The Double Standards of HSBC?
HSBC risk losing banking licence in US
HSBC are again under the microscope in the USA, this time for their links to the now notorious Mosack Fonseca in Panama. Click here for details
Is the Federal Reserve there to protect the citizens or the banks?
For a very interesting short video summarising the creation of the Federal Reserve which gives an insight into the fundamental conflict that underlies the existence of the Fed click HERE
By extension, the same questions surround the role of the Bank of England and its relationship with banks in the UK.
The Context Within which the sale of an Interest Rate Swap Occurred
The Context Within which the sale of an Interest Rate Swap Occurred:
- An Interest Rate Swap is a product whereby one party accepts the risk of interest rates rising as consideration for the other party accepting the risk of interest rates falling (with or without additional consideration).
- The banks (with expertise in this area) took it upon themselves to “sell” Interest Rate Swaps to owners of small businesses (“SME customers”) who had no expertise in this area.
- The value to the bank of the Interest Rate Swap sold to an SME customer existed because the SME customer accepted the risk of interest rates falling and this had a greater market value than the risk accepted by the bank i.e. of interest rates rising.
- The “value” of the Interest Rate Swap could then secured by the bank by entering into a matching transaction in the market i.e. in effect the bank “on sold” the SME customer’s acceptance of risk to a third party at its full market value and the bank’s immediate profit was the difference between the price paid by the bank to the SME customer and the price received by the bank when the product was on sold in the market. (Conceptually that is what happened in every case although the professionals will point our that in some cases the bank may have bundled individual Interest Rate Swaps and / or used aggregated Interest Rate Swaps to offset the banks’ exposure to interest rate movements and / or may have just held the valuable “floor” itself etc. etc. Those particular factual differences are not material to the central concept.)
- An Interest Rate Swap sold to an SME customer was valuable to the bank because the risks accepted by the customer were contrary to the bank’s (and to the market’s) view of the risk of interest rate movement i.e. the bank (with derivatives and interest rate expertise) bet against its customer (with no derivatives and interest rate expertise).
- The bank’s internal paperwork (such as RBS’ Post Transaction Acknowledgement Forms which show the particular Swap Rate and the Cover Rate for each transaction) prove that significant profit was earned immediately by the bank as a result of a sale of a Swap to an SME customer. The salesperson was aware of that profit.
- The margin between banks dealing in Interest Rate Swaps (on the wholesale market) was a maximum of one basis point (i.e. one hundredth of one per cent). The margins charged to SME customers are of a different order of magnitude, perhaps fifty basis points (i.e. 50 x the margin on sales between parities with derivatives expertise).
- A derivatives salesman would have known that he product he was selling had an immediately realisable value to the bank simply because of the risks that the SME customer was accepting.
- The SME customer should have been made aware of the risks he was accepting when he entered into the Interest Rate Swap Agreement and the non-disclosure of that risk is the fraud at the heart of the salesperson’s actions.
- There are detailed regulations put in place to protect the SME customer and, in the majority of cases of which Bully-Banks is aware, these regulations were willfully disregarded.
It is within the above context that each salesperson’s conduct must be viewed.
The motivation behind a salesperson’s conduct will be made clear by the number of customers to whom they were introduced by the bank and whom they advised not to enter into an Interest Rate Swap Agreement because it was unsuitable.
- “Contingent Liability” is a term chosen by a bank to describe the bank’s estimate of the risk taken on by the SME customer. It is not an “internal” tool of the banks. It is a pre-estimate of the potential or probable costs that would be incurred by the SME customer either over the life of an Interest Rate Swap or in the event that the Interest Rate Swap is broken.
- The reality of the Contingent Liability is shown by its impact upon the SME customer’s borrowing capacity i.e. by the hidden line of credit that the bank created when it sold the Interest Rate Swap.
- The line of credit is in effect an expression of the bank’s belief that the Contingent Liability calculated by them was a “real” potential liability in respect of which the bank had to reserve part of the customer’s borrowing capacity and part of the bank’s lending capacity.
- Even if the precise calculation of the Contingent Liability prior to the sale of the Interest Rate Swap is made for the bank’s own purposes, the salesperson commits a criminal offence when he or she dishonestly withholds information about the existence of this Contingent Liability (which the bank took so seriously that it deemed its existence utilized a portion of the customer’s borrowing capacity).
Financial Services and Markets Act 2000 Section 397: Misleading statements and practices.
Financial Services and Markets Act 2000 Section 397: Misleading statements and practices.
“(1) This subsection applies to a person who
(a) makes a statement, promise or forecast which he knows to be misleading, false or deceptive in a material particular;
(b) dishonestly conceals any material facts whether in connection with a statement, promise or forecast made by him or otherwise; or
(c) recklessly makes (dishonestly or otherwise) a statement, promise or forecast which is misleading, false or deceptive in a material particular.
(2) A person to whom subsection (1) applies is guilty of an offence if he makes the statement, promise or forecast or conceals the facts for the purpose of inducing, or is reckless as to whether it may induce, another person
(a) to enter or offer to enter into, or to refrain from entering or offering to enter into, a relevant agreement…….”
Fraud Act 2006 Section 3: Fraud by failing to disclose information
Fraud Act 2006 Section 3: Fraud by failing to disclose information
“A person is in breach of this section if he
(a) dishonestly fails to disclose to another person information which he is under a legal duty to disclose, and
(b) intends, by failing to disclose the information
(i) to make a gain for himself or another, or
(ii) to cause loss to another or to expose another to a risk of loss.”
EMAIL THREE: EMAIL TO A NEW MP
EMAIL THREE: EMAIL TO A NEW MP
I am one of your constituents.
I write to you today in relation to the misconduct of my bank (NAME OF BANK) which caused great damage to me and my business. This is an issue that I raised with your predecessor and I would welcome the opportunity to meet with you and discuss my case in greater detail.
The mis-selling of interest rate swap products to SMEs (which is just one example of the misconduct of the banks towards small businesses) has had a crippling effect on thousands of businesses.
In order to tackle this problem the All Party Parliamentary Group on Interest Rate Swap Mis-selling was established and under the Chairmanship of Guto Bebb, Member of Parliament for Aberconwy, working with the campaign group Bully-Banks, the APPG group secured the establishment of a redress scheme.
The purpose of the redress scheme was to compensate businesses as quickly as possible and to avoid timely and costly legal proceedings. Whilst the scheme has partially compensated thousands of those businesses the issue is far from resolved.
The FCA Redress Scheme in connection with mis-sold Interest Rate Hedging Products has failed to offer adequate compensation to a significant number of the businesses affected and the process has highlighted an alarming number of problems with both the banks and the FCA.
In order to tackle both the failures of the FCA Redress Scheme and these wider issues it is proposed that the remit of the APPG be expanded. Over the next five years it is understood that the APPG will work towards ensuring that businesses across the UK can operate in a fair banking environment.
I would urge you to join the All Party Parliamentary Group on Fair Business Banking (formerly the APPG on interest rate swap mis-selling) if you are able. If you do wish to join and have not already done so, may I ask you to please contact Guto Bebb MP.
EMAIL TWO: EMAIL TO AN MP WHO WAS NOT A MEMBER OF THE APPG IN THE LAST PARLIAMENT AND WHO HAS BEEN RE-ELECTED.
EMAIL TWO: EMAIL TO AN MP WHO WAS NOT A MEMBER OF THE APPG IN THE LAST PARLIAMENT AND WHO HAS BEEN RE-ELECTED.
I am one of your constituents.
I am writing to you both as a member of the campaign group Bully-Banks and as an individual that has been severely affected by the mis-conduct of my bank, (NAME OF BANK).
I know that you are supportive of the cause of small businesses damaged by bank misconduct (although you were not a member of the All Party Parliamentary Group on Interest Rate Swap Mis-selling). I am writing to you because there is much that remains to be done to deal with the issue the damage to small businesses caused by bank misconduct.
The FCA Redress Scheme in connection with mis-sold Interest Rate Hedging Products has failed to offer adequate compensation to a significant number of the businesses affected and the process has highlighted an alarming number of problems with both the banks and the FCA.
In order to tackle both the failures of the FCA Redress Scheme and these wider issues it is proposed that the remit of the APPG be expanded. Over the next five years it is understood that the APPG will work towards ensuring that businesses across the UK can operate in a fair banking environment.
I would urge you to join the All Party Parliamentary Group on Fair Business Banking (formerly the APPG on interest rate swap mis-selling) if you are able.
If you do wish to join and have not already done so, may I ask you to please contact Guto Bebb MP.
Thank you for your support.
EMAIL ONE: EMAIL TO AN MP WHO WAS A MEMBER OF THE APPG IN THE LAST PARLIAMENT AND WHO HAS BEEN RE-ELECTED.
I am one of your constituents.
I am writing to you both as a member of the campaign group Bully-Banks and as an individual that has been severely affected by the mis-conduct of my bank, (NAME OF BANK).
You were supportive of the cause of small businesses damaged by bank misconduct in the last Parliament as a member of the All Party Parliamentary Group on Interest Rate Swap Mis-selling and I am grateful for this support. However there is much that remains to be done.
The FCA Redress Scheme in connection with mis-sold Interest Rate Hedging Products has failed to offer adequate compensation to a significant number of the businesses affected and the process has highlighted an alarming number of problems with both the banks and the FCA.
In order to tackle both the failures of the FCA Redress Scheme and these wider issues it is proposed that the remit of the APPG be expanded. Over the next five years it is understood that the APPG will work towards ensuring that businesses across the UK can operate in a fair banking environment.
I would urge you to join the All Party Parliamentary Group on Fair Business Banking (formerly the APPG on Interest Rate Swap Mis-selling). If you do wish to join then please contact Guto Bebb MP.
Thank you for your ongoing support.
Transcript of Hearing of Application to Bring a Judicial Review by Holmcroft Properties
BULLY-BANKS IS A NOT FOR PROFIT CAMPAIGN AND THE COST OF PREPARING THIS TRANSCRIPT HAS BEEN MET OUT OF THE CONTRIBUTION OF MEMBERS, THE VAST MAJORITY OF WHOM HAVE SUFFERED SIGNIFICANT FINANCIAL LOSS AS A RESULT OF THE MIS-SALE OF IRHPS.
WILL ALL PROFESSIONAL ADVISORS ACCESSING THIS TRANSCRIPT PLEASE MAKE A CONTRIBUTION TOWARDS THE COSTS OF PREPARING IT. PLEASE MAKE YOUR CONTRIBUTION USING THE BUTTON ON THE RIGHT HAND SIDE OF THE PAGE.
IN THE HIGH COURT OF JUSTICE
QUEEN’S BENCH DIVISION
THE ADMINISTRATIVE COURT
Royal Courts of Justice
London WC2A 2LL
Friday, 24 April 2015
B e f o r e:
MR JUSTICE KENNETH PARKER
THE QUEEN ON THE APPLICATION OF HOLMCROFT PROPERTIES LIMITED
THE FINANCIAL CONDUCT AUTHORITY
First Interested Party
BARCLAYS BANK PLC
Second Interested Party
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(Official Shorthand Writers to the Court)
Mr R Gordon QC and Mr M Birdling (instructed by Mishcon de Reya) appeared on behalf of the Claimant
Mr J Herberg QC (instructed by Herbert Smith Freehills) appeared on behalf of the Defendant
Ms M Carss‑Frisk QC and Mr D Burgess (instructed by the FCA) appeared on behalf of the First Interested Party
Mr B Jaffey (instructed by Linklaters) appeared on behalf of the Second Interested Party
1.MR GORDON: May it please my Lord.
2.MR JUSTICE KENNETH PARKER: Yes.
3.MR GORDON: My Lord, I appear for the claimant in this case with my learned friend, Mr Malcolm Birdling.
4.MR JUSTICE KENNETH PARKER: Yes.
5.MR GORDON: The defendant, KPMG, the independent reviewer, is represented by my learned friend Mr Javan Herberg. The Financial Conduct Authority, the first interested party, is represented by my learned friends Ms Monica Carss‑Frisk and Mr Daniel Burgess. To finish the (Inaudible) with an array of talent, for Barclays, the second interested party, they are represented by Mr Ben Jaffey.
6.Your Lordship should have two hearing bundles, and hopefully they are all up to date. I think they have just been added to.
7.MR JUSTICE KENNETH PARKER: Yes, bits and pieces have been coming in. I think I have everything.
8.MR GORDON: And then two authorities bundles.
9.MR JUSTICE KENNETH PARKER: Yes.
10.MR GORDON: Maybe one or two other small bits and pieces, I hope not, but we will see how we go. My Lord, can I go straight to the context of this case?
11.MR JUSTICE KENNETH PARKER: Yes. May I just say at the beginning, it is important nowadays: I am, and have been for some considerable time, a retail customer of Barclays Bank, and also, in the 1970s and 1980s, I was instructed by the Bank in respect of the two inquiries by what was then the Monopolies and Mergers Commission into Barclaycard and credit cards generally. I thought I should say that at the outset.
12.MR GORDON: I am grateful for that.
13.MR JUSTICE KENNETH PARKER: Inevitably one is a customer of one or more of the banks in the UK. It so happens that I am an ordinary retail customer of the Bank.
14.MR GORDON: My Lord, for form’s sake, I will just take instructions. I am sure there will be no problem whatever. (Pause). No problem at all.
15.MR JUSTICE KENNETH PARKER: Thank you.
16.MR GORDON: Can I go straight to the context?
17.MR JUSTICE KENNETH PARKER: Yes, certainly.
18.MR GORDON: Because the context, this morning at least, in our submission, and I hope implicit in the skeleton arguments ranged against us, is the question of amenability to judicial review.
19.MR JUSTICE KENNETH PARKER: Yes.
20.MR GORDON: Of a body such as KPMG.
21.MR JUSTICE KENNETH PARKER: Yes.
22.MR GORDON: Actually encased within that issue, probably, the question of contract: what role does contract play in a case such as the present?
23.MR JUSTICE KENNETH PARKER: Hmm.
24.MR GORDON: It will be our submission that one only needs to ask one fairly straightforward overarching question, which is: is KPMG merely accountable to the party with which it has contracted ‑‑ Barclays ‑‑ or is there a wider sense in which it is accountable to the public, and in particular to the FCA?
25.In order to deal with the issues, may I start with that before coming to any substantive grounds of review ‑‑ which are rather, in a sense, a fag‑end to the case ‑‑ and articulate four propositions, three of which are very simple but will need to be gone through before coming to the fourth. So the first proposition is that in order to determine amenability to judicial review nowadays, one has to look at the function being undertaken and not merely the source of the power. In the past, of course, it was source all the time, until a case which nobody really noticed in 1967 which was ex parte Lain. That was picked up in Datafin and then the cascade began after Datafin. So that is our first proposition.
26.The second proposition is that, in terms of a contract, judicial review of a particular body, let me call it “body B”, may be excluded where the person seeking judicial review, “A”, is in a contractual relationship with the body sought to be reviewed. But the rationale for that, when we look at the cases, when we look at Datafin, is because in the case of a contract between A and B, the courts have held that it excludes judicial review because A is consensually submitting to the jurisdiction of B.
27.So, that is the rationale in the cases for when contract is a bar to judicial review. I emphasise that, because this is the point that each of the parties misses. They go on about contract as if the very fact of a contract makes this claim impossible. It does not, because there is no contractual relationship between KPMG on the one hand and Holmcroft Properties on the other. That is the kind of contract that would exclude a judicial review, not the kind of contract we have here.
28.The third proposition is that, if one applies that principle, it is logically immaterial to the analysis that the independent reviewer was in a contract with Barclays. The arguments against us we say are confused; they misunderstand the circumstances, inapplicable here, where the existence of a contract precludes amenability to judicial review.
29.And so we get to the fourth proposition, which is the most important one in a sense. If one excludes that which is irrelevant ‑‑ ie the contract between Barclays and KPMG ‑‑ merely on the basis that that is the source of KPMG’s power, if one excludes that there is clear authority in the Beer case ‑‑ which I will come to ‑‑ for the proposition that one then has to look at the nature of the function being performed; again, when one gets to that stage of the analysis if we do, then it is a simple exercise, because what one has to look at is well set out in the cases, we say here by reference to those principles, KPMG’s functions are woven into a system of regulatory control. That resonates through the contract, it resonates through section 166 and through all the various bits pieces that your Lordship will be asked to look at. But that really is the question, we submit, that your Lordship faces. What I would emphasise is, we are at this stage, obviously, at the permissions stage, not at any other stage.
30.So may I just go through those propositions. The first three are fairly easy. Proposition 1: functions, not source. We get it from Datafin. I imagine that your Lordship has looked at this case many, many times.
31.MR JUSTICE KENNETH PARKER: Yes.
32.MR GORDON: I will give your Lordship the reference. It is in authority bundle 1, tab 4, and it is at page 847A to D, and I imagine, I think we have cited it in our skeleton argument.
33.MR JUSTICE KENNETH PARKER: It is the old Stock Exchange case, is it not?
34.MR GORDON: Yes. It is a takeover case.
35.MR JUSTICE KENNETH PARKER: The Stock Exchange was not established by statute or under any what one might call governmental power. It was held to be in effect carrying on governmental activities.
36.MR GORDON: Yes.
37.MR JUSTICE KENNETH PARKER: It was in the context of the takeover I was actually instructed for one of the parties, so I attended the hearing in Datafin, although I was not instructed on the judicial review.
38.MR GORDON: Yes. It is a frustrating experience, and that is my experience in some of the other cases, but in relation to the Take‑over Panel case, what Lord Donaldson emphasised is that one is looking at public functions.
39.MR JUSTICE KENNETH PARKER: Yes.
40.MR GORDON: It is no longer just the source of power. The case which is perhaps less well known, save to academics perhaps, is the Beer case. I do not know if your Lordship knows that?
41.MR JUSTICE KENNETH PARKER: Yes, I do.
42.MR GORDON: It is quite an interesting case for a number of reasons, but that is in the authorities bundle 1 at tab 13. It is worth just having a quick look at that, only at two paragraphs. This was the case, I think, the farmer’s market ‑‑
43.MR JUSTICE KENNETH PARKER: Yes. It is quite well known.
44.MR GORDON: Quite well known. At paragraph 12, Dyson LJ, as he then was, set out the trajectory. It is quite a succinct passage. He sets out there the trajectory from source to function, which I have just mentioned. He says, and I will just read very briefly from it:
“There was a time when courts placed much emphasis on the source, rather than the nature, of the power being exercised…”
45.But then he says, in essence what he is saying there is that came to an end with Datafin, and indeed he sets out the passage that I might have quoted before your Lordship earlier. Then if one goes to paragraph 16, the following page at letter H, Dyson LJ says:
“It seems to me that the law has now been developed to the point where, 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…”
I think I can stop there.
46.So, the question we say will be not “Is there a contract?” If there is, that is the end of it; but “Does the fact of a contract make it absolutely clear that the body is not amenable to review?” If it does not, and plainly we say it does not in this case, one must look at the nature of the power.
47.MR JUSTICE KENNETH PARKER: I think the expression “governmental”, did that not creep in with the Jockey Club case?
48.MR GORDON: Yes, it did.
49.MR JUSTICE KENNETH PARKER: It was argued there that if you did not have a Jockey Club, the Government would have set one up. But that was not held to be sufficient, was it? You had to look at actually what was being done, whether that could be categorised as “governmental”.
50.MR GORDON: There are different ‑‑ and unhappily De Smith’s says this ‑‑ that the courts have come to different solutions in different cases. But the most important thing is, if you like, the template with which to look at it. So we say it is not a knock‑out blow that there is a contract between KPMG and Barclays; there is a more subtle exercise, and I get to that in proposition 4.
51.So moving to proposition 2, this is the point I have made that contract is not a bar to judicial review unless it is a contract between the person seeking JR and the defendants. Where there is a contract between the two of them, then the courts usually say the person seeking judicial review has consensually submitted to the jurisdiction.
52.MR JUSTICE KENNETH PARKER: Well, one of the parties might be a public body, and then it would still arguably be judicial review if it has a sufficient public law element. More recent commentators have suggested that, rather than focusing on the public law element, you look at what the ground of challenge is, and if the ground of challenge has a public law “flavour”, if I might put it that way, then there is no reason why the contract should not be amenable to judicial review.
53.MR GORDON: That is also true.
54.MR JUSTICE KENNETH PARKER: I had a case concerning a Chief Constable and vetting of those working with the police, and it was suggested that we submitted that, because it was a contractual matter, the nature of the vetting, that that was the end of it. But I held that there was a sufficient public law element, particularly if one looked at the grounds of challenge, which did have a public law flavour about procedural fairness and the duty to disclose, et cetera.
55.MR GORDON: Exactly.
56.MR JUSTICE KENNETH PARKER: So the fact there was a contract there was not decisive, but obviously it was an easier case because one of the parties was a public authority, namely the Chief Constable.
57.MR GORDON: Absolutely. Well, in view of your Lordship’s helpful observations, I do not think I need to develop core proposition 2, save to say that we are not in the territory which Lord Donaldson was considering in Datafin, where he was, I think, saying that if you had a non‑statutory body in a contractual relationship with the person seeking judicial review, judicial review might not be available because there might be a consensual submission to the jurisdiction. I would say that since Datafin, 25 years on or so, maybe 30 years on, actually we are moving beyond Datafin in terms of the relevance or irrelevance of contract. So really, I think I need not develop all that.
