case or not when it made its AFR assessment, although in any event the Court held that there is "clear evidence that[KPMG] did carry out the task which they were required to do".
While the principles for amenability to judicial review are fairly well settled they are not often applied to commercial regulatory contexts. This case confirms that the use of private organisations for certain specified functions to assist with achieving regulatory objectives will not make those organisations judicially reviewable and will therefore be welcomed in the sphere of commercial regulation where such arrangements are frequently used.