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ABSTRACT
Self-regulation relies on private ordering, whereby private actors make and enforce rules governing their conduct. Private ordering is not outside the reach of public law principles, making the certainty of private ordering dependent on the predictability of whether public law principles apply. This article examines the London Stock Exchange's self-regulation of AIM (Alternative Investment Market), arguing that doctrinal uncertainty over the availability of judicial review undermines private ordering by hindering informed ex ante bargaining and contracting. Public law uncertainty imposes transaction costs on self-regulatory actors who must reappraise or revise their contracts to account for unpredictable public law obligations, such as when the LSE doubled the length of the AIM Disciplinary Handbook in 2018 following an unsuccessful claim for judicial review. This article concludes that regulation on AIM is not likely sufficiently public to be amenable to judicial review, which would increase certainty of contracting in the financial system.
Acknowledgements
I would like to thank John Armour and Luca Enriques for their review of earlier drafts and for their stimulating and constructive supervision of my doctoral dissertation, which formed the genesis of this article. I am also appreciative of helpful comments and encouragement from Justice Ashley Black, Timothy Endicott, Konrad Yearwood, and two anonymous reviewers. I am thankful to be supported in part by funding from the Social Sciences and Humanities Research Council of Canada. All errors are my own.
Disclosure statement
No potential conflict of interest was reported by the author(s).
Notes on contributor
Jonathan Chan is a DPhil (PhD) candidate in Law at the University of Oxford and a Lecturer in Law at Mansfield College, University of Oxford. He is called to the Bar of Ontario and practised corporate and securities law with a leading law firm in Toronto, Canada.
Notes
1 Under English law, judicial review is ‘the process by which the legality of the exercise of public functions may be challenged’, or ‘a procedure whereby the courts are able to determine the lawfulness of the exercise of executive power’. This differs from other jurisdictions where judicial review concerns courts’ review of the lawfulness or constitutionality of legislation. See Andrew Le Sueur and others, Public Law: Text, Cases, and Materials (UK 2019), 4th ed., at §19(1)(a), §19(3)(g); and see Neil Parpworth, Constitutional & Administrative Law (UK 2018), 10th ed., at §13.1. Judicial review (rather than appeal) is a supervisory jurisdiction concerned with the legality of how public power is exercised, not the substantive merits of the decision. See Mark Elliott and Robert Thomas, Public Law, 3rd ed., at §11.2; and see Timothy Endicott, Administrative Law (UK 2018), 4th ed., at §15.5.2. In the UK, ‘modern judicial review is grounded in a judicial philosophy in which – save in exceptional circumstances – only vires in the narrow sense or breach of essential procedural requirements justifies judicial intervention’. TT Arvind and Stirton Lindsay, ‘The Curious Origins of Judicial Review’ (2017) 133 The Law Quarterly Review 91, 114.
2 Judicial review is not a remedy in itself, but a procedure to obtain remedies such as quashing orders (invalidating a decision, often accompanied by remitting it to the decision-maker), prohibiting and mandating orders, declarations, and injunctions. Courts may only make money awards such as damages or restitution where satisfied that the compensation would have been awarded under ordinary proceedings, and not to compensate for the abuse of public power. The remedies available through judicial review are set out in the Senior Courts Act 1981, s. 31 and the Civil Procedure Rules, Section 54. See also Sir William Wade and Christopher Forsyth, Administrative Law (UK 2014), 11th ed., at p. 532.
3 R. v Secretary of State for the Environment, Ex parte Hammersmith and Fulham London Borough Council and Others [1991] 1 A.C. 521, 561 (HL). Lord Donaldson MR's football analogy is discussed in Neil Parpworth, Constitutional & Administrative Law (UK 2018), 10th ed., at §13.7.
4 AIM and the LSE both belong to the London Stock Exchange Group plc (LSEG). LSEG is a publicly traded company on the LSE. ‘Regulation on AIM’ in this article refers to the hard law rules and enforcement governing AIM and its market participants, such as the AIM Rules for Companies, AIM Rules for Nominated Advisers, and AIM Disciplinary Procedures and Appeals Handbook. It also includes, along with the term ‘AIM decisions’, discretionary exercises of power by (1) the Exchange in regulating AIM, (2) internal adjudicating bodies such as the AIM Executive Panel (AEP) and AIM Executive Appeals Panel (AEAP), both comprised of Exchange staff, and (3) external adjudicating bodies such as the AIM Disciplinary Committee (ADC) and the AIM Disciplinary Appeals Committee (ADAC). Any references to ‘AIM regulation’ do not refer to the LSE staff team known as ‘AIM Regulation’ that is responsible for regulatory compliance with the aforementioned AIM Rules.
5 The median market capitalisation of AIM-listed issuers was £26.9 million in May 2020. The mean market capitalisation at this time was £118.7 million, which is not representative of the average AIM-listed company because a mere 2.4% of issuers (i.e. the largest 20 companies) constitute 37.7% of the equity value of all AIM-listed companies. The distribution is even more skewed on the Main Market of the LSE, where a mere 1.5% of issuers (i.e. the largest 17 companies) constitute 44.9% of the entire equity value of the Main Market in May 2020.
6 LSEG, ‘Annual Report 2018’, p. 32, <https://www.lseg.com/investor-relations/overview-group-activities/annual-report-2018>; LSE, ‘The World's Most Successful Growth Market’, <https://www.londonstockexchange.com/raise-finance/equity/aim>. See also Grant Thornton UK LLP, ‘Economic Impact of AIM’ (April 2015), p. 3, <http://www.londonstockexchange.com/companies-and-advisors/aim/publications/documents/gteconomicimpactofaim2015.pdf>. In 2019, the number of listed companies on AIM dropped below 900 for the first time since 2003.