58.I can move, therefore, very quickly to core proposition 3, which is: therefore, for the defendant and interested parties to, if I may use this phrase, “bang on” about contract, is actually missing the point of what the analysis should consist of. It should consist of an investigation, examination of whether there is a sufficient public law flavour to the case. If I thought that I had to articulate that in three propositions when one sentence might have done, I apologise, but that is where I have been trying to get to with the first three submissions.
59.So now I move, then, to the critical point here, which is that the independent reviewer is exercising a public function and that there is a sufficient public law element or flavour to this case. In the Aegon case, which I was in many years ago, Rose LJ laid down three principles, one of which is relevant to this case. May I ask your Lordship to look at it briefly? It is tab 6 of authorities bundle 1.
60.MR JUSTICE KENNETH PARKER: Yes.
61.MR GORDON: It is at page 6, in the middle of page 6, where he says “From the Jockey Club case,” which is the case your Lordship mentioned this morning, “I derive the following…” Now, (3) I have just been dealing with, and (1) is dealing with monopolistic bodies, but (2) is the proposition which is relevant, we submit, to this application:
“(2) A body whose birth and constitution owed nothing to any exercise of governmental power may be subject to judicial review if it has been woven into the fabric of public regulation or into a system of governmental control [and that is a word your Lordship used earlier] … or is integrated into a system of statutory regulation … or is a surrogate organ of government … or but for its existence a governmental body would assume control…”
62.And so that leads to five possible questions here: is the independent reviewer, in the circumstances of this case, has it been woven into the fabric of public regulation ‑‑ these are all disjunctive ‑‑ or has it been woven into a system of governmental control; or, has it been integrated into a system of statutory regulation; is it a surrogate organ of Government; or, but for its existence, would a governmental body assume control?
63.MR JUSTICE KENNETH PARKER: Yes. I think Lord Bingham was a little bit more sceptical about the last bit, was he not, I recall from his judgment?
64.MR GORDON: The “but for” test is a well‑known test now. It is not only from the Jockey Club case.
65.MR JUSTICE KENNETH PARKER: Hmm.
66.MR GORDON: But that was the essential template. So what we say is that if one approaches this looking at the flavour of the case such as the present, we fall within an amalgam of those criteria, because the picture one gets from a case such as the present when one looks at all the materials and certainly at the arguability stage, the picture one gets is one of regulatory control by the FCA in which ‑‑ I do not know what the right word to use for this relationship might be ‑‑ but one has almost a tripartite relationship between the FCA, Barclays and the independent reviewer, and one sees that because they are woven together by a system of statutory contractual provisions, public statements from the FCA, into a scheme which can only work if the interdependent parts work together. And if I go back to that question I suggested at the very beginning of the case ‑‑ who is the independent reviewer accountable to? Is this just a question of a contract between it and Barclays or is there something more in the public law sense? ‑‑ when I get to it, there plainly is, and there are intersections between what the FCA can require Barclays to require the independent reviewer to do, and just taking up your Lordship’s words earlier, moving to the grounds of judicial review, the central ground is one of procedural impropriety.
67.Putting it again, very simply, what we say is that the independent reviewer had a public law obligation to be fair. What is said against us is, most dramatically perhaps by Mr Herberg for the independent reviewer: there is no duty to be fair at all. This is surprising when we get to certain statements made by the FCA where they make clear that the independent reviewer must ensure fairness of the redress procedure. So we say that does not come from only a private law contract source of power; it is woven into the whole scheme.
68.So if I can pick the parts of this apart, what is first of all said against us: well, this was a voluntary redress scheme, and in a sense temporally that is true, because Barclays entered into a generic agreement with the FCA before the FCA made any public statements about regulation. So if you take that historically, there is the beginning of a brick being built by the defendant against this challenge.
69.However, the substance, and the reality of it as we see in a moment, is that the generic agreement was designed, stage‑managed almost, to be the prelude to a public statement by the FCA, triggering its 166 powers and leading to a contract, the appointment of the independent reviewer, with duties of accountability to the FCA. That is how it worked.
70.MR JUSTICE KENNETH PARKER: Am I right in seeing it this way: that the authority could have gone down one of two routes. One, it could have exercised its statutory powers directly to require a compensation scheme to be established; or it could go down this alternative route of saying you, the banks, enter into an agreement by which the independent person, the skilled person, will review whether it is appropriate, fair and reasonable that you make an offer in these particular cases? There are two regulatory routes.
71.MR GORDON: Indeed, that is right. The 166 route, which is what ultimately the authority decided to do, was only taken after confidential settlement negotiations with Barclays. We do not know what those negotiations were all about, but we might guess. We would submit the inference is clear ‑‑ and not only the inference, because the FCA virtually say this ‑‑ the FCA would have gone down a route under section 404 specifically focusing on redress schemes. So it only did not do that, and adopted what had it called “a unique solution”, to avoid having to exercise that draconian power. The fact that it did that, however, feeds totally into, we say, the “but for” test: but for the arrangement that was come to in the wider public interest, it would have exercised powers under section 404. That is the inference.
72.My Lord, the way this started, as far as the public was aware, was something called the 29 June publication. That is in hearing bundle 2 at page 211. What we can see from that is a statement, I suppose two‑thirds of the way down the page at page 211:
“We have agreed with Barclays, HSBC, Lloyds and RBS that they will:
(i) provide fair and reasonable redress to non‑sophisticated customers …” such as the claimant in this case.”
The bottom two lines:
“The exercise for each bank will be scrutinised by an independent reviewer and overseen by the FSA.”
So, the connection there clearly established between scrutiny by the independent reviewer, further overseeing that scrutiny by the FSA.
73.Then, if one moves past the detail of the various products to page 213, we see halfway down the page:
“The exercise will be scrutinised by an independent reviewer and be overseen by the FSA … the appropriate redress for each customer will be determined on the basis of what is fair and reasonable…”
74.So of course Barclays is conducting the review process, but the independent reviewer is there to assess, to evaluate, that what is the process and what is being offered is fair, appropriate and reasonable.
75.Again, we see that connection drawn in at page 214, the third of the first four bullet points:
“The banks will propose fair and reasonable redress, which is reviewed and agreed by the independent reviewer.”
76.So, we say that it was precisely the degree of independence brought to the process by the functions intended to be discharged by the independent reviewer under the regulatory scrutiny of the FCA that grafted onto this process the necessary public element which otherwise, without any regulatory scrutiny of that kind, would have made Barclays the judge of its own cause.
77.But what was said in public by the FCA on 29 June was augmented in a further document, a subsequent document, which your Lordship has at the very next two pages, pages 216 and 217. Before giving the court some citation from that document, may I summarise what we submit to be its essential content. It enforces ‑‑ this is an enforcement by the regulator ‑‑ three things: firstly, the regulatory legitimacy of the process; secondly, its (the FCA’s) close involvement in the process and with the independent reviewer; and third, implicitly, the fact that the powers and duties of the independent reviewer stem from an overarching regulatory decision made by the FCA as opposed merely to being the product of a private commercial contract.
78.Now, if I could ask your Lordship to just look at page 216, we see ‑‑ I think that this note explains the role and responsibilities of the independent reviewer and what customers should expect from this exercise. So we see that at the second sentence of the first paragraph:
“This note explains the role and responsibilities of the independent reviewer and what customers should expect…”
So this is a public statement by the regulator about what customers can legitimately expect. Then the next paragraph:
“We have required…” (not “asked”: “we have required”) “… independent reviewers to be appointed so that customers who bought interest rate hedging products can be confident that their cases will be reviewed objectively and consistently.”
79.Going back to the question of public law flavour, public law confidence in a system is surely a public law construct and not a private contractual construct.
80.Thirdly, this is the second sentence under the next paragraph:
“The third party is independent of the regulated firm and must have the skills, knowledge and resource to carry out the work required by us.”
“Us” does not mean Barclays; “us” means the FCA.
81.Then two paragraphs, second sentence:
“We will either approve each bank’s nomination or we will ask the firm to nominate a different independent reviewer.”
So not a question of Barclays just saying, “Look, we’ll set up this voluntary contract with KPMG”; this is subject to the veto of the FCA if the independent reviewer does not meet sufficiently the criteria required by the regulator.
82.MR JUSTICE KENNETH PARKER: Presumably you would say, would you, that if the FCA had simply declared, “We are requiring the banks to agree to pay what they believe to be fair, reasonable and appropriate,” and there had been no mention of an independent reviewer, someone like you could come along and say: “This is a misuse of your powers because you could have gone down the full regulatory route. You have chosen in the exercise of your discretion not to do that but to set up this sort of arrangement, but there is a vital link missing: you have not provided for an independent reviewer which you could have done.”
83.MR GORDON: Yes.
84.MR JUSTICE KENNETH PARKER: You would say, would you, that that decision itself would have been amenable to judicial review? It might have been difficult to sustain it, but you would say in principle nothing to block it.
85.MR GORDON: In principle, yes, because one would be saying in the hypothetical judicial review: “You have set up a system but it is simply an internal review where Barclays judges its own conduct.” Now, whether that would succeed is a different matter, but it is certainly amenable to judicial review because it would be an FCA regulatory decision.
86.MR JUSTICE KENNETH PARKER: What if they declared in terms that the independent reviewer is going to have a rather limited role, in other words it is not going to be a judicialised procedure. The independent reviewer is just going look at documents, see where the merits lie in its opinion, and then reach a judgment and it will not have to give a reasoned decision; it can just say yea or nay. Would you say that also would have been amenable to judicial review?
87.MR GORDON: Yes, certainly amenable. If I can just separate out for a moment, with a true public body, which is obviously what the FCA is, the questions of amenability and grounds. Any decision made by the FCA is amenable to judicial review in its regulatory context.
88.MR JUSTICE KENNETH PARKER: It is just that you are not targeting that as such, are you? I mean, one of the curiosities here is that you have an undoubted private body, KPMG, in the frame in the judicial review, and that is quite unusual. But your case is not: well you, the FCA, have botched it up in public law terms because you have set up arrangements under which this so‑called independent reviewer does not have sufficient authority. Because on the face of it, if one looks atterms of engagement and so on, the independent reviewer does not play a judicialised function; it is not a judicialised procedure. But that is not the nature of your attack. You are further down the line.
89.MR GORDON: Further down the line, yes, because what the FCA has purported to do, and indeed has done through a series of interlocking provisions, is to create a system which is clearly intended to reassure the public ‑‑ customers in particular but the public generally ‑‑ that the redress scheme is going to be fair and impartial. And so it set up players in that exercise, and KPMG is such a player. There is a sufficient public law flavour in what it has been set up to do. Because the attack on our position is solely that, because his jurisdiction stems from a contract, that is it, and that is effectively the case against us. And we say that that is simply misunderstanding the way contract plays into judicial review. It would be misunderstanding it as the law has developed anyway, but actually it is misunderstanding what Datafin said and it is misunderstanding what Beer said. It is misunderstanding the way the contractors (Inaudible) play the part in judicial review.
90.MR JUSTICE KENNETH PARKER: But I really saw a sort of four‑pronged purported answer: one was section 116 is irrelevant; two, there was the voluntary contract.
91.MR GORDON: Yes.
92.MR JUSTICE KENNETH PARKER: And thirdly, and this is the point that we are exploring tangentially, what is KPMG supposed to do about it? Because we have been set up under specific terms of engagement and it is quite clear that it is not intended under those terms that we should have any sort of judicialised function. It would be wrong for us to seek to exercise a sort of judicial function by carrying out inter partes hearings and asking for representations on particular points going to the merits of this, and also expecting us to deliver something like a judicial judgment at the end of the day, in other words a reasoned opinion. That is not in any of the terms, so why come at us? We are in the frame, but why? If you are unhappy with that, perhaps the FCA should have been the target, saying you have allowed this to happen to KPMG given this role and it is not adequate. Why are we here, so to speak?
93.MR GORDON: Yes. I follow the attack.
94.MR JUSTICE KENNETH PARKER: And the fourth point about alternative remedies. In other words, you have a remedy: ombudsman or private law. That is the four prongs of the purported response to you.
95.MR GORDON: That is the response, yes. Your Lordship has it exactly. What we say, just in headlines, really, is that it is not an argument of any principled effect to say that the scheme was voluntary, because in substance the scheme was not voluntary.
96.MR JUSTICE KENNETH PARKER: That is the point you have just been dealing with, really.
97.MR GORDON: Yes.
98.MR JUSTICE KENNETH PARKER: Yes. Relevance of section 166. You say that that is pretty critical, really.
99.MR GORDON: 166 is the trigger for weaving in later. Alternative remedy, I am going to your Lordship’s fourth point.
100.MR JUSTICE KENNETH PARKER: But that is quite critical, section 166, for your public law interweaving.
101.MR GORDON: Absolutely.
102.MR JUSTICE KENNETH PARKER: Because there is the public law power which has been exercised.
103.MR GORDON: Without 166 you would not have a regulatory decision which has triggered other things. But you do have 166 and you cannot consider it in isolation. What the defendants and interested parties have done ‑‑ I suppose it is not that clever, it is what every barrister does ‑‑ but they have taken things in isolation. The modern word, I think, is holistic: they have not looked at this is a holistic way, looked at the whole way in which it interacts. So alternative remedy cannot be right on any normal principle. The way in which alternative remedy is argued, and we will come to this later, certainly Mr Herberg’s skeleton argument he simply repeats in a more subtle way his earlier arguments and says, “Well, it might be much more advantageous for you to be able to proceed by judicial review, but you are not entitled to JR.” I understand that argument, but if we won on the first three we would never get to that.
104.But the third argument is what this case in a sense is about: is there a sufficient public law flavour to the case? Answer, yes, because (a) you cannot treat elements 1 and 2 in the way they have been treated, and as far as the third is concerned, there are a spectra, if that is the right word, of possibilities between a full judicial hearing and a function of the reviewer that goes beyond contract and places him in a position in which he has to secure, objectively, fair processes and is accountable to the FCA; and is accountable to the FCA, we can trace why, because the FCA has insisted in the generic agreements on a clause which enables the FCA to effectively impose obligations on the reviewer. Those obligations purportedly come from the contract: they are included by virtue of a regulatory decision of the FCA.
105.Can I therefore just make the point, having cited from page 216. I want to go to the bottom of 216, because your Lordship will see there:
“The independent reviewer will review the bank’s intended process for going about the redress exercise and past business review to ensure that banks will … fairly assess … fairly classify … take into account all relevant circumstances.”
106.Now, these are all process questions. These are not outcome question, they are process questions, and they are the classic exercise of a regulator. A regulator is there to ensure not that a particular outcome is reached but that a fair process is undertaken. In this situation, what has happened is that the independent reviewer has been set up to achieve those results. You do not have to have for those purposes a full judicial hearing before the reviewer, but you have to have some fair access to the reviewer and a clear line knowing what the reviewer is doing to reach his conclusions in order to understand whether that role has been fulfilled. If the independent reviewer does not do these things, does it really mean that he is only accountable to Barclays for breach of contract, or does it mean, given the line between FCA and independent reviewer, that there is a wider public law accountability? We say there is.
107.My Lord, over the page we can see in the second paragraph:
“The independent reviewer will also confirm that the redress proposed for each customer is appropriate, fair and reasonable.”
108.MR JUSTICE KENNETH PARKER: That does not, on the face of it, suggest any, I will call it quasi‑judicial procedure, does it? It is a review. It is not suggesting, is it, that the reviewer has to allow the customer make representations, has to send a “minded to confirm” letter, saying, “Have you got anything to say, because this is what we are going to do?” And then, at the end of it, produce some reasoned decision for the benefit. It does not say that.
109.MR GORDON: No, no.
110.MR JUSTICE KENNETH PARKER: But that is what you are really spelling out.
111.MR GORDON: Not really, no.
112.MR JUSTICE KENNETH PARKER: No? Are you saying that that is what the failure has been here: that the independent reviewer has not done those things?
113.MR GORDON: What the independent reviewer has to do is to ensure that ‑‑ I missed out this important paragraph. The paragraph beginning “Each bank will offer customers…” and then we get to the second sentence:
“The independent reviewer will act as an observer to ensure that the process is fair and the customer is not disadvantaged.”
114.So the importance of that is not that the independent reviewer has to set up some judicial process ‑‑ we are not going that far ‑‑ but what we are submitting is that the customer must have some access to the independent reviewer, because otherwise the independent reviewer could not fulfil the function that he has been set up to undertake that the customer is not disadvantaged by the process that occurs. Somewhere along the line there must be access.
115.Now, in this case, when we get to the substantive grounds, there was virtually no access, and that is because, according to my learned friend Mr Herberg, there is absolutely no need for any access: you are not allowed to have any access to the reviewer, he sits there just as an observer and that is it. It is not as simple as that.
116.MR JUSTICE KENNETH PARKER: I think their position is that you do look at the documents, obviously, and so you look to see what the bank was offering, and then you look at the representations coming from Mishcon in this case, criticising the bank, and then you had the bank’s response and then I think further follow‑ups. So the reviewer looks at all that, but I think their position is that there is nothing here that would suggest, then, that the independent reviewer has to go further; in other words, go back to the customer and say, for example, in a “minded to affirm” letter: “This is what we are minded to do, these are the points that you have made and we do not accept them,” or, “We do not think that they carry enough weight to cast doubt on the appropriateness, et cetera,” and that would then give, in this case, Mishcons an opportunity to come back and say, “No, no, it is you who are wrong, you are not really understanding what we have said,” and then at the end there would be a final decision, which would be a reasoned one, where the independent reviewer would set out why it is accepted that it is fair, reasonable, et cetera.
117.MR GORDON: As I think I have said, there are a number of lower thresholds with which to attract a public law function. What we say is simply this: that it is not a principled or logical position, if one separate for the moment the inability to review from grounds for review.
118.MR JUSTICE KENNETH PARKER: Yes.
119.MR GORDON: And if one presupposes that the independent reviewer is woven into the system of the regulatory scheme, the question that has to be asked is: given the relationship with the FCA and the duty to report to the FCA, the fact that the whole thing has supposedly been overseen by the FCA, does the reviewer have to do anything other than as spelled out in the contract? To which the answer is yes, the independent reviewer, because he is in this position of accountability to the FCA, has to ensure that the redress process works effectively, is fair and appropriate.
120.In order to do that, the independent reviewer cannot just be wholly separate from the customer in all circumstances. Whether or not in any particular case that duty is breached will depend upon the strength of the grounds, but it does not detract from his amenability to review; nor does it imply that the reviewer is acting as an adjudicator or a judge, and I am certainly not going that far.
121.So there is a tension or borderline, really, between the amenability question on the one hand. If we get over that hurdle, then there will be a hurdle with substantive grounds, but that does require much more factual detail than I think is probably appropriate for today. So, my Lord, the first element of the exercise is to look, as I have done, at public statements made by the FCA.
122.May I now quickly deal with your Lordship’s earlier point about alternative statutory powers? That can be addressed quite quickly. As far as that is concerned, we deal with it in our skeleton argument at paragraphs 10 to 12, and we set out the various sections that are relevant. It will come as no surprise to this court to ‑‑
123.MR JUSTICE KENNETH PARKER: Sorry, I had the skeleton separately. It looks like they have been fed in now.
124.MR GORDON: I did submit mine separately. I think that they are at tabs 9 to 12 of the hearing bundle.
125.MR JUSTICE KENNETH PARKER: All right, thank you.
126.MR GORDON: But I also have them separately.
127.MR JUSTICE KENNETH PARKER: Yes. Yes they are. Thank you.
128.MR GORDON: But as far as that is concerned, as I say, I can take this quite quickly, because the first point to make, perhaps self‑evidently, the Financial Conduct Authority is concerned with consumer protection. Paragraph 10 of our skeleton sets those sections out. I think there is a reference in paragraph 10 to section 18 of FSMA. It should not be “18”, it should be “1B”.
129.MR JUSTICE KENNETH PARKER: 1B.
130.MR GORDON: Not “18” but “1B”. It is 1B and 1C.
131.MR JUSTICE KENNETH PARKER: Right.
132.MR GORDON: So far as the FCA is concerned, and it is sections 2 and 5 as far as the old law was concerned before the amendments on the FSA. Then your Lordship said, well, there were other powers, and that is when I responded section 404. That is dealt with in paragraph 11 of our skeleton argument, and we can see that that power is triggered where the conditions that have happened here have occurred. It is quite clear that the FCA could have acted directly under section 404.
133.Now, we come to the argument that the scheme was a voluntary redress scheme, but, as I think I have indicated, the important point is not that it was semantically voluntary, it is that but for the existence of the triangular relationship between the FCA, Barclays and the independent reviewer, an alternative redress scheme would inevitably have been imposed under section 404. That is the point.
134.MR JUSTICE KENNETH PARKER: I know I am not supposed to look at the Select Committee, but it did seem to come out in what was said in the Select Committee.
135.MR GORDON: We definitely do not agree that Select Committee proceedings are immune from scrutiny in the courts, and I will come to that. The reason they are not ‑‑ if I was questioning anything said in the Select Committee I would understand Mr Jaffey’s point. We have a case, Stanley Burnton LJ, the Information Commissioner case. All we are doing is recording what was said, and for the record a number of things were said which clearly give an indication that the scheme was not voluntary.
136.MR JUSTICE KENNETH PARKER: The objections seems to be that unfortunately the actualité comes out in committee hearings, and the court probably should not be looking at that.
