AQR Capital Management, LLC v The London Metal Exchange
| Jurisdiction | England & Wales |
| Judge | Adrian Beltrami |
| Judgment Date | 23 December 2022 |
| Neutral Citation | [2022] EWHC 3313 (Comm) |
| Docket Number | Case No: CL-2022-000483 |
| Court | Queen's Bench Division (Commercial Court) |
[2022] EWHC 3313 (Comm)
Mr. Adrian Beltrami KC
Sitting as a Judge of the High Court
Case No: CL-2022-000483
IN THE HIGH COURT OF JUSTICE
KING'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Paul McGrath KC and Sophia Hurst (instructed by Kirkland & Ellis International LLP) for the Claimants
James McClelland KC and Emily MacKenzie (instructed by Hogan Lovells International LLP) for the Defendants
Hearing date: 16 December 2022
Approved Judgment
I direct that no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Adrian Beltrami KC
This judgment was handed down by the judge remotely by circulation to the parties' representatives by email and release to The National Archives. The date and time for hand-down is deemed to be Friday 23 December 2022 at 10:30am.
Adrian Beltrami KC:
By Claim Form issued on 8 September 2022, the Claimants seek the following relief:
“The Applicants apply under section 33(2) of the Senior Courts Act 1981 and CPR 31.16 for an order that the Respondents give Norwich Pharmacal and/or pre-action information and disclosure in relation to the decision and reasons for the decision by the First and/or Second Respondent to suspend and thereafter cancel all trades executed on or after 00.00 UK time on 8 March 2022 and defer delivery of all physically settled nickel contracts due for delivery on 9 March 2022, including oral discussions and correspondence both internally and with relevant third parties, to the extent that such information and documents are in their custody, possession or control.”
There is also an application notice of the same date, seeking the same relief. Relief is accordingly sought both under the equitable jurisdiction described in Norwich Pharmacal Co v Customs and Excise Comrs [1974] AC 133 and pursuant to CPR 31.16. Strictly speaking, I imagine that, insofar as the Norwich Pharmacal jurisdiction is being invoked, I am being asked to grant final judgment on the Claim Form, whereas the resort to CPR 31.16 is a separate application outside existing proceedings. At any rate, I shall treat the claim and the application together and refer generally to the Claimants and the Defendants.
The matter was fixed for hearing in the Friday Commercial Court list, with a time estimate of two hours. The 27 authorities cited by the Claimants, together with the 16 cited by the Defendants (even with some duplicates) signalled that the time estimate was more than ambitious. Apparently important arguments were truncated and, even then, it was not possible to give judgment on the day. This is accordingly my reserved judgment.
The application was supported by the 1 st and 2 nd witness statements of Richard Matthew Boynton, dated 7 September 2022 and 21 November 2022 respectively, and opposed by the 1st witness statement of Alexander Charles Sciannaca dated 31 October 2022.
Introduction
The Claimants are a group of separate investment firms. The First Defendant (the LME) is an unlimited company incorporated in England and Wales. It is a subsidiary of LME Holdings Ltd which, on 6 December 2012, was acquired by Hong Kong Exchanges and Clearing Ltd ( HKEx). The LME is a Recognised Investment Exchange under the Financial Services and Markets Act 2000 ( FSMA), regulated by the Financial Conduct Authority. It is governed by and subject to the LME Rules and Regulations, as set out in the applicable LME Rulebook. It is one of the world's largest metal trading markets. The Second Defendant ( LME Clear) is the clearing house for the LME and a central counterparty for all LME Clearing Members and their trading activity.
Both the LME and LME Clear are public bodies for the purposes of section 6 of the Human Rights Act 1998 ( HRA) and their decisions are amenable to judicial review. As recognised public bodies, they are also entitled to the statutory immunity granted under FSMA s. 291. As a result, and save in respect of unlawfulness under HRA s. 6(1), they cannot be liable in damages for anything done in the discharge of their regulatory functions unless it is shown that the act or omission was in bad faith.