7 R. (on the application of Beer) v Hampshire Farmers Markets Ltd [2003] EWCA Civ 1056; [2004] 1 W.L.R. 233, at [16]. ‘The question whether the decision of a body is amenable to judicial review requires a careful consideration of the nature of the power and function that has been exercised, to see whether the decision has a sufficient public element, flavour or character to bring it within the purview of public law’. The seminal example of how this test contributes to uncertainty in the self-regulation of financial markets is the English Court of Appeal decision R. (on the application of Holmcroft Properties Limited) v KPMG LLP [2018] EWCA Civ 2093; [2019] 2 B.C.L.C. 477. Holmcroft applies the test for sufficient public element in Beer, as discussed in Section II below.
8 For a discussion on the network externalities of corporate contracting, see Michael Klausner, ‘Corporations, Corporate Law, and Networks of Contracts’ (1995) 81 Virginia Law Review 757, 774–789. See Ibid., at p. 777 for a discussion of some of the costs that firms face due to uncertain contractual terms, which include ‘the possible expense of litigating the application of the term, the expense of planning for multiple contingencies that may occur depending on possible interpretations of the term, and the opportunity cost of not taking actions that would enhance firm value but that nonetheless entail a risk of violating the term.’
9 See discussion in Section III on R. (on the application of ZAI Corporate Finance Ltd) v AIM Disciplinary Committee of the London Stock Exchange plc [2017] EWHC 778 (Admin) and R. (ZAI Corporate Finance Ltd) v AIM Disciplinary Committee of the London Stock Exchange plc [2017] EWCA Civ 1294; [2017] Bus. L.R. 2139.
10 See discussion in Section II on proceedings under the Human Rights Act 1998 (HRA 1998), which makes it unlawful for public authorities (defined as ‘any person certain of whose functions are functions of a public nature’) to act in ways that are incompatible with the rights and fundamental freedoms contained in the European Convention on Human Rights.
11 See Section 6 of the Financial Services and Markets Act 2000.
12 R. (on the application of Holmcroft Properties Limited) v KPMG LLP [2018] EWCA Civ 2093; [2019] 2 B.C.L.C. 477.
13 See discussion of the pre and post-Datafin tests in Colin D Campbell, ‘The Nature of Power as Public in English Judicial Review’ (2009) 68 The Cambridge Law Journal 90.
14 R. v Panel on Takeovers and Mergers Ex p. Datafin Plc [1987] QB 815; [1987] 2 W.L.R. 699, at 825–826.
15 Ibid., at 818–819.
16 Ibid., at pp. 827–828.
17 Ibid., at p. 847.
18 Ibid., at p. 838.
19 Ibid., at p. 852.
20 R. v Jockey Club ex parte Aga Khan [1993] 1 W.L.R. 909 (CA); [1993] 2 All E.R. 853, at 931.
21 Mark Elliott and Jason Varuhas, Administrative Law: Text and Materials (UK 2017), 5th ed., at §§4.5.2–3.
22 Holmcroft Properties [2018] EWCA Civ 2093; [2019] 2 B.C.L.C. 477, at [47], [56].
23 The decision-maker must have a public character to be amenable to judicial review, however private bodies can satisfy this condition when ‘harnessed by the state for the purpose of carrying out some administrative function’. See Kevin Costello, ‘The “Public Element” Test for Amenability to Judicial Review: R. (on the Application of Holmcroft Properties Ltd) v KPMG LLP’ (April 2020) Public Law 229, 229. Unlike the analysis for amenability to judicial review, claims brought under the HRA 1998 require the court to determine whether the body is a ‘public authority’. This requires a body by body inquiry, rather than a decision by decision inquiry when judicial review is typically sought. However, there is a ‘close correlation’ between the tests for a public authority under the HRA 1998 and amenability to judicial review. See Neil Parpworth, Constitutional & Administrative Law (UK 2018), 10th ed., at §13.33. Given the close correlation in doctrinal tests, and because HRA 1998 proceedings and judicial review claims are often brought in conjunction, Section II references both judicial review and s. 6 HRA 1998 jurisprudence.
24 Alexander Williams, ‘Public Functions and Amenability: Recent Trends’ (2017) 22 Judicial Review, 15.
25 ‘It is now firmly established that the mere fact that the source of power is contract does not of itself necessarily result in the conclusion that public law principles are inapplicable’. See R. (on the application of Holmcroft Properties Limited) v KPMG LLP [2016] EWHC 323 (Admin); [2017] Bus. L.R. 932 at [23]–[24]. See also Datafin [1987] QB 815, at 847.
26 R. (on the application of Beer) v Hampshire Farmers Markets Ltd [2003] EWCA Civ 1056; [2004] 1 W.L.R. 233, at [16].
27 Ibid., at [16].
28 Kevin Costello describes this test as follows: ‘A transaction between the state and the individual, which is no different to a transaction which might be engaged in between two private actors, is not amenable to judicial review’. See Costello, note 23 above, at pp. 229–230.
29 R. (Weaver) v London & Quadrant Housing Trust [2009] EWCA 587; [2010] W.L.R. 363, at [119] (per Rix LJ). See also Williams, note 24 above, at p. 16.
30 This has been described as the ‘but-for’ test – see Campbell, note 13 above, at p. 92. The but-for test is clearly illustrated in Datafin, where ‘there was evidence that the Department of Trade and Industry had decided not to regulate take-overs by statutory instrument and to rely instead on the panel's enforcement of the City Code on Take-overs and Mergers’. See Jockey Club [1993] 1 W.L.R. 909 (CA), at 919.