137.MR GORDON: But there is of course a complete answer to this, which is that if permission was given to apply for judicial review, the duty of candour will kick in and all the defendants and interested parties will have the opportunity to explain clearly whether this was voluntary or not. At the moment we have absolutely no evidence whatever from the parties about this. When one gets questions raised of this kind, one does not have to question or impeach proceedings in Parliament to say, “All right, Huddleston(?), please give us a true look at the picture.” But what is unattractive, in our submission, is for the defendant to stand behind Parliamentary privilege and say, “Well, you do not have any evidence.” It just is not the right approach to judicial review.
138.My Lord, the third aspect of this, public functions, is the generic agreement; that is to say the agreement between Barclays and the FCA, and that agreement we can find at authorities bundle 2, tab 21.
139.MR JUSTICE KENNETH PARKER: Was that a published document?
140.MR GORDON: That has been published. It is authorities bundle 2, tab 21, page 663.
141.The first thing to note about this agreement are the two recitals, recital A and B. Perhaps logically one should look at B first, which expressly records the fact that the agreement reflects the outcome of confidential settlement discussions. It is logically implicit, we say, that these confidential settlement discussions were in relation to what is in recital A.
“The FSA has found evidence of poor practices in the Firm’s sale of interest rate hedging products … and is concerned that such practices, combined with product complexity, customer sophistication and sales incentives may lead to poor outcomes for customers.”
So A and B really go together.
142.Thirdly, if we look at clauses 3, 4 and 5 at the next page, these show the stage management of this process. Paragraph 3:
“The Firm agrees that the FSA may publish statements substantially in the form set out in Annex B relating to the subject matter of the Undertaking at any time on or after … The Intended Publication Date…”
143.And the intended publication date was 29 June, so effectively this agreement, although it precedes the 29 June publication date, is saying that the FSA may publish statements at any time on or after that date. Correspondingly, at clause 4:
“The Firm agrees … it will not publish any public statement … before the Intended Publication Date.”
So, then at paragraph 5:
“The Parties agree that all future statements or actions … will be consistent with the content of this Agreement …”
So this is a process which links the voluntary generic agreement with statements, regulatory statements, that are very soon going to be made on or after the intended publication date.
144.Then we can see that this is a regulatory rather than a voluntary exercise. We can further see it on the next page, clause 8:
“This is a unique solution to a specific set of FSA concerns. It is agreed between the Parties that nothing in this Agreement or the discussions to date, including all related correspondence, is to be regarded as establishing a precedent for the FSA’s approach in the event of similar matters or issues arising in respect of other aspects of the Firm’s business.”
So what does the FSA’s approach mean? It can only mean the regulatory approach, this is a unique regulatory approach to a specific set of concerns: “Do not take it as a precedent, but this is what we are doing uniquely on this occasion.”
145.Then, if we look at the undertaking at Annexe A.
146.MR JUSTICE KENNETH PARKER: There was a confidentiality provision. That is what I was thinking of in clause 11.
147.MR GORDON: Yes, but it is now in the public domain.
148.MR JUSTICE KENNETH PARKER: Yes, but it may not have been initially.
149.MR GORDON: It was not when it was originally entered into.
150.If we then look at the undertaking at Annexe A, so that is at page 668 to 670, we can see how this ties into the generic agreement. It ties it into the issue of a section 166 notice. So at the top of the page almost:
“We, … undertake to the FSA that, as soon as reasonably practicable after our receipt of a written notice from the FSA under section 166(1) … in relation to the matters contained in this undertaking, we will …”
And then pursuant to the notice we can see:
“… carry out a review in accordance with the terms set out in the appendix.”
So that is linking the review to the issue of the 166 notice.
151.3, an undertaking to comply with that notice, so if we go over the page to (b), the undertaking is to “comply with the terms of the s 166 Notice and appoint a Skilled Person to report on our conduct of the review as set out in paragraph (a).” Finally, 4, the appointment of an independent reviewer linked in (b).
152.Can I just take very brief instructions, my Lord?
153.MR JUSTICE KENNETH PARKER: Yes.
154.MR GORDON: (Pause). If I can take your Lordship back, I can take your Lordship to page 674. We can see paragraph 3.4. We are now, I think, in the appendix rather than the undertaking.
155.MR JUSTICE KENNETH PARKER: Right.
156.MR GORDON: It reads:
“Before any redress is provided to Relevant Category A Customers, the Skilled Person will review the Firm’s assessments of the appropriateness of redress and the fair and reasonable nature of the Firm’s redress proposals. If the Skilled Person does not agree with any of the Firm’s assessments, the Skilled Person will provide the Firm with reasons for that disagreement and an explanation of why, in the Skilled Person’s opinion, an alternative approach is needed. The Firm will then put forward an alternative redress proposal for the Skilled Person to review. The Firm will not issue a provisional redress determination to a Relevant Category A Customer until the Skilled Person has agreed with the fair and reasonable nature of the Firm’s redress proposal.”
157.So I think the point I am instructed to make, which I was going to come to later, was: and you cannot even have a decision by Barclays unless and until the independent reviewer has played his part. We see 3.4 mirror in, I think, 3.6 for non‑sophisticated customers at page 675.
158.So what we say about the generic agreement which contains terms of the agreement, an undertaking and an appendix, is that everything is linked to 166, and, the same thread going forward in time, to the 29 June publication. I think, my Lord, we have handed copies of 166, the version in force at the time.
159.MR JUSTICE KENNETH PARKER: Yes. Do I have that separate?
160.MR GORDON: It is separate, I am afraid. The old one is in the bundles. But we can see from that provision in force at the time ‑‑
161.MR JUSTICE KENNETH PARKER: I do not seem to have that.
162.MR GORDON: I can hand up a separate one, my Lord.
163.MR JUSTICE KENNETH PARKER: It would be quicker that way, I think.
165.MR GORDON: So 166, “Reports by Skilled Persons”:
“(1) The Authority may, by notice in writing given to a person to whom subsection (2) applies…”
Pausing there, an authorised person it does apply to:
“… require him to provide the Authority with a report on any matter about which the Authority has required or could require the provision of information or production of documents under section 165.”
And then various provisions about the form of the notice. Subsection 4:
“(4) The person appointed to make a report required by subsection (1) must be a person—
(a) nominated or approved by the Authority; and
(b) appearing to the Authority to have the skills necessary to make a report on the matter concerned.”
166.So we see a link straight from the FCA to the authorised person to the person nominated as a skilled person. And then we see the duty of Barclays tied into this as well, subsection (5):
“(5) It is the duty of any person who is providing (or who at any time has provided) services to a person to whom subsection (2) applies in relation to a matter on which a report is required under subsection (1) to give a person appointed to provide such a report all such assistance as the appointed person may reasonably require.”
167.So again, a statutory underpinning linking Barclays to the independent reviewer’s functions.
“The obligation imposed by subsection (5) is enforceable, on the application of the Authority, by an injunction …”
168.Pursuant to all that, we have the terms of engagement and I will come to those next. But so far what we are seeing is, in my submission, that far from this being a voluntary arrangement, the only element of voluntariness in it was the fact that, without that first agreement, the generic agreement, section 404 would have been implemented. Because of section 166 we have a triggering of events; we have next the terms of engagement. So we have the notice, the duty to comply, and then we the notice itself ‑‑ sorry, the terms of engagement between the independent reviewer and Barclays.
169.My Lord, as far as the terms of engagement are concerned ‑‑
170.MR JUSTICE KENNETH PARKER: I do not know whether you can help me. Has Section 166 been used in other contexts? Or is this the first time?
171.MR GORDON: I do not know the answer to that. It may be Ms Carss‑Frisk will have some anecdotal information.
172.MR HERBERG: My Lord, it is used extremely frequently.
173.MR JUSTICE KENNETH PARKER: Right. I am just thinking there is a whole host of contexts in which it could be, and so the authority says to the authorised person: “The way we are going to proceed to get a picture of something or other is that you appoint then the skilled person.”
174.MR GORDON: Yes.
175.MR JUSTICE KENNETH PARKER: It is very likely that in many of those contexts the skilled person is going to be including in any report some facts and matters that relate to third parties. The thrust of your case then would seem to be that the skilled person in doing that is going to be subject to public law.
176.MR GORDON: No.
177.MR JUSTICE KENNETH PARKER: No?
178.MR GORDON: We have stated expressly in our pleadings that we do not automatically say that, because section 166 is imposed, it necessary follows that an appointed person is reviewable. The point here is that, if I just mentally take your Lordship back, I have lost the place now where the FCA says, “This Is a unique response to a particular situation.” The terms of the way in which the FCA has dealt with it, how often ‑‑ I could ask a series of questions ‑‑ how often does the FCA make public statements about the imposition of a section 166 power? How often does it use it as an alternative to a section 404? How often ‑‑ these are questions which, if they are all answered, and the FCA frequently makes public statements to reassure the public about a unique situation, and I cannot hear Mr Herberg being likely to say that, then yes, I would not shrink from the proposition that public law attached to each and every such situation. But this was a unique situation where public confidence in a particular system was needed, and a whole series of transactions, for want of a better word, were then entered into.
179.MR JUSTICE KENNETH PARKER: Right. So you are not submitting that as a general matter the independent person would be reviewable; you have to look at the full context.
180.MR GORDON: No. We have not made that submission.
181.MR JUSTICE KENNETH PARKER: Because on the face of it, it could be used simply to find out, for example, the nature and extent of certain transactions that have occurred in a banking or financial market.
182.MR GORDON: Absolutely.
183.MR JUSTICE KENNETH PARKER: It may involve then that independent person making critical observations about the third parties, and if there was a general amenability to judicial review, it would raise questions, would it not, about who would want to be an independent reviewer if you have got to go through some sort of quasi‑judicial procedure to ensure that anything that you are going to be saying to the authority in such a report has complied with such a procedure.
184.MR GORDON: My Lord, our position is really quite simple in analytic terms. It is not an answer, we say, to it to say “Well, there is a contract,” and that is the answer that each of the parties gives. If that is wrong, the only exercise to be performed is by reference to the facts of particular cases. Is, in the present situation, the independent reviewer in a unique exercise of statutory authority? Not unique because section 166 is invoked but unique in the context in which it has been invoked. Is there a sufficient public law flavour to make the independent reviewer amenable to review?
185.We say that this is the case in the present case. It is an unusual situation and there is no authority on it. One can only apply principle. But what we do submit is that it is undoubtedly arguable that the independent reviewer, in a context such as the present, is amenable to review. It follows from the Beer case, really. This is the way Dyson LJ put it: if the source of the power does not give a clear answer, then you must look at the nature of the power in the individual case. We say the source of the power in a case such as the present does not give a clear answer. We accept that.
186.But we then move to the terms of engagement, and it is worth looking at those too. If your Lordship goes to the hearing bundle, hearing bundle 1, at tab 6, this is the contract which Barclays says is purely a private law contract. So if I can ask your Lordship to look at page 163.
187.MR JUSTICE KENNETH PARKER: Yes.
188.MR GORDON: This is, I think, clause 8:
“Our work will be performed …” this is KPMG “… to enable the firm to comply with the draft requirement notice…” that is the section 166 “… by commissioning a skilled person’s review and to facilitate the discharge by the FSA of its statutory duty including its regulatory and enforcement functions in respect of the firm.”
189.So this is not just, I think to use your Lordship’s words, a look at a particular situation, a snapshot in time. That would not be amenable to review probably. But this is to facilitate the discharge of the FSA’s regulatory functions and enforcement functions. So we say that takes it outside, will take it outside, many uses of section 166.
190.Then, if we look at appendix 3, which we can find at page 172, these are additional terms ‑‑ you can see that from the top of the page, in bold ‑‑ additional term to clarify the independent reviewer’s responsibilities under the Act and the rules of the FSA. If we look at paragraph 9 we can see that:
“These additional terms clarify our responsibilities under the Act and the Rules of the FSA under section 5(5) of the FSA’s Supervision Manual which will not be treated as extended or adding to our obligations…”
So that could not be clearer. Then if we also look at paragraphs 22 to 24 at the next page, page 173.
“In accordance with supervisory manual 5.5.1 we shall be permitted to communicate direct with the FSA information on or opinion on matters of which we have become aware in our capacity as a skilled person where we reasonably believe there has been or may have been contravention of any relevant requirements, (Inaudible)“
And so forth. 23:
“We shall bring the matter to the attention of the FSA without undue delay…”
191.And these are all matters dealing with the obligations towards the FSA itself. Then, perhaps, clause 30 at the next page:
“Our work as a skilled person under the services contract shall be performed for the benefit of the firm and for the benefit of the FSA. The FSA shall have rights under clauses 16, 17, 21, 22, 29, 30 and 31 of these additional terms in respect of our duties and responsibilities in connection with our report as if conferred on the FSA directly.”
192.So this is a term which brings in the FSA, and we can see that from paragraph 29, actually, clause 29 on the previous column:
“As a third party to the services contract under clause 26 the FSA shall not acquire any contractual rights. On the basis set out below, therefore, clause 26 shall be deemed to have been varied to allow the FSA to acquire rights under the services contract in respect of our report on the basis set out in the following clauses.”
193.And so there is the direct contractual link, if one needs it, between the FCA, FSA and the independent reviewer. But it is underpinned ‑‑ this is really the point ‑‑ underpinned by statute.
194.Although it is said by the defendants that there is nothing in the contract that requires fairness, the point is that the reviewer, in the capacity he is acting in, has to ensure that the customer is not disadvantaged. It was obviously seen or perceived by the independent reviewer that they could face legal proceedings in relation to their functions.
195.MR JUSTICE KENNETH PARKER: They got an indemnity.
196.MR GORDON: And that is why they got the indemnity, and that indemnity was put into the contract.
197.Reference has been made to the supervisory manual. I am not going to take your Lordship in any detail to it, but we have got both the version in force now and the version in force at the time of the appointment. Your Lordship has that somewhere, I think, and we have set it out in our skeleton argument. Can I just give your Lordship the references?
198.MR JUSTICE KENNETH PARKER: Yes.
199.MR GORDON: Paragraphs 26, 27 and 28. May I just take or extract from the supervisory manual the following obligations which are recited in paragraph 28 of our skeleton:
“5.5 imposes a number of duties on authorised firms including (Inaudible) in relation to section 166 appointments. In particular SUP 5.5.1 and 5.5.5 require a firm when contracting with a skilled person to impose duties which the contract must specify are enforceable by the FCA…”
200.So again, that is what the link that I referred to earlier is made:
“… to co‑operate with the FCA in the discharge of its functions under FSMA in relation to the firm in question and communicate to the FCA information on or his opinion on matters of which he has or had become aware in his capacity as a skilled person in certain circumstances.”
201.So this takes me to the submission that the generic agreement, although entered into voluntarily by Barclays, if you look at this atavistically was but part of an interlocking scheme of FCA then FSA regulatory control, which was itself one of the available regulatory approaches available to the FCA. The notion advanced by the defendants and interested parties is that in deciding the public functions issue, (Inaudible) would latch on uniquely and exclusively to a contract, we say is hard to fathom and is in any event misconceived.
202.So I have gone through the public statements of the FCA, and we have looked at alternative statutory powers and at the generic agreement. My Lord, the fourth element which we have set out in our skeleton argument is “other materials”. This is where one goes into Parliamentary materials. Can I take your Lordship very quickly through those, without dwelling on them, because in fact when one actually analyses them they do not necessarily add a huge amount to what I have already.
203.In paragraph 14 of our skeleton, your Lordship will see the evidence given by Mr Griffith‑Jones, the Chairman of the FCA, to the Treasury Select Committee entirely consistent with the 29 June publication.
“If we, as a regulator, are to do mass redress schemes, of which this is classically one, we have two ways of doing it. Either we go through the law courts, which takes a very great length of time and costs a very great deal of money, or, as a proactive regulator, we go out on the front foot and say, ‘This is how we are going to do it’, and the necessary part of ‘this is how we are going to do it’ is coming to an arrangement with the banks that is ‘voluntary’, or at least contractually voluntary, to do it that way. If they refuse, we end up in the law court and we get into a PPI‑type situation.”
204.Then at paragraph 19 you will see the continuing close oversight by the FCA of the independent reviewer’s conduct. There is a letter dated 29 September 2014. My Lord, that letter is dated 29 September 2015, but it is 2014, and it is to be found at authorities bundle 2, tab 29, pages 916 to 919, and the extract that I think we have in the skeleton argument appears at page 917:
“So now that the case is being reviewed we are continuing to provide close oversight of the independent reviewers. The independent reviewers report regularly to the FCAboth on the judgments they are making and how the banks are performing and we regularly bring all the independent reviewers together to ensure a consistent approach to assessing claims and determining redress.”
205.Then we have a process point, made by Mr Wheatley, the Chief Executive of the FCA, paragraph 20 of our skeleton:
“Question: What do banks have to show to the skilled person in order to enable to them judge (Inaudible) fair and reasonable?
Typically they show all their documentation around the original agreement. Typically the skilled person will take representations from the small business as well. They would perform their own calculations and come up with a view as to what they thought was appropriate and if they felt the bank’s original offer wasn’t they would push back against the bank’s original offer.”
206.Now, to say that typically they would take representations means no more than that: in a particular case, it might be essential to the performance of their function to take representations. It does not entail the consequence that one necessarily in every case or most cases has to have anything like an adjudicative hearing of any kind. But if the Chief Executive of the FCA is saying this is typically what happens, if it does happen typically, it is a little difficult to understand Mr Herberg’s contention that actually the reviewer’s functions require no fairness whatever.
207.Importantly, if it is going to be said against me, as I think Mr Jaffey’s mantle has borne, that in some way what happens before a Treasury Select Committee can be disregarded, what we say is: well, please tell us how the system is working in practice so that we can refine our grounds if we have to. That is currently how we put our grounds. We say this is a case where representations were needed. We say historically the Chief Executive of the FCA has said that is typical of what happens. It has not happened in our case, and we say it should have happened in our case.
208.It is also the case that the FCA has confirmed ‑‑ this is paragraph 21 of our skeleton ‑‑ its investigatory role. I do not think I need go through that any more.
209.My Lord, that takes me to the end of my analysis. All I need to do now, very quickly, is to look at the arguments ranged against us in the recently lodged skeleton arguments. I can do that very quickly, given what I have already said.
210.MR JUSTICE KENNETH PARKER: Do you want to say anything on alternative remedies?
211.MR GORDON: I am going to come to that right at the end.
212.MR JUSTICE KENNETH PARKER: The ombudsman and ordinary legal redress for breach of contract.
213.MR GORDON: Yes, I am going to deal with that.
214.MR JUSTICE KENNETH PARKER: Okay.
215.MR GORDON: But, my Lord, in relation to the arguments ‑‑ well, as far as the independent reviewer is concerned, it is argued, and I will give your Lordship the references to the skeletons, paragraph 3(a) and 16 appears to argue that because there is a contract between Barclays and the independent reviewer, that shows that our claim is misconceived. We say that confuses source of power with functions; it ignores the three‑way regulatory relationship that I have mentioned. Further, what is interesting is ‑‑ and all of them do it, all of the parties do this ‑‑ they argue against us that by reference to cases such as Aegon and Mooyer we must lose because this case is a fortiori Aegon and Mooyer.
216.I only need to perhaps say this to your Lordship at this stage, the permission stage: both of those cases were cases where there was a contract between A and B; in other words, the person seeking review was in a contract with the Aegon case. It was, I think, the first judicial review of the Insurance Ombudsman Bureau, attempt to review them. I had the misfortune, I should say the good fortune, to appear as junior to Nigel Pleming in that case. We did not succeed. The reason we did not succeed was because there was a contract between the IOB and us. Now, whether nowadays that would have been enough to kill that case I do not know, but that was the case then. It was also the case in Mooyer: there was a contract between the body sought to be reviewed and the person seeking judicial review. So to use those cases, as Mr Herberg does, against us we say misunderstands the role of contract in judicial review.
217.Then, at 3(a) Mr Herberg says ‑‑ we say despite overwhelming material to the contrary ‑‑ he says the functions undertaken lacked any public law underpinning. Well, I have spent possibly the last hour explaining what the public law underpinning is, and we say certainly that is arguable public law underpinning.
218.MR JUSTICE KENNETH PARKER: You start with section 166. I think it is put that that is irrelevant, but you say it is highly relevant because it shows how the independent reviewer comes into existence.
219.MR GORDON: Exactly.
220.MR JUSTICE KENNETH PARKER: And you say the independent reviewer in a way is part of the regulatory function in a broader sense.
221.MR GORDON: Yes. Well, that leads me to the argument against us in, I think, 3(b). It is said that 166 was addressed to Barclays. All right, true, but uninteresting because that is not the point; it is the tripartite relationship that is the point, which is triggered by the 166.
222.Finally, Mr Herberg says at paragraph 3(c), well, this was a voluntary arrangement, the redress agreement was voluntary, and I hope I have said enough to show that it was not voluntary in substance.
223.MR JUSTICE KENNETH PARKER: It is part of the contractual point, I think, is it not? It is really another way of putting the contractual point. In other words, you have a contract that has been voluntarily entered into between two parties. The two are in the private sector: what does that have to do with public law? So I think that is ‑‑
224.MR GORDON: Except that the contract with the independent reviewer was not voluntary, of course. What I think Mr Herberg is saying is ‑‑
225.MR JUSTICE KENNETH PARKER: Sorry, the contract between the bank and the regulator.
