The Court of Appeal in Holmcroft v KPMG upheld the Divisional Court’s judgment that KPMG was not amenable to judicial review on all the facts of the case, but differed sharply in its reasons for reaching that conclusion. Was its rationale any more convincing than that of the first instance court? Not really.
Two years ago, I wrote a piece about the judgment of the Divisional Court in the case of Holmcroft Properties v KPMG – Can a Firm of Accountants be a Public Body?
The title question was rhetorical. The answer is yes because, regardless of the source of its powers, a body can be ‘public’ – and therefore capable of being judicially reviewed – to the extent that it exercises a public function. There is no special exception for big firms of accountants, or anyone else.
However, this obviously begs a further question. When, and in what circumstances, does someone exercise a public function?
On this I was critical of the Divisional Court – not so much because of the outcome on the particular facts of Holmcroft, but because of the inadequacy of the reasoning by which the court got there. Indeed the whole of the law in this area – the law relating to a body’s ‘amenability’ to judicial review’ – is inadequate at many levels.
Holmcroft was appealed, and we now have the decision of the Court of Appeal, in which the leading judgment was delivered by Lady Justice Arden, her last before taking her seat (as Lady Arden) in the Supreme Court. Might this resolve some of the problems with the first instance judgment?
The Court of Appeal Judgment in Holmcroft
The answer, put simply, is no. The Court of Appeal addresses some of those problems, but only to replace them with new ones.
The facts, and a summary of the first instance judgment, are set out in the earlier post and need not be repeated here. In short, while upholding the conclusion of the Divisional Court (KPMG was not exercising a public function), Arden LJ arrived at that outcome by very different means.
She began by holding (rightly) that the lower court ‘focussed too narrowly on the source of the Independent Reviewer’s [KPMG’s] power‘ and needed to take a ‘wider view of the regulatory position and factual context‘ [39].
What then were the key elements of that ‘wider view’? For Arden LJ, while the scheme in question had features similar to other industry-wide redress schemes, those features ‘do not alter the nature of the scheme which is essentially for the pursuit of private rights‘ [52]. In her view, this was the dispositive factor –
‘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.‘ [53]
There are, however, two problems with this way of looking at the scheme.
First, while Holmcroft’s aim was certainly to obtain financial compensation, it is not self-evident that this made its claim a private law matter. If it had wanted to sue Barclays in a private law action, it could have done. The scheme established by Barclays at the behest of the FCA was distinct from these private law rights and existed in the regulatory arena. It allowed Holmcroft to seek redress both without the need to make a private law claim in court and without prejudice to its ability to make such a claim.
At least one possible way of viewing this is that the scheme was a public law scheme that existed in parallel, and as an alternative, to the enforcement of private law rights. This is the view characteristically taken by the courts of statutory redress schemes (see, for the most recent example, Berkeley Burke v Financial Ombudsman Service). It is unclear why that analysis does not apply in Holmcroft, unless it applies to those other schemes merely because they derive from statute, in which case the judgment collapses back into the narrow focus on source of powers that Arden LJ claims to disavow.
Second, even if the scheme was about Holmcroft’s private rather than public law rights, it is unclear why, as a matter of logic, this leads to the conclusion that KPMG’s role was also of a private law character. Regulators frequently act in a way that creates, modifies, or adjudicates private law rights, without there being any doubt that in doing so they, the regulators, are exercising public functions.
The question to be asked by the court was not what Holmcroft was seeking to achieve by making an application via the scheme, but what type of function KPMG was performing in its role as Independent Reviewer under the scheme. Even if the former had a private law character, it is (with respect) a non sequitur to say that for this reason the latter must exist only in private law and cannot entail the exercise of a public function.
In addition, there are other curious lines within the judgment, although these do not need to be considered at length. Notably:
– Since ‘Amenability to judicial review is a question of law‘ [56], why is it relevant whether the FCA ‘intended that there should be any challenge on public law grounds’ [52]? The legal position must be the same whether or not the FCA turned its mind to the issue.
– What reasoning exactly underlies the assertion that ‘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‘ [52]? Since there is no other means by which a private company could be engaged to carry out a public law function, it is difficult to view this as anything other than neutral.
But these are minor points in comparison with the main line of the court’s reasoning, which leaps from the assumed nature of Holmcroft’s interests to the assumed nature of KPMG’s role without any intermediate logical connection.
Thoughts on Amenability
All of this leads to five brief observations.
First, Holmcroft re-emphasises that the question of amenability is, above all things, a fact sensitive one in which ‘all the circumstances relating to the nature and function of the power are relevant‘ [47].
The best summary of the law, cited with approval by the Court of Appeal, remains that of Dyson LJ (as he then was) in Beer v Hampshire Farmers Market (at [16]) –
‘…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.‘
Second, because of this very breadth and ‘question-begging’ nature of the test, whether it is satisfied is often just a matter of judicial ‘feel‘ (see R (Tucker) v Director General of the National Crime Squad at [13]).
Plainly, in Holmcroft, neither the Divisional Court nor Court of Appeal felt that KPMG was exercising a public function. But both courts were unable to articulate in any convincing way why this was the case. For that reason, both judgments are unsatisfactory.
Third, law which is essentially based on what the judiciary feels cannot be good law. The question of amenability – while superficially a question about when a particular form of legal action is available in a specific case – is actually a question about which bodies, and in what circumstances, are bound by the entire corpus of public law.
Since public law is a normative body of law which exists to promote good administration and restrain abuse of power, this is a question too important to be left to the feel of the judges or their ex post rationalisations. Lawyers advising clients whether public law applies to them should have a much clearer analytical framework in which to operate; their clients are surely entitled to it.
Fourth, in future, particularly in the regulatory sphere, there are going to be many more cases like Holmcroft involving a hybrid mix of traditionally public and private elements. The old neat distinctions between what is ‘public’ and ‘private’ no longer hold good and will continue to dissolve. A legal test which continues to rely on a shared understanding of what those terms mean, or on a common framework for recognising situations in which one or other is the predominant element, will be even less fit for the future than it is for the present.
Finally, a striking feature of Arden LJ’s judgment is that, while the first instance judges candidly accepted that Holmcroft was a difficult case and reached their decision ‘not without some hesitation’ [41], she admitted to no such reservations. However, in an area in which the law is unclear, a good starting point is for the courts at least to acknowledge the borderline and contingent nature of their judgments. To this reader, the Divisional Court’s diffidence has some attractions when set against the Court of Appeal’s misplaced certainty.
Public Law & Regulation 