31 Jockey Club [1993] 1 W.L.R. 909 (CA), at 933. Cf. Williams discussion of judges writing disapprovingly of ‘using judicial review to “patch up” remedies against non-state defendants’, including Hoffman LJ's dicta in Jockey Club. See Williams, note 24 above, at pp. 21, 24.
32 R. v Birmingham International Airport Limited [2009] EWHC 1913; [2009] L.L.R. 727, at [63].
33 Holmcroft Properties [2018] EWCA Civ 2093; [2019] 2 B.C.L.C. 477, at [52].
34 R. v Cobham Hall School (ex parte) [1998] Ed. C.R. 79 (QB); [1998] ELR 389, at 397–398. Dyson J cites commentary from De Smith, Woolf & Jowell, Judicial Review of Administrative Action, at para 3-031.
35 See YL v Birmingham City Council and others (Secretary of State for Constitutional Affairs intervening) [2007] UKHL 27; [2008] 1 A.C. 95, at [116]. Although the Supreme Court decision in YL concerned the test for constituting a public authority under the HRA 1998, the factors enumerated for a public function are relied upon in judicial review cases such as Holmcroft Properties [2018] EWCA Civ 2093 and R. (on the application of Liberal Democrats and another) v ITV Broadcasting Ltd [2019] EWHC 3282 (Admin), [2020] 4 W.L.R. 4.
36 R. (West) v Lloyd's of London [2004] EWCA Civ 506; 2 C.L.C. 649, at [31].
37 Scott Baker LJ wrote that ‘whether a decision has a sufficient public law element to justify the intervention of the Administrative Court by judicial review is often as much a matter of feel, as deciding whether any particular criteria are met’. (emphasis added) See R. (Tucker) v Director General of the National Crime Squad [2003] EWCA Civ 57; [2003] I.C.R. 599, at [13]. Lord Woolf CJ, in a case involving whether a body was a public authority under the HRA 1998, wrote: ‘As is the position on applications for judicial review, there is no clear demarcation line which can be drawn between public and private bodies and functions’. See Poplar Housing Association Ltd v Donoghue [2001] EWCA Civ 595; [2002] Q.B. 48, at [66].
38 Civil Procedure Rules, s 54.1(2)(a)(ii). Emphasis added.
39 See R. v Cobham Hall School (ex parte) [1998] Ed. C.R. 79 (QB); [1998] ELR 389, at 397–398.
40 See Simon Boyes, ‘Sport in Court: Assessing Judicial Scrutiny of Sports Governing Bodies’ (July 2017) Public Law 363.
41 See R. (LB Lewisham) v AQA, [2013] EWHC 211 (Admin); [2013] E.L.R. 281.
42 Timothy Endicott, Administrative Law (UK 2018), 4th ed., at §15.5.2. In practice, judicial control of private abuse of power is accomplished via declaration under CPR 40.20 or CPR 8. See Endicott's discussion of Mullins v McFarlane [2006] EWHC 986; [2006] L.L.R. 437.
43 Campbell, note 13 above, at p. 115.
44 Mark Elliott and Jason Varuhas, Administrative Law: Text and Materials (UK 2017), 5th ed., at §4.5.3.
45 Campbell, note 13 above, at 115–116.
46 Neil Duxbury, ‘The Outer Limits of English Judicial Review’ (April 2017) Public Law 235, p. 241.
47 Williams advances a number of criticisms of the monopoly power test, including that it would prevent efficient breach of contract, it is unclear why monopoly power is ‘distinctively public’ and should be regulated via judicial review instead of through private law or legislation, bodies may involuntarily acquire monopoly power (e.g. competitors exit the industry), and as a doctrinal matter courts have routinely denied judicial review to bodies exercising monopoly power. See Alexander Williams, ‘Judicial Review and Monopoly Power: Some Sceptical Thoughts’ (Oct 2017) 133 Law Quarterly Review 656, at pp. 18–27. Williams’ stricter return to the source of power test includes an additional requirement that the statutory power under review ‘is a power to act in the public interest rather than simply in the interests of the power-holder’. Ibid., at p. 10.
48 Lord Justice Woolf and others, De Smith's Judicial Review (UK 2018), 8th ed., at §3–065.
49 Campbell, note 13 above, at p. 91.
50 Jockey Club [1993] 1 W.L.R. 909 (CA), at 933.
51 Williams, note 24 above, at p. 16.
52 Lord Woolf and others, note 48 above, at §3–065.
53 See Birmingham Airport [2009] EWHC 1913, at [41]. See also Jockey Club [1993] 1 W.L.R. 909 (CA), at 924.
54 Birmingham Airport [2009] EWHC 1913, at [67].
55 Jockey Club [1993] 1 W.L.R. 909 (CA), at 932. ‘I would also accept that a body such as the Take-over Panel or I.M.R.O. [Investment Management Regulatory Organisation] which exercises governmental powers is not any the less amenable to public law because it has contractual relations with its members’.
56 Birmingham Airport [2009] EWHC 1913, at [28].
57 Ibid., at [29].
58 Ibid., at [41].
59 Ibid., at [63]. See also AQA [2013] EWHC 211 (Admin), at [139]. In AQA, a company responsible for awarding GCSE grades (under regulatory supervision by Ofqual, the public regulator) was found to be amenable to judicial review despite being a private body acting pursuant to contract. The court found that determining GCSE grades was a public function given the ‘very significant public importance potentially affecting the life chances of those who are candidates for the examination’.