226.MR GORDON: He is saying that was just voluntary, but the answer is it was not voluntary, it was tied into all the regulatory action that was going follow.
227.My Lord, so far as the FCA is concerned, paragraph 10, Ms Carss‑Frisk says the legal source of the defendant’s function is purely contractual. We say, well, having gone through all the submissions, that is not enough to knock this case out. It seeks to bypass the nature of the three‑way relationship that existed. It is said, paragraph 11, that because the defendant did not set up the redress process it was not performing the public function. I do not understand that argument because you do not have to set up something to be a player in a public law regulatory scheme.
228.At paragraph 12, Ms Carss‑Frisk makes a number of points and I have referred to these already, because what she does is take things at a (Inaudible) rather than putting them together, and what do you do with the weaving‑in process than weave things in together, which is what we say has happened here?
229.Then paragraph 13, another point that I think hopefully we have dealt with, it is said against us by the FCA that because we do not contend that all exercises of the section 166 powers are necessarily amenable to review, that means our submissions are flawed. Well, it does not; all it means is that one has to look in some cases at the nature of the function with a great deal of care. And that is one of these cases, we accept that. There is no authority on this. It is an interesting and important point, but we do submit that the interest and importance it carries should not be killed at the leave‑for‑permission stage by a series of arguments that are misconceived.
230.Then, I think paragraph 19 of their skeleton, the FCA say, “Well, you do not have a ‘but for’ argument because you do not know if the FCA would have acted under the 404. You might not have done.” Well, obviously in the “but for” scenarios one has to make inferences. That is what the courts do all the time in the “but for” test.
231.It is finally said at paragraph 20, this was loose drafting no doubt by us when we referred somewhere in our pleadings to the independent reviewer making a decision. You do not need to have a decision to be amenable review; you have not needed that had since EOC in 1990. It is a public law function. You can deny fairness, there is no decision, but there it is.
232.Finally, as regards Barclays’ submissions, we say the following. Barclays at paragraphs 5 to 6 attack us on Parliamentary materials. Well, we say three things: first of all, Parliamentary materials are admissible because we are simply using them for record purposes; secondly, to the extent that Barclays wants to, it can put its own position in in evidence; and thirdly, we do not even need the Parliamentary materials because, as I think your Lordship will have gathered from my address, they form part of the picture but certainly not the whole picture.
233.Secondly, paragraph 9(a), Mr Jaffey says customers are owed no duties under the contract with Barclays, and so that is the end of the power argument. Again, that argument is one we have met and we say there is an answer to it.
234.The only public law decision Barclays say at paragraph 9 is that under section 166. Well, that is the (Inaudible) approach to this: 166 triggers the whole intergovernmental scheme.
235.Finally, paragraphs 9(c) and (d) attack us for a proposition we have never maintained. We are not saying the independent reviewer could direct Barclays to do anything; what we are saying is that without the independent reviewer’s functions being performed, you cannot have a decision by Barclays, and I have shown your Lordship the paragraphs of the contract which establish that.
236.My Lord, those are my submissions on amenability. On alternative remedy, we say that the suggestion that we have an alternative remedy in private law or by some appeal to the Ombudsman is analytically flawed, because the whole point of creating the independent reviewer ‑‑ I will come to the FOS in a moment ‑‑ but the whole point of having an independent review and redress process was because of the inadequacies of private law. It was to enable non‑sophisticated customers to be able to have a cheap and easy redress scheme which would save them from having to enter the vicissitudes, and one might say considerable hazards, of the common law, quite apart from the expense.
237.The whole establishment of the redress scheme was not what was a deliberate alternative to going outside it, and it was a benefit, and if that benefit has not been lawfully adhered to, judicial review is the only remedy for ‑‑ using the word in a different context ‑‑ redress.
238.More, should the claimant in our submission be required to pursue an appeal to the outcome of a redress scheme when it is the legality of the process that is in contest, the fact that Barclays say, “Well, of course, ultimately we want our money,” is true: of course we do, but we want it under a scheme that is designed to be cheap, effective, lawfully administered, and that does not disadvantage us using the FCA’s public statements.
239.We note ‑‑ and I may be corrected by Ms Carss‑Frisk ‑‑ that the FCA itself does no raise alternative remedy, but where the independent reviewer raises it, and even Mr Herberg, paragraph 29 of his skeleton, accepts that it is more onerous and less advantageous, the alternative remedy, than pursuing the redress scheme. What he says is, however, “You are not entitled to judicial review, therefore, you have to proceed by an alternative remedy.” But that is the wrong premise, because alternative remedy is premised on the fact that you have got (Inaudible) judicial review, but the alternative should be pursued as a matter of discretion. But we say that to do that would be to miss the point.
240.In relation to the Ombudsman, which is I think one suggestion, we are outside the jurisdiction limits of the Ombudsman. That appears in Mr Alderman’s[?] statement at paragraph 38, hearing bundle 2, page 208. But in any event, exactly the same objection ‑‑
241.MR JUSTICE KENNETH PARKER: For what reason outside the limits?
242.MR GORDON: I am not sure, my Lord. £150,000.
243.MR JUSTICE KENNETH PARKER: I see, the financial remedy.
244.MR GORDON: The financial remedy. So not alternative remedy, even on the baseline of fact, but exactly the same arguments apply to the Ombudsman. The Ombudsman appeal system is to the outcome of a review; it is not to the legality of the process. The legality of the process is what we are complaining of. So there is no alternative remedy at all in private law or in relation to the Ombudsman’s service.
245.My Lord, that leaves me only with the grounds of challenge, and those grounds are not really grappled with by the defendants or the interested parties. Our essential point is this: it is common ground, see paragraph 57, I think of our skeleton, it is common ground that the independent reviewer, his existence ‑‑ sorry, let me put it as it is put in the skeleton. The independent reviewer accepts that the claimant was not informed as to how the review process operated, and the process that was followed was not designed or intended to provide procedural fairness to customers. So that is what is said. We say quite simply: look at the further document, the one that postdated the 29 June publication, which sets out a series of points but materially says the service was there to ensure that customers were not disadvantaged. What [consider?] the statement in Parliament that typically the independent reviewer is taking representations. We are not saying that in every case one has to have anything like a formal judicial process; what we are saying is that this is a case where we should have been given more than we were. To be fair to the defendant and the interested parties, I do not think at this stage, given the context of what we are really here for, that a huge amount of obstruction is being placed in our way on substantive grounds. The real thrust of the fire against us is on amenability to review.
246.MR JUSTICE KENNETH PARKER: You are saying that there were serious issues raised by you as to the calculation of the loss. That is what I understand to be at the heart of this: the consequential loss. Am I understanding that right?
247.MR GORDON: Yes.
248.MR JUSTICE KENNETH PARKER: That the bank is saying, “Well, you should not have had to buy this product that was wrong, and therefore it had a cost that was avoidable, and you were out of the pocket because you had bought it and we will now compensate you,” and some sort of interest figure is mentioned. But your case is broader than that: you are saying that it caused you cash flow difficulties, and that then at least contributed to, as I understand it, the failure of the business, and you say under normal principles that was the kind of consequential loss that would have been within the scope of the foreseeability and also of really the assumption of liability of someone who is party to the contract.
249.MR GORDON: That is essentially it. We basically say that but for the connection between the misselling and the (Inaudible), what Mr Jaffey says ‑‑ he is the only one actually I think to confront this head‑on ‑‑ is whether you have gone into liquidation, anyway you can see that. You have made your representations, they were all considered in the final decision. I should say the final decision is, I think, one and a half pages. It is like the decision maker saying, “I have taken all the representations into account.” There is an issue there. It is by far the least interesting issue of that ‑‑
250.MR JUSTICE KENNETH PARKER: There is a “but for”, is there not, but there may also be a foreseeability assumption of liability point as well. I do not know, because I certainly have not got into the merits of this.
251.MR GORDON: But I do not think any of us have really ‑‑ also, this takes us into Mahon v Air New Zealand and (Inaudible) territory. We do not know what documents or materials the bank are relied on to make its decisions, and actually, if we knew what you were relying on, we might be able to add A, B or C. All I will say is there clearly are, we say, factual and legal issues other than, but also of course most notably including the procedural fairness issue. It is not going be easy to resolve those clearly on a permission application.
252.MR JUSTICE KENNETH PARKER: I think you are submitting that not all cases require anything like ‑‑ I will loosely call it “quasi‑judicial procedure” ‑‑ but you say if you raise serious matters of fact and law then that is a case where it may require something a little bit more thorough.
253.DEFENCE COUNSEL: Yes, and we need to have some idea of how it is being treated, what was actually being looked at. But those, in essence, are our submissions. We say if we succeed on amenability in terms of arguability, your Lordship should run permission. Certainly at the permission stage it is not right to say we do not have substantive grounds or that there is an alternative remedy. Maybe, it is possible, that each of these elements of the case will fall to be considered on the full hearing. I am not sure that any of us would expect your Lordship to say, “The independent reviewer definitely is susceptible to review, I have heard argument,” or anything else.
254.MR JUSTICE KENNETH PARKER: No, that is not what I have to do today, no.
255.MR GORDON: No. But what I think your Lordship does have to do is to say, well, if the defendants have succeeded, there is nothing in this case, it is misconceived.
256.MR JUSTICE KENNETH PARKER: Well, I say that their points are knock‑out points.
257.MR GORDON: Yes. My Lord, those are our submissions.
258.MR JUSTICE KENNETH PARKER: Thank you very much.
259.Yes, Mr Herberg.
260.MR HERBERG: My Lord, not withstanding Mr Gordon’s submission, we do invite your Lordship to find that you can and should be satisfied that this claim is not properly arguable at this stage. You can and should put a stop to what would inevitably be inadvertently long and expensive litigation against a multiplicity of interested parties and defendants.
261.My Lord, in essence what we say is the vice of Mr Gordon’s submissions is that claims it to be a unique case; he does not ‑‑ rightly, we would say ‑‑ go to the extent of saying that every section 116 appointment would result in the performance of a function that was amenable to review. The consequences of that would be seismic, if I can put it that way. It is a frequently used power, and control by the courts on judicial review would have very serious consequences if that were the case. He shrinks from that proposition, and we say rightly, both as a matter of principle but also on analysis of the particular powers.
262.But, in fact, we say there is some smoke‑and‑mirrors going on, because although the case is said to be unique, almost all of the factors which he relies on to establish amenability in this case are factors which apply in every single case of section 166 appointments. In every case, the authority will have regulatory concerns that lead to the appointment, and the appointment will be made in order to assist it. In the most general of terms, it is carrying out its regulatory and supervisory responsibilities and its functions under FSMA.
263.Now this case may be a big case, in terms of the number of firms potentially affected and the extent of public disquiet caused, and clearly a matter of controversy at the time of the appointment. So they may have led to press statements that would have been made in every case. But that is a difference in scale, that is not a difference in kind, and we say, when I analyse Mr Gordon’s submissions closely to I hope elicit this, we say that there is really nothing that he can latch onto in this case to identify, to take it out of the run of every other case of section 166 appointments.
264.It is also of fundamental importance, we say, to appreciate properly the nature of the exercise being performed, not really by the skilled person but by Barclays Bank. We say it is fundamentally wrong to describe this as anything like the quasi‑judicial process of deciding on claims and adjudicating on them, such as in the Ombudsman cases to which I will come. It is not that sort of case at all. This process is a process of a bank deciding to make offers of compensation in cases where it is alleged that it has committed regulatory breaches. This is a regulatory supervised, no doubt, and regulatory scrutinised process, yes, and of course the skilled person plays a role in the scrutiny, but at root it is not a quasi‑judicial process whether by a skilled person or by the bank; it is a process of coming to a decision of making offers of compensation.
265.As the FCA itself said in announcing the scheme ‑‑ I will take you to this in due course ‑‑ if recipients do not like the offers they are getting, their remedy is to the FOS or to the courts. It was not intended to be a self‑contained process that we say that effectively should give complainants some right, as you have in the Ombudsman process, to a (Inaudible) compensation.
266.There is a fundamental misconception in regarding this as a quasi‑judicial process, which of course then leads to what we say are fundamental flaws in asserting public law duties on the skilled person. There would be the same flaws if there were said to be duties on Barclay’s bank to a considerable degree in suggest elaborate procedural fairness, reasoned decisions and such like. It is to graft completely the wrong quasi‑judicial model onto a very different process.
267.Although Mr Gordon, as I heard his submissions, rather side‑stepped the question of exactly how far the duties actually extend as a matter of substantive grounds of review, exactly what procedural rights might apply and say well that might be for the future (Inaudible) that is separate from amenability, we say is not separate; it is intimately connected, it is a very strong indication that a skilled person is not amenable to review, that the substantive duties which he asserts fall on the skilled person are completely inapposite for the role which he was performing, and that role of course is a role which is set out and defined wholly and exclusively by contract.
268.My Lord, where I seek to proceed, subject to your Lordship, is as follows. I was going to address shortly at the outset general legal principles which are applicable. They are in general well settled and not in dispute, although of course there is an issue as to the role of contract which I was going to take later on, but I think I should take upfront as Mr Gordon did.
269.MR JUSTICE KENNETH PARKER: Yes.
270.MR HERBERG: We say misinterprets the role and the reliance we place on contract. Secondly, I will address the factual matrix within which KPMG provided services as a skilled person. Mr Gordon has already taken you to the relevant documents, but I want to come back to them to assist you further on other matters. Then I will turn to amenability very shortly as to why there is on that factual matrix no possible public function or function with a sufficient public element or nature being exercised here. Finally, I will address shortly why in any event the defendant clearly does not owe public law duties alleged by the claimant, the point in particular about procedural fairness which was, we say, not a separate question but is very directly relevant to amenability. I then go to Mr Jaffey for the bank that the further point that in any event there is nothing to the substantive ground. It is not a follow‑on point, it is a point which we endorse, because if of course the bank did nothing wrong in terms of its decision making, substantively or procedurally, then it can hardly be said that the independent reviewer in pronouncing on the fairness and reasonableness of the bank’s approach erred in any way. (Inaudible) that since the bank was primarily in the first instance dealing with that, observed by the skilled person, I leave that to him. But we certainly seek to take benefit, if I can put it that I way.
271.My Lord, as to the legal test, the framework in which the body is amenable to review is not substantially in dispute. I gave reference in my skeleton at paragraph 15 to De Smith’s for an overview. I will not take your Lordship to those passages. They are quite helpful to the extent that they are paragraphs, as it were, identifying bodies which have been found to be amenable to review and not amenable to review, and it gives, as it were, background as well as enunciating principles. It goes no further than that.
272.But summarising shortly the central principles, we agree with Mr Gordon that judicial review is available over the exercise of public functions but not private functions. It is a functions‑based test. A public function may be exercisable by a private body, it is possible, so as to render that function amenable to judicial review. So a statutory function, for example, can be conferred on a completely private body, commercial or with no statutory or anything whatsoever, and in that case judicial review may lie.
273.My Lord, often, if not usually, public function will be identified by reference to the source of the power. The source of the power is still highly important. It comes from legislation or some other public source, but it is common ground that in some cases it is helpful to look at the nature of the power or the function as well as the source. That, of course, is Datafin. It is Lloyd LJ as well as the Master of the Rolls, Sir John Donaldson. The relevant passage cited in the claimant’s skeleton is paragraph 46, and we do not dissent from anything that is there set out. In such cases, we say, the nature of the power or the function must be examined to see whether the decision had a sufficient public element or character. Again, here paragraph 16 of Dyson LJ does not in any way dissent from that.
274.We do then say as the last of our general propositions, which I had not thought to be controversial ‑‑ and listening to Mr Gordon I am still not really sure the extent to which it is controversial ‑‑ where a power being exercised is contractual and/or voluntary and has no statutory basis, it is unlikely to be within the scope of judicial review. Now, Mr Gordon attacked, as I understand it, or made two submissions in relation to that proposition. First of all he characterised our reliance on contract, and we are relying here effectively on two contracts: a skilled person appointment and the bank’s voluntary redress scheme. He characterised that reliance as inapposite because contract is all about consensual submission to the jurisdiction, and here his client, the claimant, did not consensually submit to any jurisdiction, save of course that they did choose to engage with the redress scheme and apply it. Only in that sense.
275.But, my Lord, the relevance of contract is not simply of course about consensual submission to the jurisdiction, and he himself in the other points in his submissions seemed to accept this in saying that the contract was not a knock‑out blow. He is accepting, it would appear, that it was relevant to something short of a knock‑out.
276.My Lord, that is our position too. The fact that powers arrive from contracts, and then the powers are exercised in a contractual context and they are defined in scope by contract, are all highly relevant factors, we would say. They are the source of the power but they are also, of course, relevant to its nature or exercise. You cannot separate them off in that way and try and put them into a box which are not relevant, except in cases of consensual submission. They pop out at all points in the case, my Lord. For example, when one comes along to the substantive powers which are alleged, the substantive duties which are alleged by the claimants to lie on the defendant here, they allege powers which are flatly contradicted by the very contractual delimitation of its role in relation to the contact with customers and to give them reasons and to other matters.
277.Fundamentally, we are engaged in a confidential reporting process to the FCA and the bank. That was the contractually delimited extent of KPMG’s role. What is grafted onto that are public law powers, quite different in nature and extent. We say, my Lord, that the fact of contractual obligations and the fact that they come from contract rather than some other source are absolutely central in seeking to assess public law flavour.
278.We say in this case, in reality, the powers start and end with the contract and that Mr Gordon’s attempts to detect the public law flavour on top of that really collapse back into factors going to the fact that this was a high‑profile case, public statements and the like. Although we are to perhaps some extent criticised for atomising things, it is absolutely essential to go through the various arguments which are pressed in favour of amenability to review to really test how far they stand up according to KPMG’s role as set out under the contract.
279.My Lord, while I am dealing with contract, it might be helpful just to make short submissions on Aegon Life and Mooyer, because of course these cases are highly relevant, we would suggest, to your Lordship, because of course they are the closest factual analogies to the situation before your Lordship. They are in two ways, however, we would submit, far more favourable to the claimant than is the case here, firstly because the Ombudsman in both of those cases was set up, created or administered by a self‑regulatory body which was itself subject to judicial review. So Lautro/PIA were, in those cases, certainly by the time of the hearing in the first case, if not originally, themselves bodies which exercised public functions. Despite that, the Ombudsman’s schemes which they had set up were held not to have a sufficiently public nature. That is the first respect in which those cases are more favourable to the claimant.
280.The second respect, my Lord, is a feature I have already averted to, which is the fact that there one was clearly dealing with a quasi‑judicial situation. The Ombudsman in those cases was quite clearly hearing representations from the complainant and a firm and reaching a decision based on the merits made to it. So it is quite clear, one can immediately see how it could be said that duties were owed to the claimant, because the function being performed adjudicating on a claim was obviously a function which was directly being carried out in relation to the claimant, quite unlike, my Lord, here, where KPMG is performing a confidential reporting function to the bank and to the regulator. Completely different starting point. Notwithstanding those two substantial differences, the courts in Aegon Life and in the Mooyer case did not find amenability to review.
281.My Lord, can I take you back shortly to those two decisions? First of all, Aegon Life, which is in the first authorities bundle at tab 6. My Lord, I pass over summarising the history and the character of the IOB. At page 226, one sees Mr Pleming ‑‑ and, I should add, ably supported by Mr Gordon’s submissions for the claimant ‑‑ set out under page 91.
“It is common ground that Lautro is subject to judicial review…”
282.So that is my point that the SROs, which are effectively either set up or now responsible for these bodies, are themselves bodies exercising public functions. The next paragraph:
“For the Applicant, Mr Pleming submitted that, just as Lautro controls its members by a process of contracts supported by the Act, so there trickles down to the IOB a discharge of government functions coupled with controls through consent, the IOB being woven into a wider system of government control, the Government having accepted a self regulating regime as an alternative to legislative intervention in the private insurance sector.”
283.So there is, as it were, the “but for” test being suggested at well. Then that is made clear at the end of the paragraph:
“But for the system of self regulation in which the IOB plays a central role, it is highly likely that the Government would have imposed a statutory regime regulating insurance contracts.”
284.Then moving forward, I think Mr Gordon took you to principles delivered from the Jockey Club on page 228.
285.MR JUSTICE KENNETH PARKER: Yes.
286.MR HERBERG: And in particular relied on the second principle:
“A body whose birth and constitution owed nothing to any exercise of governmental power may be subject to judicial review if it has been woven into the fabric of public regulation or into a system of governmental control or is integrated…” et cetera et cetera.
Then there are various ways in which that test is put. Those were endorsed as touchstones of amenability to review.
287.My Lord, it casts some light on the status of those principles or the test to be applied, if one turns over the page to 229 and looks at three paragraphs from the bottom, holding in relation to this case:
“The IOB’s power over its members is, as it seems to me, still, despite the Act, solely derived from contract and it simply cannot be said that it exercises governmental functions. In a nut‑shell, even if it can be said that it has now been woven into a governmental system, the source of the IOB’s power is still contractual, its decisions are of an arbitrative nature in private law and those decision are not, save very remotely, supported by any public law sanction. In the light of all these factors, the IOB is not in my judgment a body susceptible to judicial review.”
288.So, my Lord, the point there is that it was not said to be enough that there might be a weaving of the functions to a governmental function. In that case, in spite of that, the contractual source was sufficient to defeat the claim.