The Decisions
The events which have given rise to the present application concern trading on the LME nickel market in March 2022. Each of the Claimants is said to have held nickel positions in that market at that time. The events were well publicised and, at least insofar as not in dispute, for present purposes may be shortly summarised:
a. In late February/early March 2022, the price of nickel on the LME market began to increase amidst fears that the Russian military invasion of Ukraine would affect global supplies.
b. The evidence on the application describes the scale of the price rises by reference to public information or information reported in the press. I do not know whether the precise detail will be in dispute, but this does not matter for present purposes. Taking the information from Mr Boynton's 1 st statement:
i. Between 25 February 2022 and 4 March, the 3 month closing price increased from USD 24,700 per metric tonne ( pmt) to USD 29,800 pmt.
ii. On 7 March 2022, the closing price reached a high of USD 48,078 pmt.
iii. On 8 March 2022, the 3 month nickel price had risen still further, surpassing USD100,000 pmt by the early morning.
c. At 08.15 on 8 March 2022, the LME published Notice 22/052, which announced that nickel trading on LME venues was being suspended with immediate effect (the Suspension). This was said to be “ following further unprecedented overnight increases in the 3 month nickel price”. The Notice explained further:
“ The LME, in close discussion with the Special Committee, has been monitoring the LME market and the effect of the evolving situation in Russia and Ukraine. It is evident that this has affected the nickel market in particular, and given price moves in Asian hours this morning, the LME has taken this decision on orderly market grounds.”
d. Sometime later on 8 March 2022, the LME then published Notice 22/053, which stated as follows:
“ The LME has been monitoring the impact on the LME market of the situation in Russia and the Ukraine, as well as the recent low stock environment and high pricing volatility environment observed in various LME base metals and in particular Nickel. With immediate effect, and following the suspension of the LME Nickel market announced in Notice 22/052, the LME (acting where required through the Special Committee) has determined that it is appropriate in the circumstances to take the following actions in respect of physically settled Nickel Contracts: (i) cancel all trades executed on or after 00.00 UK time on 8 March 2022 in the inter-office market and on LME select until further notice ( Affected Contracts)…
“The current events are unprecedented. The LME is committed to working with market participants to ensure the continued orderly functioning of the market. The suspension of the Nickel market has created a number of issues for market participants which need to be addressed. This Notice is intended to address the most pressing of those issues. Further communications will be issued during the source of today, including regarding the process for reopening the market.”
e. The Claimants describe the effect of the above as the Cancellation. The Defendants refer to it as the Wind back. It may be that on some future occasion this difference carries a legal significance but it does not do so on the present application and I shall adopt the Claimants' term purely as a matter of convenience. I refer also to the Suspension and the Cancellation together as the Decisions.
f. On 10 March 2022, the LME published Notice 22/057 which gave “ further information” on the Decisions:
“7. Throughout the recent days, the LME has been monitoring closely the impact of the evolving situation in Russia and Ukraine and, in particular, the recent low-stock environment and high pricing volatility in the Nickel market. During Monday 7 March, significant upward price movements were observed. However, the LME considered that trading activity up to and including close of trading on Monday evening had been orderly.
“8. During the early hours of trading on the morning of Tuesday 8 March, Nickel prices moved up significantly in a short period of time. It became clear that pricing in the early hours trading did not reflect the underlying physical market and that the Nickel market had become disorderly. The LME therefore took the decision, in consultation with LME Clear, to suspend trading in all Nickel contracts with effect from 08:15 UK time (Notice 22/052).
“9. Given the extreme price moves and thin trading volume during early hours trading, the LME also took the decision (Notice 22/053), in the interests of market stability and integrity, to cancel all trades executed on or after 00:00 UK time on 8 March in the inter-office market and on LMEselect. Cancellations were made retrospectively in order to take the market back to the last point at which the LME could be confident that the market was operating in an orderly fashion and that prices reflected the underlying physical market – i.e. the close of the previous trading session.
“10. This was in part due to the LME's conclusion that the significant price moves during the early hours trading activity had created a systemic risk to the market, including in relation to margin calls, which if LME had not acted would have closed at levels far in excess of those ever experienced in the LME...
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