60 Duxbury, note 46 above, at pp. 245–246. See also note 2 above, which makes clear that judicial review is not a remedy in itself and lists the discretionary remedies courts may award. Unlike successful private law claims, successful judicial review claimants are not entitled to a remedy, reflecting the difference (vis-à-vis private law) that public law remedies are only granted when in the public interest. The most common remedy granted to judicial review claimants is a ‘quashing order’ rendering the initial decision null and void and remitting the matter back to the decision-maker. When the decision is invalidated on procedural grounds, the original decision-maker is free to arrive at the same outcome again, so long as the requirements of procedural fairness are upheld. See Neil Parpworth, Constitutional & Administrative Law (UK 2018), 10th ed., at §13.4.1, §13.4.2.
61 As Justice Howell QC wrote in R. (McIntyre) v Gentoo Ltd [2010] EWHC 5 (Admin); [2010] 2 P. & C.R. DG6, at [30]: ‘Judicial review is not a procedure to be used to provide a party to a contract with a better remedy for a breach of contract than contract law itself provides’.
62 The ‘AIM Rules’ refer to the latest versions of the AIM Rules for Companies, AIM Rules for Nomads, and AIM Disciplinary Procedures and Appeals Handbook.
63 R. (ZAI Corporate Finance Ltd) v AIM Disciplinary Committee of the London Stock Exchange plc [2017] EWHC 778 (Admin), at [1].
64 AIM Disciplinary Procedures and Appeals Handbook (May 2014), Rule C.22.1. ‘The AIM Disciplinary Committee will usually conduct hearings in private, although an AIM company or nominated adviser which is subject to proceedings has the right to ask for such hearing to be conducted in public. An AIM company or nominated adviser requiring such hearing to be conducted in public shall notify the Chairman at least five business days prior to commencement of the hearing’. Emphasis added.
65 R. (ZAI Corporate Finance Ltd) v AIM Disciplinary Committee of the London Stock Exchange plc [2017] EWCA Civ 1294; [2017] Bus. L.R. 2139, at [11]. To the author's knowledge, the ADC has never conducted a hearing in public.
66 ZAI [2017] EWHC 778 (Admin), at [20].
67 Ibid., at [20]–[23].
68 Ibid., at [18] & [24].
69 ZAI Appeal, [2017] EWCA Civ 1294; [2017] Bus. L.R. 2139, at [18].
70 Ibid., at [11].
71 Ibid., at [11].
72 Ibid., at [5].
73 This is permitted under Rule 29 of the AIM Rules for Nominated Advisers (July 2018).
74 Ibid., at Rule 29.
75 The May 2014 Disciplinary Procedures and Appeals Handbook contained 8,435 words, and the revised October 2018 Disciplinary Procedures and Appeals Handbook ballooned to 16,660 words. The 2014 Handbook contained 124 ‘rules’, counting each numbered sub-clause in the Handbook as one rule (e.g. C1.1, C1.2, etc.). In comparison, the 2018 Handbook contained 243 ‘rules’. The author counted each of the six appendices, as well as the glossary, as one rule each. The author excluded rules A1–4, A6–8, and A11–15 from the 2018 Handbook rule count because these rules were contained but not counted in the 2014 Handbook since they were not codified as numbered clauses.
76 The ZAI judicial review claim took place in April 2017, with judgment delivered that month. The Exchange published a discussion and general rule consultation paper in July 2017. The ZAI appeal decision was delivered on 30 August 2017. The significant expansion to the Disciplinary Handbook came into effect on 1 October 2018. The influence of ZAI on the Exchange can be observed in the accompanying notice published with the revised Disciplinary Handbook, where the Exchange referenced the ZAI appeal decision. ‘The Exchange notes that the Court of Appeal has supported the rationale for conducting ADC hearings in private … ’ See AIM Notice 54, p. 3, <https://www.londonstockexchange.com/companies-and-advisors/aim/advisers/aim-notices/aim-notice-54.pdf>. The author's assessment that the ZAI judicial review claim strongly influenced the Exchange to roughly double the length of the disciplinary rules governing AIM also stems from discussions with an anonymous interviewee possessing considerable professional experience relating to AIM.
77 This does not imply that public law uncertainty was the only contributing factor to the LSE revamping the AIM disciplinary rules. The author argues elsewhere that ZAI also triggered the disciplinary rule overhaul because of reputational harm posed to the LSE and the desire to prevent similar reputationally damaging cases in the future. See Jonathan Chan, ‘The Dynamics of Rule Evolution and Stock Exchange Self-Regulation’ (2020) (working paper prepared for Oxford Business Law Workshop, available upon request).
78 See Mid Essex Hospital Services NHS Trust v Compass Group UK and Ireland Ltd (t/a Medirest) [2013] EWCA Civ 200; [2013] B.L.R. 265, at [105]. Jackson LJ writes ‘there is no general doctrine of ‘good faith’ in English contract law, although a duty of good faith is implied by law as an incident of certain categories of contract’. See also HG Beale and Joseph Chitty, Chitty on Contracts (UK 2018), 33rd ed., at §1.044.
79 Socimer International Bank Ltd v Standard Bank London Ltd [2008] EWCA Civ 116; [2008] Bus L.R. 1304, at [66].
80 Beale and Chitty, note 77 above, at §1.057. Courts implying a contractual term of good faith is highly contextually dependent: see Greenclose Ltd v National Westminster Bank Plc [2014] EWHC 1156 (Ch); [2014] 1 C.L.C. 562, at [150].
81 Braganza v BP Shipping Ltd [2015] UKSC 17; [2015] 1 W.L.R. 1661, at [29]. Lady Hale of the UK Supreme Court writes in Braganza that ‘the contractual implied term is drawing closer and closer to the principles applicable in judicial review’.
82 Ibid., at [18]. This is because the decision-maker faces a more pronounced conflict of interest in exercising discretion fairly that affects the weaker party's rights.