289.Now, it is absolutely true, as Mr Gordon said, that contract may be relevant in some ways. In some cases it is a contractual submission by the claimant. That is not the case here, save to the extent that the claimant chose to use the system. But that is not always the case, and that the relevance of contract is not restricted to that can be seen from Mooyer, which of course was not a claim for review by a firm which had consensually submitted to the jurisdiction. My Lord, that case is in the same bundle at tab 10.
290.MR JUSTICE KENNETH PARKER: What is the different, then, between that and the Takeover Panel? I am just trying get my finger on what the differential is, because if the court is there saying, “Well, it can be interwoven, but it is still contract alone,” how would you justify the Takeover Panel.
291.MR HERBERG: My Lord, what one has to look for of course in every case is a whole constellation of potentially relevant factors, we accept that. It is hard to reduce it to a matter of words, but in the Takeover Panel case the judge found, we would say that the central finding is that the Takeover Panel plays an essential, integral part in the public regulation of an important matter.
292.MR JUSTICE KENNETH PARKER: Is insurance not important?
293.MR HERBERG: My Lord, insurance is important, but if one looks at the way that he described the nature of the scheme. Back to page 229, my Lord. We may have been strongly influenced by the very sentence above the passage I read to you:
“But the very reason why the Bureau was set up in the first place was to improve the image of insurers by setting up a cheap, informal and independent procedure so that insurers would not be regarded as sitting as judge and jury in their own cause to protect their own interests.”
294.Now, that can perhaps be said in contradistinction to the way the Takeover Panel was regarded. The reference to judge and jury has of course been picked up in this case, my Lord, but the whole point there is that in Aegon Life one was dealing with a quasi‑judicial scheme involving an ombudsman. Very different in this case, we say.
295.MR JUSTICE KENNETH PARKER: But that is an aspect of the public interest, just like the Takeover Panel is an aspect of the public interest. In other words, the members of the Stock Exchange say, “You get the privilege of listing, but then when you are listed and you are engaged in acquisitions or other similar activities, these are the rules we expect you to comply by in the public interest.” It just seems the court seems to be diminishing the public interest there: “Oh, it is just, you know, so they have a better image,” but in the Takeover the court says, “Oh no, this is terribly important.”
296.MR GORDON: My Lord, what we say is an important distinguishing feature here is the extent on the face of its contract; that effectively the takeover panel body was applied to any public company.
297.MR JUSTICE KENNETH PARKER: Well, it is a contract but this is a listing, is it not?
298.MR HERBERG: My Lord, yes.
299.MR JUSTICE KENNETH PARKER: “We are giving you the privilege of listing, but here are the rules,” and that is why it was such a difficult case at the time, because obviously the authority was saying “No, it is contracted (Inaudible).”
300.MR HERBERG: My Lord, I accept there was a contract but what I can point to perhaps is the way that the court here regarded perhaps the significance or the importance of the scheme being set up, the choice of forum. At the top of the paragraph:
“Since the Act, as before, the public do not have to use the ombudsman. They can instead sue insurers in the courts. If they go before the ombudsman, because he is not limited to purely legal considerations, in many cases their prospects of success will be better. But they have the choice of forum.”
301.Now, that could not be said in relation to the (Inaudible).
302.MR JUSTICE KENNETH PARKER: Right.
303.MR HERBERG: My Lord, the point I was coming on to was the Mooyer point, which is, as I say, tab 10 of the same bundle.
304.MR JUSTICE KENNETH PARKER: Sometimes there are pragmatic considerations at the back of all this, are there not, that the court is saying really as a matter of policy we are not going to have scores of people coming into the Administrative Court, the Crown Office as it was then, making a fuss about what the Ombudsman has done, going to swamp this court, whereas that was not such a fear it was sought perhaps in relation to the Takeover Panel.
305.MR HERBERG: My Lord, yes, I recall some submissions from [Lord Allington Hunter?] which did rather hold the spectre of that sort of concern. That certainly had that flavour, and they were relatively robustly dismissed by the court. But I would entirely accept the point that your Lordship was putting to me: it is a relevant factor. The court takes into account the likelihood of there being multiple cases. It also takes into account alternative remedies, as can be seen in this case.
306.Mr Gordon has made submissions on alternative remedy and in doing so has perhaps slightly misunderstood, I am sure it is my fault, the focus of our argument on alternative remedy. It is not principally “if this is amenable to review, nevertheless the case fails because there is an alternative remedy”; it is the fact of alternative remedies is yet another indication, as can be seen in Aegon Life and Mooyer, of an indication against amenability to review. As I said in opening, my Lord, the authority itself in announcing this very scheme emphasised the existence of alternative remedies for those who are dissatisfied with the offers they received. So it is relevant, we say, in that respect.
307.MR JUSTICE KENNETH PARKER: Yes.
308.MR HERBERG: My Lord, can I just take you to the conclusions in Mooyer in the interests of time, tab 10.
309.MR JUSTICE KENNETH PARKER: Certainly.
310.MR HERBERG: Page 298, paragraph 12:
“Notwithstanding the thorough and careful Skeleton Argument of the claimant … I have concluded as follows:
(1) that the PIAOB jurisdiction and powers are derived from the contractual relationship with the member firms who consent to its jurisdiction;
(2) that it has coercive power as against the members firm, in this case the RSA, but in this case the coercive power arises because the RSA has submitted to its jurisdiction.”
So this was not a case of compulsory jurisdiction, it was a case of voluntary submission to the jurisdiction by the RSA.
“(3) the PIAOB has no coercive power against the consumer, in this case the claimant, who consented to the PIAOB’s jurisdiction being exercised in connection with the matters he had raised; but
(4) the decision of the Ombudsman is not binding on the claimant as the consumer, and he is entitled to sue the insurer in the courts. The pressure to submit his claim to the PIAOB, relied upon by the claimant, did not vitiate his consent;
(5) the PIAOB has no monopolistic power as asserted, only those firms who opt in are within it;
(6) it is not exercising governmental powers and is providing a voluntary arbitration service and not governmental regulation of the industry;
(7) the case, far from being distinguishable from Aegon Life, is more clearly an example of an exercise of consensual jurisdiction, for the decision is not binding upon the claimant or any third party.
I am satisfied that the voluntary jurisdiction in respect of complaints provides a cheap, informal and independent type of alternative dispute resolution process, which avoids the need to resort to the courts immediately.”
311.Now, my Lord, we say this is a very significant decision for present purposes, because it defeats Mr Gordon’s suggestion that you can simply explain these cases as consensual submissions to the jurisdiction; it cannot. What was highly important here was that the Ombudsman was set up by contract at contractual sources and did not have any public powers. Point 1, powers derived from contractual relationship member firms, just like KPMG in this case, but a complaint brought by an individual complainant who had the power alternatively to use the courts, as here, the Ombudsman service as here, it was held not to be amenable to review in heavy reliance, among other things, on the contract.
312.As I said in outset, the Mooyer case in many ways is a much stronger case for the claimant than this case. So it is a clear authority that the relevant contract is not as Mr Gordon’s (Inaudible) suggest it might be.
313.My Lord, can I then against that background come to the factual matrix within which KPMG provides its services as a skilled person to Barclays? My Lord, the starting point is section 166 itself. You have it now in the old version as well as the new version. It might be in tab 2, the place where it is in the legal authorities bundle.
314.MR JUSTICE KENNETH PARKER: Yes.
315.MR HERBERG: My Lord, what is very basic but essential to keep in mind in hearing the submissions for the claimant is the limits of the power as being the power to require what the section is headed: a report by a skilled person. How to require a firm to appoint someone to make a report to the firm and the authority:
“… to provide the Authority with a report on any matter about which the Authority has required or could require the provision of information or production of documents under section 165.”
316.So section 165 is an information‑gathering power ‑‑ it is not in the bundle but I do not think anything turns on that ‑‑ general information‑gathering powers (Inaudible). Then subsection (4) gives some powers to the authority in terms of who is to be nominated or appointed by the bank. They must be nominated or approved by the authority, either nominated or approved, and appear to the authority to have the necessary skills. Not unexpectedly; one would expect the person who is going to have the function of reporting to the authority should be a competent person.
317.MR JUSTICE KENNETH PARKER: Yes.
318.MR HERBERG: Then:
“It is the duty of any person who is providing (or who at any time has provided) services to a person to whom subsection (2) applies …”
This is, in other words, people like employees of the authorised person, so here employees of Barclays Bank or contractors or others providing services to the bank:
“… in relation to a matter on which a report is required under subsection (1) to give a person appointed [ie here KPMG] to provide such a report all such assistance as the appointed person may reasonably require.”
319.So that imposes a power on the bank to assist the skilled person, and that is something prayed in aid by my learned friend, certainly in the written skeleton. We point out he conspicuously does not impose any duty on the skilled person; it is a duty on the bank as the authorised person to assist the skilled person, which is quite a different matter, in terms of assessing the skilled person’s role and function. It does not in any way assist in showing any form of public obligation on a third person.
320.There is broadly in this section no suggestion of obligation owed to anyone other than those to whom the report is given. It is effectively an information‑gathering power of the authority by a third party.
321.MR JUSTICE KENNETH PARKER: Yes.
322.MR HERBERG: My Lord, to state the obvious, it contains no power to require the recipient of the notice, such as a bank, to take any other decision with respect to its business; for example, to assess redress or pay redress or anything like that. It has absolutely no power connected with that whatsoever, let alone to require its skilled person to have any such role.
323.My Lord, we say it is a significant concession on the part of the claimant, and one correctly made, that the mere fact of an appointment under section 166 does not render an appointee amenable to judicial review. Because, my Lord, that should, if it is rigorously followed through, and we say it has not been in my learned friend’s submission, mean that you should be very cautious about accepting submissions which rely on features which indeed apply in the case of every skilled person. There may be a relevant background, but they certainly cannot make the function on it amenable to review. That concession is made, for your Lordship’s note, in the claimant’s skeleton at paragraph 43.
324.My Lord, could I then come to KPMG’s engagement pursuant to the section 166 requirement in this case?
325.MR JUSTICE KENNETH PARKER: Yes.
326.MR HERBERG: That is the terms of engagement in the first bundle at tab A6, the main trial bundle.
327.MR JUSTICE KENNETH PARKER: Yes. Have we looked at that? Yes, we have. We have looked at some parts of this, have we not?
328.MR HERBERG: My Lord, yes. Now, my Lord, what one can see from the terms of engagement is firstly they set out paragraph 1, second subparagraph, bottom of page 1, set out the terms on which KPMG agreed to deliver the services to the bank:
“To be paid for by the bank, in connection with the preparation of the report to be provided by the bank to the authority under section 166. By way of independent review of the firm’s sales of IHRP to retail … private customers and to cover the firm’s proactive redress exercise and past business review…”
And I will come on to the terms of that review, because that is what it bites on in due course.
329.My Lord, they impose under paragraph 2, over the page, scope about services. Contractual duty on KPMG to conduct its review in accordance with chapter 5.5 of the Authorities Supervision Manual. Now, my Lord, this was a point relied upon by my learned friend, although he did not take you to it. I will take you to it in a moment, if I may, because my submission is that this is simply something which applies to every single case of a skilled person’s appointment, of which there are a very considerable number, as I stood up earlier to say, and Ms Carss‑Frisk may be able to give you more of an indication as to exactly how many. So a regularly, frequently used regulatory tool. What one sees in SUP 5, which I will take you to in a moment, are the terms which are required to be included in the contract by the person who receives the section 166 appointment.
330.MR JUSTICE KENNETH PARKER: Yes.
331.MR HERBERG: My Lord, staying with this document for now, one then sees in paragraph 3 reporting obligations being placed on KPMG to the bank and the authority. My Lord, I emphasise that they are said to be confidential to the bank and the authority and to be subject to the disclosure restrictions set out in the general terms and the additional terms.
332.MR JUSTICE KENNETH PARKER: Yes.
333.MR HERBERG: My Lord, it is not the case ‑‑ I do not think this has been suggested, but for clarity’s sake ‑‑ it is certainly not the case that KPMG reports to the authority at the level of individual cases. So, for example, on the Holmcroft case, the reports of KPMG on a more generic level than that. So while KPMG will scrutinise each and every redress offer as part of their role, the report would not typically be framed at the level of individual cases. There is certainly no obligation anywhere in the terms or otherwise to report in each and every case.
334.My Lord, one can then see it sets out detailed terms, particularly at the top of page 159 of the bundle. That is the point in the second paragraph:
“Our reports will be confidential to you and the FSA … will apply….”
And then the next paragraph:
“The requirement notice requires the firm to offer each affected customer the opportunity to have a skilled person present during any meetings or telephone calls with the firm with relevant customers … (Inaudible reading to the words) … as an independent observer. We will not provide any information to customers in any such meeting other than to confirm the … (Inaudible reading to the words) … report of any associated advice or guidance that we provide to you and the FSA.”
And obviously we rely on that when we come on to the substantive duties that are said to be (Inaudible) on us, but they flatly contradict the role set out in the very document constituting our role. It would be simply impossible to reconcile the sort of duties set out in the claimant’s grounds. There are restrictions here which effectively mean that the skills person acts as an observer and no more. That is not to downplay the importance of the role. Of course, it was seen as a significant role in scrutinising the bank and assessing how the bank has complied and, as we will come on to see in a moment, having a particular role in relation to offers made or proposed to be made by the bank. But nevertheless, fundamentally in procedural terms the role was purely one as an observer. Miles away from the suggestion that they ought to be entertaining representations, contacting customers, writing decisions and so forth. Could not write any decision except for the confidential report to the bank and to the authority.
335.Then two paragraphs further down:
“Our reports and any associated advice or guidance … (Inaudible reading to the words) … to meet your specific requirements,” et cetera, et cetera, “our reports and associated advice guidance advice and guidance and the reports should not therefore be regarded as suitable to be used or relied upon by any party wishing to apply and invite to bring any action against KPMG in connection with any such use or reliance other than you or the FSA … (Inaudible reading to the words) … own business,” et cetera.
336.Over the page, over two pages, at paragraph 8, that scheme is elaborated:
“…to comply with the draft requirement notice. … Our work will not therefore be performed …”
337.MR JUSTICE KENNETH PARKER: Sorry, where are you reading from now?
338.MR HERBERG: My Lord, I apologise. The top of page 163. The first sentence sets out the nature of the scope of the work.
339.MR JUSTICE KENNETH PARKER: Right. I have that marked. I think we have looked at it, have we not?
340.MR HERBERG: I am grateful, and the section, “Therefore be performed for the benefit of the customers who are seeking to obtain redress,” and the rest of that paragraph. I will not read it but it is relevant.
341.MR JUSTICE KENNETH PARKER: It is a bit stark that sentence, is it not? I know you say that reflects it.
342.MR HERBERG: It is stark. My Lord, we say it is accurate. It is almost self‑definingly accurate, constituting KPMG’s role.
343.MR JUSTICE KENNETH PARKER: I know. Taken out the context it looks very odd. If the rationale of the scheme is to make sure that the offer is fair, reasonable and appropriate and then you have the independent reviewer verifying that is the case and then saying, “But we are not really doing this for the benefit the customer.”
344.MR HERBERG: My Lord, it is not, it is doing it for the benefit of the authority. It is the authority which is the body which ultimately can decide whether the bank is adequately performing its obligations or not. It is the authority which has a range of powers to take action on an individual level or a general level if the bank is said not to be pursuing it, so not to be discharging its obligations satisfactorily.
345.It is no part of my case that this restriction implies an unfair process or that KPMG is doing other than conscientiously performing the important role as a scrutiniser and a reporter to the authority. But it is wholly consistent with that important role which it discharges to say, as was said by the parties ‑‑ and by “the parties” I mean not only KPMG but also the bank and also the authority which was content with the appointment ‑‑ it is not owing a duty to customers in performing that process, and that is why the suggestion or the conception which the claimants had of this being a quasi‑judicial process is so fundamentally misconceived. Because that assumes a process where, as it were, the duties are being owed to, as it were, the two parties before one in a quasi‑judicial construct. This is emphasising that is not the construct here. It is a private reporting role.
346.So, my Lord, I say in proper analysis and seeing KPMG’s role as part of a wider scheme, it should not be seen as stark or unfair or certainly not suggesting any unfairness to complainants should be tolerated.
347.MR JUSTICE KENNETH PARKER: No, I read the sentence in your skeleton and it was detached. It rather hit you in the eye.
348.MR HERBERG: Yes. My Lord, in context we say it is not surprising but it is also illuminating.
349.MR JUSTICE KENNETH PARKER: Yes.
350.MR HERBERG: My Lord, I was then going come on to SUP 5 and how that informs the terms. That might be a convenient moment, my Lord?
351.MR JUSTICE KENNETH PARKER: All right, let us break there until 2 pm. How long do you think you are going to be?
352.MR HERBERG: My Lord, probably 3/4 hour, something like that.
353.MR JUSTICE KENNETH PARKER: All right. Well, let us see what progress we make. Thank you very much.
(The luncheon adjournment)
354.MR JUSTICE KENNETH PARKER: Yes.
355.MR HERBERG: My Lord, before the short adjournment I was making submissions on the terms of engagement at bundle 1, tab 6. Before I come as promised under the SUP, there is one other point I should show you on the agreement itself to make the point about relationship between the agreement and the DS(?), the SUP rules in the authority’s handbook, and that is the appendix 3 additional terms, skilled person’s terms, which are at page 174 in the first bundle.
356.MR JUSTICE KENNETH PARKER: All right, yes, thank you.
357.MR HERBERG: We will take this shortly and I will try not to repeat. You were taken to clause 26 and then clause 30 on page 174, bottom right, one sees:
“… (Inaudible reading to the words) … contractual rights. Clause 26 shall be deemed to have been varied to allow them to acquire rights under the service contract on the basis that … (Inaudible reading to the words) … these additional terms.”
And then particular terms are specified as being and giving the FSA, as it then was, third party rights. Mr Gordon took you to the provision (Inaudible) those clauses by which the FCA is given third party rights, and you will see about halfway down that clause:
“The rights granted to the FSA under clauses…”
And then you have a list, and then just turning back to the previous pages if one looks at 16 and 17 one can see, just in very general terms on the previous page, 16 is “using reasonable endeavours to provide the time limits”; 17, the next one, is “co‑operating with the FSA in the discharge of its functions under the Act under the legal restrictions”;21, which is the next one, is: “When co‑operating … (Reading to the words) … deemed to have been waived”; and then 22, “in accordance with SUP 5.1.1(b) be permitted to communicate directly with the FSA in particular circumstances … (Reading to the words) … of the materially significant,” then they (Inaudible) directly by bypassing the bank. 2.2. “… (Reading to the words) … material significant to the FSA in determining whether the firm has satisfied conditions.” That is a pretty serious thing or not a going concern; 23 and any others. The last three, 29, 30 and 31, are really bootstraps over the provisions themselves, giving third parties rights and then specifying third party rights.
358.So those are the material provisions in respect of which the FCA is given any sort of right against KPMG under the contract.
359.MR JUSTICE KENNETH PARKER: Yes.
360.MR HERBERG: KPMG is otherwise subject to regulation by the authority material to this case. The importance of that is that when one turns to SUP 5, one sees that these are mandated duties for any skilled person. So Mr Gordon was relying on these saying that there is a contractual link in this case, et cetera, between the firm and the skilled person and the authority. This is a routine incident, each and every skilled person’s appointment. Can I take you to SUP 5, which you may have floating around as a separate document, because it was I think provided this morning. It was omitted from the bundles by accident. I think the claimants provided a copy this morning. There might be two versions of it, my Lord.
361.MR JUSTICE KENNETH PARKER: Chapter 5. I have not seen this document before, I do not think, have I?
362.MR HERBERG: Yes, well, I should take you through it. From a look of your front page, yes, the version with lots of little rights, as it were, is the version at the relevant time, which is the one that would inform these conditions. There is then a more up‑to‑date current version, but that is not so relevant for these purposes. But it applies to both.
363.MR JUSTICE KENNETH PARKER: Right, I have two here.
364.MR HERBERG: The one that is seven pages, with pages 1 of 7.
365.MR JUSTICE KENNETH PARKER: Is that the smaller one?
366.MR HERBERG: Yes, that is the relevant one I believe.
367.MR JUSTICE KENNETH PARKER: All right. That is the applicable one, is it?
368.MR HERBERG: Yes. I have not seen the form that has been handed up.
369.MR JUSTICE KENNETH PARKER: Yes.
370.MR HERBERG: Yes, it is the same. My Lord, your Lordship has the right one. So, my Lord, I will just take you to some of the general provisions and then make the specific point I have just made. So you will see the purpose in SUP 5.1.3:
“The purpose of this chapter is to give guidance on the FSA’s use of its section 166 power. … The purpose is also to make rules requiring a firm to … include certain provisions in its contract with a skilled person … give assistance to the skilled person.”
371.And then one sees SUP 5.3 generally, “Policy on the use of skilled persons”:
“The appointment of a skilled person to produce a report under section 166 … is one of the FSA’s regulatory tools. The tool may be used…”
And then it gives four different categories of case:
“(1) for diagnostic purposes, to identify, assess and measure risks;
(2) for monitoring purposes, to track the development of identified risks, wherever these arise;
(3) in the context of preventative action, to limit or reduce identified risks and so prevent them from crystallising or increasing; and
(4) for remedial action, to respond to risks when they have crystallised.”
