In an important decision on when private bodies can be subject to judicial review, the Court of Appeal confirmed that KPMG’s decisions as a “Skilled Person” (per s166 Financial Services and Markets Act 2000 (FSMA)) in a bank’s voluntary redress scheme for customers mis-sold interest rate hedging products could not be reviewed by the court. Conducting a detailed analysis of the authorities in this complex area of public law, the Court of Appeal found that KPMG was not exercising a public function which was amendable to judicial review; the nature of the redress scheme was essentially for the pursuit of private rights in a private law context: R (Holmcroft Properties Ltd) v KPMG LLP & ors [2018] EWCA Civ 2093

KPMG appointed as “skilled person” in redress scheme

Following the (then) Financial Service Authority’s (FSA) investigation into various banks’ sale of interest rate hedging products to customers, Barclays Bank plc voluntarily agreed to provide compensation to affected customers. As part of that arrangement, the bank agreed to appoint a “skilled person” under s166 FSMA, and subsequently engaged KPMG LLP to perform that role. 

The skilled person had to be approved by the FSA, would report to the FSA on the operation of the redress scheme and would provide an opinion to the bank as “Independent Reviewer” on whether each offer of redress made to a customer was appropriate, fair and reasonable – such an offer would only be made if the Independent Reviewer confirmed it was appropriate. 

The appeal centred on whether KPMG’s decisions as Independent Reviewer were subject to judicial review. The appellant, a customer dissatisfied with the compensation offer made by the bank and approved by KPMG, argued that KPMG’s decisions could be judicially reviewed and claimed that KPMG’s approval of its offer was unfair. KPMG, the bank and the (now) FCA all argued that judicial review was not available and that in any event there was no public law breach. 

When decisions of private bodies are subject to judicial review 

Under English public law, entities other than public bodies can be subject to judicial review in certain limited circumstances, meaning that  a third party with a sufficient interest in a matter can bring a challenge against the decision in question in the Administrative Court. This is because amenability to judicial review depends on whether the body is exercising functions of a public law nature, and non-public bodies can in some circumstances exercise public functions – it is the nature of the particular act or decision that is key, rather than the body’s formal status. 

There is no strict test for when a non-governmental body will be subject to judicial review and it is a fact-sensitive question. The courts have found judicial review to be appropriate where, for example, the government would assume control of the function if the body in question was not doing it, or where the body is “woven into the fabric of public regulation or into a system of governmental control”. No single factor is determinative and the court will take into account whether there is governmental or statutory underpinning for the function, the substance and effect of the function being discharged, the public importance of the function being performed, and the source of the powers being exercised. 

At first instance, the court took particular note of the fact that the redress scheme was voluntary, KPMG’s functions were conferred by contract and KPMG was not appointed by the FSA itself (although the FSA had to confirm the appointment). It therefore concluded that the role of Independent Reviewer did not have a sufficient “public law flavour” to make KPMG amenable to judicial review.  Although it came to the same conclusion, the Court of Appeal took a wider approach to the assessment of whether KPMG was exercising a public function than the court below. 

Not too much focus on source of powers

The Court of Appeal considered that the Administrative Court had put too much focus on the source of KPMG’s powers.  

The Court of Appeal did not consider the fact that the arrangements underpinning KPMG’s role were contractual to be decisive. It took a broader approach to the question of whether KPMG was carrying out a public function, looking at all relevant circumstances including the regulatory context and the independent reviewer’s function within the scheme.  Considering the regulatory context, the fact that the bank voluntarily accepted the redress scheme did not necessarily mean that the entities involved were not exercising functions of a public law nature – that would reflect too narrow a view of the FSA’s statutory functions and aims. However, the Court of Appeal did think it was particularly relevant that the FSA was not involved in negotiations with individual customers and therefore did not have a hands-on role in the operation of the scheme. 

Redress scheme was for pursuit of private law rights

The Court of Appeal held that the nature of the scheme was for the pursuit of private rights – it was ultimately a mechanism for providing compensation arising from the bank/customer private law relationship, and the compensation covered was to be negotiated and could be challenged on private law principles.  If judicial review was not available, customers would not be left without a remedy: if they did not like KPMG’s determination, they could reject it and pursue a private law claim. To put the matter beyond doubt, the Court of Appeal also considered whether there would have been any public law breach, had it decided that KPMG could be subject to judicial review. The court unanimously confirmed that there were no grounds for complaint and that it would have dismissed the claim.  

Comment 

Private bodies – and particularly those acting as a skilled person or carrying out another role in a regulatory context – have welcomed this decision. Although it will always be fact sensitive, the judgment offers helpful guidance on the factors that the court will consider when determining amenability to judicial review. 

From a consumer perspective, the court acknowledged that it exposed a gap in protection where an affected customer did not know that it should exercise its private law rights to challenge an offer. For example, while a customer could decline an offer and pursue a misselling claim instead, that did not help customers unaware of any defects. Nonetheless, the court noted that the redress scheme did not guarantee that every customer would receive an appropriate offer. As the court did not consider that this vacuum was its to fill, it remains to be seen if the FCA will change its approach in devising future redress schemes.