83 Horkulak v Cantor Fitzgerald [2004] EWCA Civ 1287; [2005] I.C.R. 402, at [46]-[47].
84 Greenclose Ltd [2014] EWHC 1156 (Ch); [2014] 1 C.L.C. 562, at [150]. Justice Andrews writes: ‘So far as the “Good Faith” condition is concerned, there is no general doctrine of good faith in English contract law and such a term is unlikely to arise by way of necessary implication in a contract between two sophisticated commercial parties negotiating at arms’ length’.
85 This conclusion is moderated by the observation that on occasion courts have implied contractual good faith terms in commercial contexts – see Yam Seng Pte Ltd v International Trade Corp Ltd [2013] EWHC 111 (QB); [2013] 1 All E.R. (Comm) 1321, at 526.
86 The Rules of the London Stock Exchange set out the requirements applicable to LSE member firms, which include investment firms and credit institutions such as banks, brokers, proprietary traders, and market makers. Member firms gain direct access (lowest latency) to the LSE's trading platforms. The rules cover trading (on and off the Exchange), market making, clearing and settlement, and compliance and default of member firms. The member firm rules provide that ‘The Exchange shall not be liable in damages for anything done or omitted in the discharge of these rules unless it is shown that the act or omission was done in bad faith’. See London Stock Exchange, ‘Rules of the London Stock Exchange’ (1 July 2019), at p. 3, <https://docs.londonstockexchange.com/sites/default/files/documents/rules-lse.pdf>.
87 Andrew Lidbetter, ‘Commercial Regulation: Judicial Review: Hardly Looking or Looking Hard?’ (2016) 21 Judicial Review 31, at [57].
88 Holmcroft Appeal [2018] EWCA Civ 2093; [2019] 2 B.C.L.C. 477.
89 Holmcroft Appeal [2018] EWCA Civ 2093, at [4].
90 R. (on the Application of Holmcroft Properties Limited) v KPMG LLP [2016] EWHC 323 (Admin); [2017] Bus. L.R. 932, at [38]–[39].
91 Holmcroft [2016] EWHC 323 (Admin), at [23].
92 Ibid., at [44]. In the same paragraph, Elias LJ and Mitting J also write that: ‘courts are reluctant to find amenability to judicial review merely because a private body is carrying out functions at the behest of a public body which, if performed by that public body, would be subject to public law principles’.
93 This reasoning extends from R. v The Insurance Ombudsman Bureau ex parte Aegon Life [1995] L.R.L.R. 101; [1994] C.L.C. 88 (Div Court), where even though the self-regulatory body was ‘effectively delegated’ dispute adjudication powers that would have been subject to judicial review if carried out by the delegating body (because the powers stemmed from statute), Rose LJ and McKinnon J found that the body was not subject to judicial review because its source of power stemmed from contract.
94 Holmcroft Appeal [2018] EWCA Civ 2093, at [52].
95 Ibid., at [52].
96 Ibid., at [54].
97 Ibid., at [35].
98 Kevin Costello has criticised the Holmcroft Appeal decision on the basis that courts should not discriminate between public and private law claims because an ‘individual requires the protection provided by access to judicial review just as much when an administrative undertaking has been instituted by the state to determine matters of a private law nature as when an administrative undertaking has been instituted to determine matters of a public nature’. See Costello, note 23 above, at pp. 232–233. Costello further remarks that this leaves a ‘gap in protection’, as the claimant in Holmcroft was ultimately left without redress in public law and private law since it did not possess a contract with KPMG. See Costello, note 23 above, at pp. 234–235. It is worth noting that Holmcroft Properties did have remedies in contract against Barclays, but these were statute-barred by the time of KPMG's decision under the regulatory scheme. See Holmcroft Appeal [2018] EWCA Civ 2093, at [61].
99 R. (on the application of West) v Lloyd's of London [2004] EWCA Civ 506, 2 C.L.C. 649, at [4]–[7].
100 Ibid., at [8].
101 Ibid., at [29].
102 Ibid., at [31].
103 Ibid., at [32].
104 Jockey Club [1993] 1 W.L.R. 909 (CA), at 916. ‘It is wrong to seize on any single feature or test to determine whether a body or a decision is susceptible to judicial review. That is a question to be determined in the light of all the circumstances’.
105 The FSMA 2000 prohibits all person from carrying out ‘regulated activity’ in the UK unless they are an ‘authorised person’ or an ‘exempt person’ – see Financial Services and Markets Act 2000, s. 19(a)(b). The LSE is an exempt person because of the FCA's order recognising it as a Recognised Investment Exchange under Section XVIII of the FSMA 2000, and as such the LSE is able to carry out regulated activity in operating AIM as a ‘prescribed market’.
106 ZAI [2017] EWHC 778 (Admin), at [2].
107 For a relatively recent example see R. (Baker Tilly UK Audit LLP) v Financial Reporting Council [2015] EWHC 1398 (Admin); [2015] A.C.D. 120, at [32]. The Financial Reporting Council (FRC) was found amenable to judicial review despite having a contractual source of power because it ‘perform[s] public law functions in substance … ’. Justice Singh emphasised the ‘statutory underpinning’ of the FRC in the Companies Act, and that ‘but for’ the FRC the government would need to regulate in the public interest. Cf. R. (Lewin) v Financial Reporting Council and others 2018 EWHC 446 (Admin); [2018] 1 W.L.R. 2867 where a director of an AIM-listed company unsuccessfully sought judicial review of a decision by the FRC to publish a report of disciplinary tribunal. The decision concerned the lawfulness of publishing findings of misconduct against the claimant without providing the opportunity respond or provide evidence. Davies J found that the tribunal's publication was not an unjustified interference with the claimant's right to respect for privacy under Art. 8 of the European Convention on Human Rights.