372.So, my Lord, we are very much in (4) here. A skilled person’s appointment is clearly part of a remedial action of the FCA. But there is nothing unusual, still less “unique”, to use the word used by Mr Gordon, about this appointment. It is (Inaudible) a part of remedial action.
373.SUP 5.3.2, I do not need to take you to the detail. There is then the following provisions: some detail about how the FSA will make its decision to make an appointment in the relevant circumstances. Set out at the bottom of the first page is a list of the circumstances then elaborated in the sections which follow, which I will not take your Lordship to at this stage.
374.SUP 5.4 concerns the appointment and reporting process, and then most importantly for present purposes SUP 5.5, “Duties of firms”:
“When a firm appoints a skilled person to provide a report under section 166 … the firm must, in a contract with the skilled person:
(1) require and permit [precisely the selfsame duties that were copied out in the contract] the skilled person during and after the course of his appointment … to cooperate with the FSA in relation to discharge of functions… communicate information …” and then we see three categories set out in the contract “require the skilled person to prepare a report … notified to the firm by the FSA within the time limits … waive confidentiality duties…” and so on and so forth.
375.One then sees in SUP 5.5.5:
“The firm must require that the contract … (2) expressly provides that the FSA has a right to enforce the provisions of the contract…”
And so on and so forth, and the rights of the Third Parties Act 1999 is applicable, 5.5.6.
376.Then 5.5.9: “A firm must provide all reasonable assistance to any skilled person appointed…” That is the duty on the firm to assist the skilled person.
377.The point of that is that Mr Gordon cannot rely on any of these features as he did to indicate that this case is a unique exercise of the FCA’s power, establishes a public complexion to the case sufficient to render it amenable to judicial review without also carrying all the other skilled persons appointments ‑‑ of which Ms Carss‑Frisk will tell you how many there are a year, but there are a significant number each year ‑‑ which he expressly disclaims any ambition to do.
378.It is said by Mr Gordon that the important feature is that the appointment is to facilitate the discharge of the authority’s functions, the regulatory functions. But that is absolutely standard, whichever of the particular purposes as set out in SUP 5 the particular appointment is for, all of them, diagnostic aids, whatever stage, are to further the regulatory purposes. Each and every case.
379.MR JUSTICE KENNETH PARKER: Yes.
380.MR HERBERG: My Lord, the next document, I do not think I need to take you to the role description document. It is entirely consistent with what we have actually seen in the contract. Since we have seen the contract, the, as it were, public role description document does not, I submit, take the matter much further forward. But (Inaudible) we certainly do not think there was anything contradictory in that.
381.One then comes to the redress exercise itself and the Barclays obligations under its voluntary agreement with the authority to enter into a redress exercise. Of course, the skilled person was not a party to that, is external to that agreement in the same way that the claimants are, but, my Lord, I need to make a submission on the agreement because obviously the skilled person’s reporting obligation attach to the agreement.
382.MR JUSTICE KENNETH PARKER: Yes.
383.MR HERBERG: My Lord, the starting point of course is that that agreement itself is entirely a voluntary agreement. So the skilled person’s obligations imposed by contract are themselves owed in relation to the voluntary agreement between the FCA and the bank.
384.Now, my Lord, Mr Gordon puts “voluntary” in inverted commas. He says on the facts of this case, he suggests that the agreements may have averted some form of regulatory action, and certainly for the purposes of the permission hearing it is absolutely possible that that is the case, that obviously it cannot be ruled out that, had the banks dragged their heels or not been prepared to enter into agreements considered satisfactory to the authority, that it might have decided to use some other powers such as the section 404 redress scheme.
385.But, my Lord, we say that that does not alter the fact of the contractual and voluntary nature of the obligations which the bank in fact undertook. If anything, it emphasise them. The mere fact that the authority might or would take action against any firm if it did not take other measures it deemed to be satisfactory, such that if felt there was no regulatory need to take statutory action, cannot possibly convert that other action by the firm into a public function. That reasoning would go above and beyond KPMG and a skilled person to the firm itself undertaking action obviating necessary regulatory steps.
386.So, what we say is absolutely clear is that KPMG did not become, pursuant to its scrutiny of the voluntary redress agreement, anything like a proxy regulator; they were fulfilling a role as a third party engaged under contract to report on the performance effectively of the voluntary agreement with the bank and the authority.
387.My Lord, my learned friend sought then to rely on matters such as terms of the press statement on 29 June; the reference in paragraph 8, I will not take you back to it, to this being a unique solution. My Lord, with the greatest of respect, there is nothing there that in any way magically supplies a public element which is otherwise not present. Clearly this was a matter of some heat and importance. I am instructed there is something like 25,000 potential firms either deserving redress or at least had redress considered, so it is a large pool and it is a matter of public heat, and it is not at all unlikely in these circumstances that the FCA presents the deal done with the banks ‑‑ deal it was, in the public terms, there needs to be considerable publicity to encourage people to apply and to complain and to exercise their rights under the agreement.
388.So, none of that in the least surprising, and the suggestion that there is some X factor there takes KPMG’s role in any other skilled person appointment, takes it out of that category and puts it into a separate category in relating to reporting to the FSA the matter on this particular appointment by reference to size, importance, even likelihood that the authority might have otherwise taken action, we say cannot, on authority of any of the cases or of the principles that apply, supply a public law flavour to KPMG’s role.
389.My Lord, in relation to the content of the redress agreement, a few short points. Obviously the obligations in the redress have been to all cast upon the banks. The model is we say clear that the bank is undertaking to make appropriate offers to compensate customers with potential claims against it; it is not undertaking to perform a role similar to an Ombudsman or something.
390.MR JUSTICE KENNETH PARKER: No, no.
391.MR HERBERG: It is its own liability which it is undertaking to make offers to settle.
392.MR JUSTICE KENNETH PARKER: Yes.
393.MR HERBERG: That process is subject to the constraints set out in the agreement and the steps it will go through, and that is the material which is to be scrutinised by KPMG in respect of its appointment.
394.It was at all times stated, and just for your Lordship’s reference, I will not go into it ‑‑ the end of the June 29 document announcing the scheme, at bundle 2, tab C2, page 214, bottom, put it directly to customers that any aggrieved customer who considered they had received an inadequate settlement offer, the remedy was (Inaudible) the courts. That was the basis on which the scheme was put forward. So we do say it is a fundamental misconception to depict Barclays as acting as a judge of its own court or being saved from that by the skilled person’s scrutiny.
395.MR JUSTICE KENNETH PARKER: Yes.
396.MR HERBERG: My Lord, one other aspect which I should address is Barclay’s freedom of action in making offers, or not making offers, vis‑à‑vis the skilled person, because what is clear from the terms of the agreement to which Mr Gordon did take you at, I think 3.12 to 14 of the agreement, is that the bank voluntarily agreed not to make any offer if KPMG, exercising its reporting role, considered that it was not a fair and appropriate offer. So there was, as it were, a lock on the bank’s ability to make offers a skilled person did not consider were fair and reasonable. That is the 3.12 term.
397.MR JUSTICE KENNETH PARKER: As a sort of veto power, then, effectively.
398.MR GORDON: My Lord, yes, but it was only a half veto, because what was not included was any obligation on the bank to make an offer which the skilled person thought was reasonable. In other words, the skilled person could not force the bank’s hand in this matter. As Barclays put it in their summary grounds at paragraph 2(d): “KPMG does not have the power to direct Barclays to make any particular offer. KPMG does not decide redress offers.” My Lord, that is a matter of some considerable importance.
399.MR JUSTICE KENNETH PARKER: So if the bank says, “Our offer is effectively nil,” then there is no role, you say, for the ‑‑
400.MR HERBERG: The bank could, as it were, if an impasse was reached, the bank could decide not to make an offer. In its reporting role, KPMG would no doubt in that situation report to the FCA that in its view the bank had not discharged its obligations under the agreement in that case or a series of cases because they had not made an offer in circumstances where KPMG considered an offer should be made. So, of course, the FCA would be alerted to that. But the ball would then be in the FCA’s court as to what, if any, action to take in relation to that. It could not take any action under the voluntary agreement because the bank had not committed to make an offer in those circumstances. It would have had to consider exercising separate statutory enforcement powers if it decided that a bank was, as it were, not making appropriate offers. But that is a most important distinction, in our submission, because ‑‑
401.MR JUSTICE KENNETH PARKER: Does that come out of the June publication at all?
402.MR HERBERG: My Lord, no. It is simply not stated.
403.MR JUSTICE KENNETH PARKER: If you read the June publication it seems to be saying to the world, “You can be satisfied that your interests as a putative, unsophisticated victim of this misselling, is that firstly the bank will look at your case and then either make an offer or do not, but we have this independent reviewer who will say whether that is appropriate, fair and reasonable.” That does seem rather odd within that publication that you have this scenario that you are now adumbrating that the bank can effectively turn their back on it and say, “We do not think this deserves any offer at all”, and all the independent reviewer can do is run off to the headmaster and say the pupil has been a bit naughty on this occasion.
404.MR HERBERG: My Lord, it is absolutely clear that that is the position, in fact. It might be said to be not absolutely clear from the June 29 announcement ‑‑
405.MR JUSTICE KENNETH PARKER: No.
406.MR HERBERG: ‑‑ but in terms of the agreement it is absolutely clear, and no doubt the banks would have thought very long and hard before, as it were, relinquishing under a voluntary scheme any control over their right to make compensatory offers to a third party for their compensation. But the position is, of course, that KPMG would report to the authority on what would be seen as a failure of the bank’s redress scheme in that situation. It may well be that as a matter of practice it would be a pretty brave bank that would decide to go down that route, absent some really quite fundamental disagreement as to the principles of compensation or ‑‑
407.MR JUSTICE KENNETH PARKER: But is it not the significant point, then, that the independent reviewer still has a role to play in that scenario? Even though it might be a slightly different role, it is still a role there that is being fulfilled in the public interest, is it not?
408.MR HERBERG: My Lord, the independent (Inaudible) always has a role in respect of each and every offer. It does not report individually in every case, but it will certainly have a role in assessing the whole of the bank’s performance. But that is a very different role, because if one goes back to considering the nature of the duties which are said to be cast on the independent reviewer, they are assuming that the independent reviewer effectively has a decision‑making in some capacity, rather than simply a reporting function. KPMG’s function is to be a messenger to the authority and to tell it if the bank is not performing its obligation. The regulator is then the arbiter as to what to do in that situation, what steps to take with the bank.
409.It is important because it establishes the point that the skilled person’s role is purely, as section 166 sets out, the reporting role, a messaging role, a confidential messenger to the FCA to scrutinise and to report if the bank was performing its obligations. We say it does not do that in the public interest, it does that because that is the appointment, that is the role under section 166, read with the voluntary agreement with the bank. That is the (Inaudible) with which the obligation comes.
410.Finally in relation to the role, I listened carefully to my learned friend in relation to the extracts from the Parliamentary material which were put forward. There may be little between us on principles. The clear law, and I hope not to have to take up time by going to the case law which I set out in my skeleton as well as Mr Jaffey in his, is that Parliamentary material cannot be adduced for any purpose involving the judge having to say whether it is right or wrong. It can be read contextually, it can be read as background; it cannot be read with an invitation to the judge to assess it, to agree with it or disagree with it. So in so far as its use would be offensive, if I can put it this way, in this case ‑‑ and indeed if the Speaker knew about the use made he would send someone along down to the court to put a stop to it ‑‑ it would be offensive only to the extent that Mr Gordon is seeking to submit that something in the Parliamentary material shows an aspect of the scheme is different from the submissions which we have made based on the material itself. And only two aspects in which it appeared that that might be being said were, first of all, in relation to the quotation at paragraph 20 of my learned friend’s skeleton, where in that paragraph, and my learned friend did refer to this, where it referred to Mr Wheatley’s evidence that:
“Typically the skilled person will take representations from the small business…”
411.MR JUSTICE KENNETH PARKER: The representation point, yes.
412.MR HERBERG: All that could be meant by that, speaking accurately, would be that the skilled person can sit in the room as an observer while the business is making representations to the bank in relation to a particular case. To that extent it can be said to take representations. It takes the same representations as the bank takes.
413.MR JUSTICE KENNETH PARKER: It is ingenious, but not entirely convincing.
414.MR HERBERG: No, my Lord, not entirely the natural (Inaudible), but any other meaning, this passage would actually be rather contrary to the terms which I have shown you.
415.MR JUSTICE KENNETH PARKER: I know it is, but it is not the natural construction of what is said.
416.MR HERBERG: My Lord, no, this is said in the cut and thrust of a rather heated debate. My Lord, the short point is that if a different meaning is being put on that then it is illegitimate material to which you should not have any regard, even on a permission basis.
417.MR JUSTICE KENNETH PARKER: But representation suggests that you turn to the independent reviewer and say something to him.
418.MR HERBERG: Yes.
419.MR JUSTICE KENNETH PARKER: But he is just going to sit there, or she is going to sit there like a stooge. “Don’t talk to me, I’m just an observer.”
420.MR HERBERG: My Lord, yes. Obviously the submissions would be listened to and taken into account because the skilled person has to reach a judgment as to whether the bank is reaching ‑‑
421.MR JUSTICE KENNETH PARKER: Arguability is not going to turn on any of this.
422.MR HERBERG: My Lord will also of course see written representations as well. The short point is that to the extent this is being relied on to build up a bigger role of the skilled person, it cannot be relied on for that purpose. My Lord, the same point applies in relation to paragraph 21, the suggestion whether the skilled person is contacting the firms in order to obtain the firm’s views. As I say, we expect them to. That is not something we have seen in the terms and conditions that they are committed to do.
423.MR JUSTICE KENNETH PARKER: No.
424.MR HERBERG: So if this was relied on to suggest that a different model again, the same applies. My Lord, that is as far as I think I need to take that particular aspect.
425.My Lord, one then comes to the application of the test, and I have already anticipated much of this in responding to your Lordship. The application for the test for amenability to the factual matrix. My Lord, we say in the light of all the evidence, there is no sufficient or any evidence of public function exercise by KPMG. It was obliged to carry out its duty to skilled person only by terms of engagement, not subject to any of the authority’s coercive or regulatory powers. The authority’s only rights in relation to KPMG are contractual rights given to it as a third party under the terms of engagement, and those are the same in every case of a skilled person, the standard rights.
426.Finally, KPMG’s role is not close to any decided case in which a function has been held to be amenable to judicial review. The best and the nearest cases which we have already taken your Lordship are the Financial Ombudsman cases. Then rather ambitiously in the skeleton at least, the claimant seeks to draw an analogy with the Financial Ombudsman’s Service, which is a quite different beast. There is a case in the authorities, Heather Moor & Edgecomb.
427.MR JUSTICE KENNETH PARKER: You say that is set up by statute, do you not?
428.MR HERBERG: Indeed, my Lord. It is a short point. Lots of judicial reviews (Inaudible) common ground frequently JR’ed, but it is set up by statute, it has coercive powers, it can order (Inaudible) and so on and so forth.
429.MR JUSTICE KENNETH PARKER: Yes.
430.MR HERBERG: It is in a completely different position. But then another way of testing the claimant’s case is to look at the substantive duties which the claimant asserts applies to the skilled person and to assess whether those are, as it were, compatible or reconcilable with the position in which the skilled person finds itself.
431.MR JUSTICE KENNETH PARKER: You say they are inconsistent with the terms of engagement.
432.MR HERBERG: My Lord, yes. I am not going to repeat that submission. At paragraphs 22 to 29 of our skeleton argument we set out in some detail the precise ways in which they are inconsistent, and I can simply invite your Lordship’s attention to what I have there set out.
433.MR JUSTICE KENNETH PARKER: Yes. I have read the skeletons. I see the force of what you are saying.
434.MR HERBERG: I am grateful. Another way it can be tested, which I have not put in the skeleton, the outcome of that is: what sort of relief would the claimant be entitled to against the skilled person were it to succeed on a judicial review? It would be possible for it at least to be ordered which would be contrary to ‑‑
435.MR JUSTICE KENNETH PARKER: I looked at the relief. It really was in broad terms. It simply set aside the “decision” that has been made.
436.MR HERBERG: My Lord, it is, but if it was being done on the basis that the claimant has failed to do things which it was unable to do under its contractual terms which the KPMG was unable to do, it would be deeply unsatisfactory.
437.MR JUSTICE KENNETH PARKER: Yes.
438.MR HERBERG: It explains why, we say, the (Inaudible) construct is simply not the correct one.
439.MR JUSTICE KENNETH PARKER: Yes.
440.MR HERBERG: My Lord, finally, sweep‑up points. The alternative remedies point is not put as a point in the way Mr Gordon characterised it. We do not say if he is otherwise amenable to judicial review there is here alternative remedy such that judicial review should not lie. The point of alternative remedy is that it is relevant to the very question of amenability to review because there are other routes contemplated in the statutory scheme, and indeed set up under statute, for provision of remedy in these cases, remedies which were interwoven with the scheme to the extent that they were alerted to the world in the same question setting out the scheme.
441.Because of that, one has to look extremely carefully and cautiously at the suggestion that judicial review lies as well as those other remedies. You are creating an additional alternative route by which persons dissatisfied with the scheme can ventilate their complaints, a scheme which, as I submitted a moment ago, has a huge number of potentially dissatisfied persons, just simply from the numbers involved. You are creating, therefore, a potential route to judicial review in respect of a huge number of cases in circumstances where there is the Financial Ombudsman Service and there is other court[?] routes which are there.
442.If I am right in my submission that the scheme is properly to be viewed as a supervised scheme of offers being made by Barclays, rather than as a quasi‑ombudsman process to determine redress, then we submit that the perspective of the alternative is relevant ‑‑
443.MR JUSTICE KENNETH PARKER: It is called a redress agreement though.
444.MR HERBERG: My Lord, yes, and redress is what is being offered by the bank.
445.MR JUSTICE KENNETH PARKER: Yes.
446.MR HERBERG: My Lord, unless I can assist you further?
447.MR JUSTICE KENNETH PARKER: No, thank you very much, Mr Herberg.
448.MR JAFFEY: My Lord, I respectfully agree with Mr Herberg’s submissions. I make two additional points, if I may?
449.MR JUSTICE KENNETH PARKER: Yes.
450.MR JAFFEY: First of all the merits of the claim for judicial review, and secondly alternative remedy.
451.MR JUSTICE KENNETH PARKER: Yes.
452.MR JAFFEY: If we may, let us assume for a moment that KPMG is amenable to judicial review on all traditional public law ground and see where that gets us. We move away from what Mr Gordon calls the interesting issue.
453.The context is that in reality, it is Barclays’ decision which is under challenge, as reviewed by KPMG as the independent reviewer. What Barclays did was it made an offer of redress to the claimant. The claimant disagrees with the quantum of the offer, because there is a dispute between Barclays and the claimant about the issue of causation.
454.MR JUSTICE KENNETH PARKER: Yes.
455.MR JAFFEY: In particular the issue about consequential loss. KPMG as independent reviewer considered the decision taken by Barclays and was satisfied with it, applying the test in its contract with Barclays. So, although this case has been carefully constructed as an attack on KPMG’s role, in reality of course it is also a collateral attack on Barclays’ analysis and reasoning in its decision which was approved by the independent reviewer.
456.MR JUSTICE KENNETH PARKER: Yes.
457.MR JAFFEY: So if Barclays acted fairly, and if Barclays acted reasonably, then, in my submission, that is the end of that. There has to be identified some problem, either procedurally or substantively, on the merits of what was done or what the independent reviewer did or did not do. So the way that Mr Gordon puts his procedural challenge is he says that, first of all, his client was not told how the independent review process operated. That was the point on which he placed the most emphasis in his oral submissions. He also said that the independent reviewer did not give proper or fair consideration to the arguments that his client put forward, and there were inadequate reasons.
458.What I would like to do is very briefly test that by reference to the decision documents, which, in my submission, do precisely what Mr Gordon says they do not. The starting point, my Lord, is in bundle 2, which is the offer of redress. It is at page 221, volume 2.
459.MR JUSTICE KENNETH PARKER: Yes.
460.MR JAFFEY: Putting it in litigation terms, this is an admission of liability and Barclays’ offer on the quantum, and in the second substantive paragraph you see the redress offer is some £243,000, and then the third paragraph, there will be a reduction in the principle amount of the loan figure by another £135,000‑odd. So a total offer of £379,000. Then the bottom of that page, Barclays explain that the claimant has choices as to what it does next, in particular in relation to consequential losses, and that is explained over the page at page 222 in much more detail.
461.If I can ask my Lord to look at the bottom of 222, there is a heading “consequential losses” and there is the explanation that the offer includes interest at a rate of 8 per cent simple per year, and then in effect if you want more you will have to prove the consequential loss claim, and that is one of the options which you now have. Then there is a detailed explanation of how you go about making such a claim and deciding between the various options. There is also at page 239 a second offer letter, because there were two products being claimed for and there was a separate offer of £197,000 in relation to that second product.
462.So the next step that happened is that solicitors were instructed. My Lord can see that at page 278. On 19 June, Mishcon de Reya wrote a letter to Barclays, and the final paragraph in 278 says they have only been instructed yesterday and they seek an extension of time, which they got. Then they made their submissions at page 282 in support of a substantial consequential loss claim.
463.MR JUSTICE KENNETH PARKER: Yes.
