Holmcroft Properties Ltd, R (On the Application Of) v KPMG LLP

A decision made by a private body under contractual arrangements is amenable to judicial review only where the nature and function of the power, considered in its full regulatory and factual context, give the decision a sufficient public element, flavour or character. Participation in a regulator-created scheme and advancement of statutory regulatory objectives do not alone make a function public.

An independent reviewer assessing compensation offered through a voluntary regulatory redress scheme performed a private function. The assessments concerned the pursuit and settlement of private rights, did not alter customers’ legal rights and did not replace adjudication by the courts.

The Financial Services Authority established voluntary arrangements under which Barclays Bank plc would compensate customers to whom it had missold interest rate hedging products. Barclays appointed KPMG as a skilled person approved under section 166 of the Financial Services and Markets Act 2000. KPMG also acted as Independent Reviewer of whether individual compensation offers were appropriate, fair and reasonable.

Holmcroft Properties Ltd challenged KPMG’s approval of an offer which excluded claimed consequential losses. It alleged that KPMG had acted unfairly by approving the offer without ensuring that Barclays disclosed internal records on which the rejection of those losses was based.

The Divisional Court dismissed the claim in [2016] EWHC 323 Admin, holding that KPMG’s assessment was not amenable to judicial review and was not unlawful in any event. The central issues on appeal were whether the assessment was amenable to judicial review and, if so, whether the procedure had been unfair.

1. Appeal dismissed. KPMG’s assessment as Independent Reviewer was not amenable to judicial review. Newey and Coulson LJJ agreed with Arden LJ.

2. The contractual source of a body’s power does not determine amenability. Unless the source itself provides the answer, the court must consider all the circumstances concerning the nature and function of the power. The question is whether the impugned decision has a sufficient public element, flavour or character to fall within public law. The Divisional Court had focused too narrowly on the source of KPMG’s power, although its ultimate conclusion was correct.

3. The reviewer’s work formed part of a wider regulatory context. The regulator had obtained the banks’ commitment to provide compensation and required Barclays to engage a skilled person approved under section 166 of the Financial Services and Markets Act 2000. The reviewer’s role in assessing offers therefore could not be regarded as wholly outside statutory regulation.

4. Nevertheless, the scheme was essentially concerned with the pursuit of private rights. Compensation was negotiated by the bank and customer according to private law principles, including limitation, causation and recoverable loss. Customers’ legal rights remained unaffected, and any settlement was enforceable through the courts. The regulator did not establish a public-law challenge process or seek to replace the courts’ role in resolving civil claims. The regulatory requirements overlaid a fundamentally private dispute and did not convert KPMG’s assessment into a public function.

5. The possibility of later regulatory sanctions did not change the character of the assessment. Nor did the resulting gap in public-law protection: the regulator had not guaranteed that every customer would receive an appropriate, fair and reasonable offer, and customers remained free to reject offers and pursue civil remedies.

6. Amenability to judicial review is a question of law, rather than an evaluative balancing exercise reviewable only for clear error.

7. The procedural-fairness issue therefore did not arise. In any event, Holmcroft identified no relevant representation that the earlier non-disclosure had prevented it from making. Its public-law claim would also have been refused as a matter of discretion, particularly because ordinary civil remedies had been available and limitation could have been protected.

1. Court of Appeal (Civil Division): The appeal was dismissed unanimously. The court upheld the conclusion that KPMG’s assessment was not amenable to judicial review, although it considered that the Divisional Court had focused too narrowly on the source of KPMG’s power.

2. High Court, Divisional Court (Administrative Court): Elias LJ and Mitting J dismissed the judicial review proceedings in [2016] EWHC 323 Admin. They held that KPMG’s assessment lacked sufficient public-law flavour to be reviewable and that the assessment was not unlawful in any event.