108 See Justice Andrew Baker's discussion of ‘the amenability in principle of the decisions of the FCA to judicial review’ in Burford Capital Limited v London Stock Exchange Group plc [2020] EWHC 1183 (Comm), at [180].
109 See FCA Handbook, REC 2.14–2.16 and FSMA 2000 (Recognition Requirements for Investment Exchanges and Clearing Houses) Regulations 2001 (SI 2001/995), at paras 7–9 (‘Recognition Requirements Regulations’). The requirement to have effective arrangements for resolving complaints does not include complaints about the content of its rules or complaints concerning disciplinary decisions that may be appealed.
110 SME growth markets are a category of multilateral trading facility (MTF) under MiFiD II. The LSE applied to the FCA (as its home competent authority) to register AIM as an SME growth market, which occurred on 3 January 2018. For the MiFID II provisions on SME growth markets, see Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (‘MiFID II’), at Article 33. For a background to the SME growth market regime, see European Securities and Markets Authority, ‘Consultation Paper (On the Functioning of the Regime for SME Growth Markets)’ (May 2020) <https://www.esma.europa.eu/sites/default/files/library/esma70-156-2061_mifid_ii_consultation_paper_on_sme_gms_under_mifid_ii_and_mar.pdf>.
111 See FCA Handbook, REC 2.16A, at para 9E; FCA Handbook, MAR 5.10. A UK RIE operating an MTF (i.e. the LSE operating AIM) must comply with Title II, Chapter I of MiFID II which is incorporated domestically in the Schedule to the Recognition Requirements Regulations, paras 9A–9H, and the FCA Handbook, REC 2.16A. The requirements (for a UK RIE operating an MTF) in the FCA Handbook (REC 2.16A) cover order execution, membership rules, disclosure obligations, and restrictions for SME growth markets on listing financial instruments already trading on other SME growth markets. Some of the MiFID II requirements applicable to the LSE in operating AIM include having appropriate risk management arrangements and systems (Article 19(3)(a)) and having ‘effective systems and controls aiming to prevent and detect market abuse’ under the Market Abuse Regulation (No 596/2014) (Art 33(3)(g)), but do not include the same procedural fairness requirements applicable to RIEs under the Recognition Requirements Regulations discussed at note 109 above.
112 In R. (United Company Rusal plc) v The London Metal Exchange [2014] EWHC 890 (Admin); [2014] A.C.D. 87, a claimant succeeded in the first instance in a judicial review claim against the London Metal Exchange (LME), alleging that the LME's rule consultation process and decision to adopt a rule were procedurally unfair. Justice Phillips wrote that ‘It is not in dispute that the LME is subject to the principles of public law and amenable to judicial review’, and quashed the decision implemented by the LME. See LME [2014] EWHC 890, at [3]. On appeal, Lady Justice Arden found that the judge erred in the first instance by over-extending the public law principle of the duty of fairness. Arden LJ overturned the initial judgment and held that the LME's rule consultation and adoption was lawful and fair. See R. (United Company Rusal plc) v The London Metal Exchange [2014] EWCA Civ 1271; [2015] 1 W.L.R. 1375. However, neither party on appeal contested the LME's amenability to judicial review – Arden LJ notes that the initial judgment carefully explained the factual and regulatory background, and that neither party on appeal claimed the initial judgment was inaccurate in these respects. See LME Appeal [2014] EWCA Civ 1271, at [5].
113 Datafin [1987] QB 815, at 851. Emphasis added.
114 The Hansard report of the House of Lords debate introducing the Stock Exchange (Listing) Regulations 1984 presents one of the first clear articulations of the inherent tension in the public/private law character of UK stock exchange regulation. Lord Bruce of Donington recognises that the proposed EU legislation would confer on the Exchange public law powers normally exercised by the Department of Trade and Industry. Lord Bruce acutely observes that this increase in public law power is not accompanied by an increase in public accountability, save for the Exchange's reputation. See HL Deb. vol. 451 cols. (18 May 1984) 1610–9, <https://perma.cc/U9VT-TYQS>.
115 In practice, if the LSE stopped regulating AIM tomorrow, the regulatory functions necessary to avoid market collapse would need to be performed by a government body such as the FCA (absent another willing private body with suitable expertise). This does not mean that regulating AIM indefinitely is a public function; rather, a sudden halt to the operation of AIM could cause significant negative externalities and is significant enough to the public interest to not permit its immediate collapse. Neil Duxbury suggests that a private decision does not necessarily invoke the public interest by virtue of impacting many people; rather, ‘public interest is the interest which citizens have in being able to challenge decisions which they consider to be based on an improper exercise of public power’. Along this narrower conception of the public interest, a regulatory decision by the Exchange affecting many people (e.g. shutting down AIM) would not necessarily engage the public interest. See Duxbury, note 46 above, at p. 240. Cf. with Birmingham Airport [2009] EWHC 1913, where it was relevant to the public interest that the decision impacted ‘significant numbers of the public at large’. See Birmingham Airport [2009] EWHC 1913, at [63].
116 The ESMA register at May 2020 shows that AIM had 755 SME issuers, which constituted of 91% of all SME issuers in the UK. The only other UK SME growth market was the NEX Exchange with 74 SME issuers, while Property Partner Exchange had 1 SME issuer but is not technically an SME growth market (it is an MTF targeting SMEs). The ESMA register shows 1,715 SME issuers listing equity on European SME growth markets, meaning that AIM only constitutes 44% of all SME issuer equity listings in Europe. When accounting for MTFs that target SMEs (but are not registered as SME growth markets), AIM's market share of SME issuer equity listings falls to 31%. See ESMA Consultation Paper (On the Functioning of the Regime for SME Growth Markets), note 110 above, at p. 15.