464.MR JAFFEY: My Lord can see this is a 10‑page, single‑spaced letter, accompanied by 69 pages of supporting financial analysis, including a number of spreadsheets in support of the claim. Just to identify the highlights, at page 283 it sets out the claimant’s analysis of the legal principles. In essence, it is said there is a “but for” test in relation to causation. Then at page 284, the case on causation is set out: but for the costs of these products, it is said that the claimant would not have entered receivership, and in effect it caused the collapse of the company. That analysis is accompanied by details on the effect of cash flow of the company, of the products that had to be paid for on a monthly basis.
465.So in terms of procedural fairness, there was full opportunity to make submissions which were taken, and Barclays and KPMG refused these submissions. That can be seen in the decision letter, page 360. The first paragraph in page 60, this is the decision, and then the second paragraph explains the role of the independent reviewer, and then the final sentence of the second paragraph:
“As part of this oversight process the independent reviewer has considered and confirms the appropriateness of the bank’s offer of redress to you as set out in the consequential loss decision …”
466.The next paragraphs, the legal test is set out. In essence, the legal submissions made by Mishcon de Reya are adopted. So at paragraph (a) there is a “but for” test, an accurate self‑direction in law, and then the facts are set out. My Lord does not need to read all of it, but there are two companies: there is the claimant, Holmcroft Properties, which is an Isle of Man company. It owned a nursing home. It then leased the nursing home to another company, the nursing home company, which is called Holmwood, and rentals were of course due each month.
467.Then this document explains in detail, in particular at page 361, the problems that the nursing home business had. The bullet points which are about halfway down the page, there were fundamental problems with the operation of that business. There was three years’ unpaid Revenue liability of circa £400,000. I would add that that makes the cost of this product pale into insignificance, the size of those liabilities. There was an inspection by the independent inspector of nursing homes, which gave a one‑star rating, which obviously is not very good for attracting new custom, and there was a series of other fundamental problems with the business.
468.Now, the position of these two companies was extremely closely linked, because if the nursing home business failed, it would no longer be able to pay the rentals, and the rentals were what we used to pay back the loan which Barclays had made. So the survival of the two businesses is intimately linked, and although there were a number of family trusts involved, no doubt for good tax reasons, both businesses were in fact controlled by a single individual: Barclays, for practical terms.
469.So Barclays, having analysed all of those, then analysed the cash flow information which is provided. They explained they do not agree with Mishcon de Reya’s conclusions, and so on. Then the ultimate conclusion is on page 363, under their heading “2. Lost profits opportunities”, and the second bullet point is the relevant point for the purposes of this claim:
“Given the number of other factors impacting on your final position as set out in the factual background above,” which I have just taken your Lordship to, “you have not demonstrated that the factual test,” that is the ‘but for’ test, “has been met in relation to this claim. Redress is therefore not payable. Our decision in respect of this claim would result in an offer of less than the 8 per cent simple interest offer made to you. Therefore, we are not going give you more than the initial offer which we have made.”
470.So there is an extremely detailed factual response to all of the submissions which have been made on behalf of the claimant, and it sets out the facts on which Barclays had relied in considerable detail and also expressly explained on its face that this decision letter would have the approval of the independent reviewer.
471.As my Lord would expect, Holmcroft responded to this decision, as they are entitled to do. What Mr Gordon says, if he wanted a (Inaudible) process, of course that is exactly what you got. So page 381, having received that initial and detailed decision setting out the findings, Mishcon de Reya has another go, in the usual understated style. No adjective left (Inaudible), but at page 382 paragraphs (a) to (g), Barclays’ decision is fairly and accurately summarised. So the claimant has the clearest idea as to exactly what the case against it was that it needed to meet if it was going to persuade Barclays, and of course the independent reviewer, to change their views. They knew what they were up against because they set it out in detail and then sought to respond to it.
472.Following that, halfway down page 382, is the basic argument:
“The bank’s approach is misconceived. From the point of view Holmcroft’s solvency or ability to service its loan it is irrelevant if the nursing home experienced operational difficulties providing that Holmcroft continued to receive the rental payment due to it as landlord.”
473.My Lord, that is on any view an exceptionally weak argument: that the nursing home is only managing to pay the rental to the other company because it was not paying its taxes to HMRC and it was not fulfilling its other obligations. Robbing Peter to pay Paul is something of great interest to a bank, and is what ultimately led to a debenture being exercised and a receiver being appointed. Then there is further detail which essentially amplifies the matter. Then at the end of that letter on page 384, the last substantive paragraph:
“Our client requires you to keep the review of its interest rate (Inaudible) open until further notice…”
They want the bank records and they want the customer records, et cetera, et cetera, and would like a response within 14 days.
474.The response of Barclays is over the page at page 385. The third paragraph of that letter offers a further opportunity to make representations:
“If you have any new evidence which you believe could materially impact the decision, please provide us with this within 14 days of the date of this letter. We will then consider this under the review and respond accordingly.”
They also offer the opportunity of a meeting in the next paragraph.
“If we do not hear from you within 14 days, the redress offer will be final and your case will be closed and we will send you a letter, but the offer will remain open for acceptance until the FCA says otherwise.”
475.They then refuse the request of the bank records because they set out the factual position in sufficient detail, not the judicial process, and then they summarise their response at the bottom of the page to the new arguments that have been put forward. In essence, they say it is not just due to the performance of the nursing home business and they set out the various breaches of covenant of the property business which took the loan which are also relied upon, and they are set out in the bullet points, and they explain that it is those breaches of covenant which led Barclays to appoint the receiver which may have been the source of the losses, not the most modest cost of interest rate of the interest rate hedging (Inaudible). So it is set out there in considerable detail exactly what Barclays say the case is.
476.This was not the end of the process: the claimant was offered yet another opportunity in this letter to come back and respond to these points. They were not met with a final rejection but they were met with another opportunity to come back and say what they wanted. The claimant did not come back in response to this letter within 14 days or otherwise.
477.Now, what Mr Gordon says is: this was a fundamentally unfair process that requires this court to intervene. But in reality, if it is being said that there is some procedural failing in this process ‑‑ not a procedural failing that was identified by the lawyers representing the claimant at the time ‑‑ and if it is said that some point needed to be raised and considered and had not been dealt with, then they should have said so at the time, rather than save up the point for a judicial review later.
478.The claimant had ample opportunity to make submissions before the initial decision was taken to make submissions in the light of the initial decision and was given multiple opportunities before the final decision was taken. As the letter records, on each occasion the independent reviewer’s views were obtained and the independent reviewer was satisfied. That is a decision‑making process which is, in my submission, plainly procedurally fair. I do not shy away from suggesting that it is indeed a knock‑out point.
479.The point taken by Mr Gordon today is that his client was not informed properly as to how the independent review process works. There are two response to that, my Lord. The first is that, if his clients or their legal representatives were unsure about the process and sought clarification, then they could and should have asked at the time, and it would of course have been enlightened. But secondly, my Lord, they were told how the independent review process worked and they were told in detail. The documents which evidence that are in the same bundle, bundle 2, at page 218. This is right back to the beginning of the process on 7 December 2012. It is the initial letter to the claimant from Barclays explaining that a review was going to take place of the products they had been sold. Then just below the second hole punch, it explains that there will be an independent reviewer and the role of the independent reviewer.
480.Then, over the page, just before the signature, the letter explains that there is an enclosed FSA update on interest rate hedging products, there are some leaflets enclosed. Those leaflets are in the bundle at page 211. I should add, this is the claimant’s exhibits in the claimant’s witness statement. These are their copies of documents which they had. At page 211 you have a general leaflet about the review, then at page 216 there is the specific leaflet which my Lord has already been taken to today by others relating to the role of the independent reviewer. It sets out their role and the tasks the reviewer would carry out in considerable detail. It is, in my submission, abundantly clear what was going on.
481.My Lord, so those are the procedural complaints. In my submission they do not have any substance. There are also substantive grounds of complaint which I put forward in the grounds, although it is fair to say they have not been developed in any depth in Mr Gordon’s oral submissions to my Lord today. Can I just deal with them very briefly for completeness. I can probably make the submission most quickly by reference to the grounds themselves. They are in bundle 1, at page 25, paragraph 57.
482.MR JUSTICE KENNETH PARKER: I have that now, yes.
483.MR JAFFEY: Paragraph 57 says:
“The decision maker must correctly understand the law and a failure to do so is an error of law,” obviously right, and therefore, paragraph 58, “the independent reviewer had to direct itself properly as to the appropriate legal test and the proper test on causation is the ‘but for’…”
484.Well, my Lord, I have just shown my Lord the decision letters which contained impeccable self‑direction that that was indeed the test which was applied with the approval of the independent reviewer. So that is not a point, in my submission, which goes anywhere.
485.The next point of substance which is made is at paragraph 60. It says that:
“The decision which the independent reviewer endorsed did not identify whether or not the company would have entered receivership but for the mis‑sales.”
486.Well, my Lord, again that is obviously wrong, in my submission. That is precisely what the decision sets out to achieve and it does, and detailed opportunity was given to comment on the factual reasons lying behind that conclusion, which, once the facts are seen, is quite understandable. He explains why the receivers were appointed.
487.Then paragraph 61 and 62, I hope I will be forgiven for suggesting that they are makeweight arguments. That is the Wednesbury and irrelevant considerations point. It is entirely particularised. No reasons are identified as to why it is said that this decision, which was the decision under challenge, was Wednesbury unreasonable. Plainly in my submission a decision which is rational, which is the test which this court would apply if it is amenable to judicial review. No reasons are identified as to why it is not for the reasons I identified to my Lord.
488.My Lord, so amenability is of course all very interesting, but if KPMG was the Financial Ombudsman, and in effect that is what the claimant is saying that KPMG ought to be doing, then this is a case which would not take very long, if this was an application for permission for judicial review. There was a careful and full opportunity over several stages for the claimant, who was professionally represented, to make all the points they wanted to, having had the detailed factual statement, of exactly what the allegations were that they had to answer. As for the substance, it was a conclusion that was entirely rational on its facts. So, my Lord, if there is an interesting point, and even if my Lord thinks it is arguable, which in my submission it is not, it ought to await determination in a case in which it might actually arise and where there is an arguable point of substantive challenge.
489.My Lord, the other point I wanted to mention very briefly is the issue of alternative remedy. Relevant, as my learned friend Mr Herberg says, in two ways, (Inaudible) but mainly is an issue on amenability. But if it is necessary to do so I would also go so far as to say it is also relevant as a freestanding point, because judicial review is of course a remedy of last resort. If there is an alternative route that the claimant could or should have adopted to get the real redress that it is looking for, then it is well established that the role of the Administrative Court is not to come running in in order to fill the gap.
490.The alternative remedy here, of course, was a civil claim against Barclays for misselling. The only reason that civil claim has not been brought is that, despite Barclays warning Holmcroft in writing on more than one occasion about the impending expiry of the limitation period, and offering a standstill agreement before the limitation period expired, the claim is now time barred.
491.Can I just again very briefly, because it is a factual point and in my submission an important one, show my Lord the correspondence again to make that point good. The relevant correspondence is in bundle 1 behind tab 7 at page 187(23). We have missed out the (Inaudible) original draft bundle.
492.MR JUSTICE KENNETH PARKER: Yes.
493.MR JAFFEY: So this is an email chain, so as usual it is in the wrong order. If I can pick it up halfway down 187(23). My Lord sees an email from (Inaudible name) to the representatives of the claimant to David Jones, who is Barclays, dated 29 January 2014. Now, when we are going back to January 2014, it is important to remember, as my Lord has just seen from the correspondence, that the decision had not yet been taken, because that was not finally done until September of last year. What the claimant asked for in this email is they asked for a standstill agreement to preserve a possible claim if they did not like Barclays’ decision when it eventually came. Barclays’ response to that is on the preceding page, 187(22):
“Clive, thank you for your email. With regards to the product detailsin the subject line I am in the course of arranging a standstill agreement to be forwarded as it remains within the limitation period which expires on 10 April 2014.”
494.So Barclays said yes, because the review was still in progress and the claimant had not yet been time barred. Then the final paragraph on that page:
“We are not able to consider a substantive agreement with reference to another swap because it was entered into in April 2005 as the limitation period has expired.”
495.The reply to that is at the top of page. In essence, it says “Thank you very much, but we should still discuss all the issues between us and we would like to reach an agreement by 10 April 2014 anyway.” Then the next relevant document, going back another couple of pages 187(20). Another email from Mr Harries(?) on behalf of the claimant to Barclays. The first main paragraph:
“We wish to approach matters entirely reasonably. We are aware we did not get (Inaudible) to the first option. We would prefer not to be forced to take any legal action whatsoever. However, although the legal option for the first swap has expired (Inaudible)…” and so on.
496.So there is an acceptance there that the limitation period has already expired for the first swap, but the second one, which is actually the much larger one in terms of potential compensation, has not expired. I should add, I missed it out: on 187(21), the draft standstill agreement is attached. My Lord does not need to see the agreement. It is in entirely standard terms.
497.So the offer was made, and that letter on 187(21) expressly refers again to the date on which the limitation period expires, 10 April 2014. That was a letter sent at the end of January 2014. There were no further replies to this correspondence. For whatever reason, the claimant decided not to enter into the standstill agreement and decided not to issue the claim form before the expiry of the limitation period. Mishcons, as my Lord has seen, were then expired on 18 June 2014, which was after the expiry of the limitation period. Using Mr Gordon’s language, as ingenious lawyers do, they had to think of something to do given that they were time barred, and that something is this claim for judicial review against KPMG.
498.My submission is that it is not a proper use of judicial review to get the claimant around the expiry of the limitation period in their real claim, which is a private law claim against Barclays for a very substantial amount of money, which could and should have been pursued through ordinary private law litigation. Holmcroft did have a viable and useful alternative remedy, which would have ensured it had a judicial decision on the question of what, if any, consequential loss ought to have been paid to them for the admitted mis‑sale which they were the victims of.
499.Having failed to take that opportunity, and it is not as if they were not aware of it, Barclays acted entirely properly and repeatedly warned them of the impending expiry of the limitation period and offered them a standstill agreement, which they did not accept. It is wrong in principle for them to now seek to expand outside its proper scope the proper role of judicial review as an alternative to attempt to pursue KPMG in order to try and circumvent the limitation rules under private law which are there for good reason. That is, in my submission, the strongest indicator on the issue of amenability, as well as, if necessary, a substantive argument.
500.Now, what Mr Gordon says is that there is a difference between a private law claim for damages and the public law claim which he now brings for reasons. But the principle, in my submission, is that when analysing issues of alternative remedy, what the court does is the court looks to the substance of the claim which is being brought and the benefit which the claim was supposed to achieve from it when deciding whether or not there is a good alternative remedy. Here, the real purpose of the claim is to secure more compensation for consequential losses, which is an object which could and should have been pursued in a private law claim.
501.The final thing I will say, my Lord, that in order to make that point good can I refer to just one authority which is in the bundle, which is a case called Willford, which was decided by the Court of Appeal just over a year ago. Mr Gordon lost the Aegon case; I lost this one, on the very, very similar point, and so did Mr Ledbetter, who is smiling at me. That case is in bundle 2 of the authorities at tab 17. It is also referred to in my skeleton argument. Mr Willford was the financial director of a bank. His performance as the finance director during the financial crisis was criticised by the FSA, as it then was, and the FSA issued a decision notice imposing a penalty on him. What he said was that that decision notice failed to give proper reasons, and there was a statutory duty to give reasons. Mr Willford had the opportunity, if he wanted to, to go to the Upper Tribunal and he could refer the matter, and if it went to the Upper Tribunal it would be reconsidered de novo. The Upper Tribunal is not particularly interested in the quality of the reasoning of the decision notice, it is an entirely de novo process; full rehearing.
502.So what Mr Willford said is a very similar argument to that which is advanced by the claimant, which is that this is no remedy for a failure to give reasons. He wanted to have reasons and a proper and fair procedural process before the FSA before he decided whether to go to the Upper Tribunal. Mr Willford won in the Administrative Court but he lost in the Court of Appeal where alternative remedy orthodoxy was perhaps restored.
503.The principles are identified in the judgment of Moore‑Bick LJ at paragraph 36, which is at page 522 of the bundle. It is a long passage, so I will not read it to my Lord, but if I could ask my Lord to take a moment to look at it.
504.MR JUSTICE KENNETH PARKER: (Pause). Yes.
505.MR GORDON: Then it is applied on the facts at paragraphs 37 and 38. I do not need to go through it, but the judge’s decision was concluded to have been plainly wrong because the judge adopted the same approach that is being suggested to my Lord in this case, which is that you should ignore what the real substance of the dispute and what the parties are seeking to achieve actually is, and you should focus instead on the importance of the process and whether or not the individual should have to, for example, endure the vicissitudes of litigation and so on as a remedy for the lack of reasons.
506.That argument was tried and was rejected in the financial services context in strong terms by the Court of Appeal. Just for my Lord’s note, Black LJ agreed at paragraph 53 and Pill LJ reached the same conclusion on a narrower basis that there was in fact nothing wrong with the reasons which the FSA had given, also a submission which I make here.
507.So, my Lord, as in Willford, the real remedy, in my submission, is compensations say for consequential losses at a higher level than Barclays has offered so far. The remedy for that was a civil claim. That is the real issue between the parties which are Holmcroft and Barclays, not KPMG. What judicial review is being attempted to be used for here is as an inappropriate means of collateral attack, drawing in both KPMG and the FCA. In my submission, that is not a proper use of the process of judicial review, and that those two points are, in my submission, indeed permission points that should lead my Lord to dismiss the claim at that stage.
508.Unless I can assist my Lord any further?
509.MR JUSTICE KENNETH PARKER: No, thank you very much indeed.
510.MS CARSS-FRISK: My Lord, we gratefully associate ourselves with all of the points that have been made by Mr Herberg and Mr Jaffey. I know it is late in the day, but I hope it may assist if I try to briskly identify the key factors that we would say point inexorably against this particular decision being judicially reviewed.
511.Now, looking at the authorities, if there is one thing that is clear it is that there is no one overarching test as to when a decision or a body will be amenable to judicial review. The source of the power is, of course, very important but, as we have heard and we agree, more often than not it will be relevant to look at a number of factors. So this is our little menu of factors that we would particularly highlight.
512.First and foremost, and I am afraid there is no escaping coming back to that, you have the entire contractual source of the power. KPMG’s contract with the bank, the bank’s agreement with the FCA. That is to the extent that one can even talk here about an exercise of power by KPMG. It is their rights and duties, what they had to do ‑‑ all contractual ‑‑ which fit, we say, very well within the ratio of the Aegon case and the other case, the Mooyer case.
513.MR JUSTICE KENNETH PARKER: Yes.
514.MS CARSS-FRISK: One thing that we do highlight in particular in the Aegon case that Mr Herberg took you to is the point that was made that, even if you are talking about a body that is in some way woven into some governmental function, even if you are in that territory, that does not necessarily mean that judicial review would lie if the source of the power is purely contractual. It is important to bear that in mind.
515.MR JUSTICE KENNETH PARKER: Not necessarily, but the difficulty is finding the criteria, because, as I put to Mr Herberg, how do you distinguish it from the Takeover Panel, because the enmeshing with the statutory regulation of the financial markets and the markets for corporate control was quite an important factor.
516.MS CARSS-FRISK: Well, there is a good answer to that, my Lord, which is to look at the factors that really played with the court in the Datafin case. I was going to take up a tiny bit of time if I may taking your Lordship to that, because it will be very apparent to you that the factors there were very different from the sort of thing we are talking about here. So if I may take you to some references in Datafin, that is tab 4 of authorities bundle 1. First of all, I am actually looking at the top left‑hand corner of the pagination, page 826 letters C to D.
“The Panel is a self‑regulating body in the latter sense. Lacking any authority de jure, it exercises immense power de facto by devising, promulgating, amending and interpreting ‘The City Code on Take‑overs and Mergers,’ by waiving or modifying the application of the Code in particular circumstances, by investigating and reporting upon alleged breaches of the Code and by the application or threat of sanctions. These sanctions are no less effective because they are applied indirectly and lack a legally enforceable base.”
517.Then if one looks over the page 827, between letters A and B:
“The principal issue in this appeal, and only issue which may matter in the longer term, is whether this remarkable body is above the law.”
518.Well, as I hope to persuade your Lordship, we are in a very different situation here. If you were to go then to page 828, letter D, one has this:
“Thus far I have made no mention of the facts underlying this application or of the parties, other than the Panel. This is not accidental, but reflects the fact that the major issue of whether the courts of this country have any jurisdiction to control the activities of a body which de facto exercises what can only be characterised as powers in the nature of public law powers does not depend upon those particular facts.”
519.So it was clear to his Lordship there that we were very much concerned with an exercising of public law powers. Carrying on for a little bit, if one goes to page 834, between G and H:
“As I have said, the Panel is a truly remarkable body, performing its function without visible means of legal support. But the operative word is ‘visible’, although perhaps I should have used the word ‘direct’. Invisible or indirect support there is in abundance. Not only is a breach of the Code, so found by the Panel, ipso facto an act of misconduct by a member of the Stock Exchange, and the same may be true of other bodies represented on the Panel, but the admission of shares to the Official List may be withheld in the event of such a breach. This is interesting and significant for listing of securities is a statutory function performed by the Stock Exchange in pursuance of The Stock Exchange (Listing) Regulation 1984, enacted in implementation of EEC Directives. And the matter does not stop there…”
520.Then I am not going to read through the passage which is then quoted, but one gets the flavour and one can pick it up just at letters F and G on page 835:
“The picture which emerges is clear. As an act of government it was decided that, in relation to take‑overs, there should be a central self‑regulatory body which would be supported and sustained by a periphery of statutory powers and penalties wherever non‑statutory powers and penalties were insufficient or non‑existent or where EEC requirements called for statutory provisions.
No one could have been in the least surprised if the Panel had been instituted and operated under the direct authority of statute law, since it operates wholly in the public domain. Its jurisdiction extends throughout the United Kingdom. Its Code and rulings apply equally to all who wish to make take‑over bids or promote mergers, whether or not they are members of bodies represented on the Panel. Its lack of a direct statutory base is a complete anomaly, judged by the experience of other comparable markets world wide.”
521.Then finally, my Lord, if you go to page 838, you get the nub of the reasons between letters F to the end of that page, and then over the page to page 839 to letter B. One sees references, without reading it all, to how this body was without doubt performing a public duty and an important one. The panel was the centrepiece of the regulation of the market; rights of citizens indirectly affected by its decisions; it has a duty to act judicially, et cetera et cetera. Actually, interestingly, right at the end of this passage on page 839 at about letter B, there was also an issue as to whether there might be some remedy in private law, but that was thought not to work. So all going to the question of whether this was just a body that was hugely important but nevertheless, as it was put, “above the law”.
522.Well, here, of course, we are not in a situation where it could possibly be said that KPMG is above the law. Not only do you have of course contractual remedies against KPMG potentially, including such as are available potentially to the FCA as your Lordship has seen, but you have remedies, as Mr Jaffey has just emphasised, available to someone in the position of the claimant. So, as we know, in principle the claimant could have gone to the FOS or could have sought a remedy in court. So we are frankly a very, very long distance away from the kind of overarching concern in Datafin about this immensely powerful body that otherwise would have been, as it were, under no control, where there would have been no effective remedy at all.
523.Now, just going back for a second to that key point about the contractual nature of what KPMG was doing, there is the aspect of KPMG’s own contractual position and that of the bank, but, of course, one must add in also the claimant’s voluntary choice to go to the bank and to say, “I would like a remedy, please,” knowing, as Mr Jaffey has just pointed out, what kind of process it would be meeting if it did go along that route.
524.It is important to note that there is in truth no statutory underpinning for KPMG’s particular function that is being challenged here. The reason I say that is that, of course we know that there was a requirement imposed on the bank by the FCA under section 166, but such a requirement, as we have seen, could only require that there be a skilled person to prepare a report about something. Now, here KPMG were actually doing something in addition to that in relation to the particular complaint that is being made, namely what is alleged by the claimant to be their decision to effectively agree with the offer of recompense that Barclays was minded to make. So that particular function under challenge is not part of the reporting requirement.
525.But in any event, to the extent that the claimant says, “Well, never mind, the fact is that there was a reporting requirement which did have some statutory underpinning,” and that is section 166, to the extent that the claimant would have you ignore the fact that this case is not actually about the reporting function, well then we come back to the important point that Mr Herberg made about, “Well, if KPMG is amenable to JR here simply by virtue of there being a section 166 requirement, then why not anyone else in KPMG’s position? Any skilled person?” And there are indeed a very significant number of such appointments, even in a year. The statistics that I have been able to obtain from my client, the FCA, is that in the year 2014‑2015 there were no fewer than 39 section 166 requirements. And, as it happens, it is also the case that this particular matter was not unique in terms of the FCA thinking it right to make a public statement about a section 166 requirement. I have been told that it is known that there have been at least five such public statements in the last year. I think that is the 2014‑15 year. Now, there may have been more, but that is simply what we have been able to discover since the question was raised this morning.
526.So on any view, we would say, this is not a unique case when is comes to the use of the section 166 power, and there is absolutely, as Mr Herberg said, a very real concern about there being the possibility of judicial review challenge more generally in relation to such appointments.
527.In order, fifthly, looking at our little menu of the factors, your Lordship will recall that in the Hampshire Farmers case, otherwise known as the Beer case, one question that was thought to be very relevant was whether a private body had stepped into the shoes of a public authority. In that case a private company had stepped into the shoes of the local authority in organising the market.
528.MR JUSTICE KENNETH PARKER: Yes.
529.MS CARSS-FRISK: Well, here, there is no suggestion or there could not have been any suggestion that that is what has happened, because ‑‑ and we make this point in our skeleton also ‑‑ the FCA would not in the exercise of any of its public functions undertake the kind of reviewing role that a skilled person such as KPMG undertook here. The FCA would not look routinely at individual cases to review them. That is not its role. So we simply do not have that sort of “stepping into the shoes” scenario. So that is a relevant factor.
530.Sixthly, we do say it is important to remember that there is a clear distinction between an indication where the regulator exercises a statutory power to put in place some sort of compensation scheme ‑‑ could be section 404, could be another power ‑‑ and a situation where effectively the regulated firm says, “All right, I know what you, the regulator, want me to do, and I am going to do it. Fine.”
531.In the latter case, which is our situation here, you cannot sensibly say that the firm, or indeed anyone assisting the firm, such as KPMG, is woven into any sort of governmental function or statutory function. It is a difference in our view. In fact, one can think of an analogy in what is happening when we get annoying phone calls to do with PPI compensation. Now, there, of course, the FCA introduced certain new rules and guidance, but essentially what you have is the banks applying the rules and making offers of compensation in relation to PPI. No one, I would suggest, would think of saying that the banks are somehow there exercising its public function when they decide what offers to make for PPI compensation, and nor would one frankly suggest that if the banks there retain a third party commercial organisation to advise them or help them in getting that compensation right, that that third party would be exercising a public function. We are really materially in that area.
532.MR JUSTICE KENNETH PARKER: Yes.
533.MS CARSS-FRISK: It is a firm that is regulated by a regulator. Nothing strange about that; private firms are regulated by public authorities. They are regulated, they have agreed to do something, one may think in the hope that the regulator therefore will not exercise compulsory powers, and as part of that they have been encouraged to get some independent oversight into what they are doing when they offer compensation to their customers. That is what they have agreed to do, they have KPMG, it is exercising the limited role that is now complained of, but that does not in any way, in our submission, inject the requisite public law element into what KPMG is doing.
534.Focusing seventhly, I think it is, for a moment on what exactly KPMG is meant to be doing, we absolutely agree with what Mr Herberg and Mr Jaffey have said, which is they are not even adjudicating here on compensation. They have a much more limited role, and, moreover, a role that is closely limited by what is in their terms of agreement.
535.There are no public law sanctions ‑‑ this is probably our eighth point ‑‑ there are no public law sanctions here in relation to what KPMG does. There are no public law consequences to what they do. As Mr Jaffey in particular has highlighted, this is all about what a private body should be paying to another private body. That is a very long way away from the Datafin type scenario.
536.Now, of course, it is true that the FCA, in whatever it has done in this scenario, has exercised public functions. That is all the FCA ever does. But that of itself, again, could not possibly make the commercial private organisation, KPMG, now subject to public law duties in this scenario. Quite honestly, if there was an issue about how the independent oversight is meant to work, then that is something that should have been taken up in relation to the design of the scheme. Indeed, as you may have seen from our skeleton argument, someone did have a go at doing that, someone did attempt to judicially review the FCA. It failed at the permission stage, partly on the grounds of delay and partly because it was not thought that it was even arguable there was anything irrational about the scheme. But that has happened. Now, here, there is now an attempt to challenge KPMG when they are doing no more than what they are bound to do under their terms of engagement. As my co‑counsel have so eloquently said, how on earth is the court on judicial review meant to deal with that? How could they possibly be in effect compelled or exhorted to do something other than what their contract obliges them to do?
537.Looking at that point finally, what they are obliged to do, there is one case that your Lordship may just find helpful. It is cited in our skeleton and I think also by Mr Herberg in his. It is the Leveson Inquiry case.
538.MR JUSTICE KENNETH PARKER: Yes.
539.MS CARSS-FRISK: Perhaps I can just give you the reference. It is in the authorities bundle 2, tab 18.
540.MR JUSTICE KENNETH PARKER: Yes.
541.MS CARSS-FRISK: It makes the point which we are all familiar with in a sense, that when it comes to fairness, as in relation to law generally, context is everything.
542.MR JUSTICE KENNETH PARKER: Yes, yes.
543.MS CARSS-FRISK: But, slightly more specifically and therefore particularly relevant here, Toulson LJ, in looking at that challenge ‑‑ it was a challenge to Leveson LJ in his capacity as Chairman of the Inquiry, and it was about a ruling he had made effectively that journalists might be able to give evidence anonymously.
544.MR JUSTICE KENNETH PARKER: Yes.
545.MS CARSS-FRISK: There was an issue about what fairness might require. At paragraph 35, and I am quoting now, it is in our skeleton, Toulson LJ said this:
“A duty of fairness does not exist in a vacuum. … In a case of a professional retainer, the professional person’s duty of care is inexorably tied up with what he is retained to do. … So in the present case, the starting point for any consideration of the Chairman’s duty of fairness is the task which he was appointed to perform under his Terms of Reference.”
546.Well, here, I would say: starting point certainly, to look at KPMG’s terms of engagement; and indeed end point, in the sense that they simply could not be expected to do anything other than what is required by those 12. The terms set effectively what they do. I come back to that key point: if there was a real public law complaint here, it could and should have been made against someone else, but not KPMG.
547.My Lord, may I have a second?
548.MR JUSTICE KENNETH PARKER: Yes.
549.MS CARSS-FRISK: My Lord, unless I can try to assist further, those are our submissions.
550.MR JUSTICE KENNETH PARKER: No, thank you very much.
551.MR GORDON: My Lord, it has been a long day. Could I come to the guts of this, because it has been missed out by each of my learned friends. Could I take your Lordship to page 664 of authorities bundle 2.
552.MR JUSTICE KENNETH PARKER: What is the authority?
553.MR GORDON: It is not an authority.
554.MR JUSTICE KENNETH PARKER: Sorry, yes, it is the agreement.
555.MR GORDON: This is the generic agreement.
556.MR JUSTICE KENNETH PARKER: Yes.
557.MR GORDON: So just to make one thing clear: this has nothing to do in terms of contractual arrangement with the independent reviewer and Barclays. What this is is a regulatory, a vertical regulatory arrangement between the regulator and Barclays. So if one starts with page 664, right at the top, clause 1 under the heading: “Written undertaking”:
“The firm will provide a written undertaking to the FSA at the same time as executing this agreement.”
So that is an undertaking by Barclays. Then if we go to page 668, what we find at letter A, this is part of the undertaking:
“We will carry out a review in accordance with the terms set out in the appendix.”
So we have a straight line from agreement to undertaking to appendix. Then if your Lordship goes to page 674, to the appendix. For the sake of argument, let us take paragraph 312 (Inaudible):
“Before any redress is provided to relevant category B customers, the Skilled Person will review each of the Firm’s assessments… If the Skilled Person does not agree with any of the Firm’s assessments, the Skilled Person will provide the firm with reasons for that disagreement and an explanation of why, in the Skilled Person’s opinion, alternative redress is needed. The Firm will then put forward an alternative redress proposal for the Skilled Person to review. The Firm will not issue a redress determination … until the Skilled Person has agreed with the appropriateness of the redress and the fair and reasonable nature of the Firm’s redress proposal.”
And we see the same thing back in the 3.4. Then one goes to 3.14, page 677:
“In all cases the Firm will issue a final redress determination to each Relevant Category B Customer.”
558.So we derive two propositions from these paragraphs. First of all, the firm has to issue a final redress determination in each case, but it cannot do it until it has the endorsement of the independent reviewer: see clause 3.4 and 3.12. That is not a contractual requirement; it emanates from an undertaking given to the regulator by Barclays.
559.There is a clear line between the regulator and the independent reviewer through Barclays, and the line is that the independent reviewer has a complete full‑stop: no determination can be issued, but the determination has to be issued. It is not open to Barclays, as I think Mr Herberg was submitting ‑‑ it is not open to the firm, to Barclays, not to issue a determination, but it is in the double bind that only when it gets the independent reviewer’s endorsement in terms of fairness, appropriateness, et cetera, can it issue that determination.
560.So we derive from that a number of points. First of all, this is not on any view, having regard to that undertaking, a purely contractual situation. Secondly, that the independent reviewer is not a cipher or a mere observer: he is playing an important role in the proceedings. Thirdly, this is not straightforwardly and uniquely and exclusively a contractual arrangement between Barclays and the reviewer because it comes from an undertaking given not to the reviewer but by Barclays to the regulator, but nonetheless something that binds Barclays. So those three points, in our submission, destroy a number of Ms Carss‑Frisk’s menu items.
561.A number of other menu items are also flawed. One of them goes back to Mr Herberg’s submission about section 166. Your Lordship will have heard many times through the day the argument that if we concede, once we concede that section 166 does not always connote a public law consequence, then our argument is doomed. May I show your Lordship the SUP handbook, not the recent one but the one in force at the time of the appointment. It is the thin sheet with about, I suppose 6 or 8 pages. I do not know if your Lordship has it at the moment?
562.MR JUSTICE KENNETH PARKER: Yes, I have that. Yes.
563.MR GORDON: If I could ask your Lordship to go, not to the very last page, but the penultimate page, which has some tables on it.
564.MR JUSTICE KENNETH PARKER: Yes.
565.MR GORDON: What the court will see, right at the bottom of I think it is 6 of 8, is annex 1, examples of when the FSA may use the skilled person tool.
566.MR JUSTICE KENNETH PARKER: Yes.
567.MR GORDON: So in other words, what this is setting out is five categories of deployment of section 166.
568.MR JUSTICE KENNETH PARKER: Yes.
569.MR GORDON: It is quite interesting to see what the purpose is for each of these uses. It could be used diagnostically. Well, if it is used diagnostically I am not at all sure that we would be submitting that there was a public law dimension. It can be used diagnostically or monitoring. It may depend on the facts there what (Inaudible). Monitoring, preventative, and only at the final part does one get remedial, and only as part of remedial does one get to assist in the design of a customer redress programme.
570.So the toolkit does not treat section 166 indiscriminately or in differently; it has a number of different uses for it, and I emphasise that we are not making the submission that all the uses here, all the categories here, would fall into a public law category. Mr Herberg, when he perhaps slightly mockingly referred to my use of the word “uniqueness” attached it to a press release or a press statement, but it is actually part of the agreement at page 665. Can I show your Lordship again authorities bundle 2, tab 21, page 665. So again, this is the generic agreement, clause 8.:
“This is a unique solution to a specific set of FSA concerns.”
571.So, the agreement itself points to its uniqueness. So that is an agreement which contains in that agreement not an agreement which KPMG is part of, but a clear reference to KPMG, a reference to its being unique and a reference to the duties on the part of, in effect, public law powers on the part of KPMG but actually derived from an undertaking given by Barclays to the regulator.
572.Now, when one marries all these points up, in our submission ‑‑ perhaps there is a further point I should make, which is this: unless the opposition in this case, the elective opposition, have a knock‑out blow, we should succeed. You do not begin to get to a knock‑out blow if you set up a menu, and then say, “Well, in some cases you have this and in other cases you have had this.” This is not my learned friend’s Ms Carss‑Frisk’s approach. Of course we are not stepping into the shoes in the sense of one of the cases involved, but we are nonetheless part of a system of regulation.
573.But once you get to the stage of weighing this and that, you are into a full hearing. The real question for your Lordship is whether the opposition have shown that this is purely a private law arrangement with no relevant and public law dimension. We say that plainly has not been shown. It is not shown by the fact that the argument, or our concession on 166 is plainly flawed. It is not shown because it is not all to do with a contract; it is not shown because we are not claiming a quasi‑judicial function but we are claiming elementary fairness.
574.Mr Herberg at times appeared to be going back to the pre‑Ridge v Baldwin days, because pre Ridge v Baldwin we did have concerns about whether something was administrative or judicial or quasi‑judicial. But nowadays it is axiomatic that fairness can cut across to a number of bodies. There is absolutely nothing in trying to set up a target which we are not aiming at and then knocking it down.
575.So what is it that is said against us? That still remains. There is no real opposition on the “but for” test, and my learned friend, I think, accepted, Mr Herberg accepted the “but for” test. Ms Carss‑Frisk did not make submissions on that. And so we arrive at the mantra of contract. That is the only argument against us, and it does not even stack up in contract terms because, quite apart from the public law dimension that I have already alluded to, we have clauses in the generic agreement, clauses 3.4, 3.12 and 3.14.
576.In reality, the independent reviewer uniquely is playing a very important role because of the specific documentation in this case. It is playing a role which is part contract but mostly, in the respects in which it matters, deriving from an undertaking given by Barclays to the regulator that it, Barclays, will not act unless and until the independent reviewer has fully endorsed the proposal being put forward. That requires evaluation on the part of the independent reviewer, and it is a collateral power given by the undertaking, not by the contract.
577.Now, my Lord, if all that is right, we say that at least in terms of arguability we succeed on amenability. In terms of alternative remedy, we say that it is a very unpromising position to reach, when Mr Herberg says he is not taking the point ‑‑ I have misunderstood his argument ‑‑ it is merely, as I understand it, that alternative remedy is one of the indicia or menu lists of amenability. He is not saying that if we get through the judicial review amenability threshold we should have to pursue an alternative remedy.
578.Ms Carss‑Frisk does not even raise the point, in her skeleton or in her submissions, and so only Mr Jaffey raises the point. But he raises it by reference to a case, Willford, which is not even on point because in Willford there genuinely was an alternative remedy, and that alternative remedy was the Tribunal appeal system.
579.MR JUSTICE KENNETH PARKER: It was a classic case where you have it in a tax field and so on.
580.MR GORDON: Exactly.
581.MR JUSTICE KENNETH PARKER: Where people try to go through the side door when they can go to the Tribunal.
582.MR GORDON: Exactly, and that is why counsel for the FCA, I think Mr Briggs, said that there were exceptional cases where you could go for judicial review but this was not one of the exceptional cases.
583.MR JUSTICE KENNETH PARKER: It is often put in terms of Parliamentary intent: if there is a scheme set up by Parliament which enables you to have effectively an appeal, that is what you should be doing and not coming to this court.
584.MR GORDON: Exactly, whereas this was set up as a total alternative to, and regulatorily devised as an alternative and as a cheaper redress system than anything else, and that is why it was created. So we say that there is nothing in alternative remedy.
585.When it comes to the substance of the fairness arguments, Mr Jaffey attempted a demolition, a Kugal[?] demolition job, by reference I think to three factors: first of all, he said there was a fair process; secondly, he said we had been told everything we needed to be told; and thirdly, he said that we did not have any extra points in our detailed statement of grounds.
586.Well, the answer to each of those is, if one think that is a two‑line or a two‑page response to a detailed point of principle which was set out by the solicitors, Mishcon de Reya, in their letter following the initial decision, a two‑page response which does not even deal with the point of principle: “You have got the wrong man”, and does not explain why they have, but simply adds an extra two points about breaches of covenants, if one thinks that is a fair process or a reasonable process, then of course everything that Mr Jaffey maintains may flow. But we say we were not shown a large number of documents; we did not have the chance to comment on them; the wrong target was selected, because what really mattered here was the cash flow coming in, which would have been there but for paying for the mis‑sold products. You have to balance the cash flow, that absent cash flow, against what are said to be the deficiencies and liquidity of an irrelevant body. That is what we say was wrong.
587.Now, if that was wrong, there are breaches of both fairness and logic, but we say that the independent reviewer charged with the role he had, or was charged with under 3.4/3.12, and the public inability of Barclays to do anything to make any decision without that full role being played, creates duties in the independent reviewer because the independent reviewer cannot complete that process satisfactorily, fairly and logically unless there has been some form of clear access by us to ensure that the process is fair.
588.So, if that process is not fair, or if it is arguably unfair, and the reviewer has given no reasons whatever for his conclusions ‑‑ he could have done in these proceedings ‑‑ given that he is not merely a cipher, he is not merely reporting to the FCA, the FCA gets that report, but gets it in the context of the reviewer having to look at individual cases. And if something has gone wrong in an individual case, it is bound to come into the report. He would have to put it into his report.
589.I think there was one reference which I should have gone to, and it is at bundle 2 of the authorities bundle.
590.MR JUSTICE KENNETH PARKER: Yes.
591.MR GORDON: Page 725. It comes from the Treasury Select Committee report. I am not pulling it up for the moment, because I have a quote of it in the note, but I will read the words because this relates to some of the evidence:
“In a number of cases, the explanations provided by the banks in redress meeting have been judged to be insufficient by the independent reviewers. In these cases, the banks have had to hold the meeting again or provide a more comprehensive written explanation.”
592.Now, that is historically what evidence was given, and that is what some reviewers have done. So to say as Mr Herberg said, we would submit with respect rather unattractively, “Well, actually, the contract prevents us from being fair”, well, it does not actually, or if it does it does not matter, because what the reviewer can do, consistent with the undertaking given by Barclays to the regulator, is to say, “Well, yes, fine. We have got the contract but we cannot do anything, we cannot actually say this is fair, unless you do A, B and C, and these are our reasons for saying that.”
593.So that is why we say that all the objections against our submissions at this stage are misconceived to this extent. Whether on a full hearing they would be proved to be right or wrong is another matter, but they are definitely not knock‑out blows.
594.My Lord, those are my submissions.
595.MR JUSTICE KENNETH PARKER: Thank you very much.