117 See discussion of the LSE's public law obligations in relation to AIM at note 111 above. The view presented above connects the nature of power test more closely to the source of power test by limiting the exercise of ‘public functions’ to those grounded in public law obligations, as Alexander Williams also advocates (see note 47 above). There will inevitably be differing views on the nature of what should constitute a public function, since ‘the meaning of a “public” function will depend heavily on one's political impressions as to the proper role of the state’. See Williams, note 24 above, at p. 17. There will also inevitably be a tension between fairness and certainty/predictability. The view advocated for here has the advantage of being highly predictable while avoiding, in the case of private bodies exercising alleged de facto public power, courts unpredictably drawing upon public law principles to ‘essentially [ask] whether one private individual should be made to act fairly for the benefit of another or others’. See Williams, ‘Judicial Review and Monopoly Power’, note 47 above, at pp. 15–16.
118 Albeit through the Takeover Panel's relations with the Stock Exchange and a ‘devolution of power through the Bank of England and the Department of Trade and Industry’. See Datafin [1987] QB 815, at 822. See also note 116 above for discussion of other trading venues in the UK.
119 See YL [2007] UKHL 27, at [116]. Lord Mance wrote: ‘In providing care and accommodation, Southern Cross acts as a private, profit-earning company … The private and commercial motivation behind Southern Cross's operations does in contrast point against treating Southern Cross as a person with a function of a public nature’.
120 See Williams, note 24 above, at 19. Despite the Jockey Club not being found amenable to judicial review in R. v Jockey Club ex p. Massingberd-Mundy [1993] 2 All E.R. 207 (Div Ct), Roch J's remarks (in obiter) that the Jockey Club ‘has near monopolistic powers in an area in which the public generally have an interest and in which many persons earn their livelihoods’ as a factor supporting the Jockey Club's public nature.
121 AIM Rules for Nominated Advisers (July 2018), Rule 4. Emphasis added.
122 Ibid.
123 In AQA [2013] EWHC 211 (Admin), the significance of GCSE grades in the lives of students contributed to Elias LJ finding that the decisions of private awarding organisations (who operate under the regulatory supervision of the Office of Qualifications and Examinations Regulation) were amenable to judicial review. See AQA, at [139]. Cf. TH v Chapter of Worcester Cathedral [2016] EWHC 1117 (Admin), at [76]. Justice Coulson writes: ‘First, the fact that the decisions in question are said to have had a significant impact on the claimant (and I accept that they have) is irrelevant to the question of amenability’ (citing R v Chief Rabbi (Ex parte Wachmann) [1992] 1 WLR 1037; [1993] 2 All E.R. 249). Justice Coulson also writes at [76]: ‘Secondly, the argument that judicial review must be available because otherwise a claimant would be left without a remedy is also immaterial, because the administrative court is not there simply to fill in the gaps left by statute or the common law … ’ (citing Jockey Club [1993] 1 W.L.R. 909 (CA), at 932–933).
124 ZAI [2017] EWHC 778 (Admin), at [2].
125 Primary responsibility for making and enforcing the listing rules.
126 See also note 86 above.
127 Certain provisions of the Companies Act 2006 apply to ‘overseas companies’ conducting business in the UK – see Section 34. One notable requirement for UK AIM companies is compliance with Section 21A of the Companies Act 2006, which requires keeping a register of people with significant control.
128 AIM companies incorporated in the UK or with their principal place of business in the UK must comply with Chapter 5 of the DTRs. DTR 5 contains rules on the disclosure of major shareholdings and voting rights. UK issuers on AIM must disclose shareholding positions at the same thresholds as issuers on the Official List, which begins upon acquisition of 3% of voting rights and requires notification upon every subsequent 1% increase or decrease.
129 The Prospectus Regulation (EU) (2017/1129) repealed and replaced the Prospectus Directive (2003/71/EC) framework. AIM companies are subject to the Prospectus Regulation requirement that offers of transferable securities to the public require a prospectus, as was formerly required under the Prospectus Directive (2003/71/EC), and the FCA is the competent authority with respect to the Prospectus Regulation Rules. In practice, most fundraising on AIM relies on prospectus exemptions in order to reduce costs by avoiding an FCA approved prospectus, instead of requiring an admission document approved by the LSE under the AIM listing rules. The Prospectus Regulation requires a prospectus for the admission of securities to a ‘regulated market’ in an EU member state, but since AIM ceased to be a ‘regulated market’ in 2004, companies are not required to produce an FCA approved prospectus upon admission to AIM (unless the listing is accompanied by an offering of securities to the public).
130 The Market Abuse Regulation (MAR) applies to issuers with securities trading on regulated markets (such as the Main Market) and MTFs (such as AIM). The FCA is the competent authority for monitoring and enforcing the MAR regime in the UK. This means that the FCA (rather than the LSE) is responsible for prosecuting market abuse such as insider dealing (Article 14) or market manipulation (Article 15). Prominent MAR requirements for AIM companies include disclosing ‘inside information’ (Article 17), providing insider lists to the FCA upon request (AIM has benefited from an exemption to maintain insider lists since January 2018 due to its SME growth market status) (Article 18), and requirements for persons discharging managerial responsibilities (PDMRs) involving transaction notifications and closed periods (Article 19).
131 Issuers with a premium listing on the Main Market of the LSE are required to comply with the UK Corporate Governance Code (CGC) published by the Financial Reporting Council, or explain why they do not. Issuers with a standard listing on the Main Market are not required to comply or explain with the UK CGC. As of September 2018, all AIM companies have to comply with a ‘recognised corporate governance code’ adopted by the board of directors, or explain why they do not. There is no definition of a recognised code, consistent with AIM's principles-based regulatory approach. In 2018, 89% of AIM issuers complied with the Quoted Companies Alliance Corporate Governance Code, 6% complied with the UK Corporate Governance Code, and 5% complied with other governance codes. See Quoted Companies Alliance, ‘Which Corporate Governance Codes Do AIM Companies Apply?’ (Dec 2018) <https://www.theqca.com/news/briefs/175536/whichcorporate-governance-codes-do-aim-companies-apply-.thtml>.
132 The Takeover Code has a statutory basis in Section 28 of the Companies Act 2006, and its rules governing takeover bids and merger activity are administered by the Takeover Panel. The Takeover Code applies to all offers for companies trading on a regulated market (e.g. the Main Market) or an MTF (e.g. AIM) that have registered offices in the UK, Channel Islands, and Isle of Man. It also applies to all AIM and Main Market companies deemed by the Takeover Panel ‘to have their place of central management and control in the United Kingdom’ (Takeover Code, Rule 3(a)(i)–(ii)). The Takeover Code does not apply to foreign companies listed on AIM, but does apply in certain circumstances (depending on shared regulatory jurisdiction) to foreign companies listed on the Main Market with registered offices in other European Economic Area (EEA) member states (Takeover Code, Rule 3(a)(iii)).
133 The Short Selling Regulation (SSR) applies to persons short selling securities trading on EEA ‘trading venues’, which include the Main Market and AIM. The FCA is the competent authority responsible for enforcement of the SSR in the UK.
134 Holmcroft [2016] EWHC 323 (Admin), at [28].
135 Holmcroft Appeal [2018] EWCA Civ 2093, at [52].
136 Although private law remedies were inadequate in the Burford Capital [2020] EWHC 1183 decision discussed below, there was no need to analyse the nature of power to determine whether the LSE and FCA owed Burford a public law duty. The LSE has public law duties to ensure ‘effective systems and controls aiming to prevent and detect market abuse on that market as required under the Market Abuse Regulation’ – see the FCA Handbook, MAR 5.10.2(7). The FCA is a public body that is amenable to judicial review – see Burford Capital [2020] EWHC 1183, at [180].
137 AIM Disciplinary Procedures and Appeals Handbook (October 2018), §A14.
138 Ibid., at §A13.
139 Panel on Takeovers and Mergers v David Cunningham King [2018] CSIH 30; 2018 S.L.T. 1205, at [14].
140 Ibid., at [13]. The Takeover Appeal Board is independent from the Takeover Panel, and ‘ … its Chairman and Deputy Chairman have usually held high judicial office … Other members of the Board usually have knowledge and experience of takeovers and the Code … ’
141 Burford Capital [2020] EWHC 1183, at [5]–[14].
142 Burford Capital [2020] EWHC 1183, at [16]–[18]. Spoofing and layering are unlawful trading practices whereby a trader submits orders without the intention to execute the trade, instead seeking to move the price in one direction (by misrepresenting supply and demand), cancel its orders (which were never entered in good faith), and profit by buying at the now lower price (or selling at the now higher price) on the other side of the order book.
143 Burford received anonymised trading data from the LSE, which led it to believe (alongside the export reports commissioned on the trading data) that market manipulation had occurred. Burford sought a Norwich Pharmacal order (NPO) disclosing trading identifiers including a full list of the names of persons submitting each buy and sell order on the two trading days in question. The NPO sought both the names of the brokers and institutions who were members of the trading venue, and the names of the clients on whose behalf the trades were executed. See Burford Capital [2020] EWHC 1183, at [22]. Courts have equitable jurisdiction to grant NPOs when relief cannot be obtained under the Civil Procedure Rules – the purpose is to compel third parties (e.g. the LSE) to produce documents or information disclosing the identity of an alleged wrongdoer (e.g. a market manipulator) when a claimant has suffered harm but does not know the wrongdoer's identity.
144 ‘On this claim, Burford must persuade the court that … the Stock Exchange provide Burford with the Participant Identity details so that Burford could seek to pursue a private prosecution rather than seek a judicial review of the FCA's conclusion that there is nothing to prosecute. Justice would not so demand’. See Burford Capital [2020] EWHC 1183, at [175]. ‘Burford does not need Norwich Pharmacal relief to challenge that conclusion, if there are grounds for doing so, through judicial review’. Ibid., at [177]. ‘The means by which the law provides for the protection of Burford's relevant interests is, ultimately, the amenability in principle of the decisions of the FCA to judicial review’. Burford Capital [2020] EWHC 1183, at [179]–[180].
145 The public law uncertainty in Burford Capital did not concern the amenability of judicial review, as it did in Holmcroft Appeal [2018] EWCA Civ 2093. Rather, it concerned whether market manipulation under the Market Abuse Regulation could ground a private right of action. Burford had advanced several private law causes of action, most notably that a MAR violation could directly found a private claim in tort. See Burford Capital [2020] EWHC 1183, at [158]. Justice Andrew Baker held that it could not. The limited remedies that can be obtained through judicial review are of little help to a company that may have been victim to market manipulation (see also notes 2 and 60 above). To take the most common remedy, a quashing order invalidating the FCA's decision would not begin to compensate a claimant for financial loss suffered, unless accompanied by a private right of action claiming for damages or restitution. It is therefore hard to see how ‘judicial review provides fair and sufficient protection of Burford's interests as alleged victim of market manipulation with no private law cause of action against the manipulators’. Burford Capital [2020] EWHC 1183, at [180].